Grupa LOTOS Annual Report 2015

FY2015 Annual Report · Grupa LOTOS

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LADENBURG THALMANN
FINANCIAL SERVICES INC.

ANNUAL REPORT FOR YEAR
ENDED DECEMBER 31, 2015

April 8, 2016

Dear Fellow Shareholder:

Ladenburg drove signiﬁcant growth in 2015,

increasing revenues 25% compared to the prior year,
including strong recurring revenue of 74% in our Independent Brokerage and Advisory Services (IBD)
business. Our strategy has been to develop a proﬁtable IBD and wealth management business along with our
more volatile, but potentially lucrative, investment banking and capital markets business. Our strategy has
been successful and Ladenburg has experienced substantial growth. We now have $1.15 billion in annual
revenues, approximately 4,000 ﬁnancial advisors and $125 billion of client assets. 2015 results were fueled by
IBD acquisitions and solid growth in advisory fees. While the market for equity capital raises for small and
mid-cap public companies has been challenging recently for our investment bank, we continue to see
opportunities to build market share in 2016 across all our businesses.

We have never been more positive about Ladenburg’s direction. In fact, during 2015, the Company
acquired 5.7 million shares of its common stock in open market purchases. The Board of Directors and senior
leadership team, major shareholders in the company, are aligned with other investors in building long-term
shareholder value. Below we provide a review of Ladenburg’s business developments and ﬁnancial highlights
for 2015 and discuss our strategic positioning for future success.

2015 Overview

•

Revenues increased 25% to a record $1.2 billion in ﬁscal 2015.

Advisory fee revenues increased 34.6% year-over-year, while investment banking revenues decreased
25.2%.

2015 EBITDA, as adjusted, was $43.6 million, a decrease of 29% from the prior-year period,
primarily attributable to our investment banking and insurance brokerage businesses.

Shareholders’ equity grew to $376 million at year end.

In 2015, we repurchased 5,673,415 shares of our common stock at a cost of approximately
$16.4 million, representing an average price per share of $2.88.

By the end of 2015, we had approximately $125 billion in client assets − an increase of 15% from
approximately $108 billion at December 31, 2014.

2015 recurring revenues, consisting of advisory fees, trailing commissions, cash sweep fees and
other
IBD business, up from
approximately 71% in 2014.

represented approximately 74% of

from our

revenues

fees,

Our investment banking group participated in 70 underwritten offerings that raised approximately
$9.1 billion, and placed 18 registered direct and PIPE offerings that raised an aggregate of
approximately $310 million, for clients in healthcare, biotechnology, energy and other industries.

Ladenburg’s internal wealth management division, Ladenburg Thalmann Asset Management (LTAM),
had approximately $2.1 billion of assets under management and more than 15,000 client accounts at
year end.

Ladenburg’s Independent Brokerage and Advisory Services (IBD) Business

Revenues in Ladenburg’s core IBD business increased 26.8% compared to 2014. During 2015, we
worked to integrate three new additions to the Ladenburg family − two independent broker-dealer ﬁrms,
Seattle-based KMS Financial Services, and Knoxville-based Securities Service Network, as well as Highland

Capital Brokerage, a leader
life insurance products headquartered in
Birmingham, Alabama − bolstering our position in, and our commitment to, rapidly growing sectors of the
ﬁnancial services industry.

in the wholesale distribution of

Since entering the IBD business in 2007, Ladenburg has become an innovator in the network model. We
operate each of our IBD ﬁrms under its own talented management team, which reﬂects our recognition that
each has a unique culture and particular strengths. With our network of approximately 4,000 independent
ﬁnancial advisors, which we are committed to operate in an ethical and socially responsible manner, we are
well positioned to meet the demands of over a million American families. As trusted advisors, we offer
leading ﬁnancial services to clients across the nation. We have experienced continued growth in this sector
fueled by the differentiated set of tools that we provide to our advisors, access to the resources of our sister
ﬁrms, including Premier Trust, Ladenburg Thalmann Asset Management, our investment bank, Ladenburg
Thalmann & Co. Inc., and now Highland Capital. Together, this is what we refer to as the ‘‘Ladenburg Wealth
Management Advantage’’. Total retirement assets in the U.S. are projected to grow 6.5% per year through
2017, with growth anticipated to be ongoing. We believe we are well positioned to capitalize on the growth of
the population requiring investment advice by providing exemplary advisory services.

While we remain ﬁrmly committed to our network model, management has worked hard over the past
several years to take advantage of the scale we have created. This is occurring both through sharing
intellectual capital and best practices across the ﬁrms as well as achieving revenue and expense synergies. We
believe that these synergies will contribute meaningfully to improving our operating margins through focus on
building shared services in areas not directly visible to our advisors such as technology, accounting, insurance,
revenue sharing, procurement and other back office functions. We continue to invest in adding key talent at
the corporate and subsidiary levels, and made several important hires in 2015, to support these efforts and
allow us to remain competitive as industry leaders.

In the spirit of evolving our suite of products for our advisors to complement our more traditional wealth
management services, we recently announced the launch of $ymbilSM − a self service digital
investment
platform that matches clients of Ladenburg-affiliated advisors to a diversiﬁed portfolio consistent with their
personal risk tolerance. $ymbil allows clients to fund their accounts and start investing in minutes with a
minimum investment of $500. Through this program, we are helping advisors meet the growing demand for
services that incorporate the best of both worlds − automation and human insight − enabling access to efficient
client registration and account administration. We are committed to ensuring Ladenburg’s place at
the
forefront of innovation, and we will continue to provide solutions such as $ymbil to empower our advisors to
broaden their client relationships and sharpen their competitive edge.

There are tens of millions of Americans that rely on independent ﬁnancial advisors, and it is critically
important that our industry stands up to guard their best interests. That is why we publicly stated our concerns
over the impact that the Department of Labor’s proposed new ﬁduciary rule would have on access to quality,
affordable ﬁnancial advice. Now that the ﬁnal DOL rule has been issued, we are hard at work within our ﬁrms
together with industry organizations and partners to achieve the best outcome.

Ladenburg’s Investment Banking and Capital Markets Business

2015 proved to be a challenging year for our investment banking and capital markets businesses.
Continued volatile market conditions resulted in a decline of equity capital raises for small and mid-cap public
companies compared to 2014. This pattern continued in the ﬁrst quarter of 2016, but we are hopeful that the
market will stabilize as the year progresses. We will continue to try to strategically broaden the scope of
products and services available to our clients, and we remain positive about our pipeline for 2016, and
beyond.

Across key industries such as healthcare, biotechnology, energy and others, in 2015, our 17 investment
bankers participated in 70 underwritten offerings that raised approximately $9.1 billion and placed 18
registered direct and PIPE offerings that raised an aggregate of approximately $310 million.

We’ve made strategic additions to our team in focus areas such as research and institutional sales and
trading personnel, enabling us to provide our clients with the right resources to reach their full potential.
Additionally, we are pleased to have broadened our research coverage universe to include more than 250
companies.

Financial Details and Stock Repurchase Program

Net loss attributable to the Company for 2015 was $11.2 million, compared to net income attributable to
the Company of $33.4 million in 2014. Net loss available to common shareholders, after payment of preferred
dividends, was $39.3 million or ($0.21) per basic and diluted common share in 2015, compared to net income
available to common shareholders, after payment of preferred dividends, of $16.2 million or $0.09 per basic
and $0.08 per diluted common share in 2014. The 2015 results included approximately $35.8 million of
non-cash charges for depreciation, amortization and compensation, $9.2 million of amortization of retention
and forgivable loans, $5.2 million of interest expense, $0.3 million of loss on extinguishment of debt and
$0.5 million of income tax beneﬁt; the 2014 results included approximately $28.9 million of non-cash charges
for depreciation, amortization and compensation, $11.0 million of amortization of retention and forgivable
loans, $7.0 million of interest expense, $0.5 million of loss on early extinguishment of debt and $23.3 million
of income tax beneﬁt, primarily resulting from the Highland and KMS acquisitions and the reversal of the
Company’s deferred tax asset valuation allowance. 2015 EBITDA, as adjusted, was $43.6 million, compared
to $61.2 million in 2014.

The IBD sector continued to drive high recurring revenues, which consist of advisory fees, trailing
commissions, cash sweep fees and certain other fees. Recurring revenues represented approximately 74% of
revenues from our IBD business in 2015, compared to recurring revenues of approximately 71% for 2014.

During 2015, Ladenburg repurchased 5,673,415 shares of its common stock at a cost of approximately
$16.4 million, representing an average price per share of $2.88. Since the inception of our stock repurchase
program in March 2007, Ladenburg has repurchased over 20,870,000 shares at a total cost of approximately
$42.3 million, including purchases of 7,500,000 shares outside its stock repurchase program.

Empowering Women in Finance

This year we hosted our fourth annual Ladenburg Institute of Women & Finance (LIWF) symposium in
Chicago. This event has proven to be an excellent resource for educational opportunities and networking
support to advisors affiliated with our independent broker-dealers. We’re thrilled to host this event that truly
advances the agenda for women in ﬁnance. The conference brings together top women ﬁnancial advisors from
across Ladenburg’s independent brokerage and advisory ﬁrms to empower them with new strategies for
promoting business growth and personal achievement. As we have in previous years, LIWF also introduced
new mentors and mentees through the ‘‘LIFT’’ Mentoring Program, whereby younger advisors and career
changers are given the opportunity to learn and beneﬁt from the experience of more seasoned advisors
throughout the year, setting their own agendas to speak and meet regularly.

Industry Involvement and Extraordinary Public Service

Over the last several years, Ladenburg has worked closely with the Financial Services Institute (FSI) and
its expansive network to advocate for industry best practices and advance its important mission. This year we
had the honor of announcing that Dick Lampen was elected as FSI’s 2016 Vice Chair and 2017 Chair.
Through Dick’s leadership role, we look forward to supporting FSI in ensuring that all individuals have access
to competent and affordable ﬁnancial advice, products and services.

As we look ahead, we’re pleased with Ladenburg’s position as an industry leader and are conﬁdent in our
ability to generate sustainable shareholder value. We will continue to opportunistically explore all avenues to
support and grow our businesses.

We’d like to thank all of those who play an integral part in making Ladenburg the ﬁrm it is today. Our
success is due in large part to your continued commitment and dedication to the company, and we truly value
our relationship with you all.

Sincerely,

Phillip Frost, M.D.
Chairman of the Board

Richard J. Lampen
President & Chief Executive Officer

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2015
Commission File Number 1-15799

LADENBURG THALMANN FINANCIAL SERVICES INC.

(Exact Name Of Registrant As Speciﬁed In Its Charter)

Florida
(State or other jurisdiction of
incorporation or organization)

4400 Biscayne Boulevard, 12th Floor
Miami, Florida
(Address of principal executive offıces)

65-0701248
(I.R.S. Employer
Identiﬁcation Number)

33137
(Zip Code)

(305) 572-4100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, par value $.0001 per share

8.00% Series A Cumulative Redeemable Preferred Stock,
Liquidation Preference $25.00 per share

NYSE MKT

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities

Act. Yes □ No (cid:3)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the Exchange

Act. Yes □ No (cid:3)

Indicate by check mark whether the registrant: (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle
such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes (cid:3) No □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:3) No □

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant’s knowledge, in deﬁnitive proxy or information statement incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler or a smaller
reporting company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act.
Large accelerated ﬁler □

Smaller reporting company □

Accelerated ﬁler (cid:3)

Non-accelerated ﬁler □
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Exchange Act). Yes □ No (cid:3)
As of June 30, 2015 (the last business day of the registrant’s most recently completed second ﬁscal quarter), the aggregate
market value of the registrant’s common stock (based on the closing price on the NYSE MKT on that date) held by non-affiliates of
the registrant was approximately $364,720,888.

As of March 7, 2016, there were 183,555,620 shares of the registrant’s common stock outstanding.

Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference from the deﬁnitive Proxy
Statement for the 2016 Annual Meeting of Shareholders to be ﬁled with the Securities and Exchange Commission no later than
120 days after the end of the Registrant’s ﬁscal year covered by this report.

Documents Incorporated by Reference:

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LADENBURG THALMANN FINANCIAL SERVICES INC.

Form 10-K

TABLE OF CONTENTS

PART 1

Item 1.

Business

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Properties

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .

Item 14.

Principal Accountant Fees and Services

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Item 15.

Exhibits and Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

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PART I

ITEM 1. BUSINESS.

This business description should be read in conjunction with our audited consolidated ﬁnancial
statements and accompanying notes thereto appearing elsewhere in this annual report, which are incorporated
herein by this reference.

General

We are a diversiﬁed ﬁnancial services company engaged in independent brokerage and advisory services,
investment banking, equity research, institutional sales and trading, asset management services, wholesale life
insurance brokerage and trust services through our principal subsidiaries, Securities America, Inc. (collectively
with related companies, ‘‘Securities America’’), Triad Advisors, Inc. (‘‘Triad’’), Securities Service Network,
Inc. (‘‘SSN’’), Investacorp, Inc. (collectively with related companies, ‘‘Investacorp’’), KMS Financial Services,
Inc. (‘‘KMS’’), Ladenburg Thalmann & Co. Inc. (‘‘Ladenburg’’), Ladenburg Thalmann Asset Management Inc.
(‘‘LTAM’’), Highland Capital Brokerage, Inc. (‘‘Highland’’), and Premier Trust, Inc. (‘‘Premier Trust’’). We
acquired Highland and KMS in 2014 and we acquired SSN in 2015. We are committed to establishing a
signiﬁcant presence in the ﬁnancial services industry by meeting the varying investment needs of our clients.

Through our acquisitions of Securities America, Triad, SSN, Investacorp and KMS, we have established a
leadership position in the independent broker-dealer industry. During the past decade, this has been one of the
fastest growing segments of the ﬁnancial services industry. With approximately 4,000 ﬁnancial advisors
located in 50 states, we have become one of the largest independent broker-dealer networks. We believe that
we have the opportunity through acquisitions, recruiting and internal growth to continue expanding our market
share in this segment over the next several years. Since 2007, our plan has been to marry the more stable and
recurring revenue and cash ﬂows of the independent broker-dealer business with Ladenburg’s traditional
investment banking, capital markets, institutional sales and trading and related businesses.

Ladenburg’s traditional businesses are generally more volatile and subject to the cycles of the capital
markets than our independent broker-dealer subsidiaries, but historically have enjoyed strong operating
margins in good market conditions. Our goal has been to build sufficient scale in our independent brokerage
business, with the accompanying more steady cash ﬂows it can produce, so regardless of capital market
conditions, we as a ﬁrm can generate signiﬁcant operating cash ﬂow to create value for our shareholders.

The appealing growth proﬁle of the independent brokerage and advisory business has been a key factor
in setting our strategic path. The independent brokerage and advisory channel has expanded signiﬁcantly over
the past decade, driven in large part by demographic trends, including the graying of America, the retirement
of the baby boomer generation and the expected transfer of retirement assets from 401(k) and group plans to
individual retirement accounts. The increasing responsibility of individuals to plan for their own retirement
has created demand for the ﬁnancial advice provided by ﬁnancial advisors in the independent channel, who
are not tied to a particular ﬁrm’s proprietary products. These developments have been occurring against a
insurance and bank
backdrop of the steady migration of client assets and advisors from the wirehouse,
channels to the independent channel.

We operate each of our independent broker-dealers separately under their own management teams in a
network model, which reﬂects our recognition that each ﬁrm has its own unique culture and strengths. We
believe this is an important part of the glue that helps bind the advisors to the ﬁrm. At the same time, we
have taken advantage of the scale we have created across the multiple ﬁrms by spreading costs in areas that
are not directly visible to the advisors and their clients, such as technology, accounting,
insurance,
procurement and other back office functions.

While we keep each ﬁrm separate, we seek to share intellectual capital and best practices among the
ﬁrms. For instance, we offer Securities America’s industry recognized Next Level practice development tools
to our other advisors. Similarly, the advisors in our independent brokerage and advisory services segment have
other resources to enhance their practices, including access to Ladenburg’s proprietary research, investment
banking and capital markets services, ﬁxed income trading and syndicate products, Premier Trust’s trust
services, Highland’s insurance solutions and LTAM’s wealth management solutions.

Ladenburg is a full service broker-dealer that has been a member of the New York Stock Exchange
(‘‘NYSE’’) since 1879. It provides its services principally for middle market and emerging growth companies
and high net worth individuals through a coordinated effort among corporate ﬁnance, capital markets, asset
management, brokerage and trading professionals.

LTAM is a registered investment advisor. LTAM offers various asset management products utilized by

Ladenburg’s and Premier Trust’s clients, as well as clients of our independent ﬁnancial advisors.

Highland is a leading independent insurance brokerage that delivers life insurance, ﬁxed and equity
indexed annuities and long-term care solutions to investment and insurance providers. Highland provides
specialized point-of-sale support along with advanced marketing and estate and business planning techniques,
delivering customized insurance solutions to both institutional clients and independent producers.

Premier Trust, a Nevada trust company, provides trust administration of personal and retirement accounts,
estate and ﬁnancial planning, wealth management and custody services. We acquired Premier Trust
in
September 2010 to provide our network of independent ﬁnancial advisors with access to a broad array of trust
services. This was another important strategic step in our efforts to meaningfully differentiate our independent
broker-dealer platform by the breadth of the products and services we offer to our advisors.

Each of Securities America, Triad, SSN, Investacorp, KMS and Ladenburg is subject to regulation by,
among others, the Securities and Exchange Commission (‘‘SEC’’), the Financial Industry Regulatory Authority
(‘‘FINRA’’), and the Municipal Securities Rulemaking Board and is a member of the Securities Investor
Protection Corporation. Securities America is also subject to regulation by the Commodities Futures Trading
Commission and the National Futures Association. Highland is subject to regulation by various regulatory
bodies, including state attorneys general and insurance departments. Premier Trust is subject to regulation by
the Nevada Department of Business and Industry Financial Institutions Division.

We were incorporated under the laws of the State of Florida in February 1996.

Available Information

Our securities ﬁlings, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, our proxy statements and reports ﬁled by our officers and directors under
the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), and any
Section 16(a) of
amendments to those ﬁlings, are available, free of charge, on our website, www.ladenburg.com, as soon as
reasonably practicable after we electronically ﬁle or furnish such material with the SEC. We do not intend for
information contained in our website, or those of our subsidiaries, to be a part of this annual report on
Form 10-K. In February 2004, our board of directors adopted a code of ethics that applies to our directors,
officers and employees as well as those of our subsidiaries. We will provide to any person, without charge, a
copy of our code of ethics. Requests for copies of our code of ethics should be sent in writing to Ladenburg
Thalmann Financial Services Inc., 4400 Biscayne Blvd., 12th Floor, Miami, FL 33137, Attn: Secretary. Our
code of ethics is also available, free of charge, on our website. Any amendments to or waivers from a
provision of this code of ethics will be posted on our website.

Caution Concerning Forward-Looking Statements and Risk Factors

This annual report on Form 10-K includes certain ‘‘forward-looking statements’’ within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current
expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary
materially from the views expressed in the forward-looking statements contained in this report due to changes
in economic, business, competitive, strategic and/or regulatory factors, and other factors affecting the operation
of our businesses. For more detailed information about these factors, and risk factors about our operations, see
Item 1A. ‘‘Risk Factors,’’ and Item 7. ‘‘Management’s Discussion and Analysis of Results of Operations and
Financial Condition — Special Note Regarding Forward-Looking Statements’’ below. You should note that
forward-looking statements in this document speak only as of the date of this annual report on Form 10-K.
We expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of
new information, subsequent events or otherwise, except as required by law.

Business Segments

We have three operating segments: (i) the independent brokerage and advisory services segment, (ii) the
Ladenburg segment and (iii) the insurance brokerage segment. Prior to our acquisition of Highland, we had
two operating segments. The independent brokerage and advisory services segment includes the broker-dealer
and investment advisory services provided by our independent broker-dealer subsidiaries to their independent
contractor ﬁnancial advisors and the wealth management services provided by Premier Trust. The Ladenburg
segment includes the investment banking, sales and trading and asset management services and investment
activities conducted by Ladenburg and LTAM. The insurance brokerage segment
includes the wholesale
insurance brokerage activities provided by Highland, which delivers life insurance, ﬁxed and equity indexed
annuities and long- term care solutions to investment and insurance providers. See Note 19, ‘‘Segment
Information,’’ in the accompanying consolidated ﬁnancial statements for information regarding revenue,
income (loss) before income taxes, EBITDA, as adjusted, identiﬁable assets, depreciation and amortization,
interest, capital expenditures, and non-cash compensation for our three operating segments.

Independent Brokerage and Advisory Services Segment

Overview

Securities America, Triad, SSN, Investacorp and KMS are independent broker-dealers and registered
investment advisors, whose independent contractor ﬁnancial advisors offer securities brokerage and advisory
services to their clients, which may include packaged products such as mutual funds, variable annuities and
advisor managed accounts. Revenues generated by our independent brokerage and advisory services segment
represented approximately 90%, 89% and 91% of our total revenues for 2015, 2014 and 2013, respectively.

We believe that the ﬁnancial services industry is experiencing an increase in the percentage of retail
client assets held at independent broker-dealers and registered investment advisors as the market share of retail
assets declines at large national ﬁrms. New independent ﬁnancial advisors require client and back office
support services and access to technology and often affiliate with an independent broker-dealer. We expect this
trend to continue and possibly accelerate in the future. Also, ﬁnancial advisors at banks and credit unions
often affiliate with independent broker-dealers. Securities America’s Financial Institutions Division delivers a
diverse selection of investment and insurance products, detailed, hands-on professional development, and a
fully integrated technology platform customized to meet the unique reporting needs of ﬁnancial advisors
located within banks and credit unions.

A ﬁnancial advisor who becomes affiliated with one of our

independent broker-dealers generally
establishes his or her own office and is solely responsible for the payment of all expenses associated with the
operation of the branch office (including rent, utilities, furniture, equipment, quotation systems, employee
wages and beneﬁts and general office supplies). The size of each branch office is typically between 1 and
15 advisors, but may be substantially larger. All of a branch’s revenues from securities brokerage transactions
and from advisory services conducted through our broker-dealers accrue to our broker-dealers. Because an
independent ﬁnancial advisor bears the responsibility for his or her operating expenses, the ﬁnancial advisor
receives a signiﬁcant percentage of the commissions or advisory fees he or she generates, typically at least
80%. This compares with a payout rate of approximately 30% to 50% to ﬁnancial advisors working in a
traditional wirehouse brokerage setting where the brokerage ﬁrm bears substantially all of the sales force
costs, including providing employee beneﬁts, office space, sales assistants, telephone service and supplies. The
independent brokerage model permits our independent broker-dealer subsidiaries to expand their revenue base
and retail distribution network of investment products and services without either the capital expenditures that
would be required to open company-owned offices, or the additional administrative and other costs of hiring
ﬁnancial advisors as in-house employees.

An independent ﬁnancial advisor must possess a sufficient level of business experience to enable the
individual to independently operate his or her own office. Insurance agents, ﬁnancial planners, accountants and
other ﬁnancial professionals, who already provide ﬁnancial services to their clients, often affiliate with
independent broker-dealers. These professionals then offer ﬁnancial products and services to their clients
through an independent broker-dealer and earn commissions and fees for these transactions and services.

These ﬁnancial advisors have the ability to structure their own practices and to focus in different areas of the
investment business, subject to supervisory procedures as well as compliance with all applicable regulatory
requirements.

Many independent ﬁnancial advisors provide ﬁnancial planning services to their clients, wherein the
ﬁnancial advisor evaluates a client’s ﬁnancial needs and objectives, develops a detailed plan, and then
implements the plan with the client’s approval. When the implementation of such objectives involves the
purchase or sale of securities (including the placement of assets within a managed account) such transactions
may be effected through a broker-dealer, for which such broker-dealer earns either a commission or a fee.
Representatives may be permitted to conduct other approved businesses unrelated to their brokerage or
advisory activities, such as offering ﬁxed insurance products and accounting, estate planning and tax services,
among others.

Each ﬁnancial advisor is required to obtain and maintain in good standing each license required by the
SEC and FINRA to conduct the type of securities or advisory business in which he or she engages, and to
register in the various states in which he or she has customers. Each of our independent broker-dealers is
responsible for supervising all of its ﬁnancial advisors wherever they are located. We can incur substantial
liability from improper actions of any of these ﬁnancial advisors. See Item 1.A — Risk Factors — Risks
Relating to our Business.

Many of our independent ﬁnancial advisors are also authorized agents of insurance companies. Our
independent broker-dealers process non-registered insurance business through subsidiaries or sister companies
that are licensed insurance brokers, as well as through licensed third-party insurance brokers. We are not an
insurance company, and we retain no insurance risk related to insurance or annuity products.

Our

independent ﬁnancial advisors also may provide consultation and ﬁnancial planning services
including: estate planning, retirement and ﬁnancial goal planning, educational funding, asset allocation and
insurance needs analysis, as well as general analysis and planning. These ﬁnancial advisors may prepare a
written ﬁnancial plan based upon the client’s stated goals, needs and investment proﬁle.

Strategy for our Independent Brokerage and Advisory Services Business

We focus on increasing our independent broker-dealer networks of ﬁnancial advisors, revenues and client

assets as described below:

•

Provide our advisors with a differentiated independent platform. We believe we have built a
meaningfully differentiated platform by offering our independent ﬁnancial advisors the unique and
valued beneﬁts of access to Ladenburg’s wealth management division, capital markets products,
investment banking services, proprietary equity research and ﬁxed income trading desk, Highland’s
insurance solutions and Premier Trust’s trust services and planning capabilities.

solutions

technological

home-office
independent
Provide
employees. We believe that
independent broker-dealers possess
imperative that our
state-of-the-art technology so their employees and independent ﬁnancial advisors can effectively
transact, facilitate, measure and record business activity in a timely, accurate and efficient manner.
By continuing our commitment to provide a highly capable technology platform to process business,
we believe our independent broker-dealers can achieve economies of scale and potentially reduce the
need to hire additional back-office personnel.

ﬁnancial

advisors

and

Assist ﬁnancial advisors to expand their business. Our independent broker-dealers are aligned
with their ﬁnancial advisors in seeking to increase their revenues and improve efficiency. Each of
our broker-dealers undertakes initiatives to assist their ﬁnancial advisors with client recruitment,
education, compliance and product support. Our practice management programs accelerate our
advisors’ efforts to grow their businesses by providing customized coaching and consulting services,
study groups and conferences, educational workshops, publications and web resources and other
productivity tools. Our independent broker-dealers also focus on improving back-office support to
allow ﬁnancial advisors more time to focus on serving their clients, rather than attending to
administrative matters.

•

Build recurring revenue. We have recognized the trend toward increased investment advisory
business and are focused on providing fee-based investment advisory services, which may better suit
certain clients. While these fee-based accounts generate substantially lower ﬁrst year revenue than
accounts invested in most commission-based products, the recurring nature of these fees provides a
platform that generates recurring revenue.

Recruit experienced ﬁnancial professionals. Each of our independent broker-dealers actively
targeted
recruits experienced ﬁnancial professionals. These efforts are supported by advertising,
direct mail and outbound telemarketing. Our independent broker-dealers’ recruitment efforts are
enhanced by their ability to serve a variety of independent advisor models, including independent
ﬁnancial advisors, registered investment advisors and independent registered investment advisors.

Acquire other independent brokerage ﬁrms. We also may pursue the acquisition of other
independent brokerage ﬁrms and groups of ﬁnancial advisors. Our ability to realize growth through
acquisitions depends, among other things, on the availability of suitable candidates and our ability to
successfully negotiate favorable terms. There can be no assurance that we will be able to
consummate any such acquisitions. Further,
the costs associated with the integration of new
businesses and personnel may be greater than anticipated.

Brokerage Business

Each of our independent broker-dealers provides full support services to its ﬁnancial advisors, including:
trusts and

access to stock, bond and options execution; products such as insurance, mutual funds, unit
investment advisory programs; and research, compliance, supervision, accounting and related services.

While an increasing number of clients are electing asset-based advisory fee platforms rather than the
revenue from

traditional commission schedule, our
commissions charged on variable annuity, mutual fund, equity and ﬁxed income transactions.

independent broker-dealers primarily derive their

Asset Management Business

Our independent broker-dealers offer various accounts, some of which are managed by our ﬁnancial
advisors, and others that are managed by third parties. The advisor managed accounts offer various account
structures, including fee-based and ‘‘wrap fee’’ accounts. For ﬁnancial advisors who prefer not to act as
portfolio managers, third party management options are available. These options employ managers who select
diversiﬁed, fee-based asset management investment portfolios based on a client’s needs and risk proﬁle. The
types of portfolios may include separately managed portfolios, multi-managed accounts, and mutual fund and
exchange-traded fund (‘‘ETF’’) model portfolios. These portfolios may also include portfolio analytics,
performance reporting and position-speciﬁc reporting.

Premier Trust

Founded in 2001, Premier Trust

is a Nevada-chartered trust company headquartered in Las Vegas,
Nevada, with more than $1.0 billion in assets under administration at December 31, 2015. Premier Trust
provides trust administration of personal and retirement accounts, estate and ﬁnancial planning, wealth
management and custody services. Working in combination with a client’s legal and other professional
advisors, Premier Trust’s professionals assist with every aspect of planning, including income and estate taxes,
retirement, succession of the family business, transferring assets to future generations and asset protection.

Ladenburg Segment

Ladenburg is a full-service broker-dealer that provides investment banking, sales and trading and equity

research to its corporate and institutional clients and high net-worth individuals.

Investment Banking Activities

Ladenburg’s investment banking professionals provide corporate ﬁnance and strategic and ﬁnancial
advisory services to public and private companies, primarily those companies with market capitalizations
below $500 million, which we refer to as middle-market companies. Ladenburg provides these middle-market
companies with capital raising and strategic advisory services throughout their growth cycles. Ladenburg

offers its clients a high level of attention from senior personnel and has designed its organizational structure
so that the investment bankers who are responsible for securing and maintaining client relationships also
actively participate in providing all related transaction execution services to those clients. Ladenburg’s
17 investment banking professionals serve clients nationwide and worldwide.

Corporate Finance

Ladenburg’s corporate ﬁnance group provides capital origination services primarily to middle-market
companies. Ladenburg’s investment bankers develop ﬁnancing strategies, transaction structures and ﬁnancing
instruments for
its corporate clients. Ladenburg offers a broad range of ﬁnancing options including
underwritten public offerings, registered direct offerings, at-the-market offerings, PIPEs (private investment in
public equity) and other private placements. Ladenburg’s ability to effectively structure offerings and to
identify likely buyers of such offerings makes it a valuable advisor to small and middle-market companies.
Although the capital markets are not consistently favorable, we expect that Ladenburg will participate in
follow-on offerings, registered direct offerings, PIPEs and other private placements to generate corporate
ﬁnance revenues. We believe there is a signiﬁcant opportunity for continued growth in the registered direct
and PIPEs areas given issuers’ desire to identify and pursue faster and less costly ﬁnancing alternatives to
traditional follow-on offerings and institutional investors’ continuing interest in these ﬁnancing transactions.
Further, we believe the establishment of relationships with issuers through our capital raising efforts will lead
to additional investment banking services, including further capital raising, and other advisory services. In
2015, we participated in 70 underwritten offerings that raised an aggregate of approximately $9.1 billion. In
2015, Ladenburg placed 18 registered direct and PIPE offerings, which raised an aggregate of approximately
$310 million for clients in the health-care, biotechnology, energy and other industries.

Ladenburg seeks to capitalize on its distribution network by focusing on yield-oriented equities, which
have been attractive to both institutional and retail investors. The yield-oriented equity business has developed
in recent years in response to the low interest rate environment.

Our bankers focus primarily on three speciﬁc areas: mortgage and equity real estate investment trusts
(REITs), business development companies (BDCs) and master limited partnerships (MLPs). Ladenburg has
become a leader in syndicating these products to institutional investors as well as other retail and independent
ﬁrms. Since 2013, Ladenburg has participated as a manager in 158 offerings of these products, which raised
over $25.7 billion.

Similarly, Ladenburg also has dedicated investment bankers focused on health-care and biotechnology
companies, as well as the energy, utilities and technology sectors. From 2013 through 2015, Ladenburg
participated as a manager in 92 offerings, which raised over $4.3 billion in the health-care and biotechnology
sectors.

Strategic and Financial Advisory Services

Ladenburg advises clients on a wide range of strategic and ﬁnancial issues. When Ladenburg advises a
company in the potential acquisition of another company, business or assets, its services include evaluating
potential acquisition targets, providing valuation analyses, evaluating and proposing ﬁnancial and strategic
alternatives and rendering, if appropriate, fairness opinions. Ladenburg also may provide advice regarding the
timing, structure, ﬁnancing and pricing of a proposed acquisition and may assist in negotiating and closing the
acquisition. Ladenburg’s buy-side and sell-side mandates often require the ﬁrm to leverage its extensive
relationships and capital markets expertise. These mandates generally have a limited duration so Ladenburg
seeks to develop new engagements from existing and prior clients, as well as their legal and other advisors.

Ladenburg has extensive expertise in providing fairness opinions that often are necessary or requested in
a variety of situations, including mergers, acquisitions, restructurings, ﬁnancings and privatizations. Ladenburg
provides fairness opinions and analyses to boards of directors, independent committees of boards of directors
and shareholders. The ﬁrm also provides independent,
third-party advice in connection with mergers,
leveraged buyouts and restructurings, going-private transactions and certain other market
acquisitions,
activities.

Sales and Trading

Ladenburg’s private client services and institutional sales departments charge commissions to their

individual and institutional clients for executing securities trading orders.

Ladenburg’s sales and trading operation distributes our equity research product and communicates our
proprietary investment recommendations to our growing base of institutional investors. Also, our sales and
trading staff executes equity trades on behalf of our clients and sells the securities of companies for which we
act as an underwriter.

Ladenburg’s ﬁxed income trading desk, Ladenburg Fixed Income (LFIX), works with advisors at our
broker-dealer subsidiaries to develop ﬁxed income solutions for clients based on individualized client needs.
We believe LFIX strengthens the value proposition of our broker-dealer platform and is a natural complement
to Ladenburg’s efforts in yield-oriented equities because many of the same companies to which Ladenburg
provides investment banking services are also potential ﬁxed income issuers.

We have established a broad institutional client base through a consistent focus on the investment and
trading objectives of our clients. Our sales and trading professionals work closely with our equity research
staff to provide insight and differentiated investment advice to institutional clients nationwide.

We believe that our equity research features proprietary themes and actionable ideas about industries and
companies that are not widely evaluated by many other investment banks that do not have our middle-market
emphasis. In recent years, many investment banks have reduced equity research coverage and market making
activities for companies with market capitalizations below certain thresholds. However, we continue to commit
research and sales and trading resources to smaller-capitalization companies with the belief that institutional
investors will value such specialized knowledge and service.

Our sales and trading personnel are also central to our ability to market equity offerings and provide
after-market support. Our equity capital markets group manages the syndication, marketing, execution and
distribution of equity offerings. Our syndicate activities include managing the marketing and order-taking
process for underwritten transactions and conducting after-market stabilization and initial market making. Our
syndicate staff is also responsible for developing and maintaining relationships with the syndicate departments
of other investment banks.

Research Services

We believe that Ladenburg’s research department takes a fresh, critical approach to analyzing primary
sources and developing proprietary research. Many individuals, institutions, portfolio managers and hedge
fund managers, on all levels, have been neglected by brokerage ﬁrms that ignore the demand for unbiased
research for small and mid-cap companies. Ladenburg provides a branded in-depth research product.
Ladenburg’s research department focuses on investigating investment opportunities by utilizing fundamental,
technical and quantitative methods to conduct in-depth analysis. Currently, our research department provides
research coverage on approximately 255 companies and closed-end funds, specializing in small- to mid-cap
companies in the power and electric utilities, energy exploration and production, sustainable infrastructure,
biotechnology, personalized medicine, medical devices, specialty pharmaceutical, healthcare services, medical
technology and internet and software services industries; MLPs, BDCs and mortgage and equity REITs; and
other companies on a special situations basis. Ladenburg’s research coverage may expand to additional sectors
in the future. Ladenburg provides its research on a fee basis to certain institutional accounts and makes it
available to the ﬁnancial advisors at all of our broker-dealer subsidiaries.

Our research department:

•

reviews and analyzes general market conditions and industry groups;

issues written reports on companies;

furnishes information to retail and institutional customers; and

responds to inquiries from customers and account executives.

Ladenburg Thalmann Asset Management

LTAM is a registered investment advisor offering various asset management products utilized by
Ladenburg clients, as well as clients of our independent broker-dealers’ ﬁnancial advisors. LTAM serves as our
internal wealth management group and plays an important role in supporting the growth of the advisory
businesses at our independent ﬁrms. At December 31, 2015, LTAM had approximately $2.1 billion of assets
under management and more than 15,000 client accounts.

Ladenburg Asset Management Program

The Ladenburg Asset Management Program (‘‘LAMP’’) provides centralized management of mutual fund
and exchange-traded fund portfolios based on asset allocation models. Features of the program include active
low minimum account size, risk analysis, customized
rebalancing at
investment policy statements and comprehensive performance reporting.

the asset class and security level,

Investment Consulting Services

LTAM’s Investment Consulting Services (‘‘ICS’’) provides clients with access to professional money
managers who are usually available only to large institutions. Whether the client requires a complete asset
allocation strategy or an investment manager for a single asset class, ICS provides access to money managers
across the spectrum of major asset classes, and each of our managers has been thoroughly examined for
inclusion in the ICS program. Once a manager has been added to the platform, it is regularly reviewed in
order to ensure that it represents a suitable solution. Through ICS, LTAM services high net worth clients and
institutions, such as universities, foundations and hospitals.

