LPL Financial Holdings Inc.
LPL Investment Holdings Inc. (Form: 8-K, Received: 10/25/2010 17:24:18)
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 25, 2010
Date of report (date of earliest event reported)
LPL Investment Holdings Inc.
(Exact name of registrant as specified in its charter)
         
Delaware
(State or other jurisdictions of
incorporation or organization)
  000-52609
(Commission File Number)
  20-3717839
(I.R.S. Employer Identification Nos.)
One Beacon Street
Boston MA 02108

(Address of principal executive offices) (Zip Code)
(617) 423-3644
(Registrant’s telephone number, including area code)
N/A
(Former Name or Former Address, if Changed since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions:
    o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
    o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
    o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
    o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 2.02   Results of Operations and Financial Condition
     On October 25, 2010, LPL Investment Holdings Inc. issued a press release announcing its financial results for the quarter ended September 30, 2010. A copy of the press release is furnished with this Form 8-K and attached hereto as Exhibit 99.1.
     Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act.
Item 9.01   Financial Statements and Exhibits
     
(d)
  Exhibits
 
99.1
  Press Release dated October 25, 2010 (“LPL Financial Announces Third Quarter 2010 and Year-to-Date Financial Results”)

 


 

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  LPL INVESTMENT HOLDINGS INC.
 
 
  By:   /s/ Robert J. Moore    
    Name:   Robert J. Moore   
    Title:   Chief Financial Officer   
 
Dated: October 25, 2010

 

Exhibit 99.1
(LPL LOGO)
LPL Financial Announces Third Quarter 2010 and Year-to-Date
Financial Results
Boston, MA — October 25, 2010 — LPL Investment Holdings Inc. (the “Company”), parent company of LPL Financial Corporation (“LPL Financial”), today announced net income of $26.1 million for the third quarter of 2010, or 26 cents per diluted share, compared to a loss of $1.5 million, or 2 cents per diluted share, in the third quarter of 2009.
Adjusted Net Income for the third quarter rose 16.7% to $40.5 million, or 41 cents per diluted share, from $34.7 million, or 35 cents per diluted share, in the third quarter of 2009. Adjusted EBITDA for the quarter was $98.6 million, up 10.1% from $89.6 million in the year-ago quarter. A reconciliation of these non-GAAP measures to GAAP measures, along with an explanation of these metrics, is provided below.
Net revenue for the third quarter of 2010 increased 8.2% to $760.0 million from $702.3 million in the year-ago quarter. Strong growth in the Company’s fee-based and asset-based revenues, combined with modest growth in commission and transaction based fees, highlighted an expansion of revenues during the quarter despite the equity market correction at the end of the second quarter and continued uncertainty in the capital markets.
The Company’s solid results were achieved in the third quarter of 2010 through a combination of factors including: the Company’s diversified sources of recurring revenues; growth in advisory and brokerage assets; a continued focus on disciplined expense management and operational efficiencies across the organization arising from its significant scale; and lower interest expense resulting from an opportunistic debt refinancing in the second quarter of 2010, which included a redemption of its senior unsecured subordinated notes. Additionally, financial results for the third quarter of 2009 include recognition of restructuring charges in connection with the conversion of the operations of the Affiliated Entities into the LPL Financial platform.
Third quarter results include the Focus Conference, the Company’s national conference and one of the key seasonal factors affecting its performance. The Focus Conference serves as a critical training, sales and marketing event, and the Company receives revenues from product sponsors that only partially offset the cost of hosting the event.
For the first nine months of 2010, net revenue increased 13.8% to $2.3 billion, from $2.0 billion in the prior year period. The solid growth was led by strong equity market performance relative to the comparable prior-year period which helped drive strong growth in the Company’s advisory fee and asset-based revenues, as well as trail-based commissions.
Net income was up 106.4% to $59.7 million for the first nine months of 2010, compared to the same period in 2009. Adjusted Net Income through September 30, 2010, was $128.0 million, up 46.3% from the year-ago period. Adjusted EBITDA for the first nine months increased 20.2% to $314.0 million versus the same period in 2009.

