UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM
TO
.
Commission File Number: 000-51730
Thomas Weisel Partners Group, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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20-3550472
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Montgomery Street
San Francisco, California 94104
(415) 364-2500
(Address, including zip code, and telephone number, including area code, of registrants principal executive office)
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.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
o
Yes
þ
No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 9, 2007 there were 25,552,710 shares of the registrants common stock
outstanding.
Where You Can Find More Information
We are required to file annual, quarterly and current reports, proxy statements and other
information required by the Securities Exchange Act of 1934, as amended, with the Securities and
Exchange Commission, or SEC. You may read and copy any document we file with the SEC at the SECs
public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are
also available to the public from the SECs internet site at http://www.sec.gov.
We maintain a public internet site at http://www.tweisel.com and make available free of charge
through our internet site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and
executive officers and any amendments to those reports filed or furnished pursuant to the Exchange
Act as soon as reasonably practicable after we electronically file such material with, or furnish
it to, the SEC. We also post on our website the charters for our Board of Directors Audit
Committee, Compensation Committee, and Corporate Governance and Nominations Committee, as well as
our Corporate Governance Guidelines, our Code of Conduct and Ethics governing our directors,
officers and employees and other related materials. In addition, we post on our website, under
Investor Relations, a link to a listing of our completed, filed and announced investment banking
transactions. The information on our website is not part of this Quarterly Report.
When we use the terms Thomas Weisel Partners, we, us, our, and the firm we mean
Thomas Weisel Partners Group, Inc., a Delaware corporation, and its consolidated subsidiaries,
taken as a whole, as well as any predecessor entities, unless the context otherwise indicates.
-ii-
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q in Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations and in other sections includes forward-looking
statements. In some cases, you can identify these statements by forward-looking words such as
may, might, will, should, expect, plan, anticipate, believe, estimate, predict,
potential, intend or continue, the negative of these terms and other comparable terminology.
These forward-looking statements, which are subject to risks, uncertainties and assumptions about
us, may include expectations as to our future financial performance, which in some cases may be
based on our growth strategies and anticipated trends in our business. These statements are based
on our current expectations and projections about future events. There are important factors that
could cause our actual results, level of activity, performance or achievements to differ materially
from the results, level of activity, performance or achievements expressed or implied by the
forward-looking statements. In particular, you should consider the numerous risks outlined in Part
I, Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, as well as the risks described in Part II, Item 1A Risk Factors in this
Quarterly Report on Form 10-Q. See Where You Can Find More Information on the preceding page.
Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness
of any of these forward-looking statements. You should not rely upon forward-looking statements as
predictions of future events. We are under no duty to update any of these forward-looking
statements after the date of this filing to conform our prior forward-looking statements to actual
results or revised expectations.
Forward-looking statements include, but are not limited to, the following:
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Our statements in Part I, Item 1 Unaudited Condensed Consolidated Financial
Statements and in Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations that we expect the closing of the acquisition of
Westwind Partners to occur in January 2008.
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Our statements in Part I, Item 1 Unaudited Condensed Consolidated Financial
Statements and in Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations that, as of September 30, 2007, there was (i) $10.1
million of unrecognized compensation expense related to non-vested restricted stock unit
awards made in connection with our initial public offering and that this cost is expected
to be recognized over a weighted-average period of 1.3 years, and (ii) $20.4 million of
unrecognized compensation expense related to non-vested restricted stock unit awards made
subsequent to our initial public offering and that this cost is expected to be recognized
over a weighted-average period of 3.4 years, in each case because these statements depend
on estimates of employee attrition in the future.
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Our statements in Part I, Item 1 Unaudited Condensed Consolidated Financial
Statements and in Part I, Item 3 Quantitative and Qualitative Disclosures About Market
Risk regarding the carrying value, fair value, applied discount and expected maturity date
of our Contingent Payment Senior Note, because they are based on estimates regarding the
term of repayment of such note, which estimates, in turn, are based on projected
distribution events.