Fund Management

Alternative Strategies Fund

LTAM has created a closed-end interval fund, the Alternative Strategies Fund, which includes alternative
investment products and allows clients to access these investments with low minimums and without having to
be accredited investors. LTAM’s mutual fund is comprised of a portfolio of alternative investments in more
than ten asset classes, including, among others, REITs, MLPs, and BDCs.

Ladenburg Funds

LTAM is the investment adviser to ﬁve funds collectively called the Ladenburg Funds. The ﬁve
Ladenburg Funds are the Ladenburg Income Fund, the Ladenburg Income & Growth Fund, the Ladenburg
Growth & Income Fund, the Ladenburg Growth Fund, and the Ladenburg Aggressive Growth Fund. Each of
the Ladenburg Funds is an open end fund of funds that primarily invests in a combination of equity, ﬁxed
income and alternative strategy exchange-traded funds
(‘‘ETNs’’)
and mutual funds. The Ladenburg Funds employ the same investment strategies and features as the ones
LTAM employs in managing separate client accounts in LAMP.

(‘‘ETFs’’), exchange-traded notes

Private Investment Management

The Private Investment Management program allows internal managers to provide portfolio services to

clients on a discretionary basis with speciﬁc styles of investing for an annual asset-based fee.

Retirement Plan Sponsor Services

LTAM provides investment consulting services to sponsors of retirement plans, such as 401(k) plans.
These services include: identifying mutual funds and ETF’s for the plan sponsor’s review and ﬁnal selection
based on the selection criteria stated in the plan’s investment policy statement; assisting in the planning of,
and participating in, enrollment and communication meetings; and providing to the plan sponsor quarterly
performance reports of the funds for the purpose of meeting the plan ﬁduciary’s obligation to monitor plan
assets. Certain plan participants also may engage LTAM to manage their plan assets on a discretionary basis.

Alternative Investments

LTAM provides high net worth clients and institutional investors the opportunity to invest in proprietary
and third party alternative investments. These include, but are not limited to, hedge funds, funds of funds,
private equity, venture capital and real estate.

Ladenburg Architect Program

LTAM provides its customers with the Ladenburg Architect Program as a non-discretionary, fee-based,
advisory account that allows customers to maintain control over the management of the account and select
from a diverse group of securities.

Third-Party Advisory Services

Together with its affiliates, LTAM may also provide advisory services,

ranging from proprietary
investment solutions to access to professional money managers for the clients of the registered investment
advisors of our broker-dealer subsidiaries.

Investment Activities

Ladenburg may, from time to time, seek to realize investment gains by purchasing, selling and holding
securities for its own account, including through LFIX. Ladenburg may also from time to time engage for its
own account in the arbitrage of securities. We are required to commit the capital necessary for use in these
investment activities. The amount of capital committed at any particular time will vary according to market,
economic and ﬁnancial factors, including the other aspects of our business. Also, Ladenburg regularly receives
shares or warrants that entitle it to purchase securities of the corporate issuers for which it raises capital or
provides advisory services.

Administration, Operations, Securities Transactions Processing and Customer Accounts

Our broker-dealer subsidiaries do not hold funds or securities for their customers. Instead, each of
Ladenburg, Triad and Investacorp use the services of National Financial Services LLC (‘‘NFS’’), a Fidelity
Investments(cid:4) company, as its clearing agent on a fully disclosed basis. Each of Securities America and
SSN use the services of NFS and Pershing LLC, a subsidiary of the Bank of New York Mellon Corporation,
as its clearing agent on a fully disclosed basis. KMS uses the services of Pershing as its clearing agent on a
fully disclosed basis. Ladenburg also uses the services of Sterne, Agee & Leach, Inc. as its clearing agent on a
fully disclosed basis. The clearing agents process all securities transactions and maintain customer accounts on
a fee basis. SIPC coverage protects client accounts up to $500,000 per customer, including up to $250,000 for
cash. Each of NFS, Pershing and Sterne, Agee & Leach, Inc. also maintains excess securities bonds, ‘‘Excess
SIPC,’’ providing additional protection. Clearing agent services include billing, credit control, and receipt,
custody and delivery of securities. The clearing agent provides operational support necessary to process,
record and maintain securities transactions for the brokerage activities of our broker-dealer subsidiaries. The
clearing agent also lends funds to customers of our broker-dealer subsidiaries through the use of margin credit.
These loans are made to customers on a secured basis, with the clearing agent maintaining collateral in the
form of saleable securities, cash or cash equivalents. We have agreed to indemnify each clearing agent for
losses it may incur on these credit arrangements.

Insurance Brokerage Segment

Highland operates through a brokerage general agency model

typically either
independent life insurance advisors or institutions, support as needed. The independent life insurance advisors
or institutions then distribute life insurance products and services directly to individual clients. Highland
provides its partners with access to major insurance carriers, advanced planning support, expertise in risk
underwriting, back office processing and point of sale support,
if needed. Highland generally receives
allowances paid by the insurance carrier for facilitating the placement of the product. The amount of the
allowance is a percentage of the product premium. Revenue tends to be concentrated in the year that the
policy is originated. Historically, revenue in the wholesale life brokerage business is weighted towards the
fourth quarter as clients ﬁnalize tax-planning decisions at year end.

that provides brokers,

Seasonality and Cyclical Factors

Seasonality generally does not impact our results. Our revenues may be adversely affected by cyclical
factors, such as ﬁnancial market downturns, low interest rates, as well as downturns or recessions in the
United States or global economies. These downturns may cause investor concern, which results in fewer
investment banking transactions, lower asset values and less investing by institutional and retail investors,
thereby reducing our revenues and potential proﬁts. Such conditions might also expose us to the risk of being
unable to raise additional capital to offset related signiﬁcant reductions in revenues.

Competition

We encounter intense competition in all aspects of our business and compete directly with many other
providers of ﬁnancial services for clients as well as ﬁnancial advisors. We compete directly with many
national and regional full service ﬁnancial services ﬁrms, other independent broker-dealers,
investment
advisors, discount brokers, broker-dealer subsidiaries of major commercial bank holding companies, insurance
companies and other companies offering ﬁnancial services in the United States, globally, and through the
Internet. Many of our competitors have signiﬁcantly greater ﬁnancial, technical, marketing and other resources
than we do. Also, many ﬁrms offer discount brokerage services and generally effect
transactions at
substantially lower commission rates on an ‘‘execution only’’ basis, without offering other services such as
there is substantial commission
investment recommendations and research. Moreover,
ﬁnancial planning,
discounting by full-service broker-dealers competing for institutional and retail brokerage business.

A growing number of brokerage ﬁrms offer online trading which has further intensiﬁed the competition
for retail brokerage customers. Our broker-dealer subsidiaries currently do not offer any online trading services
to their customers, although they offer online account access so their customers can review their account
balances and activity.

Competition also is increasing from other ﬁnancial institutions, notably banking institutions, insurance
companies and other organizations, which offer customers some of the same services and products presently
provided by securities ﬁrms. We seek to compete through the quality of our ﬁnancial advisors and investment
bankers, our level of service, the products and services we offer and our expertise in certain areas.

There is signiﬁcant competition for qualiﬁed personnel in the ﬁnancial services industry. Our ability to
compete effectively depends on attracting, retaining and motivating qualiﬁed ﬁnancial advisors, investment
bankers, trading professionals, portfolio managers and other revenue-producing or specialized personnel.

Government Regulation

is subject

including our business,

The securities industry,

to extensive regulation by the SEC, state
securities regulators and other governmental
regulatory authorities. We are also regulated by industry
self-regulatory organizations, including FINRA and the MSRB. The principal purpose of these regulations is
the protection of customers and the securities markets. The SEC is the federal agency charged with the
administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, principally FINRA. These self-regulatory organizations adopt rules,
subject to approval by the SEC, which govern their members and conduct periodic examinations of member
ﬁrms’ operations.

Securities ﬁrms are also subject to regulation by state securities commissions in the states in which they
are registered. Each of Securities America, Triad, SSN, Investacorp, KMS and Ladenburg is a registered
broker-dealer with the SEC. Each such ﬁrm is licensed to conduct activities as a broker-dealer in all 50 states.
Ladenburg is a member ﬁrm of the NYSE.

The regulations to which broker-dealers are subject cover many aspects of the securities industry,

including:

•

sales methods and supervision;

trading practices among broker-dealers;

use and safekeeping of customers’ funds and securities;

capital structure of securities ﬁrms;

record keeping;

conduct of directors, officers and employees; and

advertising, including regulations related to telephone solicitation.

As registered investment advisors under the Investment Advisers Act of 1940, as amended (the ‘‘Advisers
Act’’), our investment advisory subsidiaries are subject to the regulations under both the Advisers Act and
certain state securities laws and regulations. Such requirements relate to, among other things:

•

limitations on the ability of
non-refundable fees;

investment advisors

to charge clients performance-based or

record-keeping and reporting requirements;

disclosure requirements;

limitations on principal transactions between an advisor or its affiliates and advisory clients; and

general anti-fraud prohibitions.

Additionally, our investment advisory subsidiaries are subject

to the Employee Retirement Income
Security Act of 1974, as amended (‘‘ERISA’’), administered by the Employee Beneﬁts Security Administration
(‘‘EBSA’’) of the U.S. Department of Labor (‘‘DOL’’), for accounts that are ERISA-covered pension plans.
These plans include deﬁned beneﬁt pension plans and individual account plans, such as 401(k) plans. ERISA
imposes certain duties on persons who are ﬁduciaries (as deﬁned in Section 3(21) of ERISA) and prohibits
certain transactions involving ERISA plans and ﬁduciaries or other service providers to such plans. Failure to
comply with the ERISA requirements could result in signiﬁcant monetary penalties and could severely limit
the ability of our investment advisory subsidiaries to act as ﬁduciaries. The DOL continues to pursue
regulations that would signiﬁcantly expand the scope of who is considered an ERISA ﬁduciary and what
activity constitutes acting as an ERISA ﬁduciary, while prohibiting certain additional types of transactions
conducted by persons who are considered ﬁduciaries. As proposed, these regulations focus on conﬂicts of
interest related to investment recommendations made by ﬁnancial advisors or registered investment advisors to
clients holding qualiﬁed accounts and other types of ERISA clients as well as how ﬁnancial advisors are able
to discuss IRA rollovers. On January 29, 2016, after a public comment period and hearing, the DOL sent
proposed regulations to the Office of Management and Budget where they remain conﬁdential until published
in the Federal Register. Qualiﬁed accounts, speciﬁcally IRAs, make up a signiﬁcant portion of our client
assets. We continue to review and analyze the potential impact of the proposed regulations on our clients and
prospective clients, as well as the potential
impact on our business. We cannot predict how any ﬁnal
regulations may differ from the proposed regulations.

Additional

legislation, changes in rules promulgated by the SEC and by self-regulatory bodies and
changes in the interpretation or enforcement of existing laws and rules often directly affect the method of
operation and proﬁtability of broker-dealers. The SEC and the self-regulatory bodies may conduct
administrative proceedings which can result in censure, ﬁne, suspension or expulsion of a broker-dealer, its
officers, employees or ﬁnancial advisors. As a result of the 2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act (‘‘Dodd-Frank Act’’), our ﬁnancial advisors may in the future become subject to a
ﬁduciary standard of conduct in connection with their broker-dealer activities that is no less stringent than
is currently applied to investment advisers under the Advisers Act. We continue to see enhanced
what
legislative and regulatory interest regarding retirement investing and ﬁnancial advisors, including proposed
rules, regulatory priorities or general discussion around transparency and disclosure in advisor compensation
and recruiting, identifying and managing conﬂicts of interest and enhanced data collection.

Premier Trust is subject to regulation by the Nevada Department of Business and Industry Financial

Institutions Division.

Highland is subject to regulation by various regulatory bodies, including state attorneys general and

insurance departments.

The USA PATRIOT Act of 2001 (the ‘‘PATRIOT Act’’) contains anti-money laundering and ﬁnancial
transparency laws and mandates the implementation of various regulations applicable to broker-dealers and
other ﬁnancial services companies. Financial institutions subject to the PATRIOT Act generally must have
anti-money laundering procedures in place, implement specialized employee training programs, designate an

anti-money laundering compliance officer and are audited periodically by an independent party to test the
effectiveness of such compliance. We have established policies, procedures and systems designed to comply
with these regulations.

Regulation regarding privacy and data protection continues to increase worldwide and is generally being
driven by the growth of technology and related concerns about the rapid and widespread dissemination and
use of information. To the extent applicable to us, we must comply with these global, federal, and state
information-related laws and regulations, including, for example, those in the United States, such as the
1999 Gramm-Leach-Bliley Act, SEC Regulation S-P and the Fair Credit Reporting Act of 1970, as amended.

Net Capital Requirements

Approximately 29% of our total assets at December 31, 2015 consisted of cash and cash equivalents,
securities owned and receivables from clearing brokers and other broker-dealers, all of which ﬂuctuate,
depending upon the levels of customer business and trading activity. Receivables from broker-dealers, which
are primarily from clearing brokers, turn over rapidly. A relatively small percentage of our total assets are
ﬁxed. The total assets or the individual components of total assets may vary signiﬁcantly from period to
period because of changes relating to economic and market conditions.

Our registered broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule 15c3-1,
which we refer to as the Net Capital Rule. The Net Capital Rule requires that broker-dealers maintain
minimum net capital and is designed to measure the general ﬁnancial integrity and liquidity of a broker-dealer.
Net capital
to certain adjustments, and may be
calculated in one of two ways. In computing net capital, various adjustments are made to net worth which
exclude assets not readily convertible into cash. Also, the regulations require that certain assets, such as a
broker-dealer’s position in securities, be valued in a conservative manner
the
broker-dealer’s net capital.

is deﬁned as the net worth of a broker-dealer, subject

to avoid inﬂation of

Each of Securities America, Triad, Investacorp, KMS and Ladenburg has elected to compute its net
capital under the alternative method allowed by the Net Capital Rule and at December 31, 2015, each had a
$250,000 minimum net capital requirement. At December 31, 2015, Securities America had regulatory net
capital of $6,646,000, Triad had regulatory net capital of $8,063,000, Investacorp had regulatory net capital of
$5,474,000, KMS had regulatory net capital of $5,774,000 and Ladenburg had regulatory net capital of
$22,972,000.

SSN has elected to compute its net capital under the basic method allowed by the Net Capital Rule and
at December 31, 2015, it had net capital of $6,731,000, which was $5,792,000 in excess of its required net
capital of $939,000, and had a net capital ratio of 2.09 to 1.

Securities America, Triad, Investacorp, KMS and Ladenburg claim exemptions from the provisions of the
SEC’s Rule 15c3-3 pursuant to paragraph (k)(2)(ii) as they clear their customer transactions through a clearing
broker on a fully disclosed basis.

Also, funds invested as equity capital may not be withdrawn, nor may any unsecured advances or loans
be made to any stockholder of a registered broker-dealer, if, after giving effect to the withdrawal, advance or
loan and to any other withdrawal, advance or loan as well as to any scheduled payments of subordinated debt
that are scheduled to occur within six months, the net capital of the broker-dealer would fall below 120% of
the minimum dollar amount of net capital required or the ratio of aggregate indebtedness to net capital would
exceed 10 to 1. Further, any funds invested in the form of subordinated debt generally must be invested for a
minimum term of one year and repayment of such debt may be suspended if the broker-dealer fails to
maintain certain minimum net capital levels. For example, scheduled payments of subordinated debt are
suspended in the event that the ratio of aggregate indebtedness to net capital of the broker-dealer would
exceed 12 to 1 or its net capital would be less than 120% of the minimum dollar amount of net capital
required. The net capital rule also prohibits payments of dividends, redemption of stock and the prepayment,
or payment in respect of principal or subordinated indebtedness if net capital, after giving effect to the
payment, redemption or repayment, would be less than the speciﬁed percentage (120%) of the minimum net
capital requirement.

Premier Trust, chartered by the state of Nevada, is subject to regulation by the Nevada Department of
Business and Industry Financial Institutions Division. Under Nevada law, Premier Trust must maintain
minimum stockholder’s equity of at least $1,000,000, including at least $250,000 in cash. At December 31,
2015, Premier Trust had stockholder’s equity of approximately $1,468,000, including at least $250,000 in
cash.

Failure to maintain the required net capital may subject a ﬁrm to ﬁnes, suspension or expulsion by
FINRA, the SEC and other regulatory bodies and ultimately may require its liquidation. During the fourth
quarter of 2009 and the ﬁrst quarter of 2016, Triad had a short-term net-capital deﬁciency. In March 2014,
Triad entered into a settlement with FINRA regarding the 2009 deﬁciency under which Triad agreed to a ﬁne
and censure. Compliance with the net capital rule could limit Ladenburg’s operations that require the intensive
use of capital, such as underwriting and trading activities, and also could restrict our ability to withdraw
capital from our subsidiaries, which could limit our ability to pay dividends and repay debt.

In the past, Ladenburg has entered into, and from time to time in the future may enter into, temporary
subordinated loan arrangements to borrow funds on a short-term basis from our shareholders or clearing
brokers to supplement the capital of our broker-dealers to allow them to facilitate underwriting transactions.

Financial Information about Geographic Areas

We are domiciled in the United States and substantially all of our revenue is attributed to activities in the

United States. All of our long-lived assets are located in the United States.

Personnel

At December 31, 2015, we had 1,307 full-time employees. No employees are covered by a collective

bargaining agreement. We consider our relationship with our employees to be good.

ITEM 1A. RISK FACTORS.

You should carefully consider all of the risks described below regarding our company. Our business,
ﬁnancial condition or results of operations could be materially adversely affected by any of these risks.
Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may
materially and adversely affect our business operations.

Risk Factors Relating to Our Business

Damage to our reputation could adversely impact our business.

Maintaining our reputation is critical to our ability to attract and retain ﬁnancial advisors, clients and
employees, and our failure, or perceived failure, to appropriately operate our business or deal with matters that
give rise to reputational risk may materially and adversely harm our business, prospects and results of
operations. Those matters giving rise to reputational risk include the risks discussed in this Item 1A, as well
as appropriately dealing with legal and regulatory requirements, anti money-laundering practices, privacy,
record keeping, and sales and trading practices, as well as our proper identiﬁcation of the legal, reputational,
credit, liquidity, and market risks inherent in ﬁnancial products. Also, our inability to sell securities that we
have underwritten on expected terms, including anticipated prices, could result in reputational damage that
results in our loss of investment banking business, which would adversely impact our Ladenburg segment.
Our failure to deliver appropriate standards of service and quality, or our failure or perceived failure to treat
clients fairly, could result in customer dissatisfaction, litigation and heightened regulatory scrutiny, all of
which can lead to lost revenue, higher operating costs and harm to our reputation. Further, negative publicity
regarding us or our ﬁnancial advisors, whether or not true, may be detrimental to our business.

Changing conditions in ﬁnancial markets and the economy could adversely affect our ﬁnancial condition
and results of operations.

Our ﬁnancial results have been adversely affected by turmoil in the ﬁnancial markets in the past and may
again be impacted in the future. As a ﬁnancial services ﬁrm, changes in the ﬁnancial markets or economic
conditions in the United States and elsewhere in the world could materially adversely affect our business in
many ways, including the following:

•

a market downturn could lead to a decline in the volume of transactions executed for customers and,
therefore, to a decline in the revenues we receive from commissions and spreads;

low interest rates adversely impact interest sharing revenues received from our clearing ﬁrms and
other cash sweep programs;

adverse changes in the market could lead to a reduction in revenues from asset management fees.
investment performance by portfolio
Even in the absence of a market downturn, below-market
managers could reduce asset management revenues and assets under management and result in
reputational damage that might make it more difficult to attract new investors;

unfavorable ﬁnancial or economic conditions could reduce the number and size of transactions in
which we provide underwriting, ﬁnancial advisory and other services. Our investment banking
revenues, in the form of ﬁnancial advisory and underwriting or placement fees, are directly related
to the number and size of the transactions in which we participate and therefore could be adversely
affected by unfavorable ﬁnancial or economic conditions;

increases in credit spreads, as well as limitations on the availability of credit, can affect our ability to borrow
on a secured or unsecured basis, which may adversely affect our liquidity and results of operations;

adverse changes in the market could lead to losses from principal transactions. To the extent that we
own assets, i.e., have long positions, a downturn in the market could result in losses from a decline
in the value of those long positions. Conversely, to the extent that we have sold assets that we do
not own, i.e., have short positions, an upturn in the market could expose us to potentially unlimited
losses as we attempt to cover our short positions by acquiring assets in a rising market; and

new or increased taxes on compensation payments such as bonuses or securities transactions may
adversely affect our ﬁnancial results.

We have incurred, and may again incur, signiﬁcant losses.

We incurred signiﬁcant losses in 2015 and in various prior years. We cannot assure you that we will
achieve proﬁtability or have positive cash ﬂow on either a quarterly or annual basis. Although we believe that
we have adequate cash and regulatory capital
level of operating activities through
December 31, 2016, if we are unable to achieve and sustain our proﬁtability, it would have a material adverse
effect on our business and results of operations.

to fund our current

We have a signiﬁcant amount of debt and preferred stock outstanding, which limits cash ﬂow available for
operations and may impair our ability to obtain additional ﬁnancing.

As of December 31, 2015, our total debt was approximately $54 million and we had 14,683,021 shares
indebtedness and preferred stock

of Series A Preferred Stock outstanding. Our substantial amount of
outstanding:

•

requires us to dedicate a substantial portion of cash ﬂows from operations to the payment of debt
service and dividends, resulting in less cash available for operations and other purposes; and

limits our ability to obtain additional ﬁnancing for working capital, regulatory capital requirements,
acquisitions or general corporate purposes.

Our substantial indebtedness also increases our vulnerability to downturns in our business or in general
economic conditions. Our ability to satisfy our obligations and to reduce our total debt depends on our future
operating performance. Also, there can be no assurance that we will satisfy the requirements for forgiveness of
our forgivable loans from our principal clearing ﬁrm. Our future operating performance is subject to many
factors, including economic, ﬁnancial and competitive factors, which may be beyond our control. As a result,
we may not be able to generate sufficient cash ﬂow, and future sales of equity or debt securities in public or
private transactions may not be available to provide sufficient net proceeds to meet these obligations, which
would have a material adverse effect on our business, proﬁtability and results of operations.

We are a holding company and rely on dividends, distributions and other payments, advances and transfers
of funds from our subsidiaries to meet our debt service and other obligations.

We have no direct operations and derive all of our cash ﬂow from our subsidiaries. Because we conduct
our operations through our subsidiaries, we depend on those entities for dividends and other payments or
distributions to meet any existing or future debt service and other obligations, including payment of dividends
on our Series A Preferred Stock.

The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could
limit or impair their ability to pay dividends or other distributions to us. Also, FINRA regulations restrict
dividends in excess of 10% of a member ﬁrm’s excess net capital without FINRA’s prior approval.
Compliance with this regulation may impede our ability to receive dividends from our broker-dealer
subsidiaries.

We face signiﬁcant competition for ﬁnancial advisors and professional employees.

From time to time, ﬁnancial advisors and individuals we employ choose to leave our company to pursue
other opportunities. We have experienced losses of ﬁnancial advisors and trading and investment banking
professionals in the past, and competition for key personnel remains intense. We cannot assure you that the
loss of ﬁnancial advisors and key personnel will not occur in the future. We expend signiﬁcant resources in
recruiting,
trading or
training and retaining our ﬁnancial advisors. The loss of a key ﬁnancial advisor,
investment banking professional, or broker-dealer executive, particularly a senior banking professional or
executive with signiﬁcant
industry contacts, or the failure to recruit productive ﬁnancial advisors could
materially and adversely affect our results of operations. Also, difficultly in recruiting young advisors, due to
the low number of persons entering our industry, combined with the high average age of our existing ﬁnancial
advisors, may adversely impact our ability to retain client assets and our ﬁnancial results.

Misconduct by our employees and independent ﬁnancial advisors, who operate in a decentralized
environment, is difficult to detect and deter and could harm our business, reputation, results of operations
or ﬁnancial condition.

Misconduct by our employees and independent ﬁnancial advisors could result in violations of law by us,

regulatory sanctions and/or serious reputational or ﬁnancial harm.

Misconduct could include:

•

recommending transactions that are not suitable for the client or in the client’s best interests;

engaging in fraudulent or otherwise improper activity;

binding us to transactions that exceed authorized limits;

hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses;

improperly using or disclosing conﬁdential information;

engaging in unauthorized or excessive trading to the detriment of customers;

failure, whether negligent or intentional, to effect securities transactions on behalf of clients;

failure to perform reasonable diligence on a security, product or strategy;

failure to supervise a ﬁnancial advisor;

failure to provide insurance carriers with complete and accurate information;

engaging in unauthorized or excessive trading to the detriment of clients;

engaging in improper transactions with clients; or

otherwise not complying with laws or our control procedures.

We cannot always deter misconduct by our employees and independent ﬁnancial advisors, and the
precautions we take to prevent and detect this activity may not be effective in all cases. Also, our failure to
properly investigate new and existing ﬁnancial advisors may subject us to additional risks and liabilities.

Prevention and detection among our independent ﬁnancial advisors, who are not employees of our
company and tend to be located in small, decentralized offices, present additional challenges. Misconduct by
our employees and independent ﬁnancial advisors may have a material adverse effect on our business and
results of operations.

Our risk management policies and procedures may leave us exposed to unidentiﬁed risks or an
unanticipated level of risk.

The policies and procedures we employ to identify, monitor and manage risks may not be fully effective.
Some methods of risk management are based on historical behavior. As a result, these methods may not
predict future risk exposures, which could be signiﬁcantly greater than indicated historically. Other risk
management methods depend on our management’s evaluation of information regarding markets, clients or
other matters that are publicly available or otherwise accessible. This information may not be accurate,
complete, up-to-date or properly evaluated. Management of operational, legal and regulatory risk requires,
among other things, policies and procedures to properly record and verify a large number of transactions and
events. We cannot assure you that our policies and procedures will effectively and accurately record and verify
this information. Also, we face additional risk management challenges because many of our independent
ﬁnancial advisors work in small, decentralized offices.

We seek to monitor and control our risk exposure through a variety of separate but complementary
ﬁnancial, credit, operational and legal reporting systems. Nonetheless,
the effectiveness of our ability to
manage risk exposure can never be completely or accurately predicted or fully assured. For example,
unexpectedly large or
rapid movements or disruptions in one or more markets or other unforeseen
developments can have a material adverse effect on our results of operations and ﬁnancial condition,
regardless of our risk management policies and procedures.

Poor performance of the investment products and services recommended or sold to our clients may have a
material adverse effect on our business.

Our advisors’ clients control

their assets maintained with us. These clients can terminate their
relationship, reduce the aggregate amount of assets under management or shift their funds to other types of
accounts with different rate structures for any number of reasons, including investment performance, changes
in prevailing interest rates, ﬁnancial market performance and personal client liquidity needs. Poor performance
of the investment products and services recommended or sold to such clients relative to the performance of
other products available in the market or the performance of other investment management ﬁrms tends to
result in the loss of accounts. The decrease in revenue that could result from such an event could have a
material adverse effect on our results of operations.

We depend on our senior employees and the loss of their services could harm our business.

Our success is dependent

in large part upon the services of our senior executives and employees,
including the management of our broker-dealer subsidiaries. We generally do not maintain, and do not intend
to obtain, key man insurance on the life of any executive or employee. If our senior executives or employees
terminate their employment with us and we are unable to ﬁnd suitable replacements in relatively short periods
of time, our business and results of operations may be materially and adversely affected.

Systems failures could signiﬁcantly disrupt our business and subject us to losses, litigation and regulatory
actions.

Our business depends on our and our clearing ﬁrms’ ability to process, on a daily basis, many
transactions across numerous and diverse markets and the transactions we process have become increasingly
complex. We rely heavily on our communications and ﬁnancial, accounting and other data processing systems,
including systems we maintain and systems provided by our clearing brokers and service providers. We face
operational risk arising from mistakes made in the conﬁrmation or settlement of transactions or from
transactions not being properly recorded, evaluated or accounted.

If any of these systems do not operate properly or are disabled, we could suffer ﬁnancial

loss, a
disruption of our business, liability to clients, regulatory intervention and ﬁnes or reputational damage. Any
failure or interruption of our systems, the systems of our clearing brokers, or third party trading systems could
cause delays or other problems in our securities trading activities, which could have a material adverse effect
on our operating results. Also, our clearing brokers provide our principal disaster recovery system. We also are
implementing new technology platforms and failures in connection with such implementation may cause
disruption to our operations, which could result in liability and reputational damage. We cannot assure you
that we or our clearing brokers will not suffer any systems failures or interruption, including ones caused by
earthquake, ﬁre, other natural disasters, power or telecommunications failure, act of God, act of war, cyber
attacks, unauthorized access, viruses, human error, terrorism, or otherwise, or that our or our clearing brokers’
back-up procedures and capabilities in the event of any such failure or interruption will be adequate.

Our operational systems and networks have been, and will continue to be, subject to evolving cybersecurity
or other technological risks, which could result in the disclosure of conﬁdential client information, loss of
our proprietary information, damage to our reputation, additional costs to us, regulatory penalties and
other adverse impacts.

The secure transmission of conﬁdential information over public networks is a critical element of our
operations. A portion of our business is conducted through the Internet, mobile devices and our internal
computer systems. We rely on technology to provide the security necessary to effect secure transmission of
conﬁdential information over the Internet. Maintaining the integrity of these systems and networks is critical
to the success of our business operations, including the retention of our advisors and their clients, and to the
protection of our proprietary information and client information. We rely on our advisors and employees to
comply with our policies and procedures to safeguard conﬁdential data. The failure of our advisors and
employees to comply with such policies and procedures could result in the loss or wrongful use of their
information or other sensitive information. The increased use of mobile and cloud
clients’ conﬁdential
technologies can heighten these and other operational risks. Also, even if we and our advisors comply with

our policies and procedures, persons who circumvent security measures could wrongfully use our conﬁdential
information or the conﬁdential information of our advisors’ clients, or cause interruptions or malfunctions in
our operations and we may not be able to detect such breaches for an extended period of time. During such
time, we may not know the extent of the harm or how best to remediate it and certain errors or actions may
be repeated or compounded before they are discovered and rectiﬁed, all or any of which would further
increase the costs and consequences of a cyber attack.

To date, we have not experienced any material breaches of, or interference with, our systems and
networks; however, we routinely encounter and address such threats. Our experiences with cybersecurity and
technology threats have included phishing scams, introductions of malware, attempts at electronic break-ins
and unauthorized payment requests. Any such breaches or interference by third parties or by our advisors or
employees that may occur in the future and the failure of our controls and procedures to detect or prevent
such breaches or interference could have a material adverse impact on our business, ﬁnancial condition or
results of operations.

the
Although we take protective measures and endeavor to modify them as circumstances warrant,
computer systems, software and networks may be vulnerable to unauthorized access, human error, computer
viruses, denial-of-service attacks, or other malicious code and other events that could impact the security,
reliability, and availability of our systems. If one or more of these events occur, this could jeopardize our own,
our advisors’ or their clients’ or counterparties’ conﬁdential and other information processed, stored in and
transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in
our own, our advisors’ or their clients’, our counterparties’ or third parties’ operations. We may be required to
expend signiﬁcant additional resources to modify our protective measures,
to investigate and remediate
vulnerabilities or other exposures or to make required notiﬁcations, and we may be subject to litigation,
regulatory sanctions and ﬁnancial losses that are either not insured or are not fully covered through any
insurance we maintain.

in legal claims, regulatory scrutiny and liability, reputational damage,

Despite the measures we have taken and may in the future take to address and mitigate cybersecurity and
to breaches or
technology risks, we cannot assure that our systems and networks will not be subject
interference. Any such event may result in operational disruptions, unauthorized access to, or the disclosure or
loss of, our own, our advisors’ or their clients’ or counterparties’ conﬁdential or other information. This in turn
may result
incurrence of costs to
eliminate or mitigate further exposure, loss of advisors or client assets or other damage to our business. While
we maintain cyber liability insurance that provides both third-party liability and ﬁrst-party liability coverages,
this insurance may not be sufficient to protect us against all losses. Also, the trend toward broad consumer and
general public notiﬁcation of such incidents could exacerbate the harm to our business, ﬁnancial condition or
results of operations. Even if we successfully protect our technology infrastructure and the conﬁdentiality of
sensitive data, we may incur signiﬁcant expenses in connection with our responses to any such attacks and the
adoption and maintenance of appropriate security measures. We also may be subject
to litigation and
regulatory sanctions. We could also suffer harm to our business and reputation if attempted security breaches
are publicized. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities,
attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or
inappropriate access, or other developments will not compromise or breach the technology or other security
measures protecting the networks and systems used in connection with our business.

We rely on clearing brokers and the termination of our clearing agreements could disrupt our business.

Each of Triad, Investacorp, KMS, and Ladenburg uses one principal clearing broker to process securities
transactions and maintain customer accounts on a fee basis. Securities America and SSN use two clearing
brokers to perform the same functions. Each clearing broker also provides billing services, extends credit and
provides for control and receipt, custody and delivery of securities. Each of our broker-dealer subsidiaries
depends on the operational capacity and ability of
the orderly processing of
transactions. By engaging the processing services of a clearing ﬁrm, each of our broker-dealer subsidiaries is
exempt from some capital reserve requirements and other regulatory requirements imposed by federal and
state securities laws. If these clearing agreements were terminated for any reason, we would be forced to ﬁnd
alternative clearing arrangements. We cannot assure you that we would be able to ﬁnd alternative clearing

its clearing broker

for

arrangements on acceptable terms to us or at all. Also, the loss of a clearing ﬁrm could hamper the ability of
our independent broker-dealers to recruit and retain their respective independent ﬁnancial advisors.

Our business depends on commissions and fees generated from the distribution of ﬁnancial products, and
adverse changes in the structure or amount of fees or marketing allowances paid by the sponsors of these
products could materially adversely affect our cash ﬂows, revenues and results of operations.

We generate an important portion of our revenues from commissions and fees related to the distribution
of ﬁnancial products, such as mutual funds and variable annuities, by our independent ﬁnancial advisors, and
to a lesser extent, Ladenburg’s ﬁnancial advisors. Changes in the structure or amount of the fees or marketing
allowances paid by the sponsors of these products could materially adversely affect our cash ﬂows, revenues
and results of operations.

Also, regulatory agencies and other industry participants have suggested that Rule 12b-1 distribution fees
in the mutual fund industry should be reconsidered and, potentially, reduced or eliminated. Any reduction or
restructuring of Rule 12b-1 distribution fees could have a material adverse effect on our results of operations.
Additionally, the U.S. Department of Labor, which promulgates rules related to retirement plans, has proposed
rules that may restrict commissions and fees on qualiﬁed retirement accounts, including IRAs.

Decreases in client assets or assets under management may decrease our revenues.

The results of operations of our independent broker-dealer subsidiaries depend on their level of assets
under management and client assets. Assets under management balances are impacted by both the ﬂow of
client assets in and out of accounts and changes in market values. Poor investment performance by ﬁnancial
products and ﬁnancial advisors could result in a loss of managed accounts and could result in reputational
damage that might make it more difficult to attract new investors. A reduction in client assets or assets under
management may cause our revenues to decline.

Our clearing ﬁrms extend credit to our clients and we are liable if the clients do not pay.

Each of our broker-dealer subsidiaries permits its clients to purchase securities on a margin basis or sell
securities short, which means that the applicable clearing ﬁrm extends the client credit that is secured by cash
and securities in the client’s account. Market conditions, general economic conditions and issues affecting the
particular securities held by a client, among other factors, could cause the value of the collateral held by the
clearing ﬁrm to fall below the amount borrowed by the client. If margin requirements are not sufficient to
cover losses, the clearing broker sells or buys securities at prevailing market prices, and may incur losses to
satisfy client obligations. Each of our broker-dealer subsidiaries has agreed to indemnify its clearing brokers
for losses they may incur while extending credit to its clients.

Signiﬁcant
proﬁtability and ﬁnancial condition.

interest rate changes and the termination of our cash sweep agreement could affect our

Our revenues are exposed to interest rate risk primarily from changes in fees payable to us from banks
participating in cash sweep programs, which are based on prevailing interest rates. Our revenues from our
sweep program are negatively impacted by periods of low interest rates. If our contracts with participants in
cash sweep programs are terminated, we may not be able to obtain contracts on similar terms, which would
decrease our revenue and proﬁtability. Also, decreases in interest rates or clients moving assets out of our cash
sweep programs would decrease our revenue and proﬁtability. We may also be limited in the amount we can
reduce interest rates payable to clients in cash sweep programs and still offer a competitive return. A sustained
low interest rate environment may negatively impact our ability to negotiate contracts on comparable terms.

We may be unable to underwrite securities due to capital limits.

From time to time, our underwriting activities may require that we temporarily receive an infusion of
capital for regulatory purposes. This is predicated on the amount of Ladenburg’s commitment for each
underwriting. In the past, we entered into temporary subordinated loan arrangements with our shareholders or
clearing ﬁrm. Should we no longer be able to receive such funding from these sources, and if there are no
other viable sources available, it would have an adverse impact on our ability to underwrite offerings, generate
proﬁts, recruit ﬁnancial consultants and retain existing customers.

Risk Factors Relating to Our Industry

Credit risk exposes us to losses caused by third parties’ ﬁnancial or other problems.

We are exposed to the risk that third parties that owe us money, securities or other assets will not

perform their obligations.

These parties include:

•

trading counterparties;

customers;

clearing agents;

other broker-dealers;

exchanges;

clearing houses; and

other ﬁnancial intermediaries as well as issuers whose securities we hold.

These parties may default on their obligations owed to us due to bankruptcy, lack of liquidity, operational

failure or other reasons. This risk may arise, for example, from:

•

holding securities of third parties;

executing securities trades that fail
the required time due to non-delivery by the
counterparty or systems failure by clearing agents, exchanges, clearing houses or other ﬁnancial
intermediaries; and

to settle at

extending credit to clients through bridge or margin loans or other arrangements.