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Financial Highlights and Key Metrics
(Dollars in thousands except per share data and where noted)
                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     Change     2010     2009     Change  
Financial Highlights (unaudited)
                                               
Net Revenue
  $ 759,964     $ 702,326       8.2 %   $ 2,293,531     $ 2,014,621       13.8 %
Net Income (Loss)
  $ 26,144     $ (1,456 )     *     $ 59,698     $ 28,922       106.4 %
Adjusted Net Income (1)
  $ 40,526     $ 34,715       16.7 %   $ 128,043     $ 87,499       46.3 %
Earnings (Loss) Per Share (diluted)
  $ 0.26     $ (0.02 )     *     $ 0.59     $ 0.29       103.4 %
Adjusted Net Income per Share (1)
  $ 0.41     $ 0.35       17.1 %   $ 1.29     $ 0.89       44.9 %
Adjusted EBITDA (1)
  $ 98,633     $ 89,606       10.1 %   $ 313,954     $ 261,219       20.2 %
                         
    As of September 30,  
    2010     2009     Change  
Metric Highlights
                       
Financial Advisors (2)
    12,017       12,027       (0.1 )%
Advisory and Brokerage Assets (3) (billions)
  $ 293.3     $ 268.9       9.1 %
Insured Cash Account Balances (billions)
  $ 11.7     $ 11.4       2.8 %
Money Market Account Balances (billions)
  $ 6.9     $ 7.5       (8.0 )%
Operational Highlights
  Revenue increased 8.2% from the year-ago quarter. Key drivers of the growth include:
  o   Advisory assets in the Company’s fee-based platforms were $86.2 billion for the third quarter of 2010, up 18.7% from $72.6 billion for the year-ago quarter, which outpaced the growth of the average S&P 500 for the period of 10.0%
 
  o   Net new advisory assets were $6.3 billion during the twelve months ended September 30, 2010, reflecting strong new business development in 2009 due to the extraordinary industry and market conditions
 
  o   Asset-based fees increased by 15.1% due to growth in record-keeping, omnibus processing and other administrative fees
 
  o   Commission and transaction fee growth slowed due to softer client activity stemming from the equity market correction near the end of the second quarter of 2010 and the continued uncertainty in the capital markets
  Total advisory and brokerage assets were $293.3 billion as of September 30, 2010, up 9.1% compared to $268.9 billion as of September 30, 2009
 
  Revenues generated from the Company’s cash sweep programs increased by $2.4 million, or 8.1%, to $31.9 million in the third quarter of 2010 compared to $29.5 million in the prior-year period. Variances in fees generated are impacted by assets in the Company’s cash sweep programs, which averaged $18.7 billion for the third quarter of 2010 and $19.5 billion for the year-ago quarter, as well as the effective federal funds rate which averaged 0.19% for the third quarter of 2010 compared to 0.15% for the same period in the prior year. The effective federal funds rate remaining at historical low levels dampens revenue growth from cash sweep programs overall
 
  As a result of the debt refinancing in the second quarter of 2010, which included a redemption of the Company’s senior unsecured subordinated notes, interest expense was reduced by $4.2 million in the third quarter of 2010. This reduction in interest expense represents the level of savings for an entire quarter compared with partial savings the Company experienced during the second quarter of 2010

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  From July 27 through July 31, the Company held its annual Focus Conference, bringing together more than 3,500 attendees under the theme of “Focus on the American Dream.” Attendees encompassed independent advisors, bank and credit union-based advisors and program managers, as well as product sponsors, from across the country
 
  The Company consolidated the operations of the Affiliated Entities with LPL Financial in the third quarter of 2009, which resulted in attrition of 138 advisors in the fourth quarter of 2009. Excluding this attrition, the Company added 128 new advisors during the trailing twelve months ending September 30, 2010
 
  Assets under custody in the LPL Financial Hybrid RIA platform, which provides integrated fee and commission-based capabilities for independent advisors with their own Registered Investment Adviser (“RIA”), grew to $11.6 billion, as of September 30, 2010, and encompassed 105 RIA firms, compared to $6.2 billion and 94 RIA firms as of September 30, 2009
 
  Financial advisors affiliated with the Company continued to earn distinction in key media and industry rankings. In August, LPL Financial advisors were named to 42 out of 100 positions on the Registered Rep America’s Top 100 Independent Advisors list, a ranking based on size of assets under management ( Registered Rep. , “America’s Top 100 Independent B/D Advisors: Savoring Independence,” August 2010)
 