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Our statement in Part I, Item 1 Unaudited Condensed Consolidated Financial
Statements that, with respect to an aggregate of $19.9 million of commitments we have made
to unaffiliated funds, we currently anticipate transferring these investments and the
related commitments to funds sponsored by us.
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Our statement in Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations that we believe that our current level of equity
capital will be adequate to meet our liquidity and regulatory capital requirements for the
next 12 months.
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Our statement in Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations that we do not currently anticipate that we will be
able to achieve our target of maintaining our aggregate annual compensation and benefits
expense within the range of 55% to 58% of net revenues.
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Our statements in Part I, Item 1 Unaudited Condensed Consolidated Financial
Statements and in Part I, Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations that we expect direct costs related to the
acquisition of Westwind Partners to be approximately $2.2 million.
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-iii-
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share and per share data)
(Unaudited)
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September 30, 2007
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December 31, 2006
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ASSETS
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Cash and cash equivalents
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$
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86,700
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$
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144,085
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Restricted cash
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6,718
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6,468
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Securities owned
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183,764
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137,033
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Receivable from clearing brokers
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5,029
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Corporate
finance and syndicate receivablesnet of allowance for doubtful accounts of $552 and $7, respectively
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10,111
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20,076
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Investments in partnerships and other securities
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58,876
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45,647
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Other investments
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90,637
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73,427
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Property and equipmentnet
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21,384
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24,189
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Receivables from related partiesnet of allowance for doubtful loans of $1,217 and $2,507, respectively
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4,124
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2,966
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Deferred tax assetsnet of valuation allowance of $345 and $1,380, respectively
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16,848
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15,862
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Other assetsnet of allowance for doubtful accounts of $80 and $0, respectively
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21,267
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13,436
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Total assets
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$
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505,458
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$
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483,189
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LIABILITIES AND SHAREHOLDERS EQUITY
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Liabilities:
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Securities sold, but not yet purchased
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$
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131,376
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$
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90,690
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Payable to clearing brokers
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6,159
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Accrued compensation
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15,412
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37,721
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Accrued expenses and other liabilities
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45,612
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49,066
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Capital lease obligations
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101
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166
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Notes payable
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28,191
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32,333
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|
|
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|
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Total liabilities
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220,692
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|
216,135
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Shareholders Equity:
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Common stock, par value $0.01 per share, 100,000,000 shares authorized, 25,547,611 and 25,754,167
shares issued and outstanding, respectively
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255
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258
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Additional paid-in capital
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358,716
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352,299
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Accumulated deficit
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(74,005
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)
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(85,208
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)
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Accumulated other comprehensive loss, net of benefits
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(200
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)
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(295
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)
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|
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Total shareholders equity
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284,766
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267,054
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|
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|
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Total liabilities and shareholders equity
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$
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505,458
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$
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483,189
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See accompanying notes to unaudited condensed consolidated financial statements.