Signiﬁcant failures by third parties to perform their obligations owed to us could adversely affect our

revenues, results of operations and perhaps our ability to borrow in the credit markets.

Intense competition from existing and new entities may adversely affect our revenues and results of
operations.

The ﬁnancial services industry is rapidly evolving and intensely competitive. We expect competition to
continue and intensify in the future. Many of our competitors have signiﬁcantly greater ﬁnancial, technical,
marketing and other resources than we do. Some of our competitors also have greater name recognition and a
larger base of ﬁnancial advisors and clients. These competitors may be able to respond more quickly to new
or changing opportunities, technologies and client requirements. They may also be able to undertake more
extensive marketing activities, offer more attractive terms to clients and ﬁnancial advisors, and adopt more
aggressive pricing policies. We may not be able to compete effectively with current or future competitors and
competitive pressures faced by us may harm our business and may adversely affect our revenues and results
of operations.

Errors and omissions claims may negatively affect our business and results of operations.

Our subsidiaries are subject to claims and litigation in the ordinary course of business resulting from
alleged and actual errors and omissions in effecting securities transactions, rendering investment advice and
placing insurance. These activities involve substantial amounts of money. Since errors and omissions claims
against our subsidiaries or their ﬁnancial advisors may allege liability for all or part of the amounts in
question, claimants may seek large damage awards. These claims can involve signiﬁcant defense costs. Errors
and omissions could include, for example, failure, whether negligently or intentionally, to effect securities
transactions on behalf of clients, to choose suitable investments for any particular client, to supervise a
ﬁnancial advisor or to provide insurance carriers with complete and accurate information. It is not always
possible to prevent or detect errors and omissions, and the precautions our subsidiaries take may not be
effective in all cases. Our liability for signiﬁcant and successful errors and omissions claims may materially
and negatively affect our results of operations.

We are subject to various risks associated with the securities industry, any of which could have a materially
adverse effect on our business, cash ﬂows and results of operations.

We are subject to uncertainties that are common in the securities industry. These uncertainties include:

•

the volatility of domestic and international ﬁnancial, bond and stock markets;

extensive governmental regulation;

litigation;

intense competition;

poor performance of investment products our advisors recommend or sell;

substantial ﬂuctuations in the volume and price level of securities; and

dependence on the solvency of various third parties.

As a result, revenues and earnings may vary signiﬁcantly from quarter to quarter and from year to year.
In periods of
low retail and institutional brokerage volume and reduced investment banking activity,
proﬁtability is impaired because certain expenses remain relatively ﬁxed. We are smaller and have less capital
than many of our competitors in the securities industry. In the event of a market downturn, our business could
be adversely affected in many ways. Our revenues are likely to decline in such circumstances and, if we are
unable to reduce expenses at the same pace, our proﬁt margins would erode.

Legal liability may harm our business.

Many aspects of our business subject us to substantial risks of liability to customers and to regulatory
enforcement proceedings by state and federal regulators. We face signiﬁcant legal risks in our businesses and,
in recent years, the volume of claims and amount of damages sought in litigation and regulatory proceedings
against ﬁnancial institutions have been increasing. In the normal course of business, our operating subsidiaries
have been, and continue to be, the subject of numerous civil actions, regulatory proceedings and arbitrations
arising out of customer complaints relating to our activities as a broker-dealer, as an employer or as a result of
other business activities.

Dissatisﬁed clients often make claims against securities ﬁrms and their brokers and investment advisers
for, among others, negligence, fraud, unauthorized trading, suitability, churning, failure to conduct adequate
due diligence on products offered, failure to address issues arising from product due diligence, failure to
supervise, breach of ﬁduciary duty, employee errors,
intentional misconduct, unauthorized transactions,
improper recruiting activity, and failures in the processing of securities transactions. These types of claims
expose us to the risk of signiﬁcant loss. Also, an underwriter, such as Ladenburg, is exposed to substantial
liability under federal and state securities laws, other federal and state laws, and court decisions, including
decisions about underwriters’ liability and limitations on indemniﬁcation of underwriters by issuers. For
example, a ﬁrm that acts as an underwriter may be held liable for material misstatements or omissions of fact
in a prospectus used in connection with the securities being offered or for statements made by its securities
analysts or other personnel. Therefore, Ladenburg’s activities may subject it to the risk of signiﬁcant legal
liabilities to its clients and aggrieved third parties, including stockholders of its clients who could bring
securities class actions against Ladenburg. As a result, Ladenburg may incur signiﬁcant
legal and other
expenses in defending against litigation and may be required to pay substantial damages for settlements and
adverse judgments. Ladenburg’s underwriting activities often involve offerings of the securities of smaller
companies, which may involve a higher degree of risk and are more volatile than the securities of more
established companies. In comparison with more established companies, smaller companies are also more
likely to be the subject of securities class actions, to carry directors and officers liability insurance policies
with lower limits or not at all, and to become insolvent. Each of these factors increases the likelihood that an
underwriter of a smaller company’s securities will be required to contribute to an adverse judgment or
settlement of a securities lawsuit.

While we do not expect the outcome of any pending claims against us to have a material adverse impact
these types of
on our business, ﬁnancial condition, or results of operations, we cannot assure you that
proceedings, which may generate losses that signiﬁcantly exceed our reserves, will not materially and

adversely affect us. Also, legal or regulatory actions could cause signiﬁcant reputational harm, which could in
turn seriously harm our business prospects.

Risk Factors Relating to the Regulatory Environment

We are subject to extensive regulation and the failure to comply with these regulations could subject us to
penalties or sanctions.

The securities industry and our business is subject to extensive regulation by the SEC, state securities
regulators and other governmental regulatory authorities. We are also regulated by industry self-regulatory
organizations, including FINRA and the MSRB. The regulatory environment is also subject to change and we
may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other
federal or state governmental regulatory authorities, or self-regulatory organizations. We also may be adversely
affected by changes in the interpretation or enforcement of existing laws and rules by these governmental
authorities and self-regulatory organizations.

Each of Securities America, Triad, SSN, Investacorp, KMS and Ladenburg is a registered broker-dealer
with the SEC and FINRA. Highland is subject to regulation by various regulatory bodies, including state
attorneys general and insurance departments. Premier Trust is subject to regulation by the Nevada Department
of Business and Industry Financial Institutions Division. Broker-dealers are subject to regulations which cover
all aspects of the securities business, including:

•

sales methods and supervision;

trading practices among broker-dealers;

use and safekeeping of customers’ funds and securities;

capital structure of securities ﬁrms;

record keeping;

conduct of directors, officers and employees; and

advertising, including regulations related to telephone solicitation.

Compliance with many of these regulations involves a number of risks, particularly in areas where
applicable regulations may be subject to varying interpretation. The requirements imposed by these regulators
are designed to ensure the integrity of the ﬁnancial markets and to protect customers and other third parties
who deal with us. Consequently,
including through
net capital, customer protection and market conduct requirements. Much of the regulation of broker-dealers
to
has been delegated to self-regulatory organizations, principally FINRA. FINRA adopts rules, subject
SEC approval, that govern broker-dealers and conducts periodic examinations of ﬁrms’ operations.

these regulations often serve to limit our activities,

If we are found to have violated any applicable regulation, formal administrative or judicial proceedings

may be initiated against us that may result in:

•

censure;

ﬁne;

civil penalties, including treble damages in the case of insider trading violations;

the issuance of cease-and-desist orders;

the termination or suspension of our broker-dealer activities;

the suspension or disqualiﬁcation of our officers, employees or ﬁnancial advisors; or

other adverse consequences.

Certain of our subsidiaries have been subject to some of the penalties listed above. For instance, in
March 2014, two of our broker-dealer subsidiaries entered into agreements with FINRA under which they
agreed to ﬁnes, censures and other relief. The imposition of any of the penalties listed above could have a
material adverse effect on our operating results and ﬁnancial condition.

Extensive or frequent changes in regulations could adversely affect our business and results of operations.

The securities industry is subject to extensive and frequently changing requirements under federal and
state securities and other applicable laws and self-regulatory organization rules. The SEC, FINRA, various
securities exchanges and other U.S. governmental or regulatory authorities continuously review legislation and
regulatory initiatives and may adopt new or revised laws and regulations. Such laws and regulations may be
complex, and we may not have the beneﬁt of regulatory or federal interpretations to guide us in compliance.
Changes in laws and regulation or new interpretations of existing laws and regulations also could have an
adverse effect on our methods and costs of doing business.

For example, certain state securities regulators require that investors in certain securities meet minimum
income and/or net worth standards. These standards vary from state to state and change frequently. Changes to
suitability standards may require us to expend resources to ensure that we and our ﬁnancial advisors comply
with the new standards. If a ﬁnancial advisor does not satisfy the requirements with regard to suitability
standards, we could be subject to substantial liability, including ﬁnes, penalties and possibly rescission. Along
with suitability requirements, state regulators have also imposed limitations on an investor’s exposure to direct
investment programs. The breadth and scope of these limitations have varied considerably and may operate to
limit the exposure that a resident of a particular state has to a product, sponsor or direct investment programs
generally. These concentration limitations have been applied with increasing frequency and have increasingly
targeted all direct investment programs.

FINRA has identiﬁed rollovers of client assets from group retirement plans to individual retirement
accounts (IRAs) as an area of
its periodic regulatory
including compliance with regulations regarding
examinations of broker-dealers will focus on this area,
suitability, conﬂicts of interest, disclosures to clients and supervision. This enhanced regulatory focus may
discourage rollovers of assets into IRAs, which would negatively impact our results of operations. Qualiﬁed
accounts, speciﬁcally IRAs, make up a signiﬁcant portion of our client assets.

increased scrutiny. FINRA has announced that

to direct

Also, with respect

investment programs, FINRA has amended its rules, effective as of
April 2016, that govern disclosure of a per share estimated value of a direct investment program security. The
new rules provide different methodologies for calculating and reporting such per share estimated values and
require enhanced disclosure to investors. These new rules could adversely impact direct investment programs
if investors or ﬁnancial advisors react negatively to the new disclosure regime, and such an adverse impact
may harm our results of operations.

Additionally, the Dodd-Frank Act may impact the manner in which we operate our business and interact
with regulators and many regulations under the Dodd-Frank Act have not yet been proposed or implemented.
In particular,
the impact of the establishment of a ﬁduciary standard for broker-dealers by the SEC is
uncertain and may require us to expend resources to ensure that we and our ﬁnancial advisors comply with
the new standards.

As discussed in Item 1 ‘‘Business — Government Regulation,’’ the DOL has proposed regulations that
would signiﬁcantly expand the scope of who is considered an ERISA ﬁduciary and what activity constitutes
acting as an ERISA ﬁduciary, while prohibiting certain additional types of transactions conducted by persons
related
who are considered ﬁduciaries. As proposed,
to investment recommendations made by ﬁnancial advisors or registered investment advisors to clients holding
qualiﬁed accounts and other types of ERISA clients as well as how ﬁnancial advisors are able to discuss IRA
rollovers. We are continuing to review and analyze the potential impact of the proposed regulations on our
clients and prospective clients as well as the potential impact on our business. We cannot predict how any
ﬁnal regulations may differ from the proposed regulation. If ﬁnal regulations were to be issued with provisions
substantially similar to the proposed regulations, they could impact how we receive fees, how we compensate
our advisors, how we are able to retain advisors, and how we design our investments and services for
qualiﬁed accounts, any of which could negatively impact our results of operations.

these regulations focus on conﬂicts of

interest

Legislative, judicial or regulatory changes to the classiﬁcation of independent contractors could increase
our operating expenses.

From time to time, various legislative or regulatory proposals are introduced at the federal or state levels
tax
to change the status of independent contractors’ classiﬁcation to employees for either employment
purposes (withholding, social security, Medicare and unemployment
taxes) or other beneﬁts available to
employees. Currently, most individuals are classiﬁed as employees or independent contractors for employment
tax purposes based on 20 ‘‘common law’’ factors, rather than any deﬁnition found in the Internal Revenue
Code or Internal Revenue Service (‘‘IRS’’) regulations. Each of Securities America, Triad, SSN, Investacorp
and KMS classiﬁes its ﬁnancial advisors as independent contractors for all purposes, including employment
tax and employee beneﬁt purposes. We cannot assure you that legislative, judicial, or regulatory (including
tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that
would change the employee/independent contractor classiﬁcation of these broker-dealers’ ﬁnancial advisors.
The costs associated with potential changes, if any, to these independent contractor classiﬁcations could have a
material adverse effect on us, including our results of operations and ﬁnancial condition.

Failure to comply with capital requirements could subject us to suspension, revocation or ﬁnes by the SEC,
FINRA or other regulators.

Our broker-dealer subsidiaries are subject to the SEC’s Net Capital Rule, which requires the maintenance
to the net capital requirements of CFTC
of minimum net capital. Also, Securities America is subject
Regulation 1.17. Under Nevada law, Premier Trust must maintain minimum stockholders’ equity of at least
$1,000,000, including at least $250,000 in cash. At December 31, 2015, each of our broker-dealer subsidiaries
exceeded its minimum net capital requirement and Premier Trust exceeded its minimum stockholder’s equity
requirement. The Net Capital Rule is designed to measure the general ﬁnancial integrity and liquidity of a
broker-dealer. In computing net capital, various adjustments are made to net worth which exclude assets not
readily convertible into cash. The regulations also require that certain assets, such as a broker-dealer’s position
in securities, be valued in a conservative manner to avoid inﬂation of the broker-dealer’s net capital. The Net
Capital Rule requires a broker-dealer to maintain a minimum level of net capital. The particular levels vary
depending upon the nature of the activity undertaken by a ﬁrm. Compliance with the Net Capital Rule limits
those operations of broker-dealers which require the intensive use of their capital, such as underwriting
commitments and principal
trading activities. The rule also limits the ability of securities ﬁrms to pay
dividends or make payments on certain indebtedness such as subordinated debt as it matures. A signiﬁcant
operating loss or any charge against net capital could adversely affect the ability of a broker-dealer to expand
or, depending on the magnitude of the loss or charge, maintain its then present level of business. FINRA may
enter the offices of a broker-dealer at any time, without notice, and calculate the ﬁrm’s net capital. If the
calculation reveals a net capital deﬁciency, FINRA may immediately restrict or suspend some or all of the
broker-dealer’s activities, including its ability to make markets. Our broker-dealer subsidiaries may not be able
to maintain adequate net capital, or their net capital may fall below requirements established by the SEC or the
CFTC, as applicable, and subject us to disciplinary action in the form of ﬁnes, censure, suspension, expulsion or
the termination of business altogether. During the fourth quarter of 2009 and the ﬁrst quarter of 2016, Triad had a
short-term net-capital deﬁciency. See Note 5 to the audited consolidated ﬁnancial statements.

Risk Factors Relating to Strategic Acquisitions and the Integration of Acquired Operations

We may be unable to successfully integrate acquired businesses into our existing business and operations,
which may adversely affect our cash ﬂows, liquidity and results of operations.

We have completed numerous acquisitions since 2006. We continue to explore opportunities to grow our
businesses, including through potential acquisitions of other ﬁnancial services ﬁrms, both domestically and
internationally. These acquisitions may involve payments of material amounts of cash, incurrence of a material
amount of debt or the issuance of signiﬁcant amounts of our equity securities, which may increase our
leverage and/or be dilutive to our existing shareholders. We may experience difficulty integrating the
operations of these entities or any other entities acquired in the future into our existing business and
operations. Furthermore, we may not be able to retain all of the employees we acquire as a result of these
transactions. If we are unable to effectively address these risks, we may be required to restructure the acquired
businesses or write-off the value of some or all of the assets of the acquired business. If we are unable to

successfully integrate acquired businesses into our existing business and operations in the future, it could have
a material adverse effect on our liquidity, cash ﬂows and results of operations.

We may be adversely affected if the ﬁrms we acquire do not perform as expected.

Even if we successfully complete acquisitions, we may be adversely affected if the acquired ﬁrms do not
perform as expected. The ﬁrms we acquire may perform below expectations after the acquisition for various
reasons, including legislative or regulatory changes that affect the products in which a ﬁrm specializes, the
loss of key clients, employees and/or ﬁnancial advisors after the acquisition closing, general economic factors
and the cultural incompatibility of an acquired ﬁrm’s management team with us. The failure of ﬁrms to
perform as expected at the time of acquisition may have an adverse effect on our earnings and revenue growth
rates, and may result in impairment charges and/or generate losses or charges to earnings.

We face numerous risks and uncertainties as we expand our business.

We expect the growth of our business to come primarily from organic growth and through acquisitions.
As we expand our business, there can be no assurance that our ﬁnancial controls, the level and knowledge of
our personnel, our operational abilities, our legal and compliance controls and our other corporate support
systems will be adequate to manage our business and our growth. The ineffectiveness of any of these controls
or systems could adversely affect our business and prospects. In addition, as we acquire new businesses, we
face numerous risks and uncertainties integrating their controls and systems into ours, including ﬁnancial
controls, accounting and data processing systems, management controls and other operations. A failure to
integrate these systems and controls, and even an inefficient integration of these systems and controls, could
adversely affect our business, cash ﬂows and results of operations.

Risk Factors Relating to Owning Our Stock

The price of our common stock and Series A Preferred Stock may ﬂuctuate signiﬁcantly, and this may
make it difficult for you to resell the shares of our stock at prices you ﬁnd attractive.

The trading price of our common stock, as reported by the NYSE MKT, has ranged from a low of $1.80
to a high of $4.08 per share for the 52 week period ended December 31, 2015. The trading price of our
Series A Preferred Stock, as reported by the NYSE MKT, has ranged from a low of $17.33 to a high of
$25.41 per share during 2015. We expect that the market price of our common stock and Series A Preferred
Stock will continue to ﬂuctuate signiﬁcantly.

The market price of our stock may ﬂuctuate in response to numerous factors, many of which are beyond

our control. These factors include:

•

variations in quarterly operating results;

general economic and business conditions,
investment banking markets;

including conditions in the securities brokerage and

prevailing interest rates, increases in which may have an adverse effect on the market price of the
Series A Preferred Stock;

trading prices of similar securities;

the annual yield from dividends on the Series A Preferred Stock as compared to yields on other
ﬁnancial instruments;

our announcements of signiﬁcant contracts, milestones or acquisitions;

our relationships with other companies;

our ability to obtain needed capital;

additions or departures of key personnel;

the initiation or outcome of litigation or arbitration proceedings;

sales of common stock, conversion of securities convertible into common stock, exercise of options
and warrants to purchase common stock or termination of stock transfer restrictions;

•

legislation or regulatory policies, practices or actions;

changes in ﬁnancial estimates by securities analysts; and

ﬂuctuations in stock market prices and volume.

Any one of these factors could have an adverse effect on the market price of our common stock and/or
Series A Preferred Stock. Also, the stock market in recent years has experienced signiﬁcant price and volume
ﬂuctuations that have materially affected the market prices of equity securities of many companies and that
often have been unrelated to such companies’ operating performance. These market ﬂuctuations have
adversely impacted the price of our common stock in the past and may do so in the future. Also, shareholders
may initiate securities class action lawsuits if the market price of our stock drops signiﬁcantly, which may
cause us to incur substantial costs and divert our management’s time and attention. These factors, among
others, could signiﬁcantly depress the price of our common stock.

Our principal shareholders including our directors and officers control a large percentage of our shares of
common stock and can signiﬁcantly inﬂuence our corporate actions.

At March 7, 2016 our named executive officers, directors and their affiliates, beneﬁcially owned
approximately 46.69% of our common stock. Accordingly, these individuals and entities can signiﬁcantly
inﬂuence most, if not all, of our corporate actions, including the election of directors and the appointment of
officers. Also, this ownership of our common stock may make it difficult for a third party to acquire control of
us, therefore possibly discouraging third parties from seeking to acquire us. A third party would have to
negotiate any possible transactions with these principal shareholders, and their interests may be different from
the interests of our other shareholders. This may depress the price of our common stock.

Our quarterly operating results may ﬂuctuate substantially due to the nature of our business and therefore
we may fail to meet proﬁtability expectations.

Our operating results may ﬂuctuate from quarter to quarter and from year to year due to a combination of
factors, including: ﬂuctuations in capital markets, which may affect trading activity in commission-based
accounts and asset values in fee-based accounts, the level of underwriting and advisory transactions completed
by Ladenburg and attrition of ﬁnancial advisors. Accordingly, our results of operations may ﬂuctuate
signiﬁcantly due to an increased or decreased number of transactions in any particular quarter or year.

Reports published by securities or industry analysts, including projections in those reports that exceed our
actual results, could adversely affect our stock price and trading volume.

Research analysts publish their own quarterly projections regarding our operating results. These
projections may vary widely from one another and may not accurately predict the results we actually achieve.
Our stock price may decline if we fail to meet securities research analysts’ projections. Similarly, if one or
more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research
about our business, our stock price could decline. If one or more of these analysts ceases coverage of us or
fails to publish reports on us regularly, our stock price or trading volume could decline.

Possible additional share issuances may cause signiﬁcant dilution.

At December 31, 2015, we had outstanding 182,338,038 shares of common stock, options and warrants
to purchase a total of 57,494,385 shares of common stock and 14,683,021 shares of our Series A Preferred
Stock. We are authorized to issue up to 800,000,000 shares of common stock and 25,000,000 shares of
preferred stock and are able to issue a signiﬁcant number of additional shares without obtaining shareholder
approval. If we issue additional shares, or if our existing shareholders exercise their outstanding options and
warrants, our other shareholders may be signiﬁcantly diluted, which means that
they would own a
smaller percentage of our company.

We may issue preferred stock with preferential rights that may adversely affect your rights.

The rights of our shareholders will be subject to and may be adversely affected by the rights of holders
of any preferred stock that we may issue in the future. Our articles of incorporation authorize our board of
directors to issue up to 25,000,000 shares of ‘‘blank check’’ preferred stock and to ﬁx the rights, preferences,
privilege and restrictions, including voting rights, of these shares without further shareholder approval.

We do not expect to pay any cash dividends on our common stock.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Accordingly,
you must rely on sales of your common stock after price appreciation, which may never occur, as the only
way to realize any positive return on your investment in our common stock. Net capital requirements imposed
on our broker-dealer subsidiaries by the SEC and our obligation to pay dividends on our Series A Preferred
Stock restrict our ability to pay dividends on our common stock.

Market interest rates may materially and adversely affect the value of the Series A Preferred Stock.

interest rates. An increase in market

One of the factors that inﬂuences the price of the Series A Preferred Stock is the dividend yield on the
Series A Preferred Stock (as a percentage of the market price of the Series A Preferred Stock) relative to
market
low levels relative to
historical rates, may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend
yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds
available for dividend payments). Thus, higher market interest rates could cause the market price of the
Series A Preferred Stock to materially decrease.

interest rates, which are currently at

We may not be able to pay dividends on the Series A Preferred Stock.

Under Florida law, we may not make any distribution to our shareholders, including holders of the
Series A Preferred Stock, if, after giving effect to the distribution, we would not be able to pay our debts as
they become due in the usual course of business, or our total assets would be less than the sum of our total
liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose preferred rights are superior to those
receiving the distribution. Our ability to pay cash dividends on the Series A Preferred Stock will require us to
have positive net assets (total assets less total liabilities) over our capital and to be able to pay our debts as
they become due in the usual course of business. Further, notwithstanding these factors, we may not have
sufficient cash to pay dividends on the Series A Preferred Stock. Our ability to pay dividends may be impaired
if any of the risks described in this report were to occur. Also, payment of our dividends depends upon our
ﬁnancial condition and other factors as our board of directors may deem relevant from time to time. We
cannot assure you that our businesses will generate sufficient cash ﬂow from operations or that future
borrowings will be available to us in an amount sufficient to enable us to make distributions on our common
stock, if any, and preferred stock, including the Series A Preferred Stock, to pay our indebtedness or to fund
our other liquidity needs.

If our common stock is delisted, the ability to transfer or sell shares of our Series A Preferred Stock may be
limited and the market value of our Series A Preferred Stock will likely be materially adversely affected.

Other than in connection with a Change of Control (as deﬁned in the terms of our Series A Preferred
Stock), our Series A Preferred Stock does not contain provisions that are intended to protect a holder if our
common stock is delisted from the NYSE MKT. Since the Series A Preferred Stock has no stated maturity
date, holders may be forced to hold shares of our Series A Preferred Stock and receive stated dividends on the
Series A Preferred Stock when, as and if authorized by our board of directors and paid by us with no
assurance as to ever receiving the liquidation value thereof. Also, if our common stock is delisted from the
NYSE MKT, it is likely that our Series A Preferred Stock will be delisted from the NYSE MKT as well.
Accordingly, if our common stock is delisted from the NYSE MKT, the ability to transfer or sell shares of our
Series A Preferred Stock may be limited and the market value of our Series A Preferred Stock will likely be
materially adversely affected.

The change of control conversion rights of our Series A Preferred Stock may make it more difficult for a
party to acquire us or discourage a party from acquiring us.

Upon the occurrence of a Change of Control, each holder of the Series A Preferred Stock has the right
(subject to our election to redeem the Series A Preferred Stock in whole or in part prior to the date the
Series A Preferred Stock is to be converted) to convert some or all of such holder’s Series A Preferred Stock
into shares of our common stock (or under speciﬁed circumstances, certain alternative consideration).

The Change of Control conversion feature of the Series A Preferred Stock may have the effect of
discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing
certain of our change of control transactions under circumstances that otherwise could provide the holders of
our common stock and Series A Preferred Stock with the opportunity to realize a premium over the
then-current market price of such stock or that shareholders may otherwise believe is in their best interests.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.

PROPERTIES.

Our principal executive offices are located at 4400 Biscayne Boulevard, 12th Floor, Miami,
Florida 33137, where we have leased approximately 18,150 square feet of office space. The lessor is Frost
Real Estate Holdings, LLC, an entity affiliated with Dr. Phillip Frost, our Chairman of the Board and principal
shareholder. Our lease was renewed in March 2013 and now expires in February 2018, and the amount of
office space leased was increased from approximately 15,800 square feet.

Ladenburg’s principal executive offices are located at 570 Lexington Avenue, 11th ﬂoor, New York,
New York 10022, where it subleases approximately 38,000 square feet of office space under a lease that
expires in April 2017. Ladenburg previously occupied office space at 590 Madison Avenue, New York,
New York; Ladenburg previously subleased all of this space to three unrelated parties on various terms that
provided for sublease payments to Ladenburg of approximately $807,000 through June 2015, when the lease
expired. One of these subtenants ﬁled for bankruptcy protection under Chapter 7 of the Federal Bankruptcy
Code in April 2015. As a result, Ladenburg wrote-off a receivable from subtenant of $855,000 and incurred
additional rent expense due to default by subtenant of $468,000 during 2015. Ladenburg also operates branch
offices in leased office space. Such branch offices are located in Miami, Naples and Boca Raton, Florida,
Morristown, New Jersey, Boston, Massachusetts, Houston, Texas, Calabasas, Irvine and San Francisco,
California, Melville, New York and Westhampton Beach, New York.

Our independent ﬁnancial advisors are responsible for the office space they occupy, whether by lease or
otherwise. Information regarding the principal executive offices used in our independent brokerage and
advisory services segment is listed below:

Subsidiary

Securities America
Triad
SSN
Investacorp
KMS
Premier Trust

Location

La Vista, NE
Norcross, GA
Knoxville, TN
Miami, FL
Seattle, WA
Las Vegas, NV

Approximate
Square Footage

Lease Expiration Date

80,000
21,835
15,000
11,475
8,575
14,450

January 2018
February 2025
March 2020(1)
September 2020(2)
September 2024
September 2019

(1) The lessor is Cogdill Capital LLC, an entity of which SSN’s CFO and CEO are members.
(2) The lessor is Frost Real Estate Holdings, LLC, an entity affiliated with Dr. Phillip Frost, our Chairman of

the Board and principal shareholder.

Highland’s principal executive offices are located in Birmingham, AL, where it leases approximately

13,935 square feet under a lease that expires in March 2021.

We believe that our existing properties are adequate for the current operating requirements of our

business and that additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS.

The information under the heading ‘‘Litigation and Regulatory Matters’’ contained in Note 13 to our
consolidated ﬁnancial statements included in Part II, Item 8 of this annual report on Form 10-K is
incorporated by reference in this Item 3.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock trades on the NYSE MKT under the symbol ‘‘LTS.’’ The following table sets forth

the high and low sales prices of our common stock for the periods speciﬁed:

Period
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter

High
$4.08
3.97
3.50
3.28

Low
$3.80
3.23
1.80
2.07

High
$3.25
3.18
4.34
4.50

Low
$2.32
2.57
3.10
3.29

2015

2014

Our Series A Preferred Stock trades on the NYSE MKT under the symbol ‘‘LTS PrA.’’

Holders

At March 4, 2016, there were approximately 3,288 record holders of our common stock.

Common Stock Dividends

We have never paid or declared any dividends on our common stock. We do not anticipate paying cash
dividends on our common stock in the foreseeable future. The payment of future dividends, if any, will be at
our board of directors’ discretion after
taking into account our ﬁnancial condition, operating results,
anticipated cash needs and any other factors that our board of directors may deem relevant. The net capital
requirements imposed on our broker-dealer subsidiaries by the SEC, the obligation to pay dividends on our
outstanding preferred stock and covenants contained in our outstanding debt agreements also restrict our
ability to pay dividends.

Issuer Purchases of Equity Securities

This table shows information regarding our purchases of our common stock during the fourth quarter

of 2015.

Period
October 1 to October 31, 2015 . . . . . . . .
November 1 to November 30, 2015 . . . . .
December 1 to December 31, 2015 . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Number of
Shares Purchased
543,592
496,395
566,759
1,606,746

Average Price
Paid per Share
$2.44
2.99
3.02
$2.81

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
543,592
496,395
566,759
1,606,746

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs(1)
6,293,587
5,797,192
5,230,433

(1)

In March 2007, our board of directors authorized the repurchase of up to 2,500,000 shares of our
common stock from time to time on the open market or in privately negotiated transactions depending on
market conditions. In October 2011, our board amended this repurchase program to permit the purchase
of up to an additional 5,000,000 shares. In November 2014, our board amended this repurchase program
the purchase of up to an additional 10,000,000 shares. As of December 31, 2015,
to permit
12,269,567 shares had been repurchased for $31,979 under the program. On August 15, 2013, we
purchased 3,000,000 shares of our common stock at a price of $1.67 per share in a privately-negotiated
transaction, which was not made pursuant to a stock repurchase program. In the fourth quarter of 2015,
we adopted a Rule 10b5-1 trading plan, and intend to adopt similar plans periodically in the future, to
permit the repurchase of common stock pursuant to the existing stock repurchase program during certain
restricted trading periods.

ITEM 6.

SELECTED FINANCIAL DATA.

The selected ﬁnancial data set forth below is derived from our audited consolidated ﬁnancial statements.
You should read this selected ﬁnancial data together with Item 7, ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ and the consolidated ﬁnancial statements and the notes thereto
included elsewhere in this annual report on Form 10-K:

2015

Year Ended December 31,
2013
(In thousands, except share and per share amounts)

2014

2012

2011

Operating Results:
Total revenues . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . .
(Loss) income before item shown

below . . . . . . . . . . . . . . . . . .

Change in fair value of contingent

consideration . . . . . . . . . . . . . .
(Loss) income before income taxes. . .
Net (loss) income . . . . . . . . . . . . .

1,152,118
1,163,868

921,253(a) $
911,259

793,116
790,591

650,111
672,114

273,600(b)
285,902

(11,750)

55
(11,695)
(11,213)

9,994

12
10,006
33,352

2,525

(121)
2,404
(522)

(22,003)

(12,302)

7,111
(14,892)
(16,354)

—
(12,302)
3,893

Per common and equivalent share:
(Loss) income per common

share − basic . . . . . . . . . . . . . .

(Loss) income per common

share − diluted . . . . . . . . . . . . .

Basic weighted average common

(0.21)

0.09

0.08

(0.04)

(0.09)

0.02

. . . . . . . . . . . . . . . . . .

183,660,993

182,768,494

182,295,476

183,572,582

183,023,590

Diluted weighted average common

. . . . . . . . . . . . . . . . . .

183,660,993

206,512,437

182,295,476

183,572,582

189,014,028

Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . .
Total liabilities
. . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . .

Other Data:
Book value per common share . . . . .

574,358
198,327
376,002

510,758
174,287
336,460

360,820
167,407
193,361

338,129
286,908
51,221

347,145
283,702
63,443

2.06

1.82

1.06

0.28

0.34

(a)

(b)

Includes $26,164 of revenue from Highland (acquired July 31, 2014) and $19,840 of revenue from KMS
(acquired October 15, 2014). See Note 3 to our consolidated ﬁnancial statements included in this report.
Includes $57,090 of revenue from Securities America (acquired November 4, 2011).

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS.

(Dollars in thousands, except share and per share amounts)

Overview

The independent brokerage and advisory services segment includes the broker-dealer and investment
advisory services provided by our independent broker-dealer subsidiaries to their independent contractor
ﬁnancial advisors and wealth management services provided by Premier Trust. The Ladenburg segment
includes the investment banking, sales and trading and asset management services and investment activities
conducted by Ladenburg and LTAM. The insurance brokerage segment
includes the wholesale insurance
brokerage activities conducted by Highland, which delivers life insurance, ﬁxed and equity indexed annuities,
as well as long-term care solutions to investment and insurance providers.

Acquisition Strategy

We continue to explore opportunities to grow our businesses, including through possible acquisitions of
other ﬁnancial services ﬁrms, both domestically and internationally. These acquisitions may involve payments
of material amounts of cash, the incurrence of material amounts of debt, which would increase our leverage,
or the issuance of signiﬁcant amounts of our equity securities, which may be dilutive to our existing
shareholders. We cannot assure you that we will be able to complete any such possible acquisitions on
acceptable terms or at all or, if we do, that any acquired business will be proﬁtable. We also may not be able
to successfully integrate acquired businesses into our existing business and operations.

During the year ended December 31, 2015, we incurred $45,000 of indebtedness related to acquisitions,
$16,355 of which was outstanding as of December 31, 2015. During the three years ended December 31, 2015, in
connection with acquisitions, we issued 3,981,684 shares of common stock and incurred $60,600 of indebtedness.

Recent Developments

Preferred Stock Offerings

During the year ended December 31, 2015, we sold 3,586,790 shares of Series A Preferred Stock

pursuant to ‘‘at the market’’ programs, which provided net proceeds of $84,380.

Stock Repurchases

During 2015, we repurchased an aggregate of 5,673,415 shares of our common stock for $16,355. In
November 2014, our board of directors approved an amendment to our stock repurchase program to permit
the repurchase of an additional 10,000,000 shares of common stock. As of March 7, 2016, we have the
authority to repurchase an additional 4,129,956 shares.

Critical Accounting Policies

General. The preparation of ﬁnancial statements in conformity with accounting principles generally
accepted in the United States of America, referred to as GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Clearing Arrangements. Our broker-dealer subsidiaries do not carry accounts for customers or perform
custodial functions related to customers’ securities. Each of our broker-dealer subsidiaries introduces all of its
customer transactions, which are not reﬂected in these ﬁnancial statements, to its clearing brokers, which
maintain the customers’ accounts and clear such transactions. Also, the clearing brokers provide the clearing
and depository operations for our broker-dealer subsidiaries’ proprietary securities transactions. These activities
may expose us to off-balance-sheet risk in the event that customers do not fulﬁll their obligations with the
clearing brokers, as we have agreed to indemnify our clearing brokers for any resulting losses. We continually
assess risk associated with each customer who is on margin credit and record an estimated loss when we
believe collection from the customer is unlikely. We incurred losses from these arrangements, prior to any
recoupment from our ﬁnancial advisors, of $11, $47 and $148 for the years ended December 31, 2015, 2014
and 2013, respectively.

Customer Claims, Litigation and Regulatory Matters.

In the ordinary course of business, our operating
subsidiaries have been and are the subject of numerous civil actions and arbitrations arising out of customer
complaints relating to their activities as a broker-dealer, as an employer or supervisor and as a result of other
the cases involve various allegations that our employees or independent
business activities. In general,
ﬁnancial advisors had mishandled customer accounts. Due to the uncertain nature of litigation in general, we
are unable to estimate a range of possible loss related to lawsuits ﬁled against us, but based on our historical
experience and consultation with counsel, we typically reserve an amount we believe will be sufficient to
cover any damages assessed against us. We had accruals of $1,358 at December 31, 2015 and $359 at
December 31, 2014 for potential losses. See Note 13 to our consolidated ﬁnancial statements included in this
report.

However, in the past we have been assessed damages that exceeded our reserves. If we misjudge the
amount of damages that may be assessed against us from pending or threatened claims, or if we are unable to
adequately estimate the amount of damages that will be assessed against us from claims that arise in the
future and reserve accordingly, our operating income and liquidity would be reduced. Such costs may have a
material adverse effect on our future ﬁnancial position, results of operations and liquidity.

Fair Value.

‘‘Trading securities owned’’ and ‘‘Securities sold, but not yet purchased’’ on our
consolidated statements of ﬁnancial condition are recorded at fair value, with related unrealized gains and
losses recognized in our results of operations. The determination of fair value is fundamental to our ﬁnancial
condition and results of operations and, in certain circumstances, it requires management to make complex
judgments.

Fair values are based on listed market prices, where possible. If listed market prices are not available or
if the liquidation of our positions would reasonably be expected to impact market prices, fair value is
determined based on other relevant factors, including dealer price quotations. Fair values for certain derivative
contracts are derived from pricing models that consider market and contractual prices for the underlying
ﬁnancial instruments or commodities, as well as time value and yield curve or volatility factors underlying the
positions.

Pricing models and their underlying assumptions impact the amount and timing of unrealized gains and
losses recognized, and the use of different pricing models or assumptions could produce different ﬁnancial
results. Changes in the ﬁxed income and equity markets will impact our estimates of fair value in the future,
potentially affecting principal trading revenues. The illiquid nature of certain securities or debt instruments
also requires a high degree of judgment in determining fair value due to the lack of listed market prices and
the potential impact of the liquidation of our position on market prices, among other factors.