*   Not Meaningful
(1)   Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of the Company’s results as reported under GAAP. Some of these limitations are:
    Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
 
    Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share do not reflect changes in, or cash requirements for, working capital needs; and
 
    Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt.
    The reconciliation from net income (loss) to Adjusted EBITDA and Adjusted Net Income for the periods presented is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)  
Net income (loss)
  $ 26,144     $ (1,456 )   $ 59,698     $ 28,922  
Interest expense
    19,511       24,626       71,530       76,599  
Income tax expense (benefit)
    19,868       (5,029 )     39,658       23,526  
Amortization of purchased intangible assets and software (a)
    9,352       14,915       34,401       45,161  
Depreciation and amortization of all other fixed assets
    10,420       12,009       33,071       36,435  
 
                       
EBITDA
    85,295       45,065       238,358       210,643  
 
                       

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    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)  
EBITDA Adjustments:
                               
Share-based compensation expense(b)
    2,853       1,640       7,628       3,912  
Acquisition and integration related expenses (c)
    6,268       728       9,785       2,389  
Restructuring and conversion costs (d)
    4,153       42,135       19,438       44,161  
Debt amendment and extinguishment costs (e)
    28             38,633        
Other (f)
    36       38       112       114  
 
                       
Total EBITDA Adjustments
    13,338       44,541       75,596       50,576  
 
                       
Adjusted EBITDA
  $ 98,633     $ 89,606     $ 313,954     $ 261,219  
 
                       
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)  
Net income
  $ 26,144     $ (1,456 )   $ 59,698     $ 28,922  
After-Tax:
                               
EBITDA Adjustments (g)
                               
Share-based compensation expense (h)
    2,257       1,308       6,137       3,206  
Acquisition and integration related expenses
    3,809       439       5,946       1,441  
Restructuring and conversion costs
    2,549       25,407       11,812       26,629  
Debt amendment and extinguishment costs
    17             23,477        
Other
    22       23       68       68  
 
                       
Total EBITDA Adjustments
    8,654       27,177       47,440       31,344  
 
                       
Amortization of purchased intangible assets and software (g)
    5,728       8,994       20,905       27,233  
 
                       
Adjusted Net Income
  $ 40,526     $ 34,715     $ 128,043     $ 87,499  
 
                       
 
                               
Adjusted Net Income per share (i)
  $ 0.41     $ 0.35     $ 1.29     $ 0.89  
Weighted average shares outstanding — diluted
    99,612       98,703       99,303       98,527  
(a)   Represents amortization of intangible assets and software as a result of the Company’s purchase accounting adjustments from its merger transaction in 2005 and 2007 acquisitions of UVEST Financial Services Group, Inc. (“UVEST”), Mutual Service Corporation, Associated Financial Group, Inc., Associated Securities Corp, Inc., Associated Planners Investment Advisory, Inc. and Waterstone Financial Group, Inc. (collectively, the “Affiliated Entities”) and IFMG Securities, Inc., Independent Financial Marketing Group, Inc. and LSC Insurance Agency of Arizona, Inc. (together, “IFMG”).
 
(b)   Represents share-based compensation related to vested stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.
 
(c)   Represents acquisition and integration costs resulting from the Company’s 2007 acquisitions of the Affiliated Entities and IFMG. Included in the three and nine months ended September 30, 2010, are expenditures for certain legal settlements that have not been resolved with the indemnifying party.
 
(d)   Represents organizational restructuring charges incurred in 2009 and 2010 for severance and one-time termination benefits, asset impairments, lease and contract termination fees and other transfer costs.
 
(e)   Represents debt amendment costs incurred in 2010 for amending and restating the credit agreement to establish a new term loan tranche and to extend the maturity of an existing tranche on the senior credit facilities, and debt extinguishment costs to redeem the subordinated notes, as well as certain professional fees incurred.
 
(f)   Represents excise and other taxes.

4


 

(g)   EBITDA Adjustments and amortization of purchased intangible assets and software have been tax effected using a federal rate of 35% and the applicable effective state rate, which ranged from 4.23% to 4.71%, net of the federal tax benefit. In April 2010, a step up in basis of $89.1 million for internally developed software that was established at the time of the 2005 merger transaction became fully amortized, resulting in lower balances of intangible assets that are amortized.
 