1
THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2007
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2006
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2007
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|
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2006
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|
Revenues:
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|
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|
|
|
|
|
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|
|
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Investment banking
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$
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25,542
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$
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22,228
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|
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$
|
94,439
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|
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$
|
86,878
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Brokerage
|
|
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30,344
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|
|
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30,682
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|
|
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85,426
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|
|
|
94,845
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|
Asset management
|
|
|
6,714
|
|
|
|
4,123
|
|
|
|
26,711
|
|
|
|
16,459
|
|
Interest income
|
|
|
3,799
|
|
|
|
4,197
|
|
|
|
12,686
|
|
|
|
9,471
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
66,399
|
|
|
|
61,230
|
|
|
|
220,182
|
|
|
|
207,653
|
|
Interest expense
|
|
|
(2,687
|
)
|
|
|
(3,110
|
)
|
|
|
(8,042
|
)
|
|
|
(7,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
63,712
|
|
|
|
58,120
|
|
|
|
212,140
|
|
|
|
199,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
38,304
|
|
|
|
33,648
|
|
|
|
119,689
|
|
|
|
110,983
|
|
Brokerage execution, clearance and account
administration
|
|
|
5,287
|
|
|
|
4,441
|
|
|
|
14,970
|
|
|
|
17,525
|
|
Communications and data processing
|
|
|
4,642
|
|
|
|
3,958
|
|
|
|
13,794
|
|
|
|
12,525
|
|
Depreciation and amortization
|
|
|
1,536
|
|
|
|
2,117
|
|
|
|
4,781
|
|
|
|
6,598
|
|
Marketing and promotion
|
|
|
3,868
|
|
|
|
2,817
|
|
|
|
10,523
|
|
|
|
8,509
|
|
Occupancy and equipment
|
|
|
5,134
|
|
|
|
5,524
|
|
|
|
13,835
|
|
|
|
13,787
|
|
Other expense
|
|
|
7,055
|
|
|
|
4,182
|
|
|
|
17,351
|
|
|
|
13,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses excluding interest
|
|
|
65,826
|
|
|
|
56,687
|
|
|
|
194,943
|
|
|
|
183,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(2,114
|
)
|
|
|
1,433
|
|
|
|
17,197
|
|
|
|
16,422
|
|
Provision for taxes (tax benefit)
|
|
|
(1,314
|
)
|
|
|
(119
|
)
|
|
|
5,994
|
|
|
|
(9,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(800
|
)
|
|
|
1,552
|
|
|
|
11,203
|
|
|
|
26,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends and accretion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class D redeemable convertible shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(710
|
)
|
Class D-1 redeemable convertible shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(380
|
)
|
Accretion of Class C redeemable preference shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
and to Class A, B and C shareholders
|
|
$
|
(800
|
)
|
|
$
|
1,552
|
|
|
$
|
11,203
|
|
|
$
|
24,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
$
|
0.43
|
|
|
$
|
1.05
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
$
|
0.42
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computation of per share
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
26,196
|
|
|
|
25,839
|
|
|
|
26,188
|
|
|
|
23,377
|
|
Diluted weighted average shares outstanding
|
|
|
26,196
|
|
|
|
26,218
|
|
|
|
26,539
|
|
|
|
23,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma, as adjusted:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,693
|
|
Pro forma income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,284
|
|
Pro forma tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,326
|
)
|
Pro forma net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,610
|
|
Pro forma preferred dividends and accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable to common
shareholders and to Class A, B and C shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.05
|
|
Pro forma diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares used in the
computation of per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,377
|
|
Pro forma diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,913
|
|
|
|
|
*
|
|
See Note 16 Pro Forma, As Adjusted to the unaudited condensed consolidated financial