The Financial Accounting Standards Board, which we refer to as the FASB, has issued authoritative
accounting guidance that deﬁnes fair value, establishes a framework for measuring fair value and establishes a
fair value hierarchy which prioritizes the inputs to valuation techniques. The guidance clariﬁes that fair value
should be based on assumptions that market participants would use when pricing an asset or liability.

Valuation of Deferred Tax Assets. We account for income taxes under the asset and liability method,
which requires the recognition of tax beneﬁts or expense on the temporary differences between the tax basis
and book basis of our assets and liabilities as well as tax loss carryforwards. Deferred tax assets and liabilities

are measured using the enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Net deferred tax liability as of December 31,
2015, which consists principally of the tax beneﬁt of net operating loss carryforwards, compensation charges
related to equity instruments and deferred compensation liabilities, offset by intangible assets and goodwill,
amounted to $4,416. After consideration of all the evidence, both positive and negative, we have determined
that it was more likely than not that deferred tax assets would be realized with the exception of certain state
net operating losses in the amount of $79.

Stock-Based Compensation. Our stock based compensation uses a fair value-based method to recognize
non-cash compensation expense for share-based transactions. The accounting guidance requires an entity to
measure the cost of employee, officer and director services received in exchange for an award of equity
instruments, including stock options and restricted stock, based on the grant-date fair value of the award. The
cost is recognized as compensation expense over the service period, which would normally be the vesting
period of the options. Compensation expense for share-based awards granted to independent contractors is
measured at their vesting date fair value. The compensation expense recognized each period is based on the
awards’ estimated value at the most recent reporting date.

the carrying amount may be not

Intangible Assets. We amortize intangible assets over their estimated useful

lives generally on a
straight-line basis. Intangible assets subject to amortization are tested for recoverability whenever events or
changes in circumstances indicate that
recoverable. We assess the
recoverability of our intangible assets by determining whether the unamortized balance can be recovered over
the assets’ remaining life through undiscounted forecasted cash ﬂows. If undiscounted forecasted cash ﬂows
indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such
amounts to an amount consistent with forecasted future cash ﬂows discounted at a rate commensurate with the
risk associated with achieving future discounted cash ﬂows. Future cash ﬂows are based on trends of historical
performance and our estimate of future performances, giving consideration to existing and anticipated
competitive and economic conditions.

is not subject

Goodwill. Goodwill

to amortization and is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset may be impaired. The impairment test
consists of a comparison of the fair value of the reporting unit with its carrying amount. Fair value is typically
based upon future cash ﬂows discounted at a rate commensurate with the risk involved or market based
comparables. If the carrying amount of the reporting unit exceeds its fair value then an analysis will be
performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An
impairment loss will be recognized in an amount equal to excess of the carrying amount over the implied fair
value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting
basis. Accounting guidance on the testing of goodwill for impairment allows entities the option of performing
a qualitative assessment to determine the likelihood of goodwill impairment and whether it is necessary to
perform such two-step quantitative impairment test. The annual impairment tests performed at December 31,
2015 and 2014 based on quantitative and qualitative assessments did not indicate that the carrying value of
goodwill had been impaired. However, changes in circumstances or business conditions could result in an
impairment of goodwill.

Results of Operations

The following discussion provides an assessment of our consolidated results of operations, capital
resources and liquidity and should be read in conjunction with our audited consolidated ﬁnancial statements
and related notes included elsewhere in this report. Our consolidated ﬁnancial statements include our accounts
and the accounts of Ladenburg, Investacorp, Triad, Premier Trust, Securities America, Highland (since July 31,
2014), KMS (since October 15, 2014), SSN (since January 2, 2015) and our other wholly-owned subsidiaries.

The following table includes a reconciliation of EBITDA, as adjusted, to net (loss) income attributable to

the Company as reported:

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . . . .
Net (loss) income attributable to the Company . . . . . .

Reconciliation of EBITDA, as adjusted, to net (loss)

income attributable to the Company:

2015
$1,152,118
1,163,868
(11,695)
(11,151)

Year Ended December 31,
2014
$921,253
911,259
10,006
33,433

2013
$793,116
790,591
2,404
(522)

EBITDA, as adjusted . . . . . . . . . . . . . . . . . . . . . . .

43,636

$ 61,178

$ 57,203

Add:

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . .

254
55

245
12

194
(121)

Less:

. . . . . . . . . . . . . . . .
Loss on extinguishment of debt
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax beneﬁt (expense)
. . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Non-cash compensation expense . . . . . . . . . . . . . . . .
Amortization of retention and forgivable loans . . . . . .
Financial advisor recruiting expense . . . . . . . . . . . . .
Acquisition-related expense . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Net (loss) income attributable to the Company . . . . . .

(252)
(5,169)
482
(27,077)
(8,759)
(9,238)
(2,387)
(528)
(2,168)(1)

$ (11,151)

(548)
(6,990)
23,346
(18,397)
(10,541)
(11,041)
(1,489)
(2,342)
—
$ 33,433

(4,547)
(15,438)
(2,926)
(15,315)
(6,766)
(11,544)
(1,194)
—
—
(454)

(1)

Includes loss on write-off of receivable from subtenant of $855, deferred compensation obligation of
$532, rent expense due to default by subtenant of $468 and excise and franchise tax expense of $313 for
the twelve months ended December 31, 2015.

and

taxes,

before

interest,

adjusted

Earnings

depreciation

amortization,

or EBITDA,

for
acquisition-related expense, amortization of retention and forgivable loans, change in fair value of contingent
consideration related to acquisitions, loss on extinguishment of debt, non-cash compensation expense, ﬁnancial
advisor recruiting expense and other expense, which includes loss on write-off of receivable from subtenant,
excise and franchise tax expense and compensation expense that may be paid in stock, is a key metric we use
in evaluating our ﬁnancial performance. EBITDA, as adjusted, is considered a non-GAAP ﬁnancial measure as
deﬁned by Regulation G promulgated by the SEC under the Securities Act of 1933, as amended. We consider
EBITDA, as adjusted, important in evaluating our ﬁnancial performance on a consistent basis across various
periods. Due to the signiﬁcance of non-cash and non-recurring items, EBITDA, as adjusted, enables our Board
of Directors and management to monitor and evaluate the business on a consistent basis. We use EBITDA, as
adjusted, as a primary measure, among others,
to analyze and evaluate ﬁnancial and strategic planning
decisions regarding future operating investments and potential acquisitions. We believe that EBITDA, as
adjusted, eliminates items that are not indicative of our core operating performance, such as amortization of
retention and forgivable loans and ﬁnancial advisor recruiting expenses, or do not involve a cash outlay, such
as stock-related compensation. EBITDA, as adjusted, should be considered in addition to, rather than as a
substitute for, (loss) income before income taxes, net (loss) income and cash ﬂows provided by (used in)
operating activities.

We have three operating segments. The independent brokerage and advisory services segment includes
the broker-dealer and investment advisory services provided by our independent broker-dealer subsidiaries to
their independent contractor ﬁnancial advisors and the wealth management services provided by Premier Trust.
The Ladenburg segment includes the investment banking, sales and trading and asset management services
and investment activities conducted by Ladenburg and LTAM. The insurance brokerage segment, which arose
when we acquired Highland on July 31, 2014, includes the wholesale insurance brokerage activities provided
by Highland, which delivers life insurance, ﬁxed and equity indexed annuities and long-term care solutions to
investment and insurance providers.

2015
Revenues . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . .
EBITDA, as adjusted(6) . . . . . . . . . . . .

2014
Revenues . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . .
EBITDA, as adjusted(6) . . . . . . . . . . . .

2013
Revenues . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . .
EBITDA, as adjusted(6) . . . . . . . . . . . .

Independent
Brokerage and
Advisory
Services(5)

$1,035,365
7,735
46,053

$ 816,581
10,520
50,596

Ladenburg

Insurance
Brokerage(7)

Corporate

Total

$61,841
3,095
6,052

$73,298
14,846
16,174

$49,573
(6,701)
1,170

$ 5,339
(15,824)(3)
(9,639)

$1,152,118
(11,695)
43,636

26,164
(841)
2,315

$ 5,210
(14,519)(3)
(7,907)

$ 921,253
10,006
61,178

$ 723,246(1)

4,850
52,549

$69,603(1)
11,689
13,188(4)

$ —
—
—

$
(14,135)(3)
(8,534)(4)

267(2) $ 793,116
2,404
57,203

(1)

(2)
(3)

(4)

Includes brokerage commissions of $4,240 and $908 in the Ladenburg and Independent brokerage and
advisory services segments, respectively, related to the sale of our Series A Preferred Stock (eliminated in
consolidation).
Includes the elimination of $5,148 of revenue referred to in footnote (1).
Includes interest on revolving credit and forgivable loan notes, compensation, professional fees and other
general and administrative expenses.
Includes the elimination of $2,545, consisting of $5,148 of
revenue, net of employee brokerage
commission expenses of $2,603 charged to additional paid-in capital related to sale of our Series A
Preferred Stock.
Includes KMS from October 15, 2014 and SSN from January 2, 2015.

(5)
(6) See Note 19 to our consolidated ﬁnancial statements for a reconciliation of EBITDA, as adjusted, to

(loss) income before income taxes.
Includes Highland from July 31, 2014.

(7)

Year ended December 31, 2015 compared to year ended December 31, 2014

For the ﬁscal year ended December 31, 2015, we had a net loss attributable to the Company of $11,151
as compared to net income attributable to the Company of $33,433 for the ﬁscal year ended December 31,
2014, primarily due to a $22,864 decrease in income tax beneﬁt, a $11,456 decrease in revenues in our
Ladenburg segment, an increase in depreciation and amortization expense of $8,680 and a reduction in interest
and dividends revenue of $2,367 due to the expiration of our prior bank sweep program on cash deposits. The
revenue decrease in our Ladenburg segment, which has higher margins than our other segments, resulted from
a decline in equity capital raising for small and mid-cap public companies as compared to the prior year
during which the Ladenburg segment experienced high levels of capital raising revenues. Our independent
brokerage and advisory services segment also experienced reduced proﬁtability, driven by declining
commissions and marketing revenues from alternative investments, lower syndicate revenues and increased
loss attributable to the Company for the ﬁscal year ended
expenses related to business expansion. Net
December 31, 2015 beneﬁted from decreases in interest expense of $1,821, acquisition expense of $1,814 and

non-cash compensation expense of $1,782 as compared to 2014. The 2014 results reﬂected a $23,346 income
tax beneﬁt primarily attributable to the Highland and KMS acquisitions, as well as from the reversal of a
valuation allowance previously provided to offset deferred tax assets. Highland, which we acquired during the
third quarter of 2014, had a loss before income taxes of $6,701 for ﬁscal year 2015 as compared to a loss
before income taxes of $841 from the date of acquisition (July 31, 2014) through December 31, 2014. Total
revenues and total expenses in 2015 increased by 25% and 28%, respectively, from the prior year.

2015 total revenues increased by $230,865 (25%) from 2014, in part due to the addition of $116,207
from SSN, which we acquired in January 2015. Revenues for Highland and KMS, which we acquired in
July 2014 and October 2014, respectively, were $142,234 for the twelve months ended December 31, 2015 as
compared to $46,004 from their dates of acquisition through December 31, 2014. 2015 total revenues included
increases in advisory fees of $118,875, commissions of $112,949 and service fees and other income of
$14,597, partially offset by decreases in investment banking revenue of $11,853, interest and dividends of
$2,367 and principal
transactions of $1,336. Our independent brokerage and advisory services segment
revenues increased $218,785 (27%) from 2014, driven by an increase of $189,028 from the KMS and SSN
acquisitions, successful recruitment of additional advisors and increased advisory assets under management.
Our Ladenburg segment revenues decreased by $11,456 (16%) from 2014 primarily due to lower investment
banking revenue as compared to the prior year.

2015 total expenses increased by $252,609 (28%) from 2014, in part due to the addition of $114,832
from SSN. Expenses for Highland and KMS were $149,511 for the twelve months ended December 31, 2015
as compared to $46,501 from their dates of acquisition through December 31, 2014. 2015 total expenses
included increases in commissions and fees expense of $195,664, compensation and beneﬁts expense of
$29,555, other expense of $17,116, depreciation and amortization of $8,680, professional services expense of
$3,525, brokerage, communication and clearance fee expense of $2,827 and rent and occupancy expense, net
of sublease revenue, of $2,757, which were partially offset by decreases in interest expense of $1,821,
acquisition-related expense of $1,814, amortization of retention and forgivable loans of $1,803, non-cash
compensation of $1,782 and loss on extinguishment of debt of $296 due to the prepayment of indebtedness.

The $112,949 (25%) increase in commissions revenue for 2015 as compared to 2014 was attributable to
the acquisitions of Highland, KMS and SSN, which added $148,362 in commissions revenue for the
independent brokerage and advisory services segment
twelve months ended December 31, 2015. Our
commissions revenue increased by $90,561 (23%) in 2015 as compared to the prior year, mainly driven by an
increase of $90,217 in revenues from the KMS and SSN acquisitions, higher commission trails and increased
sales of mutual funds and variable annuities, partially offset by decreased sales of alternative investments. Our
Ladenburg segment commissions revenue decreased by $1,011 (6%) in 2015 from 2014 resulting from
reduced fees in all sectors. Commissions revenue in our insurance brokerage segment was $49,021 for the
twelve months ended December 31, 2015 as compared to $25,622 from the date of acquisition (July 31, 2014)
through December 31, 2014.

The $118,875 (35%) increase in advisory fees revenue in 2015 as compared to 2014 was primarily
attributable to a $117,822 (35%) increase in our independent brokerage and advisory services segment. The
acquisitions of KMS and SSN added $94,717 in advisory fees revenue for the twelve months ended
December 31, 2015. Advisory fees revenue for a particular period is primarily affected by the level of
advisory assets and market conditions. Total advisory assets under management at December 31, 2015
increased by 15% to approximately $50,100,000 as compared to $43,500,000 at December 31, 2014, primarily
resulting from the SSN acquisition, which added approximately $5,300,000 in advisory assets.

The $11,853 (25%) decrease in investment banking revenue for 2015 as compared to 2014 was primarily
driven by a $12,678 decrease in capital raising revenue. We derive investment banking revenue from
Ladenburg’s capital raising activities, including underwritten public offerings and private placements, and
strategic advisory services. Revenue from capital raising activities was $33,015 for the ﬁscal year ended
December 31, 2015 as compared to $45,692 for the prior year, primarily due to high levels of capital raising
revenue in the prior year. Strategic advisory services revenue increased by $825 to $2,131 for 2015 as
compared to $1,306 for 2014.

The $1,336 (69%) decrease in principal transactions revenue in 2015 as compared to 2014 was primarily
attributable to our Ladenburg segment, which had a decrease of $1,215 (59%) due to a decline in the value of
the ﬁrm’s investments.

The $2,367 (38%) decrease in interest and dividends revenue for 2015 as compared to 2014 was
primarily due to lower revenue from our cash sweep programs. We received enhanced revenue during 2014
under our cash sweep program but the beneﬁts expired in the fourth quarter of 2014. Interest revenue from
our cash sweep program was $1,994 for the year ended December 31, 2015, as compared to $4,172 for the
prior year. We implemented a new cash sweep program beginning in April 2015 that applies to the cash
balances at four of our broker-dealer subsidiaries, and implemented such program at a ﬁfth broker-dealer
subsidiary in September 2015. Future levels of interest and dividend revenue are dependent upon changes in
prevailing interest rates and asset levels. At December 31, 2015, client assets included in cash balances were
approximately $4,776,000, including approximately $3,624,000 participating in our new cash sweep programs.
See ‘‘Item 1A. — Signiﬁcant interest rate changes and the termination of our cash sweep agreement could
affect our proﬁtability and ﬁnancial condition.’’

The $14,597 (19%) increase in service fees and other income in 2015 as compared to 2014 was primarily
attributable to the acquisitions of Highland, KMS and SSN, which added $15,344 in service fees and other
income for the twelve months ended December 31, 2015. We have undertaken initiatives to increase service
fees and other income.

The $195,664 (30%) increase in commissions and fees expense for 2015 as compared to 2014 was
directly correlated with the increase in advisory fee and commission revenue in our independent brokerage
and advisory services segment and our
insurance brokerage segment. Commissions and fees expense
comprises compensation earned by the registered representatives who serve as independent contractors in our
independent brokerage and advisory services segment. These payments to the independent contractor
registered representatives are calculated based on a percentage of revenues generated by such persons and
vary by product. Accordingly, when our independent contractor registered representatives increase their
business, both our revenues and expenses increase because our representatives earn additional compensation
based on the revenues produced. Commissions and fees expenses for Highland, KMS and SSN were $188,022
for the twelve months ended December 31, 2015.

The $29,555 (25%) increase in compensation and beneﬁts expense for 2015 as compared to 2014 was
attributable to an increase of $14,897 in our independent brokerage and advisory services segment, as
headcount grew 18% from the prior year mainly driven by acquisitions, partially offset by a decrease of
$2,774 in our Ladenburg segment. Compensation and beneﬁts expense in our insurance brokerage segment
was $30,044 for the twelve months ended December 31, 2015 as compared to $13,389 from the date of
acquisition (July 31, 2014) through December 31, 2014.

The $1,782 (17%) decrease in non-cash compensation expense for 2015 as compared to 2014 was
primarily attributable to a decrease of $3,575 from stock option grants made to Securities America ﬁnancial
advisors in connection with the 2011 acquisition and consultants, partially offset by an increase of $628 from
including $704 granted to employees of newly-acquired
stock option grants to employees and directors,
companies and an increase of $1,168 from restricted stock grants to employees. Compensation expense for
share-based awards granted to independent ﬁnancial advisors is measured at their vesting date fair value. The
compensation expense recognized each period is based on the awards’ estimated value at the most recent
reporting date. We use a Black-Scholes model to estimate fair value, which uses volatility, price and interest
inputs. Also, we estimate a forfeiture rate based on historical experience. The decrease in the price of our
common stock and the decrease in the expected forfeitures for these grants has contributed to the decrease in
our non-cash compensation expense related to grants made to advisors. The stock option grants made to
Securities America ﬁnancial advisors in connection with the 2011 acquisition were fully vested in
November 2015.

The $2,827 (16%) increase in brokerage, communication and clearance fees expense for 2015 as
compared to 2014 was primarily due to the acquisitions of KMS and SSN, which added $3,077 for the
twelve months ended December 31, 2015. Excluding KMS and SSN, our independent brokerage and advisory
services segment experienced a decrease of $616 in brokerage, communication and clearing fees expense for

2015 as compared to the prior year. Brokerage, communication and clearing fees expense in our insurance
brokerage segment was $759 for the twelve months ended December 31, 2015 as compared to $329 from the
date of acquisition (July 31, 2014) through December 31, 2014.

The $2,757 (39%) increase in rent and occupancy, net of sublease revenue for 2015 as compared to 2014
was primarily due to an increase of $1,069 in our insurance brokerage segment, an increase of $978 in our
independent brokerage and advisory services segment, and an increase of $694 in our Ladenburg segment that
included additional expense of $468 due to default by a subtenant who ﬁled for bankruptcy during 2015.

The $3,525 (32%) increase in professional services expense for 2015 as compared to 2014 was
attributable to increases at our independent brokerage and advisory services segment of $1,381, our corporate
segment of $1,163 and our Ladenburg segment of $772, mainly driven by higher audit and recruiting fees.
Professional services expenses for Highland, KMS and SSN were $1,787 for the twelve months ended
December 31, 2015.

The $1,821 (26%) decrease in interest expense for 2015 as compared to 2014 resulted from decreased
average debt balances and decreased average interest rates. An average debt balance of approximately $61,948
was outstanding for 2015, as compared to an average debt balance outstanding of approximately $63,704 for
2014. The average interest rate was 7.2% for 2015 as compared to 9.2% for 2014. For the twelve months
ended December 31, 2015, our average debt balance declined due to the prepayment of $11,852 of our 11%
notes due 2016, which were used to ﬁnance our 2011 acquisition of Securities America. In January 2015, we
incurred $20,000 of debt in connection with the SSN acquisition, which bears interest at an annual rate of
1.74%. Our outstanding debt balance as of December 31, 2015 included $6,738, $6,054 and $16,355 of
indebtedness incurred in connection with the Highland, KMS and SSN acquisitions, respectively.

The $8,680 (47%) increase in depreciation and amortization expense for 2015 as compared to 2014 was
largely due to $1,890 of additional expense from SSN and an increase of $2,506 in our independent brokerage
segment driven by capitalized information technology expense. Depreciation
and advisory services
the twelve months
and amortization expense in our
ended December 31, 2015 as compared to $2,743 from the date of acquisition (July 31, 2014) through
December 31, 2014.

insurance brokerage segment was $6,949 for

The $1,814 (77%) decrease in acquisition-related expense for 2015 as compared to 2014 was due to
higher expenses in the prior-year period resulting from the acquisitions of Highland and KMS in 2014 and
SSN on January 2, 2015.

The $17,116 (40%) increase in other expense in 2015 as compared to 2014 was primarily driven by
increases at our independent brokerage and advisory services segment of $10,296, our insurance brokerage
segment of $4,553 and our Ladenburg segment of $1,779. The acquisitions of KMS and SSN added $7,387 in
other expense for the twelve months ended December 31, 2015. Excluding KMS and SSN, the increase in
other expense at our independent brokerage and advisory services segment was mainly attributable to
increases in insurance expense of $1,115, bad debt, error and settlement expense of $959, and ﬁnancial
advisor recruiting expense of $753, which was partially offset by decreases in dues, licenses and registrations
of $655, deferred compensation plan expense of $303 and conference expense of $277. Our Ladenburg
segment experienced an increase in bad debt expense of $974, recorded a write-off of $855 due to the
bankruptcy of a subtenant under a lease that expired in June 2015 and added expense related to a new health
care conference held in the third quarter of 2015, partially offset by a decrease in travel, entertainment and
meals expense of $210. Our insurance brokerage segment had other expense of $7,336 for the twelve months
ended December 31, 2015 as compared to $2,783 from the date of acquisition (July 31, 2014) through
December 31, 2014.

We had an income tax beneﬁt of $482 in 2015 as compared to an income tax beneﬁt of $23,346 in 2014.
In 2015,
the effective tax rate differed from the federal statutory income tax rate primarily due to
non-deductible expenses and state and local income taxes. In 2014, the effective tax rate differed from the
federal statutory income tax rate primarily due to the reversal of our valuation allowance as our net deferred
tax assets became realizable on a more-likely-than-not basis. The reversal related to additional positive
evidence including acquisition of Highland Capital and pre-tax earnings in recent years.

Year ended December 31, 2014 compared to year ended December 31, 2013

For the ﬁscal year ended December 31, 2014, we had net income attributable to the company of $33,433
as compared to a net loss attributable to the company of $454 for the ﬁscal year ended December 31, 2013.
The change was driven by a 16% increase in revenues in 2014, which was partially offset by a 15% increase
in expenses, including acquisition-related expense of $2,342, and a $23,346 income tax beneﬁt primarily
resulting from the Highland and KMS acquisitions. Interest expense decreased by $8,448 in 2014 and loss on
extinguishment of debt decreased by $3,999 primarily due to repayment of indebtedness in 2013. 2014 results
included $6,990 of interest expense, $18,397 of depreciation and amortization expense and $10,541 of
non-cash compensation expense, as compared to $15,438 of interest expense, $15,315 of depreciation and
amortization expense and $6,766 of non-cash compensation expense in 2013.

Our 2014 total revenues increased by $128,137 (16%) from 2013, in part due to the addition of $26,164
and $19,840 in revenues from Highland and KMS, respectively. 2014 total revenues (including Highland and
KMS since their dates of acquisition) included increases in advisory fees of $69,194, commissions of $51,320,
investment banking revenue of $5,007 and service fees and other income of $3,949, partially offset by
decreases in principal transactions of $729 and interest and dividends of $604. Revenues increased in each of
our operating segments. Our independent brokerage and advisory services segment revenues increased $93,335
(13%) from 2013, primarily due to improved market conditions, successful recruitment of additional advisors,
increased advisory assets under management and the addition of KMS. Our Ladenburg segment revenues
increased $3,695 (5%) from 2013 also due to improved market conditions and an increase in institutional sales
personnel.

Our 2014 total expenses increased by $120,668 (15%) from 2013, in part due to the addition of $27,005
and $19,294 from Highland and KMS, respectively. 2014 total expenses (including Highland and KMS since
their dates of acquisition) also increased as a result of an increase in commissions and fees expense of
$88,557, compensation and beneﬁts expense of $24,885, brokerage, communication and clearance fees
expense of $6,286, depreciation and amortization expense of $3,082, acquisition-related expense of $2,342,
professional services expense of $1,878, other expenses of $2,062 and rent and occupancy expense, net of
sublease revenue of $751, which were partially offset by decreases in interest expense of $8,448 and in loss
on extinguishment of debt of $3,999 due to the prepayment of indebtedness in 2013 and 2014.

The $51,320 (13%) increase in commissions revenue for 2014 as compared to 2013 was primarily
attributable to the acquisitions of Highland and KMS, which added $25,622 and $9,124, respectively, in
commissions revenue during 2014. Our independent brokerage and advisory services segment experienced an
increase in commissions revenue of $25,188 (7%) in 2014. This increase resulted primarily from increased
mutual fund and variable annuity sales during 2014, partially offset by lower sales of alternative investment
products. Ladenburg segment commissions revenue also increased $510 (3%) in 2014 from 2013.

The $69,194 (25%) increase in advisory fees revenue in 2014 as compared to 2013 was primarily due to
an increase in advisory fee revenue in our independent brokerage and advisory services segment of $67,188
(25%), which includes $10,046 in advisory fees revenue from the addition of KMS. Average advisory assets
under management on a consolidated basis increased by 9% at December 31, 2014 as compared to
December 31, 2013. Advisory revenue for a particular period is primarily affected by the level of advisory
assets and market ﬂuctuations. For 2014, we experienced an increase in net new advisory assets resulting from
strong new business development, improved market conditions and the KMS acquisition. Assuming continued
favorable market conditions, we expect asset management revenue to increase in the near term due to
newly-added advisory assets and the continued shift by our advisors toward the advisory business.

The $5,007 (12%) increase in investment banking revenue for 2014 as compared to 2013 was primarily
due to an increase in capital raising activities. Capital raising revenue increased $5,662 (14%), while strategic
advisory services revenue decreased $655 (33%) in 2014. We derive investment banking revenue from
Ladenburg’s capital raising activities, including underwritten public offerings and private placements, and
strategic advisory services. Revenue from capital raising activities was $45,692 for 2014 as compared to
$40,030 for 2013, primarily due to an increase in capital raising activities for healthcare and biotechnology
companies and offerings of yield-oriented equities. Strategic advisory services revenue was $1,306 for 2014 as
compared to $1,961 for 2013.

The $729 (27%) decrease in principal transactions revenue in 2014 as compared to 2013 was primarily
attributable to our Ladenburg segment, which had a decrease of $434 (17%) due to a decline in the value of
the ﬁrm’s investments.

The $604 (9%) decrease in interest and dividends revenue for 2014 as compared to 2013 was primarily
due to lower revenue from our cash sweep program. Future levels of interest and dividend revenue are
dependent upon changes in prevailing interest rates and asset levels. We received enhanced revenue during
2014 and 2013 under our cash sweep program. These beneﬁts expired in the fourth quarter of 2014.

The $3,949 (5%) increase in service fees and other income in 2014 as compared to 2013 was primarily
attributable to increases at our independent brokerage and advisory services segment in miscellaneous trading
services revenue of $2,596,
trading-related fees of $1,207 and conference revenue of $221, offset by a
decrease in sponsor revenues of $335 associated with lower sales of alternative investment products. Highland
and KMS service fees and other income in 2014 was $543 and $667, respectively.

The $88,557 (15%) increase in commissions and fees expense for 2014 as compared to 2013 was directly
correlated to the increase in commissions and advisory fees revenue in our independent brokerage and
advisory services segment and the increase in commissions revenue in our insurance brokerage segment.
Commissions and fees expense in our independent brokerage and advisory services and insurance brokerage
segments comprises compensation payments earned. These payments are calculated based on a percentage of
revenues generated and vary by product. Accordingly, when sales increase, both our revenues and expenses
increase as we pay additional compensation based on the revenue produced. The addition of Highland and
KMS in 2014 increased commissions and fees expense by $6,099 and $17,509, respectively.

The $24,885 (26%) increase in compensation and beneﬁts expense for 2014 as compared to 2013 was
primarily attributable to the addition of $13,389 in compensation and beneﬁts expense from Highland, and an
increase of $6,982 in the independent brokerage and advisory services segment due to new technology and
operations personnel and the addition of KMS. Our corporate and Ladenburg segments had increases in
compensation expense of $3,300 and $1,304, respectively, as a result of increased revenues and proﬁtability.

The $3,775 (56%) increase in non-cash compensation expense for 2014 as compared to 2013 was
primarily attributable to an increase of $3,062 relating to stock option grants to Securities America ﬁnancial
advisors in connection with the 2011 acquisition. The increase in the price of our common stock and the
decrease in the expected forfeitures for these grants contributed to the increase in our non-cash compensation
expense.

The $6,286 (54%) increase in brokerage, communication and clearance fees expense for 2014 as
compared to 2013 was primarily due to an increase of $5,478 in our independent brokerage and advisory
services segment. Clearance fee expense in 2013 was reduced by clearance expense credits of $4,204 provided
by our primary clearing ﬁrm. These clearance expense credits expired in the fourth quarter of 2013. As
a result, we expect brokerage, communication and clearance fees expense to increase in future periods
as compared to 2013 levels. Also, our Ladenburg segment incurred increases of $459 due to the addition of
institutional salespersons and increased transaction volume. Highland added additional expense of $329
during 2014.

The $751 (12%) increase in rent and occupancy, net of sublease revenue for 2014 as compared to 2013
was primarily attributable to $761 from the addition of Highland and an increase of $78 in our independent
brokerage and advisory services segment, partially offset by a decrease of $109 in the Ladenburg segment due
the relocation of Ladenburg’s New York office.

The $1,878 (20%) increase in professional services expense for 2014 as compared to 2013 was primarily
attributable to increases in our independent brokerage and advisory services segment of $915, our corporate
segment of $799 and $488 due to the addition of Highland in 2014, partially offset by a decrease in our
Ladenburg segment of $324.

The $8,448 (55%) decrease in interest expense for 2014 as compared to 2013 resulted from decreased
average debt balances and decreased average interest rates. An average debt balance of approximately $63,704
was outstanding for 2014, as compared to an average debt balance outstanding of approximately $138,691 for
2013. The average interest rate was 9.2% for 2014 as compared to 10.5% for 2013. For the twelve months
ended December 31, 2014, our average debt balance declined due to the prepayment of $20,022 of our 11%
notes due 2016, which were used to ﬁnance our 2011 acquisition of Securities America, offset by an increase
of $15,600 of debt in connection with the Highland and KMS acquisitions.

The $3,082 (20%) increase in depreciation and amortization expense for 2014 as compared to 2013 was
primarily due to $2,743 of additional depreciation and amortization expense from the Highland acquisition
during 2014. Our independent brokerage and advisory services segment had an increase of $502 in 2014,
partially offset by a decrease of $126 in our Ladenburg segment.

The $548 in extinguishment of debt expense for 2014 relates to the prepayment in 2014 of our 11%

notes due 2016. In 2013, the extinguishment of debt expense was $4,547.

The $2,062 (5%) increase in other expense in 2014 as compared to 2013 was primarily attributable to
$2,783 and $497 from Highland and KMS, respectively. Our independent brokerage and advisory services
segment experienced decreases in deferred compensation plan expense of $817 and bad debt, errors and
settlement expense of $2,121, offset by increases in license and registration expense of $1,118, travel, meals
and entertainment of $636 and insurance expense of $889 in 2014 as compared to 2013. Our Ladenburg
segment experienced a decrease in bad debt, errors and settlement expense of $1,077 in 2014, partially offset
by an increase in travel, meals and entertainment expense of $356.

We had an income tax beneﬁt of $23,346 in 2014 as compared to an income tax expense of $2,926 in
2013. After consideration of all the evidence, both positive and negative, management has determined that a
valuation allowance release at December 31, 2014 was necessary based on the likelihood of future realization.
The income tax rates for 2014 and 2013 did not bear a customary relationship to effective tax rates, primarily
as a result of a tax provision related to amortization of goodwill for tax purposes and the change in the
valuation allowance against the net deferred tax asset.

Liquidity and Capital Resources

Approximately 29% and 29% of our total assets at December 31, 2015 and December 31, 2014,
respectively, consisted of cash and cash equivalents, securities owned and receivables from clearing brokers
and other broker-dealers, all of which ﬂuctuate, depending upon the levels of customer business and trading
activity.

Receivables from broker-dealers, which are primarily from clearing brokers,

turn over rapidly. A
relatively small percentage of our total assets are ﬁxed. The total assets or the individual components of total
assets may vary signiﬁcantly from period to period because of changes relating to economic and market
conditions.

Below is a summary of changes in our cash ﬂow (in thousands):

Year Ended December 31,
2014

2013

2015

Net cash provided by (used in):

Operating activities . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . .

$ 19,319
(28,211)
24,482
$ 15,590
103,087
$118,677

$ 26,855
(16,613)
42,516
$ 52,758
50,329
$103,087

$20,874
(7,023)
1,044
$14,895
35,434
$50,329

Cash provided by operating activities for 2015 was $19,319, which primarily consisted of our net loss of
$11,213 adjusted for non-cash expenses, increases in accrued compensation, commissions and fees payable,
decreases in securities owned at market value and cash surrender value, partially offset by increases in
receivables from clearing brokers and other broker-dealers, notes receivable and other assets, as well as
decreases in accounts payable and accrued liabilities. In 2014, cash provided by operating activities was
$26,855 primarily consisted of our net income of $33,352, adjusted for non-cash expenses including deferred
income tax beneﬁt, increases in commissions and fees payable and cash surrender value of life insurance,
partially offset by decreases in accounts payable and accrued liabilities, deferred compensation liability,
accrued compensation, as well as increases in receivables from clearing brokers, other receivables, net,
securities owned, at fair value and other assets.

Investing activities used $28,211 in 2015, primarily due to the acquisition of SSN, the purchase of
furniture, equipment, leasehold improvements and the capitalization of software development costs and certain
asset acquisitions. In 2014, investing activities used $16,613, primarily due to the purchase of furniture,
equipment and leasehold improvements and $9,266 related to the acquisitions of KMS and Highland, and an
asset acquisition by Securities America.

Financing activities provided $24,482 in 2015, primarily due to $84,380 from the issuance of the
Series A Preferred Stock under our ‘‘at the market’’ offering and $2,016 from the issuance of common stock
upon option exercises and under our employee stock purchase plan. This was partially offset by $18,026 in
payments of outstanding indebtedness that included a $11,852 loan repayment of our 11% notes due 2016, a
$3,645 repayment of outstanding notes related to the SSN acquisition, a $1,945 repayment of outstanding
notes related to the KMS acquisition and a $387 repayment of a term note made by one of our subsidiaries,
payment of $28,108 of dividends on our Series A Preferred Stock and $16,355 used for common stock
repurchases. Financing activities provided $42,516 for 2014, primarily due to $108,617 from the issuance of
the Series A Preferred Stock under our ‘‘at the market’’ offering and $3,282 from the issuance of common
stock upon option exercises and under our employee stock purchase plan. This was partially offset by $42,369
in payments relating to outstanding indebtedness, including a $21,834 repayment of indebtedness by certain of
Highland’s subsidiaries pursuant to a credit agreement in connection with the Highland acquisition and a
$20,022 repayment of outstanding notes related to the Securities America acquisition, payment of $17,244 of
dividends on our Series A Preferred Stock and $9,535 of common stock repurchases.

Operating Capital Requirements

Each of Securities America, Triad, Investacorp, KMS, SSN and Ladenburg is subject to a minimum net
capital requirement. Therefore, they are subject to certain restrictions on the use of capital and their related
liquidity. At December 31, 2015, the regulatory net capital of each of our broker-dealer subsidiaries was as
follows: Securities America $6,646, Triad $8,063,
Investacorp $5,474, KMS $5,774, SSN $6,731 and
Ladenburg $22,972. Failure to maintain the required net capital may subject our broker-dealer subsidiaries to
suspension or expulsion by FINRA, the SEC and other regulatory bodies and ultimately may require their
redemption of stock and
liquidation. The Net Capital Rule also prohibits the payment of dividends,
prepayment or payment of principal of subordinated indebtedness if net capital, after giving effect to the
payment, redemption or prepayment, would be less than speciﬁed percentages of the minimum net capital
requirement.

Compliance with the Net Capital Rule could limit Ladenburg’s operations that require the intensive use
of capital, such as underwriting and trading activities, and also could restrict our ability to withdraw capital
from our subsidiaries, which in turn, could limit our ability to pay dividends and repay debt. See
Item 1A. ‘‘Risk Factors — Failure to comply with capital requirements could subject us to suspension,
revocation or ﬁnes by the SEC, FINRA or other regulators’’ above.

Premier Trust, chartered by the state of Nevada, is subject to regulation by the Nevada Department of
Business and Industry Financial Institutions Division. Under Nevada law, Premier Trust must maintain
stockholders’ equity of at least $1,000, including cash of at least $250. At December 31, 2015, Premier Trust
had stockholders’ equity of $1,468, including at least $250 in cash.

Sources of Liquidity

Our primary sources of liquidity include cash ﬂows from operations, sales of securities in public or
private transactions and borrowings under our $40,000 revolving credit agreement with an affiliate of
Dr. Phillip Frost, our chairman and principal shareholder.