(h)   Represents the after-tax expense of non-qualified stock options in which the Company receives a tax deduction upon exercise, and the full expense impact of incentive stock options granted to employees that have vested and qualify for preferential tax treatment and conversely, the Company does not receive a tax deduction. Share-based compensation for vesting of incentive stock options was $1.3 million and $0.8 million, respectively, for the three months ended September 30, 2010 and 2009, and $3.8 million and $2.1 million, respectively, for the nine months ended September 30, 2010 and 2009.
 
(i)   Represents Adjusted Net Income divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of earnings (loss) per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share:
                                 
    For the Three     For the Nine  
    Months Ended     Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (unaudited)     (unaudited)  
Earnings (loss) per share — diluted
  $ 0.26     $ (0.02 )   $ 0.59     $ 0.29  
Adjustment for allocation of undistributed earnings to stock units
                0.01       0.01  
After-Tax:
                               
EBITDA Adjustments per share
    0.09       0.28       0.48       0.32  
Amortization of purchased intangible assets and software per share
    0.06       0.09       0.21       0.27  
 
                       
Adjusted Net Income per share
  $ 0.41     $ 0.35     $ 1.29     $ 0.89  
 
                       
(2)   Advisors are defined as those investment professionals who are licensed to do business with the Company’s broker-dealer subsidiaries. The Company consolidated the operations of the Affiliated Entities with LPL Financial in the third quarter of 2009, which resulted in attrition of 138 advisors in the fourth quarter of 2009. Excluding this attrition, the Company added 128 new advisors during the twelve month period ended September 30, 2010.
 
(3)   Advisory and brokerage assets are comprised of assets that are custodied, networked, and non-networked and reflect market movement in addition to new assets, inclusive of new business development and net of attrition.
About LPL Financial
LPL Financial, a wholly owned subsidiary of LPL Investment Holdings Inc., is an independent broker-dealer. LPL Financial and its affiliates offer proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to over 12,000 independent financial advisors and financial advisors at financial institutions. Additionally, LPL Financial supports approximately 4,000 financial advisors who are affiliated and licensed with insurance companies with customized clearing, advisory platforms and technology solutions. LPL Financial and its affiliates have over 2,500 employees with employees and offices in Boston, Charlotte, and San Diego. For more information, please visit www.lpl.com . Member FINRA/SIPC
Forward-Looking Statements
This press release may contain forward-looking statements (regarding the Company’s future financial condition, results of operations, business strategy and financial needs, and other similar matters) that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar

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terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. Important factors that may cause such differences include, but are not limited to, changes in general economic and financial market conditions, fluctuations in the value of assets under management, effects of competition in the financial services industry, changes in the number of the Company’s financial advisors and institutions and their ability to effectively market financial products and services, the effect of current, pending and future legislation, regulation and regulatory actions, and other factors set forth in the Company’s Amendment No. 3 to Form S-1/A filed on August 10, 2010, which is available on www.sec.gov .
Non-GAAP Financial Measures
Adjusted Net Income represents net income before: (a) share-based compensation expense, (b) amortization of intangible assets and software, a component of depreciation and amortization, resulting from the merger transaction in 2005 and the 2007 acquisition of UVEST, the Affiliated Entities, and IFMG, (c) debt amendment and extinguishment costs and (d) restructuring and conversion costs. Reconciling items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts. Adjusted Net Income per share represents Adjusted Net Income divided by weighted average outstanding shares on a fully diluted basis. The Company prepared Adjusted Net Income and Adjusted Net Income per share to eliminate the effects of items that it does not consider indicative of its core operating performance. The Company believes this measure provides investors with greater transparency by helping illustrate the underlying financial and business trends relating to results of operations and financial condition and comparability between current and prior periods. Adjusted Net Income and Adjusted Net Income per share are not measures of the Company’s financial performance under GAAP and should not be considered as an alternative to net income or earnings per share or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity.
Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization), further adjusted to exclude certain non-cash charges and other adjustments set forth in the table above. The Company presents Adjusted EBITDA because the Company considers it a useful financial metric in assessing the Company’s operating performance from period to period by excluding certain items that the Company believes are not representative of its core business, such as certain material non-cash items and other adjustments that are outside the control of management. Adjusted EBITDA is not a measure of the Company’s financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, Adjusted EBITDA can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.
# # #
     