statements.
|
See accompanying notes to unaudited condensed consolidated financial statements.
2
THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
Income
|
|
Balance,
December 31, 2006
|
|
|
25,754
|
|
|
$
|
258
|
|
|
$
|
352,299
|
|
|
$
|
(85,208
|
)
|
|
$
|
(295
|
)
|
|
$
|
267,054
|
|
|
$
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,203
|
|
|
|
|
|
|
|
11,203
|
|
|
|
11,203
|
|
Currency
translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
95
|
|
|
|
95
|
|
Share-based
compensation
expense
|
|
|
|
|
|
|
|
|
|
|
9,058
|
|
|
|
|
|
|
|
|
|
|
|
9,058
|
|
|
|
|
|
Excess tax benefits
from share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
Vested and
delivered
restricted stock
units
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase or
reacquisition of
common stock
|
|
|
(249
|
)
|
|
|
(3
|
)
|
|
|
(2,660
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September
30, 2007
|
|
|
25,548
|
|
|
$
|
255
|
|
|
$
|
358,716
|
|
|
$
|
(74,005
|
)
|
|
$
|
(200
|
)
|
|
$
|
284,766
|
|
|
$
|
11,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,203
|
|
|
$
|
26,181
|
|
Non-cash items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
4,781
|
|
|
|
6,598
|
|
Share-based compensation expense
|
|
|
9,209
|
|
|
|
5,197
|
|
Excess tax benefits from share-based compensation
|
|
|
(19
|
)
|
|
|
|
|
Deferred tax benefit
|
|
|
(986
|
)
|
|
|
(14,708
|
)
|
Provision for doubtful accounts
|
|
|
625
|
|
|
|
170
|
|
Provision (credit) for facility lease loss
|
|
|
(208
|
)
|
|
|
2,990
|
|
Deferred rent expense
|
|
|
(533
|
)
|
|
|
(314
|
)
|
Unrealized and realized gains on partnership and other investmentsnet
|
|
|
(14,276
|
)
|
|
|
(6,600
|
)
|
Other
|
|
|
828
|
|
|
|
734
|
|
Net effect of changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cash segregated under Federal or other regulations
|
|
|
(250
|
)
|
|
|
4,049
|
|
Securities owned and securities sold, but not yet purchasednet
|
|
|
(6,045
|
)
|
|
|
(67,688
|
)
|
Corporate finance and syndicate receivablesnet
|
|
|
9,420
|
|
|
|
1,435
|
|
Distributions from investment partnerships
|
|
|
7,250
|
|
|
|
12,553
|
|
Other assets
|
|
|
(10,471
|
)
|
|
|
(2,200
|
)
|
Receivable from/payable to clearing brokersnet
|
|
|
(11,188
|
)
|
|
|
22,705
|
|
Accrued expenses and other liabilities
|
|
|
(7,046
|
)
|
|
|
1,552
|
|
Payables to customers
|
|
|
|
|
|
|
(3,286
|
)
|
Accrued compensation
|
|
|
(22,460
|
)
|
|
|
(23,172
|
)
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(30,166
|
)
|
|
|
(33,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,846
|
)
|
|
|
(2,372
|
)
|
Partnership investments purchased
|
|
|
(2,019
|
)
|
|
|
(4,205
|
)
|
Purchases of other investments
|
|
|
(112,143
|
)
|
|
|
(157,505
|
)
|
Proceeds from sale of other investments
|
|
|
94,910
|
|
|
|
59,244
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,098
|
)
|
|
|
(104,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligation
|
|
|
(65
|
)
|
|
|
(248
|
)
|
Addition of notes payable
|
|
|
25,000
|
|
|
|
|
|
Repayments of notes payable
|
|
|
(29,833
|
)
|
|
|
(16,279
|
)
|
Proceeds from issuance of common stocknet of expenses
|
|
|
|
|
|
|
142,534
|
|
Excess tax benefits from share-based compensation
|
|
|
19
|
|
|
|
|
|
Repurchase and retirement of common stock
|
|
|
(1,242
|
)
|
|
|
(183
|
)
|
Contributions from members
|
|
|
|
|
|
|
283
|
|
Distributions to members
|
|
|
|
|
|
|
(6,465
|
)
|
Withdrawals of capital
|
|
|
|
|
|
|
(1,581
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(6,121
|
)
|
|
|
118,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(57,385
|
)
|
|
|
(20,581
|
)
|
CASH AND CASH EQUIVALENTSBeginning of period
|
|
|
144,085
|
|
|
|
90,193
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of period
|
|
$
|
86,700
|
|
|
$
|
69,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURE
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
7,213
|
|
|
$
|
3,067
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
14,270
|
|
|
$
|
7,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrant for Class C, D and D-1
redeemable convertible preference shares
|
|
$
|
|
|
|
$
|
194,581
|
|
|
|
|
|
|
|
|
Issuance of senior notes for Class D and D-1 redeemable
convertible preference shares
|
|
$
|
|
|
|
$
|
29,728
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
THOMAS WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
Organization
Thomas Weisel Partners Group, Inc., a Delaware corporation, together with its subsidiaries
(collectively, the Firm), is an investment banking firm headquartered in San Francisco. The Firm
operates and is managed as a single operating segment providing investment services that include
securities brokerage, investment banking, research and asset management. The Firm operates on an
integrated basis to best meet the needs of its clients.