We have entered into equity distribution agreements under which we sold, and may sell, shares of our
Series A Preferred Stock in ‘‘at the market’’ offerings under Rule 415 under the Securities Act of 1933, as
amended (the ‘‘Securities Act’’). During 2015, we sold 3,586,790 shares of Series A Preferred Stock pursuant
to the ‘‘at the market’’ offering, which provided us with total gross proceeds of $86,352, before deducting the
commission paid to unaffiliated sales agents and offering expenses aggregating $2,021. As of December 31,
the market’’
2015, approximately 2,590,185 shares remained available for issuance pursuant
offering.

to the ‘‘at

We used the net proceeds from the Series A Preferred Stock offerings in the years ended December 31,
2015 and 2014, respectively (see Note 15), to prepay $11,852 and $20,022 principal amount of the $160,700
aggregate principal amount of our 11% notes due 2016, which were used to ﬁnance our 2011 acquisition of
Securities America.

Borrowings under the $40,000 revolving credit agreement bear interest at a rate of 11% per annum,
payable quarterly. We had no outstanding balance under the revolving credit agreement at either December 31,
2015 or December 31, 2014. We may repay outstanding amounts or re-borrow amounts under our revolving
credit facility at any time prior to the maturity date of August 25, 2021, without penalty. We believe our
existing assets, cash ﬂows from operations and funds available under our $40,000 revolving credit facility will
provide adequate funds for continuing operations at current activity levels and for payment of our obligations,
including outstanding indebtedness and the dividends on our outstanding Series A Preferred Stock. We were in
compliance with all covenants in our debt agreements as of December 31, 2015.

Debt

In connection with the Securities America acquisition, we entered into a senior loan agreement with
various lenders, under which the lenders loaned us $160,700, a portion of which we used to fund the
acquisition. We refer to this loan as the November 2011 Loan. Interest on this loan is payable quarterly at
11% per year. Interest is payable in cash; however, we may pay interest-in-kind with the consent of certain
lenders. This payment-in-kind feature increases the principal sum outstanding on the note that is due at
maturity by the amount of such payment-in-kind. All interest payments through December 31, 2015 have been
paid in cash. This loan, together with accrued and unpaid interest thereon, is due on November 4, 2016. We
may voluntarily repay the November 2011 Loan at any time without premium or penalty. In connection with
this loan, we issued to the lenders warrants to purchase an aggregate of 10,713,332 shares of our common
stock, of which 10,699,999 are outstanding as of December 31, 2015. These warrants are exercisable at any
time prior to their expiration on November 4, 2016 at $1.68 per share, which was the closing price of our
common stock on the acquisition closing date.

As of December 31, 2014, we had prepaid $130,872 of the principal of the November 2011 Loan with
proceeds from the Series A Preferred Stock offerings. During the twelve months ended December 31, 2015,
we prepaid an additional $11,852 of the principal of the November 2011 Loan with proceeds of the Series A
Preferred Stock offerings. At December 31, 2015, $17,976 remained outstanding under the November 2011
Loan. The lenders under
(‘‘Frost
Nevada’’), an affiliate of our chairman of the board and principal shareholder, Dr. Phillip Frost, M.D., and
Vector Group, Ltd. (‘‘Vector Group’’), a principal shareholder.

the November 2011 Loan included Frost Nevada Investments Trust

At December 31, 2015, outstanding principal amounts loaned by Frost Nevada and Vector Group were
$15,120 and $1,680, respectively. A special committee of our board was formed to review and consider the
terms of the November 2011 Loan, the notes issued thereunder and the warrants. Upon such review and
consideration, which included the advice of the committee’s independent ﬁnancial advisor, the committee
determined that the ﬁnancing was fair from a ﬁnancial point of view to us and our unaffiliated shareholders.

On November 4, 2011, NFS provided us with a seven-year, $15,000 forgivable loan. We used the
proceeds to fund expenses related to the Securities America acquisition. Interest on the loan accrues at the
average annual Federal Funds effective rate plus 6% per annum, subject to the maximum rate of 11% per
annum. If Securities America meets certain annual clearing revenue targets set forth in the loan agreement, the
principal balance of the loan will be forgiven in seven equal yearly installments of $2,143 commencing on
November 4, 2012 and continuing on an annual basis through November 2018. Interest payments due with
respect to each such year will also be forgiven if the annual clearing revenue targets are met. Any principal
amounts not forgiven will be due in November 2018, and any interest payments not forgiven are due annually.
If during the loan term any principal amount
is not forgiven, we may have such principal forgiven in
future years if Securities America exceeds subsequent annual clearing revenue targets. We will expense
interest under this loan agreement until such time as such interest is forgiven. Securities America met the
annual clearing revenue target for the periods ending November 4, 2012, 2013, 2014 and 2015, resulting in
the forgiveness of $2,143 aggregate principal amount of the loan in November of each period.

The 2011 forgivable loan agreement contains other covenants including limitations on the incurrence of
additional indebtedness, maintaining minimum adjusted shareholders’ equity levels and a prohibition on the
termination of our $40,000 revolving credit agreement prior to its current maturity. The 2011 forgivable loan
agreement is secured by our, but not our subsidiaries’, deposits and accounts held at NFS or its affiliates.
Upon the occurrence of an event of default, the outstanding principal and interest under the 2011 forgivable
loan agreement may be accelerated and become due and payable. If the clearing agreements between NFS and
certain of our broker-dealer subsidiaries are terminated prior to the loan maturity date, all amounts then
outstanding must be repaid on demand. The clearing agreements contain customary termination provisions.
NFS is permitted to terminate such agreements following certain termination events, including, but not limited
to, our breach of such agreements that is not cured within any applicable time periods. The NFS loans are
conditioned upon the continuation of the clearing agreements with NFS and any termination of the clearing
agreements by NFS prior to the loan maturity date would require us to repay any outstanding amounts under
the NFS loans.

In connection with entering into the new forgivable loan in 2011, Securities America and our other
broker-dealer subsidiaries amended their respective clearing agreements with NFS to, among other things,
extend the term of those agreements through November 2018. Also, we and NFS amended the terms of the
2009 forgivable loan made by NFS to us such that the remaining principal balance of $7,143 and the related
in four equal annual
accrued interest will be forgiven, subject
installments commencing in November 2012 without us being required to satisfy the annual clearing revenue
targets previously established. The required conditions to forgiveness were met in November 2015 for the
2009 and 2011 forgivable loans. Accordingly, we recognized income in the fourth quarter of 2015 of $3,929
and $619 from the forgiveness of principal and interest, respectively, and the outstanding balances under the
2009 and 2011 forgivable loans were reduced to $0 and $6,429, respectively. We recognized income in 2014
of $3,929 and $839, and in 2013 of $3,929 and $1,067 from the forgiveness of principal and interest,
respectively.

to the terms and conditions of the loan,

In November 2011, as part of the amendment of Ladenburg’s clearing agreement with NFS, NFS agreed
to provide an annual credit of $1,000 to Ladenburg or another of our broker-dealers for a ﬁve-year period.
Such credits were received in November 2012, November 2013, November 2014, and November 2015. Such
expense reduction must be repaid pro-rata if the clearing agreement is terminated prior to the end of the term.
We have reﬂected the expense reduction ratably in our ﬁnancial statements.

In connection with the Premier Trust acquisition in 2010, we issued a $1,161 promissory note to a
subsidiary of Premier Trust’s former shareholder. The note bore interest at 6.5% per annum, payable quarterly,
and was fully paid in September 2015.

On July 31, 2014, we acquired HCHC Holdings, Inc. (‘‘HCHC’’), the parent company of Highland.
Under the terms of the merger agreement, all outstanding shares of HCHC common stock were converted into
the right to receive $3,613 in cash and 2,540,762 shares of our common stock, which are subject to certain
transfer restrictions. Also, we caused all indebtedness owed by certain HCHC subsidiaries under a credit
agreement (in the amount of $21,834) to be repaid. At December 31, 2015, approximately $6,738 of

HCHC Acquisition Inc.’s (as successor in interest to HCHC) 10% promissory notes due February 26, 2019
remained outstanding. Accrued interest on the promissory notes is payable quarterly on the 15th of October,
January, April and July. The promissory notes may be prepaid, except that if the promissory notes are prepaid
in full prior to August 26, 2016, the holders of the promissory notes are entitled to receive the total amount of
interest that would otherwise have been payable through August 26, 2016, less any interest already paid.
Payment of the principal and all accrued and unpaid interest under the promissory notes may be accelerated
upon the occurrence of customary events of default, including the failure to make payments when due and the
commencement of bankruptcy or similar proceedings. We used approximately $25,400 of cash to ﬁnance the
Highland acquisition.

On October 15, 2014, we acquired all of the issued and outstanding capital stock of KMS. At the closing
of the acquisition, we paid approximately $24,000, consisting of $11,000 in cash, $8,000 principal amount of
promissory notes, and 1,440,922 shares of our common stock, which are subject to certain transfer restrictions.
The notes are unsecured and bear interest at 1.84% per annum and are payable in 16 equal quarterly
installments. The notes may be prepaid in full or in part at any time without premium or penalty. The holders
may accelerate the notes upon certain customary events of default. At December 31, 2015, the outstanding
balance of these notes, net of $343 discount, amounted to $5,711.

On January 2, 2015, we acquired all of the capital stock of SSN and a sister company. The purchase
price was approximately $47,287, consisting of $25,000 principal amount of secured short-term promissory
notes, which bore interest at 0.41% per annum and were paid in full on the business day following the closing
date, and $20,000 principal amount of secured four-year promissory notes, bearing interest at 1.74% per
annum and payable in equal quarterly installments of principal and interest. The notes may be prepaid in full
or in part at any time without premium or penalty. The holders may accelerate the notes upon certain
customary events of default. The notes are secured by a pledge of the shares of SSN and RCC purchased in
the acquisition pursuant to a stock pledge agreement. At December 31, 2015, the outstanding balance of these
notes, net of $977 discount, amounted to $15,378. We paid an additional amount subsequent to closing of
approximately $3,590, which is included in the purchase price above, based on the amount by which the
aggregate net worth of SSN and a sister company as of the closing date of the acquisition exceeded a targeted
amount.

We are currently in compliance with all debt covenants in our debt agreements.

Stock Repurchases

In March 2007, our board of directors authorized the repurchase of up to 2,500,000 shares of our
common stock from time to time on the open market or in privately negotiated transactions depending on
market conditions. In October 2011, our board amended the repurchase program to permit the purchase of up
to an additional 5,000,000 shares and another amendment was made in November 2014 to permit
the
repurchase of an additional 10,000,000 shares. As of December 31, 2015, 12,269,567 shares had been
repurchased for $31,979 under the program, including 5,673,415 shares repurchased for $16,355 during the
twelve months ended December 31, 2015. In the fourth quarter of 2015, we adopted a Rule 10b5-1 trading
plan, and intend to adopt similar plans periodically in the future, to permit the repurchase of common stock
pursuant to the existing stock repurchase program during certain restricted trading periods.

Lease Agreements

At December 31, 2015, we were obligated under several non-cancelable lease agreements for office
future minimum lease payments aggregating approximately $26,511 through
space, which provide for
February 2025, exclusive of escalation charges. Our Ladenburg subsidiary leased office space at 590 Madison
Avenue, New York, New York in 1995 and the lease expired in June 2015. We sublet the space through
June 2015. One of these subtenants ﬁled for bankruptcy protection under Chapter 7 of the Federal Bankruptcy
Code in April 2015. As a result, Ladenburg wrote-off a receivable from subtenant of $855 and
incurred additional rent expense due to default by subtenant of $468 during the twelve months ended
December 31, 2015.

Off-Balance Sheet Arrangements

Each of our broker-dealer subsidiaries, as guarantor of its customer accounts to its clearing broker, is
exposed to off-balance-sheet risks in the event that its customers do not fulﬁll their obligations with the
clearing broker. Also, if any of our broker-dealer subsidiaries maintains a short position in certain securities, it
is exposed to future off-balance-sheet market risk, since its ultimate obligation may exceed the amount
recognized in the ﬁnancial statements.

Please see Note 14 to our consolidated ﬁnancial statements included elsewhere in this annual report on

Form 10-K.

Contractual Obligations

The table below summarizes information about our contractual obligations as of December 31, 2015 and

the effect these obligations are expected to have on our liquidity and cash ﬂow in the future years.

Total

shareholder(2)

. . . . . $ 20,135

Notes payable under November 2011 ﬁnancing(1)
Revolving credit agreement with affiliate of our principal
—
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable to clearing ﬁrm under forgivable loans(3). .
7,215
Operating leases(4)
26,511
. . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan(5)
19,730
. . . . . . . . . . . . . . . . . .
Note payable to bank − Securities America(6)
1,618
. . . . . . . .
Notes payable to Highland’s former shareholders(7) . . . . .
9,039
Notes payable to KMS’ former shareholders(8)
6,852
. . . . . . .
Notes payable to SSN’s former shareholders(9)
16,858
. . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107,958

Payments Due By Period
1 − 3
years

4 − 5
After
years
5 years
$ — $ — $ —

Less than
1 year
$20,135

—
393
8,222
937
808
677
2,694
5,187
$39,053

—
6,822
9,975
1,534
719
1,351
4,158
10,374

—
—
3,896
11,071
—
—
—
—
$34,933 $19,005 $14,967

—
—
4,418
6,188
91
7,011
—
1,297

(1) Notes bear interest at 11% per annum, payable quarterly. See Note 12 to our consolidated ﬁnancial

statements.

(2) The revolving credit agreement has an August 25, 2021 maturity date and bears interest at a rate of 11%
per annum, payable quarterly. Assumes no payments of principal prior to maturity. See Note 12 to our
consolidated ﬁnancial statements.

(3) The 2011 NFS forgivable loan ($6,429 at December 31, 2015) bears interest at the federal funds rate plus
installments if not forgiven. See Note 12 to our

6% per annum and is payable in seven annual
consolidated ﬁnancial statements.

(4) Excludes sublease revenues of $242. See Note 13 to our consolidated ﬁnancial statements.
(5) See Note 10 to our consolidated ﬁnancial statements.
(6) Note bears interest at 5.5% per annum and is payable in 54 monthly installments. See Note 12 to our

consolidated ﬁnancial statements.

(7) Notes bear interest at 10% per annum and mature on February 26, 2019. See Note 12 to our consolidated

ﬁnancial statements.

(8) Notes bear interest at 1.84% per annum and are payable in 16 quarterly installments. See Note 12 to our

consolidated ﬁnancial statements.

(9) Notes bear interest at 1.74% per annum and are payable in 16 quarterly installments. See Note 12 to our

consolidated ﬁnancial statements.

Market Risk

Market risk generally represents the risk of loss that may result from the potential change in the value of a
ﬁnancial instrument as a result of ﬂuctuations in interest and currency exchange rates, equity and commodity
prices, changes in the implied volatility of interest rates, foreign exchange rates, equity and commodity prices and
also changes in the credit ratings of either the issuer or its related country of origin. Market risk is inherent to

both derivative and non-derivative ﬁnancial
the scope of our market
management procedures extends beyond derivatives to include all market risk sensitive ﬁnancial instruments.

instruments, and accordingly,

risk

Current and proposed underwriting, corporate ﬁnance, merchant banking and other commitments are subject
to due diligence reviews by our senior management, as well as professionals in the appropriate business and
support units involved. Credit risk related to various ﬁnancing activities is reduced by the industry practice of
obtaining and maintaining collateral. We monitor our exposure to counter-party risk through the use of credit
exposure information, the monitoring of collateral values and the establishment of credit limits.

Special Note Regarding Forward-Looking Statements

We and our representatives may from time to time make oral or written ‘‘forward-looking statements’’
within the meaning of the Private Securities Litigation Reform Act of 1995, including any statements that may
be contained in the foregoing discussion in ‘‘Management’s Discussion and Analysis of Financial Condition
and Results of Operations,’’ in this report and in other ﬁlings with the Securities and Exchange Commission
and in our reports to shareholders, which reﬂect our expectations or beliefs with respect to future events and
ﬁnancial performance. These forward-looking statements are subject to certain risks and uncertainties and, in
connection with the ‘‘safe-harbor’’ provisions of the Private Securities Litigation Reform Act, we have
identiﬁed under ‘‘Risk Factors’’ in Item 1A above, important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on behalf of us.

Results actually achieved may differ materially from expected results included in these forward-looking
statements as a result of these or other factors. Due to such uncertainties and risks, readers are cautioned not
to place undue reliance on such forward-looking statements, which speak only as of the date on which such
statements are made. We do not undertake to update any forward-looking statement that may be made from
time to time by or on behalf of us, except as may be required by law.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information in Item 7 under the caption ‘‘Management’s Discussion and Analysis of Financial

Condition and Results of Operations — Market Risk’’ is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Consolidated Financial Statements and Notes thereto,

thereon of
EisnerAmper LLP dated March 15, 2016 beginning on page F-1 of this report which are incorporated by
reference in this Item 8.

together with the report

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as deﬁned in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) are
our controls and other procedures that are designed to ensure that information required to be disclosed by us
in the reports that we ﬁle or submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods speciﬁed in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us
in the reports that we ﬁle or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive officer and principal ﬁnancial officer, as appropriate, to allow
timely decisions regarding disclosure.

Under the supervision and with the participation of our management, including our principal executive officer
and principal ﬁnancial officer, we evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report, and, based on that evaluation, our principal executive officer and
principal ﬁnancial officer have concluded that these controls and procedures were effective as of such date.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial

reporting, as such term is deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f).

Under the supervision and with the participation of our management, including our principal executive
officer and principal ﬁnancial officer, we conducted an evaluation of the effectiveness of our internal control
over ﬁnancial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over ﬁnancial
reporting is designed to provide reasonable assurance to management and to our Board of Directors regarding
the reliability of ﬁnancial reporting and the preparation and fair presentation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles. Our internal control over
ﬁnancial reporting includes those policies and procedures that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the
transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures are being made only in accordance with authorizations of our management and
directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use or disposition of our assets that could have a material effect on the ﬁnancial statements.

In connection with this annual report on Form 10-K, our chief executive officer and chief ﬁnancial officer
evaluated, with the participation of our management, the effectiveness of our internal control over ﬁnancial
reporting as of the end of the period covered by this report. Based on management’s evaluation, our chief
executive officer and chief ﬁnancial officer each concluded that our internal control over ﬁnancial reporting
was effective as of December 31, 2015.

EisnerAmper LLP, an independent registered public accounting ﬁrm, has audited our consolidated
ﬁnancial statements and the effectiveness of internal controls over ﬁnancial reporting as of December 31, 2015
as stated in its report which is included herein.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over ﬁnancial reporting during the quarter ended
December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Ladenburg Thalmann Financial Services Inc.

We have audited the internal control over ﬁnancial reporting of Ladenburg Thalmann Financial Services
Inc. and subsidiaries (the ‘‘Company’’) as of December 31, 2015, based on criteria established in Internal
the
Control — Integrated Framework (2013)
Treadway Commission (‘‘COSO’’). The Company’s management
is responsible for maintaining effective
internal control over ﬁnancial reporting and for its assessment of the effectiveness of internal control over
ﬁnancial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over ﬁnancial
reporting based on our audit.

issued by the Committee of Sponsoring Organizations of

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over ﬁnancial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over ﬁnancial
reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework
(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2015 consolidated ﬁnancial statements of Ladenburg Thalmann Financial Services
Inc., and our report dated March 15, 2016 expressed an unqualiﬁed opinion thereon.

/s/ EisnerAmper LLP

New York, New York
March 15, 2016

ITEM 9B. OTHER INFORMATION.

On March 9, 2016, we entered into a third amendment (the ‘‘Third Amendment’’) to our revolving credit
facility with an affiliate of our Chairman of the Board and principal shareholder, Dr. Phillip Frost, M.D., to
extend its maturity date for a period of ﬁve (5) years. We may repay outstanding amounts or re-borrow
amounts under this revolving credit facility at any time prior to the new maturity date of August 25, 2021,
without penalty. The foregoing description of the Third Amendment is only a summary and is qualiﬁed in its
entirety by reference to the full text of the Third Amendment, which is ﬁled as Exhibit 10.22 to this Annual
Report and incorporated herein by reference.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

This information will be contained in our deﬁnitive proxy statement for our 2016 Annual Meeting of
Shareholders, to be ﬁled with the SEC not later than 120 days after the end of our ﬁscal year covered by this
report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of
Form 10-K/A no later than the end of such 120 day period.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1): Index to 2015 Consolidated Financial Statements

PART IV

The consolidated ﬁnancial statements and the notes thereto,

together with the report

thereon of

EisnerAmper LLP dated March 15, 2016, appear beginning on page F-1 of this report.

(a)(2): Financial Statement Schedules

Financial statement schedules not

included in this report have been omitted because they are not

applicable or the required information is shown in the consolidated ﬁnancial statements or the notes thereto.

(a)(3): Exhibits Filed

The following exhibits are ﬁled as part of this annual report on Form 10-K.

EXHIBIT INDEX

Description

Stock Purchase Agreement, dated as of September 21, 2014, by and
among the Company, Securities Service Network, Inc., Renaissance
Capital Corporation and the shareholders of Securities Service
Network, Inc. and Renaissance Capital Corporation.
Asset Purchase Agreement, dated July 16, 2014, by and among
Securities America Financial Corporation, Sunset Financial Services,
Inc. and Kansas City Life Insurance Company (Certain portions of
this agreement have been omitted under a request for conﬁdential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934 and ﬁled separately with the United States Securities and
Exchange Commission.)
Stock Purchase Agreement, dated as of August 8, 2014 by and among
Ladenburg Thalmann Financial Services Inc., KMS Financial
Services, Inc. and the shareholders of KMS Financial Services, Inc.
Articles of Incorporation.
Articles of Amendment to the Articles of Incorporation, dated
August 24, 1999.

Articles of Amendment to the Articles of Incorporation, dated
April 3, 2006.

Articles of Amendment to the Articles of Incorporation, dated
May 9, 2013.

Articles of Amendment to the Articles of Incorporation, dated
May 21, 2013.

Articles of Amendment to the Articles of Incorporation, dated
June 20, 2013.

Articles of Amendment to the Articles of Incorporation, dated
June 9, 2014.

Articles of Amendment to the Articles of Incorporation, dated
June 25, 2014.

Articles of Amendment to the Articles of Incorporation, dated
November 20, 2014.

Exhibit
No.

2.1

2.2

2.3

3.1
3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10 Articles of Amendment to the Articles of Incorporation, dated

May 20, 2015

Incorporated
By Reference
from Document

No. in
Document

2.2

2.1

A
B

2.1

3.1
3.2

3.1

3.6

3.1

Exhibit
No.

Description

3.11 Amended and Restated Bylaws.

4.1

4.2

4.3

4.4

4.5

4.6

4.7

10.1
10.2

10.3

10.4

10.5

Form of common stock certiﬁcate.

Form of Promissory Note, dated as of November 4, 2011, issued
under the November 4, 2011 Loan Agreement.

Form of Warrant, dated as of November 4, 2011, issued under the
November 4, 2011 Loan Agreement.

Specimen 8.00% Series A Cumulative Redeemable Preferred Stock
Certiﬁcate.

Form of Non-Negotiable Promissory Note, dated as of October 15,
2014, issued to the former shareholders of KMS Financial Services,
Inc.

Form of Non-Negotiable Promissory Note (Cap Note), dated as of
January 2, 2015, issued to the former shareholders of Securities
Service Network, Inc. and Renaissance Capital Corporation.

Form of Non-Negotiable Promissory Note (Balance Note), dated as of
January 2, 2015, issued to the former shareholders of Securities
Service Network, Inc. and Renaissance Capital Corporation.
Amended and Restated 1999 Performance Equity Plan.*
Ladenburg Thalmann Financial Services Inc. Amended and Restated
2009 Incentive Compensation Plan.*

Ladenburg Thalmann Financial Services Inc. Amended and Restated
Qualiﬁed Employee Stock Purchase Plan.*

Office Lease dated March 30, 2007 between Ladenburg Thalmann &
Co., Inc. and Frost Real Estate Holdings, LLC.

Amendment and Lease Extension Agreement, dated as of March 8,
2013, between Ladenburg Thalmann & Co. Inc. and Frost Real Estate
Holdings, LLC.

10.6 Warrant issued to BroadWall Capital LLC.
10.7
10.8

Form of Stock Option Agreement issued to employees of BroadWall.
Letter Agreement, dated February 26, 2014, between the Company
and Vector Group Ltd.

10.9

10.10

10.11

Form of Warrant issued to the stockholders of Telluride Holdings,
Inc.

Employment Agreement, dated as of January 20, 2015, between the
Company and Mark Zeitchick.*

Employment Agreement, dated as of January 20, 2015, between the
Company and Richard Lampen.*

10.12 Non-Plan Option Agreement, dated as of October 19, 2007, by and

between the Company and Bruce A. Zwigard.

10.13 Warrant, dated as of October 19, 2007, issued to Frost Gamma

Investments Trust pursuant to Credit Agreement.

10.14

10.15

Employment Letter, dated as of January 30, 2013, by and between the
Company and Joseph Giovanniello, Jr.*
Employment Letter dated as of February 8, 2008 between the
Company and Brett Kaufman.*

Incorporated
By Reference
from Document

No. in
Document

F
X

I
I
J

3.2

4.1

10.2

4.1

4.2

4.1
Exhibit A

AppendixA

10.1

10.1
10.2
10.1

10.2

10.1

10.2

10.3

10.1

Exhibit
No.

10.16

10.17

10.18

Description

Stock Purchase Agreement, dated August 16, 2011, by and between
the Company and Ameriprise Financial, Inc.

Lease, dated as of August 13, 2010, between Investacorp Group, Inc.
and Frost Real Estate Holdings, LLC.

Employment Letter, dated as of December 15, 2011, between the
Company and Adam Malamed.*

10.19 Credit Agreement, dated as of October 19, 2007, by and between the
Company and Frost Gamma Investments Trust, including the form of
note thereto.

10.20 Amendment No. 1 to Credit Agreement by and between the Company
and Frost Nevada Investments Trust, as assignee, dated as of
August 25, 2009.

10.21 Amendment No. 2 to Credit Agreement, dated August 16, 2011, by

and between the Company and Frost Nevada Investments Trust.

10.22 Amendment No. 3 to Credit Agreement, dated March 9, 2016, by and
between the Company and Frost Nevada Investments Trust.

10.23

10.24

10.25

10.26

10.27

10.28

Forgivable Loan Agreement, dated as of August 25, 2009, between
the Company and National Financial Services LLC. (Certain portions
of this agreement have been omitted under a request for conﬁdential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934 and ﬁled separately with the United States Securities and
Exchange Commission.)
First Amendment, dated November 4, 2011, to Forgivable Loan
Agreement between the Company and National Financial
Services LLC.
Forgivable Loan Agreement, dated as of November 4, 2011, between
the Company and National Financial Services LLC. (Certain portions
of this agreement have been omitted under a request for conﬁdential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934 and ﬁled separately with the United States Securities and
Exchange Commission.)
Loan Agreement, dated November 4, 2011, by and among the
Company and the lenders party thereto.

Equity Distribution Agreement, dated May 22, 2015, between the
Company and Jefferies LLC, as representative of the Sales Agents
listed on Schedule I thereto.

Stock Pledge Agreement, dated as of January 2, 2015, between the
Company and Wade Wilkinson and David Michael Coffey, as
representatives of the former shareholders of Securities Service
Network, Inc. and Renaissance Capital Corporation.

10.29

Form of Restricted Stock Award Agreement*

10.30 Amendment and Lease Extension Agreement, dated as of February

22, 2016, between Investacorp Group, Inc. and Frost Real Estate
Holdings, LLC

12.1

Statement re: Computation of Ratios of Earnings to Fixed Charge,
and Ratios of Earnings to Combined Fixed Charge and Preferred
Stock Dividends*

Incorporated
By Reference
from Document

No. in
Document

2.1

10.1

10.27

4.1

4.2

10.1

—

4.1

10.32

10.33

10.1

1.1

10.1

10.4

10.1

Exhibit
No.

23.1

31.1

31.2

32.1

32.2

Description

List of Subsidiaries

Consent of EisnerAmper LLP

Power of Attorney

Certiﬁcation of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certiﬁcation of Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certiﬁcation of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Certiﬁcation of Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Deﬁnition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase

Incorporated
By Reference
from Document

No. in
Document

***

****

**
**
**
**
**
**

—

—
—
—
—
—
—

Management Compensation Contract
Filed herewith
Contained on the signature page hereto

*
**
***
**** Furnished herewith
A.
B.
C.
D.
E.
F.
G.

Registration statement on Form SB-2 (File No. 333-31001).
Annual report on Form 10-K for the year ended August 24, 1999.
Quarterly report on Form 10-Q for the quarter ended June 30, 2006.
Current report on Form 8-K, dated September 20, 2007 and ﬁled with the SEC on September 21, 2007.
Current report on Form 8-K, dated October 19, 2007 and ﬁled with the SEC on October 22, 2007.
Registration statement on Form S-8 (File No. 333-139254).
Deﬁnitive proxy statement ﬁled with the SEC on August 27, 2012 relating to the annual meeting of
shareholders held on September 28, 2012.
Current report on Form 8-K, dated March 30, 2007 and ﬁled with the SEC on April 2, 2007.
Current report on Form 8-K, dated September 11, 2006 and ﬁled with the SEC on September 12, 2006.
Current report on Form 8-K, dated February 26, 2014 and ﬁled with the SEC on February 28, 2014.
Current report on Form 8-K, dated August 31, 2006 and ﬁled with the SEC on September 7, 2006.
Current report on Form 8-K, dated March 27, 2008 and ﬁled with the SEC on March 28, 2008.
Quarterly report on Form 10-Q for the quarter ended September 30, 2009.
Current report on Form 8-K, dated August 10, 2010 and ﬁled with the SEC on August 13, 2010.
Current report on Form 8-K, dated August 16, 2011 and ﬁled with the SEC on August 18, 2011.
Current report on Form 8-K, dated November 4, 2011 and ﬁled with the SEC on November 9, 2011.
Annual report on Form 10-K, for the year ended December 31, 2011.

H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.

R.
S.
T.
U.
V.
W.
X.

Current Report on Form 8-K, dated January 30, 2013 and ﬁled with the SEC on February 4, 2013.
Current Report on Form 8-K, dated March 8, 2013 and ﬁled with the SEC on March 8, 2013.
Current Report on Form 8-K, dated May 9, 2013 and ﬁled with the SEC on May 15, 2013.
Registration Statement on Form 8-A, ﬁled with the SEC on May 24, 2013.
Current Report on Form 8-K, dated June 24, 2013 and ﬁled with the SEC on June 25, 2013.
Current Report on Form 8-K, dated June 12, 2014 and ﬁled with the SEC on June 13, 2014.
Deﬁnitive proxy statement ﬁled with the SEC on May 19, 2014 relating to the annual meeting of
shareholders held on June 25, 2014.
Current report on Form 8-K, dated June 25, 2014 and ﬁled with the SEC on June 27, 2014.
Current Report on Form 8-K, dated October 15, 2014 and ﬁled with the SEC on October 16, 2014.

Current Report on Form 8-K, dated November 14, 2014 and ﬁled with the SEC on November 20, 2014.
Current Report on Form 8-K, dated November 21, 2014 and ﬁled with the SEC on November 21, 2014.

Y.
Z.
AA. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.
BB.
CC.
DD. Current Report on Form 8-K, dated January 2, 2015 and ﬁled with the SEC on January 6, 2015.
EE.
FF.
GG. Current Report on Form 8-K, dated May 22, 2015 and ﬁled with the SEC on May 22, 2015.
HH

Current Report on Form 8-K, dated January 20, 2015 and ﬁled with the SEC on January 23, 2015.
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.

Current Report on Form 8-K, dated February 22, 2016 and ﬁled with the SEC on February 26, 2016.

Pursuant

the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,

SIGNATURES

LADENBURG THALMANN FINANCIAL SERVICES INC.
(Registrant)
Dated: March 15, 2016
By: /s/ Brett H. Kaufman

Name: Brett H. Kaufman
Title: Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

the other and with full power of substitution and resubstitution, our

The undersigned directors and officers of Ladenburg Thalmann Financial Services Inc. hereby constitute
and appoint Brett H. Kaufman, Richard J. Lampen and Mark Zeitchick, and each of them, with full power to
act without
true and lawful
attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below, this
annual report on Form 10-K and any and all amendments thereto and to ﬁle the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange Commission, and hereby
ratify and conﬁrm all that such attorneys-in-fact, or any of them, or their substitutes shall lawfully do or cause
to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below

by the following persons on behalf of the registrant and in the capacities indicated on March 15, 2016.

Signatures

/s/ Richard J. Lampen
Richard J. Lampen

/s/ Brett H. Kaufman
Brett H. Kaufman

/s/ Henry C. Beinstein
Henry C. Beinstein

/s/ Phillip Frost, M.D.
Phillip Frost, M.D.

/s/ Brian S. Genson
Brian S. Genson

/s/ Saul Gilinski
Saul Gilinski

/s/ Dr. Richard M. Krasno
Dr. Richard M. Krasno

/s/ Howard M. Lorber
Howard M. Lorber

/s/ Jeffrey S. Podell
Jeffrey S. Podell

/s/ Jacqueline M. Simkin
Jacqueline M. Simkin

/s/ Mark Zeitchick
Mark Zeitchick

Title

President, Chief Executive Officer and Director
(Principal Executive Officer)

Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

Director

[This page intentionally left blank.]

LADENBURG THALMANN FINANCIAL SERVICES INC.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015

ITEMS 8 and 15(a) (1) AND (2)
INDEX TO FINANCIAL STATEMENTS

Financial Statements of the Registrant and its subsidiaries required to be included in Items 8 and 15(a)

(1) and (2) are listed below:

FINANCIAL STATEMENTS:

Ladenburg Thalmann Financial Services Inc. Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Financial Condition as of December 31, 2015 and 2014 . . . . . . . . . . .

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 . . .

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31,

2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 . . .

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-2

F-3

F-4

F-5

F-6

F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Ladenburg Thalmann Financial Services Inc.

We have audited the accompanying consolidated balance sheets of Ladenburg Thalmann Financial
Services Inc., (the ‘‘Company’’) as of December 31, 2015 and 2014, and the related consolidated statements
of operations, changes in shareholders’ equity and cash ﬂows for each of the years in the three-year period
ended December 31, 2015. These ﬁnancial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these ﬁnancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of material misstatement. An audit
includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An
audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as
well as evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the ﬁnancial statements referred to above present fairly, in all material respects, the
consolidated ﬁnancial position of Ladenburg Thalmann Financial Services Inc. as of December 31, 2015 and
2014, and the consolidated results of its operations and its cash ﬂows for each of the years in the three-year
period ended December 31, 2015, in conformity with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over ﬁnancial reporting as of December 31, 2015, based
issued by the Committee of
on criteria established in Internal Control-Integrated Framework (2013)
Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2016 expressed an
unqualiﬁed opinion on the Company’s internal control over ﬁnancial reporting.

/s/ EisnerAmper LLP

New York, New York
March 15, 2016

F-2

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share and per share amounts)

December 31,

2015

2014

ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables from clearing brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables from other broker-dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable from ﬁnancial advisors, net . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net
Fixed assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Unamortized debt issue cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash surrender value of life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY
Securities sold, but not yet purchased, at fair value . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and fees payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest
Notes payable, net of $1,492 and $1,093 unamortized discount in 2015 and

$ 118,677
4,079
44,466
2,150
26,967
48,564
21,753
1,011
137,931
125,572
253
9,247
33,688
$ 574,358

238
29,115
59,995
30,804
1,551
4,416
17,211
823

$ 103,087
5,910
38,760
1,788
26,152
36,872
19,820
620
123,000
115,238
644
10,419
28,448
$ 510,758

230
23,483
45,294
25,747
1,514
3,216
17,640
1,129

2014, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities

54,174
198,327

56,034
174,287

Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, $.0001 par value; authorized 25,000,000 shares in 2015 and
2014: 8% Series A cumulative redeemable preferred stock; authorized
17,290,000 shares in 2015 and 14,290,000 shares in 2014; shares issued and
outstanding 14,683,021 in 2015 and 11,096,231 in 2014 (liquidation
preference $367,076 in 2015 and $277,406 in 2014) . . . . . . . . . . . . . . . . .

Common stock, $.0001 par value; 800,000,000 shares authorized in 2015 and
2014; shares issued and outstanding, 182,338,038 in 2015 and 184,968,487
in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity of the Company . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .

19
511,138
(135,156)
376,002
29
376,031
$ 574,358

18
460,446
(124,005)
336,460
11
336,471
$ 510,758

See accompanying notes.

F-3

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

Revenues:
Commissions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment banking . . . . . . . . . . . . . . . . . . . . . . . . .
Principal transactions . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends . . . . . . . . . . . . . . . . . . . . . . . .
Service fees and other income . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expenses:
Commissions and fees
. . . . . . . . . . . . . . . . . . . . . . .
Compensation and beneﬁts . . . . . . . . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . . . . . . . . . . . . . .
Brokerage, communication and clearance fees . . . . . . .
Rent and occupancy, net of sublease revenue . . . . . . . .
Professional services
. . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Acquisition-related expense . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . .
Amortization of retention and forgivable loans . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before item shown below . . . . . . . . . . .
Change in fair value of contingent consideration . . . . .
(Loss) income before income taxes . . . . . . . . . . . . . . .
Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest
. . . . . . .
Net (loss) income attributable to the Company . . . . . . .
Dividends declared on preferred stock . . . . . . . . . . . . .
Net (loss) income available to common shareholders . . .

Net (loss) income per share available to common

shareholders (basic)

. . . . . . . . . . . . . . . . . . . . . . .

Net (loss) income per share available to common

shareholders (diluted)

. . . . . . . . . . . . . . . . . . . . . .