Media Relations   Investor Relations
Michael Herley / David Lilly
  Mark Barnett
Kekst and Company
  LPL Financial
Phone: 212-521-4897 or 212-521-4878
  Phone: 617-897-4574
Email: media.inquiries@lpl.com
  Email: investor.relations@lpl.com

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LPL Investment Holdings Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands except per share data and where noted)
(Unaudited)
                                                 
    Three Months Ended             Nine Months Ended        
    September 30,     %     September 30,     %  
    2010     2009     Change     2010     2009     Change  
Revenues
                                               
Commissions
  $ 385,273     $ 370,249       4.1 %   $ 1,194,414     $ 1,084,900       10.1 %
Advisory fees
    212,344       182,141       16.6 %     633,820       507,509       24.9 %
Asset-based fees
    81,599       70,894       15.1 %     230,485       201,287       14.5 %
Transaction and other fees
    70,243       68,764       2.2 %     205,738       191,711       7.3 %
Other
    10,505       10,278       2.2 %     29,074       29,214       (0.5 )%
 
                                   
Net revenues
    759,964       702,326       8.2 %     2,293,531       2,014,621       13.8 %
 
                                   
Expenses
                                               
Production
    525,628       481,182       9.2 %     1,595,368       1,387,701       15.0 %
Compensation and benefits
    74,627       66,337       12.5 %     223,024       198,156       12.5 %
General and administrative
    68,798       65,787       4.6 %     176,585       165,159       6.9 %
Depreciation and amortization
    19,772       26,924       (26.6 )%     67,472       81,596       (17.3 )%
Restructuring charges
    1,863       42,219       (95.6 )%     10,434       41,695       (75.0 )%
Other
    3,750       1,640       128.7 %     11,801       11,003       7.3 %
 
                                   
Total operating expenses
    694,438       684,089       1.5 %     2,084,684       1,885,310       10.6 %
 
                                   
Non-operating interest expense
    19,511       24,626       (20.8 )%     71,530       76,599       (6.6 )%
Loss on extinguishment of debt
                *       37,979             *  
Loss (gain) on equity method investment
    3       96       (96.9 )%     (18 )     264       *  
Total expenses
    713,952       708,811       0.7 %     2,194,175       1,962,173       11.8 %
Income before provision for (benefit from) income taxes
    46,012       (6,485 )     *       99,356       52,448       89.4 %
Provision for (benefit from) income taxes
    19,868       (5,029 )     *       39,658       23,526       68.6 %
 
                                   
Net income (loss)
  $ 26,144     $ (1,456 )     *     $ 59,698     $ 28,922       106.4 %
 
                                   
 
                                               
Earnings (loss) per share
                                               
Basic
  $ 0.30     $ (0.02 )     *     $ 0.68     $ 0.33       106.1 %
Diluted
  $ 0.26     $ (0.02 )     *     $ 0.59     $ 0.29       103.4 %
 
*   Not Meaningful.

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LPL Investment Holdings Inc.
Financial Highlights
(Dollars in thousands, unless otherwise noted)
(Unaudited)
                                         
    Three Month Quarterly Results  
    Q3 2010     Q2 2010     Q1 2010     Q4 2009     Q3 2009  
REVENUES
                                       
Commissions
  $ 385,273     $ 420,169     $ 388,972     $ 392,755     $ 370,249  
Advisory fees
    212,344       215,146       206,330       196,630       182,141  
Asset-based fees
    81,599       77,436       71,450       71,606       70,894  
Transaction and other fees
    70,243       68,132       67,363       63,863       68,764  
Other
    10,505       9,278       9,291       10,030       10,278  
 
                             
Net revenues
    759,964       790,161       743,406       734,884       702,326  
 
                             
EXPENSES
                                       
Production
    525,628       556,538       513,202       516,878       481,182  
Compensation and benefits
    74,627       74,822       73,575       72,280       66,337  
General and administrative
    68,798       54,550       53,237       53,257       65,787  
Depreciation and amortization
    19,772       22,110       25,590       26,700       26,924  
Restructuring charges
    1,863       4,622       3,949       17,000       42,219  
Other
    3,750       3,274       4,777       4,291       1,640  
 
                             
Total operating expenses
    694,438       715,916       674,330       690,406       684,089  
 