The Firm primarily conducts its securities brokerage, investment banking and research business
through Thomas Weisel Partners LLC (TWP). TWP is a registered broker-dealer under the Securities
Exchange Act of 1934, is a member of the New York Stock Exchange, Inc. (NYSE), American Stock
Exchange and FINRA, the Financial Industry Regulatory Authority (successor to the National
Association of Securities Dealers, Inc. or the NASD) and is also a registered introducing broker
under the Commodity Exchange Act and member of the National Futures Association. TWP introduces on
a fully disclosed basis its proprietary and customer securities transactions to other
broker-dealers for clearance and settlement. TWP conducts certain brokerage activities through its
subsidiaries, Thomas Weisel International Private Limited (TWIPL), a company formed under the
laws of India, and Thomas Weisel Partners International Limited (TWPIL), a company located in the
U.K.
The Firm primarily conducts its asset management business through Thomas Weisel Capital
Management LLC (TWCM), a registered investment adviser under the Investment Advisers Act of 1940,
which is a general partner of a series of investment funds in venture capital and fund of funds
through the following subsidiaries (the Asset Management Subsidiaries):
|
|
|
Thomas Weisel Global Growth Partners LLC (TWGGP), a registered investment adviser
under the Investment Advisers Act of 1940, which provides fund management and private
investor access to venture and growth managers. TWGGP also manages investment funds
that are active buyers of secondary interests in private equity funds, as well as
portfolios of direct interests in venture-backed companies;
|
|
|
|
|
Thomas Weisel Healthcare Venture Partners LLC (TWHVP), the managing general
partner of a venture capital fund that invests in the emerging life sciences and
medical technology sectors, including medical devices, specialty pharmaceuticals,
emerging biopharmaceuticals, drug delivery technologies and biotechnology;
|
|
|
|
|
Thomas Weisel India Opportunity LLC (TWIO), the managing general partner of a fund
of funds targeting venture capital and private equity funds primarily investing in
growth businesses in India; and
|
|
|
|
|
Thomas Weisel Venture Partners LLC (TWVP), the managing general partner of an
early stage venture capital fund that invests in emerging information technology
companies.
|
Initial Public Offering and Reorganization Transactions
Thomas Weisel Partners Group, Inc. completed its initial public offering on February 7, 2006
in which it issued and sold 4,914,440 shares of common stock. The Firms net proceeds from the
initial public offering were $66.2 million.
In connection with the closing of the initial public offering, a number of reorganization
transactions were carried out in order to cause Thomas Weisel Partners Group, Inc. to succeed to
the business of Thomas Weisel Partners Group LLC. In the reorganization transactions, the members
of Thomas Weisel Partners Group LLC received shares of common stock of Thomas Weisel Partners
Group, Inc. and, in the case of holders of Class D and D-1 shares, received additional
consideration in the form of notes and a warrant of Thomas Weisel Partners Group, Inc., in exchange
for all of their membership interests and shares of redeemable convertible preference stock of
Thomas Weisel Partners Group LLC. The notes that certain members received resulted in $33 million
of additional debt for the Firm, recorded at the date of issuance at the estimated fair value of
the debt of $29.7 million. See Note 9
Notes Payable for details on the notes issued and Note 10
Earnings Per Share for details on the warrant issued.
Follow-On Offering
On May 23, 2006, Thomas Weisel Partners Group, Inc. completed a follow-on offering in which it
issued and sold 3,581,902 shares of its common stock. The Firm received net proceeds from the sale
of shares of common stock in this follow-on offering of $76.0 million. In addition, as part of the
follow-on offering, selling shareholders sold 2,570,598 shares of common stock, the proceeds of
which were not received by the Firm. As of September 30, 2007 there were 25,547,611 shares of
common stock of Thomas Weisel Partners Group, Inc. outstanding.
5
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP) for interim
financial information and Regulation S-X, Article 10 under the Securities Exchange Act of 1934.
Because the Firm provides investment services to its clients, it follows certain accounting
guidance used by the brokerage and investment industry.
The preparation of the Firms condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual amounts could differ from
those estimates and such differences could be material to the condensed consolidated financial
statements.