Weighted average common shares used in computation

of per share data:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2015

Year Ended December 31,
2014

2013

558,683
462,087
35,145
602
3,842
91,759
1,152,118

857,842
149,786
8,759
20,727
9,797
14,565
5,169
27,077
528
252
9,238
60,128
1,163,868
(11,750)
55
(11,695)
(482)
(11,213)
(62)
(11,151)
(28,108)
(39,259)

(0.21)

445,734
343,212
46,998
1,938
6,209
77,162
921,253

662,178
120,231
10,541
17,900
7,040
11,040
6,990
18,397
2,342
548
11,041
43,011
911,259
9,994
12
10,006
(23,346)
33,352
(81)
33,433
(17,244)
16,189

0.09

0.08

394,414
274,018
41,991
2,667
6,813
73,213
793,116

573,621
95,346
6,766
11,614
6,289
9,162
15,438
15,315
—
4,547
11,544
40,949
790,591
2,525
(121)
2,404
2,926
(522)
(68)
(454)
(6,911)
(7,365)

(0.04)

183,660,993
183,660,993

182,768,494
206,512,437

182,295,476
182,295,476

See accompanying notes.

F-4

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)

Preferred Stock

Common Stock

Amount

— $— 183,478,872

Amount
$18

Additional
Paid-in
Capital
$208,187

Accumulated
Deﬁcit
$(156,984)

Noncontrolling
Interest
$ —

Total
$ 51,221

Balance − December 31, 2012 . . . . . . . . . . . . . .
Issuance of common stock under employee stock

purchase plan . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .

Exercise of stock options
Exercise of warrants, net of 224,601 shares tendered

in payment of exercise price . . . . . . . . . . . . .

Stock-based compensation to consultants and

independent ﬁnancial advisors . . . . . . . . . . . .
Stock-based compensation to employees . . . . . . . .
Repurchase and retirement of common stock . . . . .
Third party investment in noncontrolling interest . . .
Preferred stock issued, net of underwriting discount

and expenses of $6,383 . . . . . . . . . . . . . . . .
Preferred stock dividends declared and paid . . . . . .
Net loss
. . . . . . . . . . . . . . . . . . . . . . . . . .
Balance − December 31, 2013 . . . . . . . . . . . . . .
Issuance of common stock under employee stock

purchase plan . . . . . . . . . . . . . . . . . . . . . .

Exercise of stock options (net of 43,535 shares

tendered in payment of exercise price)

. . . . . . .
. . . . . . . . . . . . . . . . . . .

Exercise of warrants
Stock-based compensation to consultants and

independent ﬁnancial advisors . . . . . . . . . . . .
Stock-based compensation to employees . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . .
Third party investment in noncontrolling interest . . .
Common stock issued in Highland acquisition . . . .
Common stock issued in KMS acquisition
. . . . . .
Preferred stock issued, net of underwriting discount

—
—

—

—
—
—
—

6,189,497
—
—
6,189,497

—

—
—

—
—
—
—
—
—
—

4,906,734
and expenses of $2,531 . . . . . . . . . . . . . . . .
—
Preferred stock dividends declared and paid . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
—
Balance − December 31, 2014 . . . . . . . . . . . . . . 11,096,231
Issuance of common stock under employee stock

purchase plan . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .

Exercise of stock options
Exercise of warrants, net of 196,518 shares tendered

—
—

in payment of exercise price . . . . . . . . . . . . .

Stock-based compensation to consultants and

independent ﬁnancial advisors . . . . . . . . . . . .
Stock-based compensation to employees . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . . . . .
Repurchase and retirement of common stock . . . . .
Third party investment in noncontrolling interest . . .
Preferred stock issued, net of underwriting discount

—

—
—
—
—
—

and expense of $1,972

3,586,790
. . . . . . . . . . . . . . . .
—
Preferred stock dividends declared and paid . . . . . .
Net loss
—
. . . . . . . . . . . . . . . . . . . . . . . . . .
Balance − December 31, 2015 . . . . . . . . . . . . . . 14,683,021

—
—

—

—
—
—
—

1
—
—
$ 1

—

—
—

—
—
—
—
—
—
—

—
—
—
$ 1

—
—

—

—
—
—
—
—

—
—
—
$ 1

112,646
608,022

1,002,065

—
—

—

—
—
—
—
(3,767,790) —
—
—

—
—
—
181,433,815

89,581

2,282,060
13,333

—
—
—
$18

—

—
—

—
—
14,409

—
—
—
(2,846,395) —
—
—
—
2,540,762
—
1,440,922

—
—
—
184,968,487

192,978
1,194,425

449,482

—
—
—
$18

—
—

—

—
—
—
—
1,206,081
1
(5,673,415) —
—
—

201
808

247

3,369
3,397
(6,446)
—

—
—

—

—
—
—
—

147,928
(6,911)
—
$350,780

—
—
(454)
$(157,438)

291

2,969
22

6,440
4,099
2
(9,535)
—
7,953
6,052

—

—
—

—
—
—
—
—
—
—

—
—

—

—
—
—
120

—
—
(68)
$ 52

—

—
—
—
—
40
—
—

201
808

247

3,369
3,397
(6,446)
120

147,929
(6,911)
(522)
$193,413

291

2,969
22

6,440
4,099
2
(9,535)
40
7,953
6,052

108,617
(17,244)
—
$460,446

—
—
33,433
$(124,005)

—
—
(81)
$ 11

108,617
(17,244)
33,352
$336,471

545
1,471

—

3,183
5,576
—
(16,355)
—

—
—

—

—
—
—
—
—

—

—
—
—
—
80

545
1,471

—

3,183
5,576
1
(16,355)
80

84,380
(28,108)
(11,213)
$376,031

—
—
—
182,338,038

—
—
—
$19

84,380
(28,108)
—
$511,138

—
—
(11,151)
$(135,156)

—
—
(62)
$ 29

See accompanying notes.

F-5

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Cash ﬂows from operating activities:

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(11,213)

$ 33,352

(522)

Year Ended December 31,
2014

2013

2015

Adjustments to reconcile net (loss) income to net cash provided

by operating activities:

Change in fair value of contingent consideration . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to deferred rent
Amortization of intangible assets
. . . . . . . . . . . . . . . . . . . . . .
Write-off on intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and other amortization . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount
Amortization of debt issue cost
. . . . . . . . . . . . . . . . . . . . . . .
Amortization of retention and forgivable loans . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁt attributable to reduction of goodwill . . . . . . . . . . . . . . .
Non-cash interest expense on forgivable loan . . . . . . . . . . . . . .
Gain on forgiveness of accrued interest under forgivable loans . . .
Gain on forgiveness of principal of note payable under forgivable
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash compensation expense . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Loss on write-off of receivable from subtenant
Loss on write-off of furniture, ﬁxtures and leasehold

(55)
37
20,650
—
6,427
252
666
376
9,238
(400)
78
21
(619)

(3,928)
8,759
855

(12)
(357)
14,056
—
4,341
548
501
393
11,041
(25,521)
68
98
(839)

(3,929)
10,541
—

121
(106)
11,594
143
3,676
4,547
1,219
435
11,544
954
77
132
(1,067)

(3,929)
6,766
—

improvements. net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

430

(Increase) decrease in operating assets, net of effects of acquisitions:
Securities owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . .
Receivables from clearing brokers . . . . . . . . . . . . . . . . . . . . . .
Receivables from other broker-dealers . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net
. . . . . . . . . . . . . .
Notes receivable from ﬁnancial advisors, net
Cash surrender value of life insurance . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in operating liabilities, net of effects of

acquisitions:
Securities sold, but not yet purchased, at fair value . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and fees payable . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities
. . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . .

1,989
(5,076)
(362)
19
(9,828)
1,172
(5,381)

8
5,632
292
2,139
(429)
(2,009)
19,319

(522)
(5,907)
338
(7,014)
(5,442)
1,951
(39)

147
(803)
102
8,272
(2,003)
(6,515)
26,855

(2,711)
(14,418)
23
(1,153)
(4,147)
(1,163)
(5,367)

(209)
8,081
(2,397)
1,230
1,101
5,990
20,874

See accompanying notes.

F-6

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS − (Continued)
(in thousands)

Cash ﬂows from investing activities:

Acquisition of SSN, net of cash received . . . . . . . . . . . . . . . . .
Acquisition of Highland, net of cash received . . . . . . . . . . . . . .
Acquisition of KMS, net of cash received . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other business acquisitions
Purchases of ﬁxed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of ﬁxed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in restricted assets . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . .

Cash ﬂows from ﬁnancing activities:

Issuance of Series A preferred stock . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A preferred stock dividends paid . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of notes payable and warrants . . . . . . . . . . . . . . . . . .
Principal repayments on notes payable including, in 2014,

Year Ended December 31,
2014

2013

2015

$ (16,919)
—
—
(2,603)
(8,298)
—
(391)
(28,211)

84,380
2,016
(28,108)
(16,355)
—

—
(3,353)
(4,292)
(1,621)
(7,447)
—
100
(16,613)

108,617
3,282
(17,244)
(9,535)
—

—
—
—
—
(6,861)
88
(250)
(7,023)

147,929
1,256
(6,911)
(6,446)
1,709

repayment of $21,834 of Highland’s assumed debt . . . . . . . . .

(17,639)

(42,369)

(111,113)

Principal borrowings (repayments) under revolving credit

facilities, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party investment in subsidiary . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities
. . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . .

495
(387)
80
24,482
15,590
103,087
$118,677

(275)
—
40
42,516
52,758
50,329
$103,087

(25,500)
—
120
1,044
14,895
35,434
$ 50,329

Supplemental cash ﬂow information:

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,807
2,313

5,920
2,554

$ 16,034
544

Acquisition of Sunset:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquisition of Highland:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .

— $ 4,380
—
—
—
4,380
(2,759)
—
— $ 1,621

— $ 65,882
(54,316)
—
11,566
—
(7,953)
—
3,613
—
—
(260)
— $ 3,353

—
—
—
—
—

—
—
—
—
—
—
—

See accompanying notes.

F-7

LADENBURG THALMANN FINANCIAL SERVICES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS − (Continued)
(in thousands)

Year Ended December 31,
2014

2013

2015

Acquisition of KMS:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—
—
—
—
—
—
—

$ 39,844
(15,284)
24,560
(6,052)
(7,508)
11,000
(6,708)
$ 4,292

Acquisition of SSN:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to selling shareholders
. . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 61,759
(14,472)
47,287
(3,590)
(18,697)
25,000
(8,081)
$ 16,919

Acquisition of Dalton:

Assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,689
(589)
$ 2,100

Acquisition of Select:

$ 2,019
(1,516)
503

—
—
—
—
—
—
—
—

—
—
—

$—
—
—
—
—
—
—
$—

$—
—
$—

See accompanying notes.

F-8

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

1. Description of Business

Ladenburg Thalmann Financial Services Inc. (the ‘‘Company’’ or ‘‘LTS’’) is a holding company. Its
principal operating subsidiaries are Securities America, Inc. (collectively with related companies, ‘‘Securities
America’’), Triad Advisors,
(collectively with related companies,
Investacorp,
‘‘Investacorp’’), KMS Financial Services, Inc. (‘‘KMS’’), which the Company acquired in October 2014,
(‘‘SSN’’), which the Company acquired in January 2015, Ladenburg
Securities Service Network,
Thalmann & Co. Inc. (‘‘Ladenburg’’), Ladenburg Thalmann Asset Management Inc. (‘‘LTAM’’), Premier
Trust, Inc. (‘‘Premier Trust’’) and Highland Capital Brokerage, Inc. (‘‘Highland’’), which the Company
acquired in July 2014.

(‘‘Triad’’),

Inc.

Securities America, Triad, Investacorp, KMS and SSN are registered broker-dealers and investment
advisors that serve the independent ﬁnancial advisor community. The independent ﬁnancial advisors of
Securities America, Triad, Investacorp, KMS and SSN primarily serve retail clients. Such entities derive
revenue from advisory fees and commissions, primarily from the sale of mutual funds, variable annuity
products and other ﬁnancial products and services.

Ladenburg is a full service registered broker-dealer that has been a member of the New York Stock
Exchange since 1879. Broker-dealer activities
include sales and trading and investment banking.
Ladenburg provides its services principally to middle-market and emerging growth companies and high net
worth individuals through a coordinated effort among corporate ﬁnance, capital markets, brokerage and
trading professionals.

LTAM is a registered investment advisor. It offers various asset management products utilized by Ladenburg

and Premier Trust’s clients, as well as well as clients of the Company’s independent ﬁnancial advisors.

Premier Trust, a Nevada trust company, provides wealth management services, including administration

of personal trusts and retirement accounts, estate and ﬁnancial planning and custody services.

Highland is an independent

insurance broker that delivers life insurance, ﬁxed and equity indexed
annuities and long-term care solutions to investment and insurance providers. Highland provides specialized
point-of-sale support along with advanced marketing and estate and business planning techniques, delivering
customized insurance solutions to both institutional clients and independent producers.

Securities America’s, Triad’s, Investacorp’s, KMS’s, SSN’s and Ladenburg’s customer transactions are
cleared through clearing brokers on a fully-disclosed basis and such entities are subject to regulation by,
among others, the Securities and Exchange Commission (‘‘SEC’’), the Financial Industry Regulatory Authority
(‘‘FINRA’’) and the Municipal Securities Rulemaking Board. Each entity is a member of the Securities
Investor Protection Corporation. Securities America is also subject to regulation by the Commodities Futures
Trading Commission and the National Futures Association. Highland is subject
to regulation by various
regulatory bodies, including state attorneys general and insurance departments. Premier Trust is subject to
regulation by the Nevada Department of Business and Industry Financial Institutions Division.

2. Summary of Signiﬁcant Accounting Policies

Principles of Consolidation

The consolidated ﬁnancial statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned, except for one subsidiary organized in 2013, which is 80% owned, after elimination
of all signiﬁcant intercompany balances and transactions.

F-9

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

2. Summary of Signiﬁcant Accounting Policies − (continued)

Use of Estimates

The preparation of these consolidated ﬁnancial statements in conformity with accounting principles
generally accepted in the United States of America (‘‘GAAP’’) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated ﬁnancial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid ﬁnancial instruments with an original maturity of three months
or less to be cash equivalents. Cash equivalents at December 31, 2015 and 2014 consist of money market
funds which are carried at fair value of $31,894 and $74,939, respectively. Fair value is based on quoted
prices in active markets (Level 1).

Revenue Recognition

Commissions revenue results from transactions in equity securities, mutual funds, variable annuities and other
ﬁnancial products and services. Most of the commission and advisory fee revenue generated by independent
contractor ﬁnancial advisors is paid to the advisors as commissions and fees for initiating the transactions.

Commission revenue is generated from front-end sales commissions that occur at the point of sale, as
well as trailing commissions. Front-end sales commission revenue and related clearing and other expenses on
transactions introduced to its clearing broker are recognized on a trade date basis. Front-end sales
commissions and related expenses on transactions initiated directly between the ﬁnancial advisors and product
sponsors are recognized upon receipt of notiﬁcation from sponsors of the commission earned. Commission
revenue also includes 12b-1 fees, and ﬁxed and variable product trailing fees, collectively considered as
trailing fees, which are recurring in nature. These trailing fees are earned based on a percentage of the current
market value of clients’ investment holdings in trail eligible assets. Because trail commission revenues are
generally paid in arrears, management estimates commission revenues earned during each period. These
estimates are based on a number of factors including investment holdings and the applicable commission rate
and the amount of trail commission revenue received in prior periods. Estimates are subsequently adjusted to
actual based on notiﬁcation from the sponsors of trail commissions earned.

Commissions are also earned on the sale of insurance policies. Commissions are generally paid each year
as long as the client continues to use the product. Commissions paid by insurance companies are based on
a percentage of the premium that the insurance company charges to the policyholder. First-year commissions
are calculated as a percentage of the ﬁrst twelve months’ premium on the policy and earned in the year that
the policy is originated. In many cases, renewal commissions are received for a period following the ﬁrst year,
if the policy remains in force. Insurance commissions are recognized as revenue when the following criteria
are met: (1) the policy application and other carrier delivery requirements are substantially complete, (2) the
premium is paid and (3) the insured party is contractually committed to the purchase of the insurance policy.
Carrier delivery requirements may include additional supporting documentation, signed amendments and
premium payments. Commissions earned on renewal premiums are generally recognized upon receipt from the
carrier, since that is typically when notiﬁcation is ﬁrst received that such commissions have been earned.

Advisory fee revenue represents fees charged by registered investment advisors to their clients based upon
the value of advisory assets. Advisory fees are recorded as earned. Since advisory fees are based on assets under
management, signiﬁcant changes in the fair value of these assets will have an impact on the fees earned in future
periods. Incentive fees are also earned based upon the performance of investment funds and accounts.

Investment banking revenue consists of underwriting revenue, strategic advisory revenue and private
fees. Underwriting revenues arise from securities offerings in which Ladenburg acts as an

placement

F-10

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

2. Summary of Signiﬁcant Accounting Policies − (continued)

underwriter and include management fees, selling concessions and underwriting fees, net of related syndicate
expenses. Underwriting revenues are recorded at the time the underwriting is completed and the income is
reasonably determined. Strategic advisory revenue primarily consists of success fees on completed mergers
and acquisitions transactions, and retainer and periodic fees earned by advising buyers’ and sellers in
transactions. Fees are also earned for related strategic advisory work and other services such as providing
fairness opinions and valuation analyses. Strategic advisory revenues are recorded when the transactions or the
services (or, if applicable, separate components thereof) to be performed are substantially complete, the fees
are determinable and collection is reasonably assured. Private placement fees, net of expenses, are recorded on
the closing date of the transaction.

Principal

transactions revenue includes realized and unrealized net gains and losses resulting from
investments in equity securities and equity-linked warrants received from certain investment banking assignments.

Interest is recorded on an accrual basis and dividends are recorded on an ex-dividend date basis.

Service fees and other income principally includes amounts charged to independent ﬁnancial advisors for
processing of securities trades and for providing administrative and compliance services and also includes
marketing allowances earned from product sponsor programs. All such amounts are recorded as earned.

Fixed Assets

Fixed assets are carried at cost net of accumulated depreciation and amortization. Depreciation is
the related assets. Leasehold
provided by the straight-line method over
the estimated useful
improvements are amortized on a straight-line basis over the lease term, or their estimated useful lives,
whichever is shorter.

lives of

Share-Based Compensation

The Company measures the cost of employee, officer and director services received in exchange for an
award of equity instruments, including stock options and restricted stock, based on the grant-date fair value of
the award. The cost is recognized as compensation expense over the service period, which would normally be
the vesting period of the equity instruments.

Compensation expense for share-based awards granted to independent contractors is measured at their
vesting date fair value. The compensation expense recognized each period is based on the awards’ estimated
value at the most recent reporting date.

Intangible Assets

to amortization are tested for

Intangible assets are amortized over their estimated useful

lives, generally on a straight-line basis.
recoverability whenever events or changes in
Intangible assets subject
circumstances indicate that
the carrying amount may not be recoverable. The Company assesses the
recoverability of its intangible assets by determining whether the unamortized balance can be recovered over
the assets’ remaining life through undiscounted forecasted cash ﬂows. If undiscounted forecasted cash ﬂows
indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such
amounts to fair value determined based on forecasted future cash ﬂows discounted at a rate commensurate
with the risk associated with achieving such cash ﬂows. Future cash ﬂows are based on trends of historical
future performance, giving consideration to existing and
performance and the Company’s estimate of
anticipated competitive and economic conditions. See Note 7.

F-11

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

2. Summary of Signiﬁcant Accounting Policies − (continued)

Goodwill

Goodwill, which was recorded in connection with acquisitions of subsidiaries (see Notes 3 and 8), is not
subject to amortization and is tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset may be impaired. The impairment test consists of a comparison of the
fair value of the reporting unit with its carrying amount. Fair value is typically based upon forecasted future
cash ﬂows discounted at a rate commensurate with the risk involved or market based comparables. If the
carrying amount of the reporting unit exceeds its fair value then an analysis will be performed to compare the
implied fair value of goodwill with the carrying amount of goodwill. An impairment loss will be recognized
in an amount equal to the excess of the carrying amount over the implied fair value. After an impairment loss
is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on
the testing of goodwill for impairment allows entities the option of performing a qualitative assessment to
determine the likelihood of goodwill
is necessary to perform such two-step
impairment and whether it
quantitative impairment test.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update
(‘‘ASU’’) 2013-11, Presentation of an Unrecognized Tax Beneﬁt When a Net Operating Loss Carryforward, a
Similar Tax Loss, or a Tax Credit Carryforward Exists. The update requires the netting of unrecognized tax
beneﬁts against a deferred tax asset for the loss or other carryforward that would apply in settlement of the
uncertain tax positions. The Company adopted the amended accounting guidance effective as of January 1,
2014, which did not have any impact on the Company’s 2014 ﬁnancial statements.

In April 2014, the FASB issued ASU 2014-08, which changes the requirements for reporting discontinued

operations.

A disposal of a component of an entity or a group of components of an entity is required to be reported
in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on
an entity’s operations and ﬁnancial results. ASU 2014-08, which is to be applied prospectively to all new
disposals of components and new classiﬁcations as held for sale, became effective in annual periods beginning
on or after December 15, 2014 and interim periods within those annual periods with early adoption allowed.
The Company adopted ASU 2014-08 effective as of January 1, 2015, which did not have any impact on the
Company’s 2015 ﬁnancial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which
completes the joint effort by the FASB and the International Accounting Standards Board to improve ﬁnancial
reporting by creating common revenue recognition guidance for GAAP and the International Financial Reporting
Standards. ASU 2014-09 will become effective for ﬁscal years and interim periods within those years, beginning
after December 15, 2017 with early adoption permitted for ﬁscal years and interim periods within those years,
beginning after December 15, 2016,
the original effective date of the standard. The Company is currently
assessing the impact that the adoption of ASU 2014-09 will have on its ﬁnancial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718), which
requires that a performance target that affects vesting and that could be achieved after the requisite service
period be treated as a performance condition. ASU 2014-12 will become effective for the Company for annual
periods and interim periods beginning after December 15, 2015 and early adoption is permitted. The Company
does not anticipate that the adoption of ASU 2014-12 will have a material impact on its ﬁnancial statements.

F-12

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

2. Summary of Signiﬁcant Accounting Policies − (continued)

In February 2015, the FASB issued ASU 2015-02, ‘‘Amendments to the Consolidation Analysis,’’ which
is effective for ﬁscal years and interim periods within those years, beginning after December 15, 2015. Early
adoption is permitted. ASU 2015-02 amends: the assessment of whether a limited partnership is a variable
interest entity; the effect that fees paid to a decision maker have on the consolidation analysis; how variable
interests held by a reporting entity’s related parties or de facto agents affect its consolidation conclusion; and
for entities other than limited partnerships, clariﬁes how to determine whether the equity holders as a group
have power over an entity. In 2015, the Company adopted ASU 2015-02, which did not have any impact on
the Company’s consolidated ﬁnancial statements and footnote disclosure.

In April 2015, the FASB issued ASU 2015-03, ‘‘Interest — Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs’’ which requires that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with debt discounts. The ASU requires retrospective adoption and is effective for
interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company
does not anticipate that the adoption of ASU 2015-03 will have a material impact on its statement of ﬁnancial
condition.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing
guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their
balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for
ﬁscal years beginning after December 15, 2018 and interim periods within those ﬁscal years. Early application
is permitted for all entities. ASU 2016-02 requires a modiﬁed retrospective approach for all leases existing at,
or entered into after, the date of initial application, with an option to elect to use certain transition relief. The
Company is currently assessing the impact that the adoption of ASU 2016-02 will have on its ﬁnancial
statements.

3. Acquisitions

Securities Service Network, Inc.

On January 2, 2015, the Company acquired the capital stock of Securities Service Network, Inc. (‘‘SSN’)
and an affiliated company, Renaissance Capital Corporation (‘‘RCC’’). SSN is an independent broker-dealer,
registered investment advisor and insurance agency based in Knoxville, TN. RCC is a corporation that owns
ﬁxed assets leased to SSN. The purchase price was approximately $47,287,
including $25,000 principal
amount of secured short-term promissory notes, which bore interest at 0.41% per annum and were paid in full
on the business day following the closing date, and $20,000 principal amount of secured four-year promissory
notes, bearing interest at 1.74% per annum and payable in equal quarterly installments of principal and
interest (valued at $18,697 based on imputed interest rate of 5.10%). The promissory notes are secured by a
pledge of the shares of SSN and RCC purchased in the acquisition pursuant to a stock pledge agreement. The
Company paid approximately $3,590 subsequent to the closing date, which is included in the purchase price
above, based on the amount by which the aggregate net worth of SSN and RCC as of the closing date of the
acquisition exceeded a targeted amount. Legal and other related acquisition costs of approximately $51 and
$523 were incurred and charged to expenses in 2015 and 2014, respectively.

F-13

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

The Company conducted a valuation study to determine the acquisition-date fair value of assets acquired
and liabilities assumed and related allocation of purchase price of SSN. The following table summarizes the
fair value of assets acquired and liabilities assumed at the acquisition date:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables from clearing broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net
Fixed assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and fees payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,081
158
630
11,711(2)
57
225
30,901
9,282(1)
714
61,759
12,562(2)
44
1,866(1)
14,472
$47,287

(1)
(2)

Increased by $484 from amounts originally reported.
Increased by $9,100 from amounts originally reported.

The Company has elected under Section 338 of the Internal Revenue Code to treat the acquisition as an
asset acquisition and, accordingly, goodwill will be deductible for income tax purposes over 15 years.
Goodwill was assigned to the independent brokerage and advisory services segment.

Factors that contributed to a purchase price resulting in the recognition of goodwill includes SSN’s
strategic ﬁt with the Company’s existing businesses, including the resulting synergies and economies of scale
expected from the acquisition.

Identiﬁable intangible assets as of the acquisition date consist of:

Relationships with ﬁnancial advisors . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements
Total identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,654
2,080
1,756
411
$30,901

Estimated
Useful Life
(years)
20
12.5
9
3

Fair value amounts (Level 3 inputs) were determined using an income approach for relationships with
ﬁnancial advisors and non-compete agreements, the relief from royalty method for trade names and the cost
approach for developed technology.

F-14

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

KMS

On October 15, 2014,

the Company acquired KMS, a Seattle-based independent broker-dealer and
registered investment advisor, pursuant to a Stock Purchase Agreement, dated as of August 8, 2014, by and
among the Company, KMS and the shareholders of KMS.

Under the terms of the purchase agreement, on the closing date, the Company paid the KMS shareholders
$24,560, consisting of $11,000 in cash, $8,000 principal amount of four-year promissory notes, bearing
interest at 1.84% per annum and payable in equal quarterly installments of principal and interest (valued at
$7,508 based on an imputed interest rate of 5.50%), and 1,440,922 shares of the Company’s common stock
valued at $6,052 (based on the closing price at date of acquisition), which are subject to certain transfer
restrictions,
in exchange for all of the issued and outstanding capital stock of KMS. The notes contain
customary events of default, which if uncured, entitle the holders to accelerate the due date of the unpaid
principal amount of, and all accrued and unpaid interest on, the notes. Legal and other related acquisition
costs of approximately $520 were incurred and charged to expense in 2014.

The Company conducted a valuation study to determine the acquisition-date fair value of assets acquired
and liabilities assumed and related allocation of purchase price of KMS. The following table summarizes the
fair value of assets acquired and liabilities assumed at the date of acquisition:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables from clearing broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables, net
Fixed assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and fees payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,708
599
1,462
2,101
192
150
10,859
13,269
4,504
39,844
(826)
(2,772)
(587)
(600)
(6,516)
(3,983)
(15,284)
$ 24,560

A deferred tax liability has been recorded for the excess of ﬁnancial statement basis over tax basis of the
acquired assets and assumed liabilities with a corresponding increase to goodwill. Goodwill, which is
non-deductible for income tax purposes, was assigned to the independent brokerage and advisory services
segment. Factors that contributed to a purchase price resulting in the recognition of goodwill includes KMS’
strategic ﬁt with the company’s existing businesses, including the resulting synergies and economies of scale
expected from the acquisition.

F-15

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

Identiﬁable intangible assets as of the acquisition date consist of:

Relationships with ﬁnancial advisors . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,192
1,112
555
$10,859

Estimated
Useful Life
(years)
20
9
5

Fair value amounts (Level 3 inputs) were determined using an income approach for representative

relationships and non-compete agreements and the relief from royalty method for trade names.

Highland

On July 31, 2014, the Company acquired HCHC Holdings, Inc. (‘‘HCHC’’), which is the parent company of
Highland. Highland is an independent insurance broker that delivers life insurance, annuities and long-term care
solutions to investment and insurance providers. Under the Agreement and Plan of Merger, dated July 31, 2014,
by and among the Company, HCHC, HCHC Acquisition Inc. (‘‘HCHC Acquisition’’), a wholly-owned subsidiary
of the Company, and the stockholders of HCHC, HCHC merged with and into HCHC Acquisition, with HCHC
Acquisition remaining as the surviving corporation and a wholly-owned subsidiary of the Company.

The Company paid the HCHC shareholders $11,566 consisting of $3,613 in cash and 2,540,762 shares of
the Company’s common stock, which are subject to certain transfer restrictions, valued at $7,953 (based on
the closing price at the date of the acquisition). Also, the Company caused all indebtedness owed by certain
HCHC subsidiaries under a credit agreement (in the amount of $21,834) to be repaid. Legal and other
acquisition related costs of approximately $566 were incurred and charged to expense in 2014.

The Company conducted a valuation study to determine the acquisition-date fair value of assets acquired
and liabilities assumed and related allocation of purchase price of Highland. The following table summarizes
the fair value of assets acquired and liabilities assumed at the date of acquisition:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and fees payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable-current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable-long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes payable, net
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price

260
6,070
45,587
11,515
2,450
65,882
(1,450)
(21,834)
(7,000)
(6,777)
(17,255)
(54,316)
$ 11,566

A deferred tax liability has been recorded for the excess of ﬁnancial statement basis over tax basis of the
acquired assets and assumed liabilities with a corresponding increase to goodwill. Goodwill, which is
non-deductible for income tax purposes, was assigned to the insurance brokerage segment. Factors that contributed
to a purchase price resulting in the recognition of goodwill include Highland’s strategic ﬁt with the Company’s
existing businesses, including the resulting synergies and economies of scale expected from the acquisition.

F-16

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

Identiﬁable intangible assets as of the acquisition date consist of:

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Renewals revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-solicitation agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identiﬁable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$
949
39,503
2,864
2,271
$45,587

Estimated
Useful Life
(years)
4
8
9
3

Fair value amounts (Level 3 inputs) were determined using a cost approach for technology, an income
approach for renewals revenue and non-solicitation agreements and the relief from royalty method for trade
names.

The accompanying consolidated ﬁnancial statements include the results of operations of Highland, KMS
and SSN from their dates of acquisition; July 31, 2014, October 15, 2014 and January 2, 2015, respectively.
The following unaudited pro forma information represents the Company’s consolidated results of operations as
if the acquisitions of KMS and Highland had occurred at the beginning of 2013 and as if the acquisition of
SSN had occurred at the beginning of 2014. The pro forma net loss reﬂects amortization of the amounts
ascribed to identiﬁable intangible assets acquired in the acquisitions, elimination of Highland’s interest
expense related to notes repaid on the date of acquisition and interest expense on notes issued in the KMS and
SSN acquisitions. Also, $21,238 of non-recurring income tax beneﬁt resulting from the acquisitions of
Highland and KMS has been excluded from the pro forma results in 2014.

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss available to common shareholders . . . . . . . . . . . . . . . .
Basic and diluted net loss per share available to common

Year Ended December 31,
2013
2014
936,785
$ 1,130,420
(5,475)
12,754
(12,386)
(4,409)

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.02)

(0.07)

Weighted average common shares outstanding:

Basic and diluted(a)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

185,370,262

186,277,160

(a)

Includes 3,981,684 shares of Company common stock issued in connection with the acquisitions of
Highland and KMS.

The unaudited pro forma ﬁnancial

intended to represent or be indicative of the
Company’s consolidated results of operations that would have been reported had the acquisitions of KMS and
Highland been completed as of the beginning of 2013 and SSN as of the beginning of 2014, nor should it be
taken as indicative of the Company’s future consolidated results of operations.

information is not

Revenues and net income for SSN from the date of acquisition through December 31, 2015, included in

the accompanying statements of operations were $116,207 and $1,629, respectively.

Combined revenues and net loss for Highland and KMS for the period from dates of acquisition, July 31,
included in the accompanying

through December 31, 2014,

2014 and October 15, 2014, respectively,
statements of operations were $46,004 and $59, respectively.

F-17

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

Other

In December 2014, Securities America purchased certain assets related to the broker-dealer business of
Sunset Financial Services, Inc. (‘‘Sunset’’) from Kansas City Life Insurance Company that was deemed to be
a business acquisition. According to the agreement, certain registered representatives and investment advisor
representatives and their client accounts and related goodwill were acquired. The consideration for the
transaction was $4,380, consisting of cash of $1,621 and contingent consideration having a fair value of
$2,759, for which a liability was recognized based on the estimated acquisition-date fair value of the potential
earn-out.

The liability was valued using an income-based approach discounting to present value the earn-out’s
probability weighted expected payout using three earn-out scenarios. The fair value measurement of the
earn-out which relates to a four-year period, is based on unobservable inputs (Level 3) and reﬂects the
Company’s own assumptions. The purchase price was allocated as follows: $4,359 to identiﬁable assets and
$21 to goodwill.

In July 2015, Highland purchased certain assets of the insurance brokerage business of Select Brokerage
Services Inc. (‘‘Select’’) that was deemed to be a business acquisition. The consideration for the transaction
was $2,019, consisting of cash of $503 paid upon closing, a deferred payment of $504 due on the ﬁrst
anniversary of the closing date and contingent consideration having a fair value of $1,012 for which a liability
was recognized based on estimated acquisition-date fair value of the potential earn-out.

The liability was valued using an income-based approach of the earn-out’s probability-weighted expected
payout using three earn-out scenarios. The measurement of the earn-out, which relates to a four-year period, is
based on unobservable inputs (Level 3) and reﬂects the Company’s own assumptions. The purchase price was
allocated $2,019 to identiﬁable intangible and other assets.

In June 2015, Securities America purchased certain assets of the broker-dealer business of Dalton
Strategic Investment Services, Inc. (‘‘Dalton’’) that was deemed to be a business acquisition. Relationships
with certain registered representatives and investment advisor representatives including their client accounts
were acquired.

The consideration for

the transaction was $2,689, consisting of cash of $2,100 and contingent
consideration having a fair value of $589, for which a liability was recognized based on the estimated
acquisition-date fair value of the potential earn-out.

The liability was valued using an income-based approach discounting to present value the earn-out’s
probability weighted expected payout using three earn-out scenarios. The fair value measurement of the
earn-out which relates to a three-year period, is based on unobservable inputs (Level 3) and reﬂects the
Company’s own assumptions. The purchase price was allocated as follows:$2,675 to identiﬁable intangible
and other assets and $14 to goodwill.

Results of operations relating to Sunset, Select and Dalton, which are included in the accompanying
consolidated statements of operations from their respective dates of acquisition, were not material. In addition,
based on materiality, pro forma results were not presented.

F-18

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

3. Acquisitions − (continued)

Set forth below are changes in the carrying value of contingent consideration related to acquisitions,

which is included in accounts payable and accrued liabilities:

Fair value of contingent consideration as of December 31, 2012 . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of contingent consideration as of December 31, 2013 . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of contingent consideration in connection with 2014 acquisition . . . . . . . .
Fair value of contingent consideration as of December 31, 2014 . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of contingent consideration in connection with 2015 acquisitions . . . . . . . .
Fair value of contingent consideration as of December 31, 2015 . . . . . . . . . . . . . .

812
(344)
121
589
(124)
(12)
2,759
3,212
(1,945)
(55)
1,601
$ 2,813

4. Securities Owned and Securities Sold, But Not Yet Purchased

The components of securities owned and securities sold, but not yet purchased as of December 31, 2015

and 2014 were as follows:

Securities
Owned

Securities Sold,
But Not Yet
Purchased

December 31, 2015
Certiﬁcates of deposit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury notes
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants
Restricted common stock and warrants
. . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

December 31, 2014
Certiﬁcates of deposit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury notes
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants
Restricted common stock and warrants
. . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

$ 359
1,125
101
927
958
609
$4,079

$ 465
1,526
102
1,981
875
961
$5,910

$ —
(30)
(200)
(8)
—
—
$(238)

$ —
(45)
(151)
(34)
—
—
$(230)

As of December 31, 2015 and December 31, 2014, approximately $3,383 and $5,429, respectively, of
securities owned were deposited with clearing brokers and may be sold or hypothecated by the clearing
brokers pursuant to clearing agreements with such clearing brokers. Securities sold, but not yet purchased, at
fair value represents obligations of the Company’s subsidiaries to purchase the speciﬁed ﬁnancial instrument at
the then current market price. Accordingly, these transactions result in off-balance-sheet risk as the Company’s
subsidiaries’ ultimate obligation to repurchase such securities may exceed the amount recognized in the
consolidated statements of ﬁnancial condition.

F-19

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

4. Securities Owned and Securities Sold, But Not Yet Purchased − (continued)

Authoritative accounting guidance deﬁnes fair value, establishes a framework for measuring fair value,
and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. A fair value measurement assumes that the transaction to sell the
asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market. Valuation techniques that are consistent with the market or
income approach are used to measure fair value.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value are classiﬁed and disclosed in one of the following three
categories:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than quoted market prices that are observable, either directly or indirectly, and
reasonably available. Observable inputs reﬂect the assumptions market participants would use in pricing
the asset or liability and are developed based on market data obtained from sources independent of the
Company.