                             
Non-operating interest expense
    19,511       27,683       24,336       24,323       24,626  
Loss on extinguishment of debt
          37,979                    
Loss (gain) on equity method investment
    3       (45 )     24       36       96  
 
                             
Total expenses
    713,952       781,533       698,690       714,765       708,811  
 
                             
INCOME (LOSS) BEFORE PROVISION FOR / (BENEFIT FROM) INCOME TAXES
    46,012       8,628       44,716       20,119       (6,485 )
PROVISION FOR / (BENEFIT FROM) INCOME TAXES(1)
    19,868       628       19,162       1,521       (5,029 )
 
                             
NET INCOME (LOSS)
  $ 26,144     $ 8,000     $ 25,554     $ 18,598     $ (1,456 )
 
                             
 
                                       
EARNINGS (LOSS) PER SHARE
                                       
Basic
  $ 0.30     $ 0.09     $ 0.29     $ 0.21     $ (0.02 )
Diluted
  $ 0.26     $ 0.08     $ 0.25     $ 0.19     $ (0.02 )
 
                                       
FINANCIAL CONDITION
                                       
Total Cash & Cash Equivalents
  $ 442,547     $ 402,741     $ 324,761     $ 378,594     $ 245,489  
Total Assets
  $ 3,364,896     $ 3,315,310     $ 3,343,286     $ 3,336,936     $ 3,213,879  
Total Debt(2)
  $ 1,390,132     $ 1,393,625     $ 1,407,117     $ 1,369,223     $ 1,404,829  
Stockholders’ Equity
  $ 927,335     $ 897,863     $ 883,157     $ 850,875     $ 828,029  
Capital Expenditures(3)
  $ 7,282     $ 2,189     $ 1,463     $ 1,910     $ 2,767  
 
                                       
KEY METRICS
                                       
Financial Advisors
    12,017       12,066       12,026       11,950       12,027  
Advisory and Brokerage Assets(billions)
  $ 293.3     $ 276.9     $ 284.6     $ 279.4     $ 268.9  
Insured Cash Account Balances (4) (billions)
  $ 11.7     $ 11.8     $ 11.4     $ 11.6     $ 11.4  
Money Market Account Balances (4) (billions)
  $ 6.9     $ 7.2     $ 6.7     $ 7.0     $ 7.5  
Adjusted EBITDA(5)
  $ 98,633     $ 109,864     $ 105,457     $ 94,849     $ 89,606  
Adjusted Net Income(5)
  $ 40,526     $ 46,418     $ 41,099     $ 42,057     $ 34,715  
Adjusted Net Income per share(5)
  $ 0.41     $ 0.47     $ 0.42     $ 0.43     $ 0.35  
 
(1)   The Company reported a low effective income tax rate for the three months ended June 30, 2010, due to a favorable state apportionment ruling covering the current and previous years and due to the revision of certain settlement contingencies for prior periods. The ruling resulted in a reduction of 27.8% and the revision to settlement contingencies resulted in a reduction of 9.6%, respectively, to the Company’s effective income tax rate.

8


 

 
(2)   Represents borrowings on the Company’s senior secured credit facility, senior unsecured subordinated notes, revolving line of credit and bank loans payable.
 
(3)   Represents capital expenditures incurred during the three months ended as of each reporting period.
 
(4)   Represents insured cash and money market account balances as of each reporting period.
 
(5)   The reconciliation from net income to Adjusted EBITDA and Adjusted Net Income for the periods presented is as follows (in thousands):
                                         
    Q3     Q2     Q1     Q4     Q3  
    2010     2010     2010     2009     2009  
                    (unaudited)                  
Net income (loss)
  $ 26,144     $ 8,000     $ 25,554     $ 18,598     $ (1,456 )
Interest expense
    19,511       27,683       24,336       24,323       24,626  
Income tax expense (benefit)
    19,868       628       19,162       1,521       (5,029 )
Amortization of purchased intangible assets and software (a)
    9,352       10,938       14,111       14,416       14,915  
Depreciation and amortization of all other fixed assets
    10,420       11,172       11,479       12,284       12,009  
 
                             
EBITDA
  $ 85,295     $ 58,421     $ 94,642     $ 71,142     $ 45,065  
EBITDA Adjustments:
                                       