The condensed consolidated financial statements and these notes are unaudited and exclude some
of the disclosures required in annual financial statements. Management believes it has made all
necessary adjustments (consisting of only normal recurring items) so that the condensed
consolidated financial statements are presented fairly and that estimates made in preparing its
condensed consolidated financial statements are reasonable and prudent. The condensed consolidated
statements of operations may not be indicative of future results.
These condensed consolidated financial statements should be read in conjunction with the
Firms consolidated financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 2006.
NOTE 2 ANNOUNCEMENT OF ACQUISITION
In October 2007, the Firm announced the signing of an agreement to acquire Westwind
Partners (Westwind), a full service, institutionally oriented, independent investment bank
focused on the energy and mining sectors. Westwind, which was founded in 2002 and is
headquartered in Toronto, has additional offices in Calgary, Montreal and London and has
approximately 100 employees. Under the agreement, the Firm will indirectly acquire all of
Westwinds outstanding shares and Westwind will become an indirect subsidiary of the Firm.
The purchase price is approximately $155 million, which consists of $45 million in cash,
7,009,112 shares of the Firms common stock valued at $15.35 per share (based on the average
closing price over a five day period starting two days prior to the acquisition announcement
date of October 1, 2007 and ending two days after the announcement date) and direct acquisition
costs estimated to be $2.2 million consisting primarily of legal, accounting and advisory fees.
Common stock includes exchangeable shares, which are shares of a Canadian subsidiary of the Firm
that are exchangeable for shares of the Firms common stock.
As of September 30, 2007, the Firm had incurred approximately $1.4 million of direct
acquisition costs which have been included in other assets on its condensed consolidated
statements of financial condition.
Closing of the transaction is expected to occur in January 2008 and is subject to customary
closing conditions, including regulatory approvals and approval by the Firms shareholders.
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
Interpretation No. 48 Accounting for Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109 (FIN No. 48).
In June 2006, the Financial Accounting Standards Board
(FASB) issued FIN No. 48 which prescribes a recognition threshold and measurement attributes for
the financial statement recognition and measurement of a tax position taken, or expected to be
taken, in a tax return, and provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Firm adopted FIN No. 48 as
of January 1, 2007. The adoption of FIN No. 48 did not have a material impact on the Firms
condensed consolidated statements of financial condition, operations and cash flows.
Statement of Financial Accounting Standards No. 157 Fair Value Measurements (SFAS No.
157)
. In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair value measurements.
The primary focus of this statement is to increase consistency and comparability in fair value
measurements, as well as provide better information about the extent to which fair value is used to
measure recognized assets and liabilities, the inputs used to develop the measurements and the
effect fair value measurements have on earnings for the period, if any. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. The Firm is currently evaluating the impact,
if any, that the adoption of SFAS No. 157 will have on its condensed consolidated statements of
financial condition, operations and cash flows.
Statement of Financial Accounting Standards No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159)
. In February 2007, the FASB issued SFAS No. 159
which permits entities to choose to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value and establishes
6
presentation and disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007. The Firm is currently evaluating
the impact, if any, that the adoption of SFAS No. 159 will have on its condensed consolidated
statements of financial condition, operations and cash flows.
NOTE 4 SHAREHOLDERS EQUITY
Prior to the Firms initial public offering in February 2006, the Firm operated as a limited
liability company. The Firms Limited Liability Company Agreement (the LLC Agreement) set forth
the rights and obligations of members of the Firm and provided that the Firms Executive Committee
was responsible for managing the affairs of the Firm. In connection with the Firms conversion to a
corporation, a Board of Directors (the Board) was constituted with ultimate responsibility for
management of the Firm.