Level 3 — Unobservable inputs which reﬂect
available information about what market participants would use in valuing the asset or liability.

the assumptions that

the Company develops based on

Securities are carried at fair value and classiﬁed as follows:

Securities owned, at fair value
Certiﬁcates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities
U.S. Treasury notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Securities sold, but not yet purchased, at fair value
Certiﬁcates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Securities owned, at fair value
Certiﬁcates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Level 1
$ 359
—
—
927
—
$1,286

Level 1
$—
—
—
(8)
$ (8)

Level 1
$ 465
—
—
1,981
—
$2,446

December 31, 2015
Level 3
$—
—
—
—
—
$—

Level 2
$ —
1,125
101
958
609
$2,793

December 31, 2015
Level 3
$—
—
—
—
$—

Level 2
$ —
(30)
(200)
—
$(230)

December 31, 2014
Level 3
$—
—
—
—
—
$—

Level 2
$ —
1,526
102
875
961
$3,464

Total
$ 359
1,125
101
1,885
609
$4,079

Total
$ —
(30)
(200)
(8)
$(238)

Total
$ 465
1,526
102
2,856
961
$5,910

F-20

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

4. Securities Owned and Securities Sold, But Not Yet Purchased − (continued)

Securities sold, but not yet purchased, at fair value
Debt securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and warrants . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Level 1
$ —
—
(34)
$(34)

December 31, 2014
Level 3
$—
—
—
$—

Level 2
$ (45)
(151)
—
$(196)

Total
$ (45)
(151)
(34)
$(230)

Debt securities and U.S. Treasury notes are valued based on recently executed transactions, market price

quotations, and pricing models that factor in, as applicable, interest rates and bond default risk spreads.

Warrants are carried at a discount to fair value as determined by using the Black-Scholes option pricing
model due to illiquidity. This model takes into account the underlying securities current market values, the
underlying securities market volatility, the terms of the warrants, exercise prices, and risk-free return rate. As
the fair values of the warrants were $545 and $403,
of December 31, 2015 and December 31, 2014,
respectively, and are included in common stock and warrants (level 2) above.

From time to time, Ladenburg receives common stock as compensation for investment banking services.

These securities are restricted under applicable securities laws and may be freely traded only upon the
effectiveness of a registration statement covering them or upon the satisfaction of the requirements of
Rule 144, including the requisite holding period. Restricted common stock is classiﬁed as Level 2 securities.

Other investments consist principally of equity interests in non-traded Real Estate Investment Trusts,

which are valued based on pricing available from buyers in the secondary market.

5. Net Capital Requirements

The Company’s broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule 15c3-1,
which requires the maintenance of minimum net capital. Each of Securities America, Triad, Investacorp, KMS
and Ladenburg has elected to compute its net capital under the alternative method allowed by this rule, and, at
December 31, 2015, each had a $250 minimum net capital requirement. At December 31, 2015, Securities
America had regulatory net capital of $6,646, Triad had regulatory net capital of $8,063, Investacorp had
regulatory net capital of $5,474, KMS had regulatory net capital of $5,774 and Ladenburg had regulatory net
capital of $22,972.

SSN has elected to compute its net capital under the basic method allowed by the Net Capital Rule and
at December 31, 2015, it had net capital of $6,731, which was $5,792 in excess of its required net capital of
$939, and had a net capital ratio of 2.09 to 1.

Securities America, Triad, Investacorp, KMS, SSN and Ladenburg claim exemptions from the provisions
of the SEC’s Rule 15c3-3 pursuant to paragraph (k)(2)(ii) as they clear their customer transactions through
correspondent brokers on a fully disclosed basis.

On February 26, 2016, Triad sent written notiﬁcation to FINRA of a net capital deﬁciency of $1,579 at
January 31, 2016, which arose from changing its methodology of recognizing intra-quarterly revenue and
related commission expense. Such methodology resulted in the recording of a non-allowable asset for
purposes of computing net capital. At February 29, 2016,
the deﬁciency had been cured through the
amortization of the non-allowable asset and Triad has taken steps to prevent recurrence. Also, the Company
contributed $2,500 to Triad to increase its capital for purposes of maintaining excess net capital prospectively.

F-21

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

5. Net Capital Requirements − (continued)

Premier Trust, chartered by the state of Nevada, is subject to regulation by the Nevada Department of
Business and Industry Financial Institutions Division. Under Nevada law, Premier Trust must maintain
minimum stockholders’ equity of at least $1,000, including at least $250 in cash. At December 31, 2015,
Premier Trust had stockholders’ equity of $1,468, including at least $250 in cash.

6. Fixed Assets

Components of ﬁxed assets, net included in the consolidated statements of ﬁnancial condition were as

follows:

Cost:
Leasehold improvements
Computer equipment
Furniture and ﬁxtures
Other

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2015

2014

$ 4,656
14,260
3,251
19,132
41,299
(19,546)
$ 21,753

$ 4,153
12,466
2,691
13,886
33,196
(13,376)
$ 19,820

7. Intangible Assets

At December 31, 2015 and 2014, intangible assets subject to amortization consisted of the following:

Technology . . . . . . . . . . . . . . . . . . . .
Relationships with ﬁnancial advisors . . .
. . . . . . . . . . . . . .
Vendor relationships
Covenants not-to-compete . . . . . . . . . .
Customer accounts
. . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . .
Renewal revenue . . . . . . . . . . . . . . . . .
Relationships with investment banking

clients . . . . . . . . . . . . . . . . . . . . . .
Leases . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Referral agreement
. . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . .

Total

Weighted-Average
Estimated Useful
Life (years)
7.9
15.2
7
3.9
8.3
7.7
7.9

4
6
6.6
6

December 31, 2015

December 31, 2014

Gross
Carrying
Amount
$ 25,563
110,671
3,613
6,035
2,029
16,910
41,381

2,586
861
124
67
$209,840

Accumulated
Amortization
$12,488
32,028
3,613
3,347
1,765
7,790
7,263

2,586
861
101
67
$71,909

Gross
Carrying
Amount
$ 23,483
81,438
3,613
5,401
2,029
15,154
39,503

2,586
861
124
67
$174,259

Accumulated
Amortization
$ 9,223
23,704
3,458
2,100
1,516
2,099
5,563

2,586
861
81
67
$51,258

F-22

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

7. Intangible Assets − (continued)

Aggregate amortization expense amounted to $20,650, $14,056 and $11,594 for

the years ended
total
December 31, 2015, 2014 and 2013,
amortizable intangibles at December 31, 2015 is 9.69 years. Estimated amortization expense for each of the
ﬁve succeeding years and thereafter is as follows:

respectively. The weighted-average amortization period for

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$ 20,680
20,203
19,419
15,871
14,486
47,272
$137,931

8. Goodwill

Changes to the carrying amount of goodwill during the years ended December 31, 2015 and 2014 are as

follows:

Balance as of January 1, 2014 . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Beneﬁt applied to reduce goodwill
Business acquisitions . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2014 . . . . . . . . . . . . .
Beneﬁt applied to reduce goodwill
. . . . . . . . . . . . .
Adjustments related to allocation of KMS and

Highland purchase price . . . . . . . . . . . . . . . . . .
Business acquisitions . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2015 . . . . . . . . . . . . .

Independent
Brokerage
and Advisory
Services
$ 90,200
(68)
13,290
$103,422
(78)

(68)
9,296
$112,572

Ladenburg
$301
—
—
$301
—

—
—
$301

Insurance
Brokerage
$ —
—
11,515
$11,515
—

1,184

$12,699

Total
$ 90,501
(68)
24,805
$115,238
(78)

1,116
9,296
$125,572

The annual impairment tests performed at December 31, 2015 and 2014, based on quantitative and
qualitative assessments, did not indicate that the carrying value of goodwill had been impaired. However,
changes in circumstances or business conditions could result in an impairment of goodwill.

In 2015 and 2014,

the carrying amount of goodwill was reduced by $78 and $68, respectively,
representing state tax beneﬁt realized for the excess of tax deductible goodwill over goodwill recognized for
reporting purposes with respect to the Company’s subsidiaries.

9. Notes Receivable from Financial Advisors

From time to time, the Company’s broker-dealer subsidiaries may make loans to their ﬁnancial advisors.
These loans are primarily given to newly-recruited advisors to assist in the transition process. In connection with
the Securities America acquisition in 2011, the Company made retention loans aggregating $20,000 to Securities
America’s ﬁnancial advisors. The notes receivable balance is comprised of unsecured non-interest-bearing and
interest-bearing loans (interest of up to 8.0%) to the ﬁnancial advisors. These notes have various schedules for
repayment or forgiveness and mature at various dates through 2021. The notes are amortized over the forgiveness
period which generally ranges from 3 to 5 years. Receivables are continually evaluated for collectability and
possible write-offs and an allowance for doubtful accounts is provided where a loss is considered probable. As of
December 31, 2015 and 2014, the allowance amounted to $461 and $215, respectively.

F-23

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

9. Notes Receivable from Financial Advisors − (continued)

The net carrying value of notes receivable, which are recorded at cost, as of December 31, 2015 and
2014 was $26,967 and $26,152, respectively, which approximates fair value. Fair value is determined based
on a valuation technique to convert future cash payments or forgiveness transactions to a single discounted
present value amount (Level 2 inputs).

10. Deferred Compensation Plan

Securities America has a deferred compensation plan which allowed certain members of management and
qualiﬁed ﬁnancial advisors to defer a portion of their compensation and commissions. Participants were able
to elect various distribution options, but must be a plan participant for ﬁve years before any distributions can
be made. Securities America has purchased variable life insurance contracts with cash surrender values that
are designed to replicate the gains and losses of the deferred compensation liability and are held in a
consolidated Rabbi Trust. The cash surrender values of the life insurance contracts held in the Rabbi Trust are
intended to informally fund a portion of the deferred compensation liability. Securities America is the owner
and beneﬁciary of these policies, for which the aggregated cash surrender value totaled $9,247 and $10,419 as
of December 31, 2015 and 2014, respectively. The deferred compensation liability of $17,211 and $17,640 as
of December 31, 2015 and 2014, respectively, reﬂects the current value of the deferred compensation beneﬁts,
which is subject to change with market value ﬂuctuations. The deferred compensation liability is equal to the
theorized value of the underlying employee investment fund elections in the plan. Changes in the value of the
assets or liabilities are recognized in the consolidated statements of operations.

11. Income Taxes

The provision for income taxes for 2015, 2014 and 2013 consisted of the following:

Income taxes consist of the following:

2015:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Beneﬁt applied to reduce goodwill

2014:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Beneﬁt applied to reduce goodwill

2013:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Beneﬁt applied to reduce goodwill

Federal

State and
Local

Total

$ (1,491)
(1,623)
—
$ (3,114)

$
947
(21,012)
—
$(20,065)

403
731
—
$ 1,134

$ 1,331
1,223
78
$ 2,632

$ 1,160
(4,509)
68
$(3,281)

$ 1,492
223
77
$ 1,792

(160)
(400)
78
(482)

$ 2,107
(25,521)
68
$(23,346)

$ 1,895
954
77
$ 2,926

F-24

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

11. Income Taxes − (continued)

The difference between the income taxes expected at the U.S. federal statutory income tax rate of 35% in

2015 and 2014 and 34% in 2013 and the reported income tax expense (beneﬁt) is summarized as follows:

(Loss) income before income taxes . . . . . . . . . . . . . . . .
. . . . . . .
(Beneﬁt) expense under statutory U.S. tax rates

Increase (decrease) in taxes resulting from:

Increase (decrease) in valuation allowance . . . . . . . . . . .
Change in fair value of contingent consideration, not

taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible items . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal beneﬁt
. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . . .

2015
$(11,695)
(4,093)

2014
$ 10,006
3,502

2013
$2,404
817

(28,590)

(272)

—
1,701
1,600
231
(482)

—
818
689
235
$(23,346)

41
1,085
1,183
72
$2,926

The Company accounts for income taxes under the asset and liability method, which requires the
recognition of tax beneﬁts or expense on the temporary differences between the tax basis and ﬁnancial
statement basis of its assets and liabilities as well as tax loss carryforwards. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable income in the years in which those
differences are expected to be recovered or settled.

Signiﬁcant components of the Company’s deferred tax assets and liabilities as of December 31, 2015 and

December 31, 2014 are as follows:

Deferred tax assets (liabilities):
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . .
AMT credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Total deferred liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2015

2014

$ 12,050
76
4,501
19,674
6,494
770
43,565
(79)
43,486
(4,699)
(34,100)
(9,103)
(47,902)
$ (4,416)

$ 19,593
1,045
2,420
16,592
6,421
867
46,938
—
46,938
(4,731)
(37,859)
(7,564)
(50,154)
$ (3,216)

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is
more likely than not
that some portion or the entire deferred tax asset will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in
which temporary differences become deductible and/or net operating losses can be utilized. The Company
considered all positive and negative evidence when determining the amount of the net deferred tax assets that
are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings,
tax planning strategies and projected future taxable
scheduled reversal of taxable temporary differences,

F-25

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

11. Income Taxes − (continued)

income. Based on these considerations, the Company believes it is more likely than not that it will realize the
beneﬁt of its deferred tax asset with the exception of certain state net operating losses in the amount of
approximately $100 as of December 31, 2015.

As a result of the Highland and KMS acquisitions in 2014 and intended inclusion of such entities in the
Company’s consolidated federal and certain combined state and local income tax returns, deferred federal and
a substantial portion of deferred state and local tax liabilities assumed in the acquisitions (see Note 3) are able
to offset the reversal of the Company’s pre-existing deferred tax assets. Accordingly, the Company’s deferred
tax valuation allowance at December 31, 2013 which amounted to $28,590 was reduced to the extent of
$21,238 of the deferred tax liability recorded in the acquisitions and recorded as a deferred tax beneﬁt in the
2014 consolidated statement of operations. Further, after utilization of a portion of the Company’s net
operating loss carryforward to offset taxable income for 2014 and a corresponding reversal of $5,760 of the
valuation allowance, the remaining valuation allowance of $1,592 was reversed and recorded as a deferred tax
beneﬁt in the 2014 consolidated statement of operations. Management’s decision for such reversal was based
on income from operations in 2014 as well as reductions in interest expense due to repayment of debt from
proceeds of preferred stock and expectation of future taxable income, including future reversals of existing
taxable temporary differences. Based on such available evidence, management concluded that it was more
likely than not that the Company’s deferred tax assets at December 31, 2014 would be realized and no
valuation allowance was required.

At December 31, 2015, the Company and its subsidiaries had a consolidated federal net operating loss
carryforward of approximately $44,100, which expires in various years from 2018 to 2033. The annual
utilization of the net operating loss carryforward may be limited in future years due to the change in
ownership provisions prescribed by Section 382 of the U.S. Internal Revenue Code. In addition, the Company
has a Florida state net operating loss carryforward of approximately $39,800 expiring between 2028 and 2032;
a New York state net operating loss carryforward of approximately $61,800 expiring in 2035 and a New York
City net operating loss carryforward of approximately $59,700 expiring in 2035. Deferred tax assets related to
net operating loss carryforwards do not include tax deductions of approximately $9,300 related to equity
compensation that was greater than the compensation recognized for ﬁnancial reporting. The utilization of
such deductions will result in a beneﬁt to additional paid-in capital. Goodwill for tax purposes recognized in
connection with the acquisition of Triad by the Company, all of which is tax deductible, exceeded the amount
of goodwill recognized in the ﬁnancial statements. Authoritative accounting guidance in effect when the
acquisition was consummated requires the tax beneﬁt for the excess goodwill to be recognized when realized
and applied ﬁrst to reduce goodwill and thereafter reduce non-current intangible assets with the remaining
beneﬁt recognized as a reduction of income tax expense. The federal net operating loss carryforward at
December 31, 2015 includes $2,033 applicable to amortization of excess tax goodwill. Upon utilization of the
carryforward the related tax beneﬁt will be applied to reduce goodwill.

The Company applied the ‘‘more-likely-than-not’’ recognition threshold to all tax positions taken or
expected to be taken in a tax return, which resulted in unrecognized state tax beneﬁts of $423 as of
December 31, 2015. The Company has elected to classify interest and penalties that would accrue with respect
to unrecognized tax beneﬁts as interest and other expense, respectively.

F-26

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

11. Income Taxes − (continued)

A reconciliation of the beginning and ending amount of unrecognized tax beneﬁts is as follows:

Balance at January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in tax positions for prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in tax positions for current years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31,

2015
$ —
268
155
$423

Of the amounts reﬂected in the above table at December 31, 2015, the entire amount would reduce the
recognized. The Company accrued interest and penalties of
Company’s annual effective tax rate if
approximately $100 in 2015. As of December 31, 2015, the Company does not anticipate a signiﬁcant change
in unrecognized tax beneﬁts within 12 months of the reporting date.

The Company ﬁles income tax returns in the United States and various state jurisdictions. The

Company’s tax years 2012 through 2015 remain open to examination by most taxing authorities.

Prior to being acquired by the Company in November 2011, Securities America was included in
consolidated federal and state income tax returns ﬁled by its parent Ameriprise Financial, Inc. (‘‘Ameriprise’’).
Accordingly, Securities America is jointly, with other members of the consolidated group, and severally liable
for any additional taxes that may be assessed against the group. In connection with the acquisition, Ameriprise
has agreed to indemnify the Company for any such assessments imposed on any members of the group other
than Securities America. Ameriprise has disclosed that in 2014 the IRS completed auditing its U.S. Income
Tax Returns for 2008 through 2011. However, the years remain open because of certain un-agreed upon
issues. Ameriprise or certain of its subsidiaries’ state income tax returns are currently under examination by
various jurisdictions for years ranging from 1997 through 2011.

12. Notes Payable

Notes payable consisted of the following:

December 31,

Notes payable to clearing ﬁrm under forgivable loans . . . . . . . . . . . . .
Note payable to a subsidiary of Premier Trust’s former shareholder
. . .
Notes payable to ﬁnance Securities America acquisition, net of $172

and $627 of unamortized discount in 2015 and 2014, respectively . . .
Notes payable under subsidiary’s term loan with bank . . . . . . . . . . . .
Note payable under subsidiary’s revolver with bank . . . . . . . . . . . . . .
Notes payable by subsidiary to certain former shareholders of

2015
$ 6,429
—

17,804
564
950

Highland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,738

Notes payable to KMS’s former shareholders, net of $343 and $466 of

unamortized discount in 2015 and 2014, respectively . . . . . . . . . . .

5,711

Notes payable to SSN’s former shareholders, net of $977 unamortized

discount

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,378
600
$54,174

2014
$10,356
200

29,201
951
455

6,737

7,534

—
600
$56,034

The Company estimates that the fair value of notes payable was $50,416 at December 31, 2015 and
$53,102 at December 31, 2014 based on then current interest rates at which similar amounts of debt could
currently be borrowed (Level 2 inputs). As of December 31, 2015, the Company was in compliance with all
debt covenants in its debt agreements.

F-27

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

12. Notes Payable − (continued)

Revolving Credit Agreement

In 2007, the Company entered into a $40,000 revolving credit agreement with Frost Gamma Investments
Trust (‘‘Frost Gamma’’), an affiliate of the Company’s chairman of the board and principal shareholder.
Borrowings of up to $40,000 are permitted under the Frost Gamma credit agreement and bear interest at a rate
of 11% per annum, payable quarterly. The Company may repay outstanding amounts at any time prior to the
maturity date of August 25, 2021, without penalty, and may re-borrow up to the full amount of the agreement.
In 2013, the Company used proceeds from the sale of Series A Preferred Stock to repay the outstanding
balance (approximately $39,300) under the revolving credit agreement. At December 31, 2015 and 2014, the
Company had no outstanding balance under the revolving credit agreement. Interest expense amounted to $0,
$364 and $1,757 in 2015, 2014 and 2013, respectively.

The note issued under the credit agreement contains customary events of default, which, if uncured,
entitle the holder to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid
interest on, such note. Under the revolving credit agreement, Frost Gamma received a warrant to purchase
2,000,000 shares of LTS common stock. The warrant is exercisable at any time prior to October, 19, 2017 at
an exercise price of $1.91 per share. The warrant, which is classiﬁed as debt issue cost, was valued at $3,200
based on the Black-Scholes option pricing model, and is being amortized under the straight-line method over
the remaining term of the revolving credit agreement.

NFS Forgivable Loans

On November 4, 2011, the primary clearing ﬁrm of the Company’s subsidiaries, National Financial
Services LLC (‘‘NFS’’), a Fidelity Investments(cid:4) company, provided the Company with a seven-year, $15,000
forgivable loan. The Company used the forgivable loan proceeds to fund expenses related to the Securities
America acquisition. Interest on the loan accrues at the average annual Federal Funds effective rate plus 6%
per annum, subject to the maximum rate of 11% per annum. If Securities America meets certain annual
clearing revenue targets set forth in the loan agreement, the principal balance of the loan will be forgiven in
seven equal yearly installments of $2,143 through November 2018. Interest payments due with respect to each
such year will also be forgiven if the annual clearing revenue targets are met. Any principal amounts not
forgiven will be due in November 2018, and any interest payments not forgiven are due annually. If during
the loan term any principal amount
the Company may have such principal forgiven in
future years if Securities America exceeds subsequent annual clearing revenue targets. Upon meeting annual
revenue targets, principal and interest, respectively, of $2,143 and $525 in 2015, $2,143 and $652 in 2014 and
$2,143 and $787 in 2013, were forgiven and included in other income.

is not forgiven,

In connection with the entering into the new forgivable loan, Securities America and the Company’s
other broker-dealer subsidiaries amended their clearing agreements with NFS to, among other things, extend
the term of those agreements through November 2018. Also, the Company and NFS amended the terms of the
2009 forgivable loan made by NFS to the Company such that the remaining principal balance of $7,143 and
the related accrued interest will be forgiven, subject to the terms and conditions of the loan, in four equal
annual installments commencing in November 2012 without the Company being required to satisfy the annual
clearing revenue targets previously established. Interest on the 2009 loan accrues at the prime rate plus 2%.
On November 4, 2015, the ﬁnal remaining principal and interest installment of $1,786 and $94, respectively,
were forgiven and included in other income. The amounts of principal and interest forgiven and included in
other income in 2014 and 2013, respectively, were $1,786 and $187 and $1,786 and $280.

The Company has expensed, and will continue to expense, interest under the loan agreements prior to

forgiveness.

F-28

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

12. Notes Payable − (continued)

The forgivable loan agreements contain covenants, including limitations on the incurrence of additional
indebtedness, maintenance of minimum adjusted shareholders’ equity levels and a prohibition on the
termination of the Company’s $40,000 revolving credit agreement prior to its current maturity. Upon the
occurrence of an event of default, the outstanding principal and interest under the loan agreements may be
accelerated and become due and payable. If the clearing agreements are terminated prior to the loan maturity
date, all amounts then outstanding must be repaid on demand. The loan agreements are secured by the
Company’s, but not its subsidiaries’, deposits and accounts held at NFS or its affiliates, which amounted to
$42,514 at December 31, 2015.

Premier Trust Note

On September 1, 2010, as part of the consideration paid for Premier Trust, the Company issued a
ﬁve-year, non-negotiable promissory note in the aggregate principal amount of $1,161 to a subsidiary of
Premier Trust’s former shareholder. The note bore interest at 6.5% per annum, payable in 20 equal quarterly
installments and was fully paid in September 2015.

Securities America Notes

On November 4, 2011 (the ‘‘Closing Date’’), in connection with the Securities America acquisition, the
Company entered into a loan agreement with various lenders (the ‘‘Lenders’’), under which the Lenders
provided a loan to the Company in an aggregate principal amount of $160,700 (the ‘‘November 2011 Loan’’),
a portion of which was used to fund the cash purchase price payable on the Closing Date. Interest on the
November 2011 Loan is payable quarterly at 11% per annum. The Company may elect to pay interest in kind
with the consent of certain Lenders. The remaining balance of the loan, together with accrued and unpaid
interest thereon, is due on November 4, 2016. The Company may voluntarily repay the loan at any time
without premium or penalty. The notes issued under the loan rank senior in right of payment to all of the
Company’s indebtedness incurred after the Closing Date and will rank at least equal in right of payment with
the claims of all of the Company’s existing unsecured and unsubordinated creditors. Also, so long as amounts
remain outstanding and unpaid under such notes, the Company may not, without the consent of the Lenders,
create, incur or suffer to exist any indebtedness for borrowed money (other than existing indebtedness as the
same may be amended or extended, or trade payables incurred in the ordinary course of business) that is not
subordinated in all respects to the indebtedness under such notes. The notes contain customary events of
default, which, if uncured, permit the Lenders to accelerate the maturity date of the loan. On the Closing
Date, the Company paid a one-time aggregate funding fee of $804 to the Lenders and issued warrants to
purchase an aggregate of 10,713,332 shares of the Company’s common stock. The warrants are exercisable at
any time prior to their expiration on November 4, 2016 at $1.68 per share, which was the closing price of the
Company’s common stock on the Closing Date. The warrants may be exercised in cash, by net exercise or
pursuant to a Lender’s surrender of all or a portion of the principal amount of such Lender’s note.

The warrants were valued at $9,428 utilizing the Black-Scholes option pricing model. The value of the
warrants were credited to additional paid-in capital with a corresponding reduction in the carrying value of the
notes as debt discount, which is being amortized over the term of the notes by the interest method.

The Lenders under the November 2011 Loan included Frost Nevada Investments Trust (‘‘Frost Nevada’’),
an affiliate of the Company’s chairman of the board and principal shareholder, Vector Group, Ltd. (‘‘Vector
Group’’), a principal shareholder of the Company, and the Company’s president and chief executive officer
and a director. At December 31, 2015, the outstanding principal amounts loaned by Frost Nevada, Vector
Group and the Company’s president and chief executive officer were $15,120, $1,680 and $0, respectively.

Interest paid to Frost Nevada, Vector Group and the Company’s president and chief executive officer and
director amounted to $2,034, $226 and $0 in 2015, $4,334, $482 and $6 in 2014 and $13,546, $1,323 and $15
in 2013, respectively.

F-29

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

12. Notes Payable − (continued)

The Company used the net proceeds from the sale of Series A Preferred Stock during the year ended
December 31, 2015 (see Note 15) and working capital to prepay $11,852 principal amount of the remaining
aggregate principal amount of the November 2011 Loan. The Company used the net proceeds from the sale of
Series A Preferred Stock in the years ended December 31, 2014 and 2013, respectively (see also Note 15), to
prepay $20,022 and $110,850 principal amount of the aggregate principal amount. In connection with the
prepayment, the Company recorded a loss on extinguishment of debt for the years ended December 31, 2015,
2014 and 2013 of $252, $548 and $4,547, respectively, which included unamortized discounts and the
write-off of debt issuance costs.

Bank Loans — Securities America

On November 6, 2013, Securities America Financial Corporation, (‘‘SAFC’’), which is the parent of
Securities America, entered into a loan agreement with a third-party ﬁnancial institution for a term loan in the
aggregate principal amount of approximately $1,709. The term loan bears interest at 5.5%, has a 54-month
term and is collateralized by Securities America’s non-forgivable ﬁnancial advisor note portfolio. At
December 31, 2015, 2014 and 2013, respectively, $564, $951 and $1,681 was outstanding under this loan.

On November 6, 2013, SAFC entered into a revolving credit agreement with the same third-party.
Pursuant to this loan agreement, up to $1,500 aggregate principal amount of lending is available, subject to
loans would bear interest at 5.5% per annum over a 5-year term. At
certain conditions. Any additional
December 31, 2015, 2014 and 2013, respectively, $950, $455 and $0 was outstanding under this loan. On
November 24, 2015, the loan agreement was amended to reﬂect an additional $1,000 in addition to any
outstanding amounts at the time the amendment was executed allowing for $1,950 total borrowing. The
interest rate and terms established in the original credit agreement remain unchanged.

The loan agreement contains certain affirmative and negative covenants, including covenants regarding

Securities America’s client asset levels and number of ﬁnancial advisors.

Promissory Notes — Highland

As of July 31, 2014, the date of the Highland acquisition, Highland had $21,834 payable under a credit
agreement that was repaid by the Company. As of December 31, 2015, HCHC Acquisition, as successor in
interest to Highland’s parent, had outstanding $6,738 of its 10% promissory notes due February 26, 2019.
Accrued interest on the promissory notes is payable quarterly. The promissory notes may be prepaid, except
that if the promissory notes are prepaid in full prior to August 26, 2016, the holders of the promissory notes
are entitled to receive the total amount of interest that would otherwise have been payable through August 26,
2016, less any interest already paid.

Promissory Notes — KMS

On October 15, 2014, as part of the consideration paid for the acquisition of KMS, the Company issued
four-year promissory notes to the former shareholders of KMS in the aggregate principal amount of $8,000,
bearing interest at 1.84% per annum and payable in equal quarterly installments of principal and interest
which were valued at $7,508 based on an imputed interest rate of 5.5%. The carrying value of promissory
notes at December 31, 2015, net of $343 unamortized discount, amounts to $5,711. The former shareholders
of KMS who hold such notes include KMS’s chairman $3,069, president $1,804, chief compliance officer
$662, vice president-brokerage operations $238, chief technology officer $228 and vice president-licensing and
administration $54.

Promissory Notes — SSN

On January 2, 2015, as part of the consideration paid for the acquisition of SSN, the Company issued
four-year promissory notes to the former shareholders of SSN in the aggregate principal amount of $20,000,
bearing interest at 1.74% per annum and payable in equal quarterly installments of principal and interest,

F-30

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

12. Notes Payable − (continued)

which were valued at $18,697 based on an imputed interest rate of 5.1%. The carrying value of promissory
notes at December 31, 2015, net of $977 of unamortized discount, amounts to $15,378. The former
shareholders of SSN who hold such notes include SSN’s president and chief executive officer $327, chief
compliance officer $82, chief ﬁnancial officer $49 and vice president-trading $16.

Other

KMS has a subordinated note payable to a current officer of KMS, in the amount of $600 payable in

August 2016 plus monthly interest at prime plus one percent.

The prime rate was 3.50% and 3.25% at December 31, 2015 and 2014, respectively. Total interest paid
on the note in 2015 and 2014, respectively, was $26 and $26. The note is subordinated to present and future
creditors of KMS.

13. Commitments and Contingencies

Operating Leases

The Company and certain of its subsidiaries are obligated under several non-cancelable lease agreements
for office space, expiring in various years through February 2025. Certain leases have provisions for escalation
based on speciﬁed increases in costs incurred by the landlord. The Company is a sublessor to third parties for
a portion of its office space as described below. The subleases expire at various dates through August 2020.
As of December 31, 2015, minimum lease payments (net of lease abatement and exclusive of escalation
charges) and sublease rentals are as follows:

Year Ending December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lease
Commitments
$ 8,222
6,742
3,233
2,642
1,776
3,896
$26,511

Sublease
Rentals
$ 53
54
55
52
28
—
$242

Net
$ 8,169
6,688
3,178
2,590
1,748
3,896
$26,269

Deferred rent of $1,551 and $1,514 at December 31, 2015 and 2014, respectively, represents lease
incentives related to the value of landlord ﬁnanced improvements together with the difference between rent
payable calculated over the life of the leases on a straight-line basis (net of lease incentives), and rent payable
on a cash basis.

Litigation and Regulatory Matters

In October 2011, a suit was ﬁled in the U.S. District Court for the District of Delaware by James Zazzali,
as Trustee for the DBSI Private Actions Trust, against 50 ﬁrms, including two of the Company’s subsidiaries,
and their purported parent corporations, alleging liability for purported fraud in the marketing and sale of
DBSI securities. The plaintiff alleged, among other things, that the defendants failed to conduct adequate due
diligence and violated securities laws. In September 2014, one Company subsidiary entered into a settlement
agreement resolving all claims against it; in December 2015, the remaining Company subsidiary entered into a
settlement agreement resolving all claims against it; the amounts paid by such subsidiaries in connection with
the settlements were not material.

F-31

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

13. Commitments and Contingencies − (continued)

In December 2012, a purported class action suit was ﬁled in the Superior Court of California for San
(‘‘WEMU’’), certain individuals, and
Mateo County against Worldwide Energy & Manufacturing,
Ladenburg as placement agent for a 2010 offering of WEMU securities. The complaint alleged that the
defendants, including Ladenburg, were liable for violations of state securities laws. On May 13, 2015, the
court approved the parties’ settlement agreement entered into on August 11, 2014 that resolved all claims in
the complaint in exchange for Ladenburg’s payment of $1,325. Such amount was accrued at December 31,
2013 and paid in December 2014.

Inc.

During the period from June 2013 to September 2014, seven former clients of Triad ﬁled arbitration
claims concerning the suitability of investments in tenant-in-common interests purchased through Section 1031
tax-deferred exchanges. Five clients settled such claims between April 2014 and February 2015. In April 2015,
the remaining two claimants entered into settlement agreements with Triad. The amounts paid by Triad in
connection with the settlements were not material.

From April 2014 to July 2015, eleven arbitration claims were ﬁled on behalf of 64 individuals against
Securities America and another brokerage ﬁrm concerning purported unauthorized trading and unsuitability of
investments made on their behalf by a registered representative.

In October 2014,

the parties to one of

the arbitration claims resolved all claims on behalf of
29 individual claimants. In June 2015, the parties to another of the arbitration claims resolved all claims with
one claimant. In January 2016, the parties to the remaining nine arbitration claims resolved all claims by the
remaining claimants. The amounts paid in connection with those settlements were not material. In addition,
Securities America has received notice of potential claims which would involve 31 individuals seeking
reimbursement of investment losses that are not material.

In December 2014 and January 2015, two purported class action suits were ﬁled in the U.S. District
Court for the Southern District of New York against American Realty Capital Partners, Inc. (‘‘ARCP’’),
certain affiliated entities and individuals, ARCP’s auditing ﬁrm, and the underwriters of ARCP’s May 2014
$1,656,000 common stock offering (‘‘May 2014 Offering’’) and three prior note offerings. The complaints
have been consolidated. Ladenburg was named as a defendant as one of 17 underwriters of the May 2014
Offering and as one of eight underwriters of ARCP’s July 2013 offering of $300,000 in convertible notes. The
complaints allege, among other things, that the offering materials were misleading based on ﬁnancial reporting
of expenses,
improperly-calculated AFFO (adjusted funds from operations), and false and misleading
Sarbanes-Oxley certiﬁcations, including statements as to ARCP’s internal controls, and that the underwriters
are liable for violations of federal securities laws. The plaintiffs seek an unspeciﬁed amount of compensatory
damages, as well as other relief. In December 2015, the plaintiffs ﬁled an amended complaint. Motions to
dismiss that complaint are currently pending. The Company believes the claims against Ladenburg are without
merit and, if they are not dismissed, intends to vigorously defend against them.

During the period from March 2015 to February 2016, eight arbitration claims and one lawsuit
(U.S. District Court for the Middle District of Alabama) were ﬁled against Triad and others by a total of
43 individuals concerning purported misrepresentations and unsuitability of trading in their advisory accounts.
All or most of the transactions at issue were effected through an investment advisory ﬁrm not affiliated with
Triad or the Company. The lawsuit was transferred to arbitration. Seven arbitration claims, including the
transferred lawsuit, allege an aggregate amount of $1,484 in compensatory damages and other relief. Two
arbitration claims sought an unspeciﬁed amount of compensatory damages and other relief. Those two
arbitration claims, involving a total of 34 individuals, were settled in February 2016 and the amounts paid by
Triad in connection with those settlements was not material. The Company believes the remaining claims are
without merit and intends to vigorously defend against them.

F-32

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

13. Commitments and Contingencies − (continued)

In September 2015, a client of a former Triad registered representative ﬁled an arbitration claim
concerning the suitability of investments in tenant-in-common interests purchased through Section 1031
tax-deferred exchanges. The claim, which seeks compensatory damages for purported investment
losses
totaling $3,714 and other relief, is currently pending. The Company believes the claim is without merit and
intends to vigorously defend against it.

In September 2015, Securities America was named as a defendant in lawsuits brought by the bankruptcy
trustee of a broker-dealer (U.S. Bankruptcy Court for the District of Minnesota) and by a customer of that
broker-dealer (U.S. District Court for the District of Minnesota). The lawsuits allege that certain of the debtor
broker-dealer’s assets were transferred to Securities America in June 2015 for inadequate consideration. The
complaints seek an unspeciﬁed amount of compensatory damages, and other relief. The Company believes the
claims are without merit and intends to vigorously defend against them.

Commencing in October 2013, certain states have requested that Securities America provide information
concerning the suitability of purchases of non-traded REIT securities by their residents. Securities America has
complied with the requests. Securities America has not received notice of, and does not expect, any further
action by any of the states.

Since July 2015, the Company’s broker-dealer subsidiaries have been reviewing the extent to which they
failed to waive mutual fund sales charges for certain customers who purchased shares in mutual funds
beginning in July 2009 that provided fee waivers for certain charitable and retirement accounts. The
Company’s broker-dealer subsidiaries intend to reimburse such mutual fund sales charges, with interest, to the
affected customers; the cost to the broker-dealer subsidiaries is not expected to be material. The Company
does not believe that the broker-dealer subsidiaries will be subject to disciplinary action in connection with
these reimbursements.

In November 2015, two purported class action complaints were ﬁled in state court in Tennessee against
officers and directors of Miller Energy Resources, Inc. (‘‘Miller’’), as well as Miller’s auditors and nine ﬁrms
that underwrote six securities offerings in 2013 and 2014, and raised approximately $151,000. Ladenburg was
one of the underwriters of two of the offerings. The complaints allege, among other things, that the offering
materials were misleading based on the purportedly overstated valuation of certain assets, and that
the
underwriters are liable for violations of federal securities laws. The plaintiffs seek an unspeciﬁed amount of
compensatory damages, as well as other relief. After the defendants removed the complaints to the U.S.
District Court for the Eastern District of Tennessee, the plaintiffs ﬁled motions to remand, which are currently
pending. The Company believes the claims against Ladenburg are without merit and intends to vigorously
defend against them.