Share-based compensation expense(b)
  $ 2,853     $ 2,239     $ 2,536     $ 2,525     $ 1,640  
Acquisition and integration related expenses(c)
    6,268       3,377       140       648       728  
Restructuring and conversion costs(d)
    4,153       7,306       7,979       20,497       42,135  
Debt amendment and extinguishment costs (e)
    28       38,484       121              
Other(f)
    36       37       39       37       38  
 
                             
Total EBITDA Adjustments
    13,338       51,443       10,815       23,707       44,541  
 
                             
Adjusted EBITDA
  $ 98,633     $ 109,864     $ 105,457     $ 94,849     $ 89,606  
 
                             
 
                                       
Net income (loss)
  $ 26,144     $ 8,000     $ 25,554     $ 18,598     $ (1,456 )
After-Tax:
                                       
EBITDA Adjustments(g)
                                       
Share-based compensation expense (h)
    2,257       1,870       2,010       1,940       1,308  
Acquisition and integration related expenses
    3,809       2,052       85       392       439  
Restructuring and conversion costs
    2,549       4,440       4,823       12,390       25,407  
Debt amendment and extinguishment costs
    17       23,387       73              
Other
    22       22       24       23       23  
 
                             
 
                                       
Total EBITDA Adjustments
    8,654       31,771       7,015       14,745       27,177  
 
                             
Amortization of purchased intangible assets and software (g)(h)
    5,728       6,647       8,530       8,714       8,994  
 
                             
Adjusted Net Income
  $ 40,526     $ 46,418     $ 41,099     $ 42,057     $ 34,715  
 
                             
 
                                       
Adjusted Net Income per share (i)
  $ 0.41     $ 0.47     $ 0.42     $ 0.43     $ 0.35  
Weighted average shares outstanding — diluted
    99,612       99,487       98,945       98,787       98,703  
 
(a)   Represents amortization of intangible assets and software as a result of the Company’s purchase accounting adjustments from its merger transaction in 2005 and 2007 acquisitions of UVEST, the Affiliated Entities and IFMG.
 
(b)   Represents share-based compensation for stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.

9


 

(c)   Represents acquisition and integration costs resulting from the Company’s 2007 acquisitions of the Affiliated Entities and IFMG. Included in the three and nine months ended September 30, 2010, are expenditures for certain legal settlements that have not been resolved with the indemnifying party.
 
(d)   Represents organizational restructuring charges incurred in 2009 and 2010 for severance and one-time termination benefits, asset impairments, lease and contract termination fees and other transfer costs.
 
(e)   Represents debt amendment costs incurred in 2010 for amending and restating the credit agreement to establish a new term loan tranche and to extend the maturity of an existing tranche on the senior credit facilities, and debt extinguishment costs to redeem the subordinated notes.
 
(f)   Represents excise and other taxes.
 
(g)   EBITDA Adjustments and amortization of purchased intangible assets, a component of depreciation and amortization, have been tax effected using a federal rate of 35% and the applicable effective state rate, which ranged from 4.23% to 4.71%, net of the federal tax benefit.
 
(h)   Represents amortization of intangible assets and software which were $9.4 million, $10.9 million, $14.1 million, $14.4 million, and $14.9 million, before taxes for the three months ended September 30, 2010, June 30, 2010, March 31, 2010, December 31, 2009, and September 30, 2009, respectively. The amortization of intangible assets and software was a result of the purchase accounting adjustments from the merger transaction in 2005 and the 2007 acquisitions of UVEST, the Affiliated Entities and IFMG. In April 2010, a step up in basis of $89.1 million for internally developed software that was established at the time of the 2005 merger transaction became fully amortized, resulting in lower balances in those intangible assets that are amortized.
 
(i)   Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share:
                                         
    Q3     Q2     Q1     Q4     Q3  
    2010     2010     2010     2009     2009  
                    (unaudited)                  
Earnings (loss) per share — diluted
  $ 0.26     $ 0.08     $ 0.25     $ 0.19     $ (0.02 )
Adjustment for allocation of undistributed earnings to stock units
                0.01              
After-Tax:
                                       
EBITDA Adjustments per share
    0.09       0.32       0.07       0.15       0.28  
Amortization of purchased intangible assets per share
    0.06       0.07       0.09       0.09       0.09  
 
                             
 
Adjusted Net Income per share
  $ 0.41     $ 0.47     $ 0.42     $ 0.43     $ 0.35  
 
                             

10