In January 2016, an amended complaint was ﬁled in U.S. District Court for the Southern District of
Texas against Plains All American Pipeline, L.P. and related entities as well as their officers and directors. The
amended complaint added Ladenburg and other underwriters of securities offerings in 2013 and 2014 that in
the aggregate raised approximately $2,900,000 as defendants to the purported class action. Ladenburg was one
of the underwriters of the October 2013 initial public offering. The complaints allege, among other things, that
the offering materials were misleading based on representations concerning the maintenance and integrity of
the issuer’s pipelines, and that
the underwriters are liable for violations of federal securities laws. The
plaintiffs seek an unspeciﬁed amount of compensatory damages, as well as other relief. The Company believes
the claims against Ladenburg are without merit and intends to vigorously defend against them.

In the ordinary course of business, in addition to the above disclosed matters, the Company’s subsidiaries
are defendants in other litigation, arbitration and regulatory proceedings and may be subject to unasserted
claims primarily in connection with their activities as securities broker-dealers or as a result of services
provided in connection with securities offerings. Such litigation and claims may involve substantial or
indeterminate amounts and are in varying stages of legal proceedings. When the Company believes that it is

F-33

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

13. Commitments and Contingencies − (continued)

probable that a liability has been incurred and the amount of loss can be reasonably estimated (after giving
effect to any expected insurance recovery), the Company accrues such amount. Upon ﬁnal resolution, amounts
payable may differ materially from amounts accrued.

The Company had accrued liabilities in the amount of approximately $1,358 at December 31, 2015 and
$359 at December 31, 2014 for certain pending matters. For other pending matters, the Company was unable
to estimate a range of possible loss; however, in the opinion of management, after consultation with counsel,
the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s
consolidated ﬁnancial position, results of operations or liquidity.

14. Off-Balance-Sheet Risk and Concentration of Credit Risk

Securities America, Triad, Investacorp, KMS, SSN and Ladenburg do not carry accounts for customers or
perform custodial functions related to customers’ securities. They introduce all of their customer transactions,
which are not reﬂected in these ﬁnancial statements,
to clearing brokers, which maintain cash and the
customers’ accounts and clear such transactions. Also, the clearing brokers provide the clearing and depository
operations for proprietary securities transactions. These activities create exposure to off-balance-sheet risk in
the event that customers do not fulﬁll their obligations to the clearing brokers, as each of Securities America,
Triad, Investacorp, KMS, SSN and Ladenburg has agreed to indemnify its clearing brokers for any resulting
losses. Each of Securities America, Triad, Investacorp, KMS, SSN and Ladenburg continually assesses risk
associated with each customer who is on margin credit and records an estimated loss when management
believes collection from the customer is unlikely.

The clearing operations for the Securities America, Triad, Investacorp, KMS, SSN and Ladenburg
securities transactions are provided by three clearing brokers. At December 31, 2015 and December 31, 2014,
amounts due from these clearing brokers were $44,466 and $38,760, respectively, which represents a
substantial concentration of credit risk should these clearing brokers be unable to fulﬁll their obligations.

In the normal course of business, Securities America, Triad, Investacorp, KMS, SSN and Ladenburg may
enter into transactions in ﬁnancial
instruments with off-balance sheet risk. As of December 31, 2015 and
December 31, 2014, Securities America, Triad and Ladenburg sold securities that they do not own and will
therefore be obligated to purchase such securities at a future date. These obligations have been recorded in the
statements of ﬁnancial condition at the market values of the related securities, and such entities will incur a loss if,
at the time of purchase, the market value of the securities has increased since the applicable date of sale.

The Company and its subsidiaries maintain cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such accounts and believes it is not
exposed to any signiﬁcant credit risk on cash.

15. Shareholders’ Equity

Repurchase Program

In March 2007, the Company’s board of directors authorized the repurchase of up to 2,500,000 shares of
the Company’s common stock from time to time on the open market or in privately negotiated transactions,
depending on market conditions. In October 2011,
to the repurchase
program to permit the purchase of up to an additional 5,000,000 shares, and another amendment was made in
November 2014 to permit
the repurchase of an additional 10,000,000 shares. Since inception through
December 31, 2015, 12,269,567 shares of common stock have been repurchased for $31,979 under the
program, including 5,673,415 shares repurchased for $16,355 in 2015 and 2,846,395 shares repurchased for
$9,535 in 2014. On August 15, 2013, the Company purchased 3,000,000 shares of its common stock at a price
of $1.67 per share, or a total cost of $5,010, in a privately-negotiated transaction, which was not made
pursuant to its stock repurchase program.

the board approved an amendment

F-34

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

15. Shareholders’ Equity − (continued)

Warrants

As of December 31, 2015, outstanding warrants to acquire the Company’s common stock were as

follows:

Expiration Date
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercise
Price
0.94
0.68
0.96
1.68
1.91

Number of
Shares
603,000
1,533,334
400,000
10,699,999
2,000,000
15,236,333

In 2015, 646,000 warrants were exercised to purchase 449,482 shares of the Company’s common stock,
net of 196,518 shares tendered in payment of the exercise price. The intrinsic value on the date of exercise
was $966. In 2014, warrants were exercised to purchase 13,333 shares of the Company’s common stock. The
intrinsic value on the date of exercise was $23. In 2013, warrants were exercised to purchase 1,002,065 shares
of the Company’s common stock, net of 224,601 shares tendered in payment of the exercise price. The
intrinsic value on the date of exercise was $2,526.

Capital Stock

On May 21, 2013, the Company ﬁled Articles of Amendment with the Department of State of the State
of Florida to designate 5,290,000 shares of the Company’s authorized preferred stock, par value $0.0001 per
share, as shares of Series A Cumulative Redeemable Preferred Stock (the ‘‘Series A Preferred Stock’’) with
the powers, designations, preferences and other rights as set forth therein (the ‘‘Articles of Amendment’’). In
addition, on June 24, 2013, the Company ﬁled a further amendment to designate an additional 3,000,000
preferred shares as Series A Preferred Stock. In 2014,
to the
Company’s Articles of Incorporation to designate an additional 6,000,000 shares as Series A Preferred Stock
and to increase the authorized number of shares of common stock from 600,000,000 to 800,000,000. In
May 2015, the Company ﬁled an amendment to the Company’s Articles of Incorporation to designate an
additional 3,000,000 shares as Series A cumulative redeemable preferred stock (‘‘Series A Preferred Stock’’).

the Company ﬁled articles of amendment

The Articles of Amendment provide that the Company will pay monthly cumulative dividends on the
Series A Preferred Stock, in arrears, on the 28th day of each month (provided that if any dividend payment
date is not a business day, then the dividend which would otherwise have been payable on that dividend
payment date may be paid on the next succeeding business day without adjustment in the amount of the
dividend) from, and including, the date of original issuance of the Series A Preferred Stock at 8.00% of the
$25.00 per share liquidation preference per annum (equivalent to $2.00 per annum per share). The Articles of
Amendment further provide that dividends will be payable to holders of record as they appear in the stock
records of the Company for the Series A Preferred Stock at the close of business on the applicable record
date, which shall be the 15th day of each month, whether or not a business day, in which the applicable
dividend payment date falls.

F-35

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

15. Shareholders’ Equity − (continued)

The Series A Preferred Stock will not be redeemable before May 24, 2018, except upon the occurrence of
a Change of Control (as deﬁned in the Articles of Amendment). On or after May 24, 2018, the Company may,
at its option, redeem any or all of the shares of the Series A Preferred Stock at $25.00 per share plus any
accumulated and unpaid dividends to, but not including, the redemption date. Also, upon the occurrence of a
Change of Control, the Company may, at its option, redeem any or all of the shares of Series A Preferred
Stock within 120 days after the ﬁrst date on which such Change of Control occurred at $25.00 per share plus
any accumulated and unpaid dividends to, but not including, the redemption date. The Series A Preferred
Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain
outstanding indeﬁnitely unless repurchased or redeemed by the Company or converted into the Company’s
common stock in connection with a Change of Control by the holders of Series A Preferred Stock.

Upon the occurrence of a Change of Control, each holder of Series A Preferred Stock will have the right
(subject to the Company’s election to redeem the Series A Preferred Stock in whole or in part, as described
above, prior to the Change of Control Conversion Date (as deﬁned in the Articles of Amendment)) to convert
some or all of the Series A Preferred Stock held by such holder on the Change of Control Conversion Date
into a number of shares of the Company’s common stock per share of Series A Preferred Stock determined by
formula, in each case, on the terms and subject to the conditions described in the Articles of Amendment,
including provisions for the receipt, under speciﬁed circumstances, of alternative consideration as described in
the Articles of Amendment.

Except under limited circumstances, holders of the Series A Preferred Stock generally do not have any

voting rights.

On May 24, 2013, the Company completed a public offering of 4,600,000 shares of Series A Preferred
Stock for gross proceeds of $115,000. On May 31, 2013, the Company completed the offering of an additional
690,000 shares of Series A Preferred Stock pursuant to the full exercise of the over-allotment option granted
to the underwriters in connection with the offering. The exercise of the option, which resulted in additional
gross proceeds of $17,250, brought the total gross proceeds from the offering to $132,250, before deducting
the underwriting discount paid to unaffiliated underwriters and offering expenses aggregating $5,972, including
$2,603 of brokerage commissions earned by employees of Ladenburg, which served as an underwriter in the
offering.

On June 24, 2013, June 13, 2014, November 21, 2014 and May 2015, the Company entered into Equity
Distribution Agreements under which it may sell up to an aggregate of 12,000,000 shares of its Series A
Preferred Stock from time to time in ‘‘at the market’’ offerings under Rule 415 under the Securities Act of
1933, as amended (the ‘‘Securities Act’’). During the years ended December 31, 2015, 2014 and 2013, the
Company sold 3,586,790, 4,906,734 and 899,497 shares of Series A Preferred Stock, respectively, pursuant to
the ‘‘at the market’’ offerings, which provided total gross proceeds to the Company of $86,352, $111,148 and
$22,062, respectively, before deducting commissions paid to unaffiliated sales agents and offering expenses
aggregating $1,972, $2,531 and $411, respectively.

For the years ended December 31, 2015, 2014 and 2013, the Company paid dividends of $28,108,
$17,244 and $6,911, respectively, on its outstanding Series A Preferred Stock based on a monthly dividend of
approximately $0.1667 per share.

F-36

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

16. Per Share Data

Basic net (loss) income per share is computed by dividing net (loss) income attributable to the Company,
decreased with respect to net income or increased with respect to net loss by dividends declared on preferred
stock by using the weighted-average number of common shares outstanding. The dilutive effect of incremental
common shares potentially issuable under outstanding options, warrants and restricted shares is included in
diluted earnings per share in 2014 utilizing the treasury stock method. A reconsideration of basic and diluted
common shares use in the computation of per share data is as follows:

Basic weighted-average common shares

outstanding − basic . . . . . . . . . . . . . . . . . . . . . . . 183,660,993

182,768,494

182,295,476

Year Ended December 31,
2014

2013

2015

Effect of dilutive securities:

Options to purchase common stock . . . . . . . . . . . .
Warrants to purchase common stock . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares
. . . . . . . . . . . . . .

Dilutive potential common shares
Weighted average common shares outstanding and

— 15,411,800
8,331,539
—
—
604
— 23,743,943

—
—
—
—

dilutive potential common shares . . . . . . . . . . . . . 183,660,993

206,512,437

182,295,476

During 2015, 2014 and 2013, options, warrants and restricted stock to purchase 57,494,385, 3,215,621
and 55,398,631 common shares, respectively, were not included in the computation of diluted (loss) income
per share as the effect would be anti-dilutive.

17. Stock Compensation Plans

Employee Stock Purchase Plan

Under the Company’s amended and restated Qualiﬁed Employee Stock Purchase Plan, a total of
10,000,000 shares of common stock are available for issuance. As currently administered by the Company’s
compensation committee, all full-time employees may use a portion of their salary to acquire shares of LTS
common stock under this purchase plan at a 5% discount from the market price of LTS’ common stock at the
end of each option period. Option periods have been set at three month periods and commence on January 1,
April 1, July 1, and October 1 of each year and end on March 31, June 30, September 30 and December 31
of each year. The plan is intended to qualify as an ‘‘employee stock purchase plan’’ under Section 423 of the
Internal Revenue Code. During 2015, 192,978 shares of LTS common stock were issued to employees under
this plan, at prices ranging from $2.00 to $3.67; during 2014, 89,581 shares of LTS common stock were
issued to employees under this plan, at prices ranging from $2.87 to $4.03; and during 2013, 112,646 shares
of LTS common stock were issued to employees under this plan, at prices ranging from $1.57 to $2.97. These
share issuances resulted in a capital contribution of $545, $291 and $201 for 2015, 2014 and 2013,
respectively.

Amended and Restated 1999 Performance Equity Plan and 2009 Incentive Compensation Plan

In 1999, the Company adopted the 1999 Performance Equity Plan (as amended and restated, the ‘‘1999
Plan’’) and in 2009 the Company adopted the 2009 Incentive Compensation Plan (the ‘‘2009 Plan’’), which
provide for the grant of stock options and other awards to designated employees, officers and directors and
certain other persons performing services for the Company and its subsidiaries, as designated by the board of
directors. The 1999 Plan provides for the granting of up to 25,000,000 awards with an annual limit on grants
to any individual of 1,500,000. In 2014, the 2009 Plan was amended to provide for the granting of up to
45,000,000 awards with an annual limit on grants to any individual of 1,500,000. Awards under the plans
include stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options and/or

F-37

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

17. Stock Compensation Plans − (continued)

other stock-based awards. The compensation committee of the Company’s board of directors administers the
plans. Stock options granted under the 2009 Plan may be incentive stock options and non-qualiﬁed stock
options. An incentive stock option may be granted only through August 27, 2019 under the 2009 Plan and
may only be exercised within ten years of the date of grant (or ﬁve years in the case of an incentive stock
option granted to an optionee who at the time of the grant possesses more than 10% of the total combined
voting power of all classes of stock of LTS (‘‘10% Shareholder’’)). Incentive stock options may no longer be
granted under the 1999 Plan. The exercise price of both incentive and non-qualiﬁed options may not be less
than 100% of the fair market value of LTS’ common stock at the date of grant, provided, that the exercise
price of an incentive stock option granted to a 10% Shareholder shall not be less than 110% of the fair market
value of LTS’ common stock at the date of grant. As of December 31, 2015, 20,009,745 and 1,244,354 shares
of common stock were available for issuance under the 2009 Plan and the 1999 Plan, respectively.

A summary of the status of the 1999 Plan at December 31, 2015 and changes during the year ended

December 31, 2015 are presented below:

Options outstanding, December 31, 2014 . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2015 . . . . . .
Vested or expected to vest, December 31, 2015 . .
Options exercisable, December 31, 2015 . . . . . .

Shares
15,786,001
(482,000)
—
(49,500)
15,254,501
15,254,380
15,129,500

Weighted-
Average
Exercise Price
$1.46
0.75
—
0.54
$1.48
$1.48
$1.47

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value

2.7
2.7
2.7

$19,536
$19,536
$19,536

A summary of the status of the 2009 Plan at December 31, 2015 and changes during the year ended

December 31, 2015 are presented below:

Options outstanding, December 31, 2014 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2015 . . . . . .

Shares
20,379,199
1,810,000
(712,425)
(96,765)
21,380,009

Vested or expected to vest, December 31, 2015 . .

21,338,726

Options exercisable, December 31, 2015 . . . . . .

15,292,759

Weighted-
Average
Exercise Price
$2.03
3.95
1.56
3.21
$2.20

$2.20

$1.85

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value

6.6

6.1

$16,125

$16,119

$14,554

F-38

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

17. Stock Compensation Plans − (continued)

Non-Plan Options

The Company has granted stock options to newly-hired employees in conjunction with their employment
agreements or in connection with acquisitions, which are outside of the option plans. A summary of the status
of these options at December 31, 2015 and changes during the year ended December 31, 2015 are presented
below:

Options outstanding, December 31, 2014 . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2015 . . . . . .
Vested or expected to vest, December 31, 2015 . .
Options exercisable, December 31, 2015 . . . . . .

Shares
4,415,000
—
4,415,000
4,415,000
4,415,000

Weighted-
Average
Exercise Price
$1.63
—
$1.63
$1.63
$1.63

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value

1.45
1.45
1.45

$4,970
$4,970
$4,970

The weighted-average grant date fair value of employee and director options granted during the years
ended December 31, 2015, 2014 and 2013 was $2.79, $1.85 and $0.74, respectively. The fair value of each
option award was estimated on the date of grant using the Black-Scholes option pricing model using the
following weighted-average assumptions:

Year Ended December 31,
2014

2013

2015

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . .

—%
61.10%
1.63%
6.15

—%
64.94%
2.02%
6.4

—%
65.66%
1.17%
6.2

The weighted average expected life for the 2015, 2014 and 2013 grants to employees and directors
reﬂects the alternative simpliﬁed method permitted by authoritative guidance, which deﬁnes the expected life
as the average of the contractual term of the options and the weighted-average vesting period for all option
tranches. The Company estimates the expected term for stock options awarded to independent ﬁnancial
advisors using the contractual term. Expected volatility for the 2015 option grants is based on the historical
volatility of the common stock of the Company over the same number of years as the expected life, prior to
the option grant date. Expected volatility in 2014 and 2013 was based on blended volatility comprised of the
historical volatility of the common stock of the Company and its peers over the same number of years as the
expected life, prior to the option grant date.

F-39

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

17. Stock Compensation Plans − (continued)

Restricted Stock Awards

A summary of the restricted stock awards at December 31, 2015 and changes during the years ended

December 31, 2015 and 2014 are presented below:

Nonvested at December 31, 2012 and 2013 . . . . . . . . . . . . . . . .
Issued during 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . .
Issued during 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested during 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . .

Restricted
Stock

—
14,409
14,409
1,206,081
(11,948)
1,208,542

Weighted-Average
Grant Date Fair
Value Per Share
$ —
3.44
3.44
3.92
3.48
3.91

Restricted stock awards issued in 2015 vest in four equal annual installments.

As of December 31, 2015,

there was $9,632 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements. This cost is expected to be recognized over the vesting
periods of the options and restricted stock, which on a weighted-average basis is approximately 1.97 years.

The total

intrinsic value of options exercised during the years ended December 31, 2015, 2014
and 2013 amounted to $2,595,$4,640 and $957, respectively. The fair value of restricted stock vested in
2015 was $42.

Non-cash compensation expense relating to stock options was calculated using the Black-Scholes option
pricing model, amortizing the value calculated over the vesting period and applying a forfeiture percentage as
estimated by the Company’s management, using historical information. The Company has elected to recognize
compensation cost for option awards that have graded vesting schedules on a straight line basis over the
requisite service period for the entire award.

For the years ended December 31, 2015, 2014 and 2013, non-cash compensation expense relating to
share-based awards granted to employees, consultants and advisors amounted to $8,759, $10,541 and $6,766,
respectively.

18. Noncontrolling Interest

During the quarter ended March 31, 2013, Arbor Point Advisors, LLC (‘‘APA’’), a newly-formed
registered investment advisor, began operations. Investment advisory services of APA are provided through
licensed and qualiﬁed individuals who are investment advisor representatives of APA. Securities America
holds an 80% interest in APA and an unaffiliated entity owns a 20% interest. As Securities America is the
controlling managing member of APA,
the ﬁnancial statements of APA are included in the Company’s
consolidated ﬁnancial statements and amounts attributable to the 20% unaffiliated investor are recorded as a
noncontrolling interest.

F-40

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

19. Segment Information

The Company has three operating segments. The independent brokerage and advisory services segment
includes
the broker-dealer and investment advisory services provided by Securities America, Triad,
Investacorp, KMS and SSN to their independent contractor ﬁnancial advisors and wealth management services
provided by Premier Trust. The Ladenburg segment includes the investment banking, sales and trading and
asset management services and investment activities conducted by Ladenburg and LTAM. The insurance
brokerage segment
includes the wholesale insurance brokerage activities conducted by Highland, which
delivers life insurance, ﬁxed and equity indexed annuities, as well as long-term care solutions to investment
and insurance providers.

and

taxes,

before

interest,

adjusted

Earnings

depreciation

amortization,

or EBITDA,

for
acquisition-related expense, amortization of retention and forgivable loans, change in fair value of contingent
consideration related to acquisitions, loss on extinguishment of debt, non-cash compensation expense, ﬁnancial
advisor recruiting expense and other expense, which includes loss on write-off of receivable from subtenant,
excise and franchise tax expense and compensation expense that may be paid in stock, is the primary proﬁt
measure the Company’s management uses in evaluating ﬁnancial performance for its reportable segments.
EBITDA, as adjusted, is considered a non-GAAP ﬁnancial measure as deﬁned by Regulation G promulgated
by the SEC under the Securities Act of 1933, as amended. The Company considers EBITDA, as adjusted,
important in evaluating its ﬁnancial performance on a consistent basis across various periods. Due to the
signiﬁcance of non-cash and non-recurring items, EBITDA, as adjusted, enables the Company’s Board of
Directors and management to monitor and evaluate the business on a consistent basis. The Company uses
EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate ﬁnancial and strategic
planning decisions regarding future operating investments and potential acquisitions. The Company believes
that EBITDA, as adjusted, eliminates items that are not indicative of its core operating performance, such as
amortization of retention and forgivable loans and ﬁnancial advisor recruiting expenses or do not involve a
cash outlay, such as stock-related compensation. EBITDA, as adjusted, should be considered in addition to,
rather than as a substitute for, (loss) income before income taxes, net (loss) income and cash ﬂows provided
by (used in) operating activities.

F-41

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

19. Segment Information − (continued)

Segment information for the years ended December 31, 2015, 2014 and 2013 is as follows:

Ladenburg

Insurance
Brokerage

Corporate

Total

2015
Revenues . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . .
EBITDA, as adjusted(5)
. . . . . . . . . .
. . . . . . . . . . . . . .
Identiﬁable assets
Depreciation and amortization . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . .

2014
Revenues . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . .
EBITDA, as adjusted(5)
. . . . . . . . . .
Identiﬁable assets
. . . . . . . . . . . . . .
Depreciation and amortization . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . .

2013
Revenues . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . .
EBITDA, as adjusted(5)
. . . . . . . . . .
. . . . . . . . . . . . . .
Identiﬁable assets
Depreciation and amortization . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . .
Non-cash compensation . . . . . . . . . .

Independent
Brokerage and
Advisory
Services

$1,035,365
7,735
46,053
417,378
19,373
3,532
7,341
3,836

$ 816,581
10,520
50,596
350,225
14,978
5,460
6,058
6,751

$61,841
3,095
6,052
44,050
703
7
87
638

$73,298
14,846
16,174
39,845
665
67
1,002
612

$ 723,246(2)

4,850
52,549
320,239
14,475
12,527
4,898
3,667

$69,603(2)
11,689
13,188
33,950
791
75
1,963
646

$49,573
(6,701)
1,170
61,689
6,949
683
783
239

$26,164
(841)
2,315
67,941
2,743
297
253
116

$ —
—
—
—
—
—
—
—

$ 5,339
(15,824)(1)
(9,639)
51,241
52
947
87
4,046

$1,152,118
(11,695)
43,636
574,358
27,077
5,169
8,298
8,759

$ 5,210
(14,519)(1)
(7,907)
52,747
11
1,166
134
3,062

$ 921,253
10,006
61,178
510,758
18,397
6,990
7,447
10,541

$ 267(3)
(14,135)(1)(4)
(8,534)(4)
6,631
49
2,836
—
2,453

$ 793,116
2,404
57,203
360,820
15,315
15,438
6,861
6,766

(1)

(2)

(3)
(4)

Includes interest on revolving credit and forgivable loan notes, compensation, professional fees and other
general and administrative expenses.
Includes brokerage commissions of $4,240 and $908 in the Ladenburg and Independent brokerage and
advisory services segments, respectively, related to the sale of the Company’s Series A Preferred Stock
(eliminated in consolidation).
Includes the elimination of $5,148 of revenue referred to in footnote (2).
revenue, net of employee brokerage
Includes the elimination of $2,545, consisting of $5,148 of
commission expenses of $2,603 charged to additional paid-in capital related to sale of the Company’s
Series A Preferred Stock.

F-42

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

19. Segment Information − (continued)

(5) The following table reconciles EBITDA, as adjusted, to (loss) income before income taxes for the years

ended December 31, 2015, 2014 and 2013:

EBITDA, as adjusted
. . . .
Independent Brokerage and Advisory Services
Ladenburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Brokerage . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segments . . . . . . . . . . . . . . . . . . . . . . . .

Adjustments:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . .
Non-cash compensation expense . . . . . . . . . . . . . .
Amortization of retention and forgivable loans . . . .
Financial advisor recruiting expense . . . . . . . . . . .
Acquisition-related expense . . . . . . . . . . . . . . . . .
. . . . . . .
Loss attributable to noncontrolling interest
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . .

2015
$ 46,053
6,052
1,170
(9,639)
43,636

Year Ended December 31,
2014
$ 50,596
16,174
2,315
(7,907)
61,178

2013
$ 52,549
13,188
—
(8,534)
57,203

254
55
(252)
(5,169)
(27,077)
(8,759)
(9,238)
(2,387)
(528)
(62)
(2,168)(6)

$(11,695)

245
12
(548)
(6,990)
(18,397)
(10,541)
(11,041)
(1,489)
(2,342)
(81)
—
$ 10,006

194
(121)
(4,547)
(15,438)
(15,315)
(6,766)
(11,544)
(1,194)
—
(68)
—
$ 2,404

(6)

20. Related Party Transactions

Effective as of October 1, 2015, Investacorp’s lease with Frost Real Estate Holdings, LLC (‘‘FREH’’), an
entity affiliated with the Company’s chairman of the board and principal shareholder, in an office building in
Miami, Florida, was renewed and now expires in September 2020. The lease provides for aggregate payments
during the ﬁve-year term of approximately $2,420 and minimum annual payments of $484. Rent expense
under such lease amounted to $382, $351 and $320 in 2015, 2014 and 2013, respectively.

Ladenburg’s principal executive offices are located in the same office building in Miami, Florida, where
approximately 18,150 square feet of office space is leased from FREH. Ladenburg’s lease was renewed in
March 2013 and now expires in February 2018. The lease provides for aggregate payments during the
ﬁve-year term of approximately $2,995 and minimum annual payments of $599. Rent expense under such
lease amounted to $570, $578 and $572 in 2015, 2014 and 2013, respectively.

F-43

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

20. Related Party Transactions − (continued)

The Company is a party to an agreement with Vector Group Ltd. (‘‘Vector’’), where Vector has agreed to
make available to the Company the services of Vector’s Executive Vice President to serve as the President and
Chief Executive Officer of the Company and to provide certain other ﬁnancial, tax and accounting services,
including assistance with complying with Section 404 of the Sarbanes-Oxley Act of 2002 and assistance in the
preparation of tax returns. Various executive officers and directors of Vector and its subsidiary New Valley
serve as members of the board of directors of the Company and Vector and its subsidiaries own approximately
8.29% of the Company’s common stock at December 31, 2015. In consideration for such services,
the
Company agreed to pay Vector an annual management fee plus reimbursement of expenses and to indemnify
Vector. The agreement is terminable by either party upon 30 days’ prior written notice. The Company paid
Vector $850 in 2015, $850 in 2014 and $750 in 2013 under the agreement and pays Vector at a rate of $850
per year in 2016.

In 2015, the Company entered into a Consulting Services Agreement with Nextt Advisors Inc. (the
‘‘Consultant’’), a corporation owned solely by the son-in-law of the Company’s President and Chief Executive
Officer. Pursuant to the agreement, the Company pays the Consultant $13 per month in connection with the
Consultant’s provision of professional services to the Company. The Company paid the Consultant $13 under
the agreement in 2015.

SSN has an operating lease for office facilities with Cogdill Capital LLC, an entity in which SSN’s Chief
Executive Officer and Chief Financial Officer are members who own a minority percentage of such entity,
which expires in March 2020. Rent expense under such lease amounted to $268 in 2015.

The Company is a party to an agreement with Castle Brands Inc. (‘‘Castle’’) under which the Company
provides certain administrative, legal and ﬁnancial services to Castle. The Company’s President and Chief
Executive Officer and a director is also the President and Chief Executive Officer and a director of Castle.
Various Company directors serve as directors of Castle and the Company and Castle have the same principal
shareholder. The Company received $171 under this agreement in 2015.

See Note 12 for information regarding loan transactions involving related parties.

F-44

LADENBURG THALMANN FINANCIAL SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)

21. Quarterly Financial Data (Unaudited)

2015:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses(a) . . . . . . . . . . . . . . . . . . . . . . . .
Loss before item shown below . . . . . . . . . . .
Change in fair value of contingent

consideration . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes
. . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss attributable to noncontrolling interest . . . .
Net loss attributable to the Company . . . . . . .
Dividends declared on preferred stock . . . . . .
Net loss available to common shareholders . . .
Basic loss per common share . . . . . . . . . . . .
Diluted loss per common share . . . . . . . . . . .
Basic weighted average common shares . . . . .
Diluted weighted average common shares . . . .

1st

2nd

3rd

4th

Quarters

278,823
284,146
(5,323)

296,748
299,581
(2,833)

282,214
285,363
(3,149)

294,333
294,778
(445)

$
$

31
(5,292)
(3,572)
20
(3,552)
(6,332)
(9,884)
$
(0.05)
$
$
(0.05)
184,998,551
184,998,551

$
$

—
(2,833)
(2,477)
8
(2,469)
(7,152)
(9,621)
$
(0.05)
$
$
(0.05)
184,743,052
184,743,052

$
$

$
$
$

—
(3,149)
(2,937)
11
(2,926)
(7,289)
(10,215)
(0.06)
(0.06)
183,519,768
183,519,768

$
$

$
$
$

24
(421)
(2,227)
23
(2,204)
(7,335)
(9,539)
(0.05)
(0.05)
181,423,440
181,423,440

(a)

Includes a $3,260, $2,424, $242 and $2,833 charge for non-cash compensation in the ﬁrst, second, third
and fourth quarters of 2015 respectively.

2014:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses(a) . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before item shown below . . . . .
Change in fair value of contingent

consideration . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes
. . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
. . .
Loss attributable to noncontrolling interest
Net income attributable to the Company . . . . .
Dividends declared on preferred stock . . . . . .
Net income (loss) available to common

shareholders

. . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share(c) . . . . .
Diluted income (loss) per common share . . . . .
Basic weighted average common shares. . . . . .
Diluted weighted average common shares . . . .

1st

2nd

3rd

4th

Quarters

$
$

211,818
206,973
4,845

12
4,857
4,264
21
4,285
(3,225)

$
$

220,753
217,063
3,690

—
3,690
2,923
21
2,944
(3,710)

$
$

223,732
224,303
(571)

264,950
262,920
2,030

—
(571)
$
15,738(b)(d)$
20
15,758(b)(d)$
(4,848)

—
2,030
10,427(b)
19
10,446(b)
(5,461)

1,060
$
0.01
$
$
0.01
181,502,068
202,332,855

$
$
$

(766)
(0.00)
(0.00)
181,739,505
181,739,505

$
$
$

10,910(b)(d)$
$
$

0.06
0.05
182,988,516
210,535,372

4,985(b)
0.03
0.02
184,805,171
210,297,301

(a)

(b)

Includes a $1,927, $2,083, $3,679 and $2,852 charge for non-cash compensation in the ﬁrst, second, third
and fourth quarters of 2014, respectively.
Includes deferred income tax beneﬁt from reversal of valuation allowance of $17,255, $0.08 per share
diluted (3rd quarter) and $5,575, $0.03 per share diluted (4th quarter) (see Note 11).

the full ﬁscal year amount.

(d) Reﬂects retrospective increase of $2,955 to reﬂect measurement period adjustments of preliminary allocations

of the purchase price related to the Highland acquisition which were ﬁnalized in the fourth quarter of 2014.

F-45

Stock Price Performance Graph

The graph below compares the cumulative total return of our common stock for the ﬁve-year period ending
December 31, 2015 with the cumulative total return of companies comprising the NYSE MKT Composite
Index, a customized peer group composed of eleven companies (“Current Peer Group”) and a customized peer
group composed of ten companies used during the year ended December 31, 2014 (“Prior Peer Group”). Our
Current Peer Group consists of the companies included in the Prior Peer Group, Calamos Asset Management
Inc., Cowen Group, Inc., FBR & Co., INTL FCStone Inc., Investment Technology Group, Inc., JMP Group
Inc., LPL Financial Holdings Inc., Oppenheimer Holdings Inc., Piper Jaffray Companies and Raymond James
Financial Inc., plus the addition of Greenhill & Co., Inc. Both the Prior Peer Group and the Current Peer
Group exclude GFI Group Inc. and SWS Group, Inc., which were included in prior years, as neither was
publicly traded at the end of 2015.

The graph plots the growth in value of an initial investment of $100 in each of our common stock, the
NYSE MKT Composite Index, the Prior Peer Group and the Current Peer Group and assumes reinvestment of
all dividends, if any. We have not paid any dividends on our common stock and, therefore, the cumulative total
return calculation for our common stock is based solely on stock price appreciation.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Ladenburg Thalmann Financial Services Inc., the NYSE MKT Composite Index,
Prior Peer Group and Current Peer Group

$400

$350

$300

$250

$200

$150

$100

$50

12/10

12/11

12/12

12/13

12/14

12/15

Ladenburg Thalmann Financial Services Inc.

NYSE MKT Composite

Prior Peer Group

Current Peer Group

*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

12/10

12/11

12/12

12/13

12/14

12/15

Ladenburg Thalmann Financial

Services Inc.

. . . . . . . . . . . .
NYSE MKT Composite . . . . . . .
Prior Peer Group . . . . . . . . . . .
Current Peer Group. . . . . . . . . .

100.00
100.00
100.00
100.00

211.97
104.50
84.15
77.40

119.66
110.18
93.64
89.04

267.52
118.63
139.17
128.75

337.61
120.72
149.33
134.58

235.90
107.77
145.84
128.71

LADENBURG THALMANN FINANCIAL SERVICES INC.

CORPORATE INFORMATION

OFFICERS

Phillip Frost, M.D.
Chairman of the Board

Howard M. Lorber
Vice Chairman of the Board

Richard J. Lampen
President and
Chief Executive Offıcer

Mark Zeitchick
Executive Vice President

Adam Malamed
Chief Operating Offıcer

Joseph Giovanniello, Jr.
Senior Vice President − Corporate and
Regulatory Affairs and Secretary

Brian L. Heller
Senior Vice President − Business
and Legal Affairs

Brett H. Kaufman
Senior Vice President and
Chief Financial Offıcer

CORPORATE
HEADQUARTERS

4400 Biscayne Boulevard, 12th Floor
Miami, FL 33137
212.409.2000

SUBSIDIARIES, LOCATIONS
AND TELEPHONE
NUMBERS

Ladenburg Thalmann & Co. Inc.
570 Lexington Avenue, 11th Floor
New York, NY 10022
212.409.2000

Peter H. Blum
Co-Chief Executive Offıcer

David Rosenberg
Co-Chief Executive Offıcer

Ladenburg Thalmann Asset
Management Inc.
570 Lexington Avenue, 11th Floor
New York, NY 10022
212.409.2000

Carly P. Maher
Senior Vice President − Products and
Services Management

Philip Blancato
President

Bradley H. Brodie
Vice President − Legal Affairs

Diane M. Chillemi
Vice President − Accounting
and Finance

Oksana Poznak
Vice President − Strategic Relationships

Craig A. Timm
Vice President − Business Risk
Management and Chief Risk Offıcer

BOARD OF DIRECTORS
Henry C. Beinstein
Phillip Frost, M.D.
Brian S. Genson
Saul Gilinski
Dr. Richard M. Krasno
Richard J. Lampen
Howard M. Lorber
Jeffrey S. Podell
Jacqueline M. Simkin
Mark Zeitchick

AUDITORS
EisnerAmper LLP
New York, NY

Investacorp, Inc.
4400 Biscayne Boulevard, 11th Floor
Miami, FL 33137
305.557.3000

Patrick Farrell
Chief Executive Offıcer

Triad Advisors, Inc.
5155 Peachtree Parkway
Suite 3220
Norcross, GA 30092
770.840.0363

Jeffrey L. Rosenthal
Chief Executive Offıcer

Premier Trust, Inc.
4465 S. Jones Blvd.
Las Vegas, NV 89103
702.507.0750

Mark Dreschler
Chief Executive Offıcer

Securities America, Inc.
12325 Port Grace Blvd.
La Vista, NE 68128
402.399.9111

James Nagengast
Chief Executive Offıcer

Highland Capital Brokerage, Inc.
3535 Grandview Parkway
Suite 600
Birmingham, AL 35243
205.263.4400

Jim Gelder
Chief Executive Offıcer

KMS Financial Services, Inc.
2001 Sixth Avenue
Suite 2801
Seattle, WA 98121
206.441.2885
Mark Hamby
Chief Executive Offıcer

Securities Service Network, Inc.
9729 Cogdill Road
Suite 301
Knoxville, TN 37932
865.777.4677
Wade Wilkinson
Chief Executive Offıcer

REGISTRAR AND
TRANSFER AGENT
American Stock Transfer &
Trust Company
59 Maiden Lane
New York, NY 10038
800.937.5449
www.amstock.com

COMMON AND PREFERRED
STOCK
Our Common Stock and 8% Series A
Cumulative Redeemable Preferred Stock
trade on the NYSE MKT under the
symbols LTS and LTS PrA, respectively.

ANNUAL REPORT ON
FORM 10-K
Copies of our Annual Report on Form
10-K can be accessed via our website at
ir.stockpr.com/ladenburg/proxy-statements

ADDITIONAL
INFORMATION
Copies of our ﬁlings with the U.S.
Securities and Exchange Commission,
and other information may be obtained
at our website www.ladenburg.com or by
contacting:
Ladenburg Thalmann Financial
Services Inc.
4400 Biscayne Boulevard, 12th Floor
Miami, FL 33137
Attention: Investor Relations
212.409.2000