Classes of Stock Prior to the Initial Public Offering
Under the LLC Agreement, the Firm had the following classes of shares: (i) Class A shares,
(ii) Class A-1 shares, (iii) Class B shares, (iv) Class C shares, (v) Class D shares and (vi) Class
D-1 shares. The Class A, A-1 and B shares were held by the then partners and former partners of the
Firm and represented equity interests and certain rights with respect to distributions of operating
profits. In addition, holders of Class A shares had rights to a guaranteed return, paid at the end
of each quarter based on the prime rate for the prior quarter. The Class C, D and D-1 shares were
issued to strategic investors, including California Public Employees Retirement System, Nomura
America Investment, Inc., private equity investors and venture capital investors. The Class C, D
and D-1 shares were redeemable convertible shares and included certain preferred dividend and
liquidation rights. In particular, holders of Class C shares had the right to sell all or a portion
of their Class C shares back to the Firm at any time at a price that would result in a 12% internal
rate of return. Holders of Class D shares were entitled to a 7% annual preferred return that was
distributed semiannually. Holders of Class D-1 shares were entitled to a 5% annual preferred return
that was distributed semiannually. All of these preference features terminated in connection with
the Firms initial public offering.
Income Attributable to Class A, B and C Shareholders
The Firms net income for the nine months ended September 30, 2006 is shown after deducting
the guaranteed return to Class A shareholders included in compensation and benefits expense for the
period from January 1, 2006 to February 7, 2006. The Firm deducted all preferred returns payable
from net income, including preferred dividends payable to Class D and D-1 shareholders and
accretion of Class C shares, to arrive at net income attributable to Class A, B and C shareholders
for the nine months ended September 30, 2006.
NOTE 5 SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED
Securities owned and securities sold, but not yet purchased are as follows (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Sold, But
|
|
|
|
|
|
|
Sold, But
|
|
|
|
|
|
|
|
Not Yet
|
|
|
|
|
|
|
Not Yet
|
|
|
|
Owned
|
|
|
Purchased
|
|
|
Owned
|
|
|
Purchased
|
|
Equity securities
|
|
$
|
19,133
|
|
|
$
|
111,583
|
|
|
$
|
25,260
|
|
|
$
|
63,078
|
|
Convertible bonds
|
|
|
164,631
|
|
|
|
9,658
|
|
|
|
111,773
|
|
|
|
22,610
|
|
U.S. Treasury securities
|
|
|
|
|
|
|
10,135
|
|
|
|
|
|
|
|
5,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
owned and
securities sold,
but not yet
purchased
|
|
$
|
183,764
|
|
|
$
|
131,376
|
|
|
$
|
137,033
|
|
|
$
|
90,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007 and December 31, 2006, securities sold, but not yet purchased are
collateralized by securities owned that are held at the Firms clearing brokers.
Convertible bonds include certain securities that are not readily marketable. These are
investment securities that cannot be publicly offered or sold unless registration has been affected
under the Securities Act of 1933. The estimated fair value of the securities not readily marketable
included in the convertible bonds owned is approximately $5.0 million and zero at September 30,
2007 and December 31, 2006, respectively. The estimated fair value of the securities not readily
marketable included in the convertible bonds sold, but not yet purchased is approximately zero and
$8.6 million at September 30, 2007 and December 31, 2006, respectively.
7
NOTE 6 INVESTMENTS IN PARTNERSHIPS AND OTHER SECURITIES
Investments in partnerships and other securities consist of investments in private equity
partnerships and direct investments in private companies. Included in private equity investments
are the general partner investments in investment partnerships and the adjustments recorded to
reflect these investments at fair value. The Firm waived certain management fees with respect to
certain of these partnerships through March 31, 2007. These waived fees constitute deemed
contributions to the investment partnerships that serve to satisfy the Firms general partner
commitment, as provided in the underlying investment partnerships partnership agreements. The Firm
may be allocated a special profits interest in respect of previously waived management fees based
on the subsequent investment performance of the respective partnerships.
The investment partnerships in which the Firm is a general partner may allocate carried
interest and make carried interest distributions to the general partner if the partnerships
investment performance reaches a threshold as defined in the respective partnership agreements.
The Firm recognizes the allocated carried interest if and when this threshold is met.
NOTE 7 OTHER INVESTMENTS
Other investments consist of investments with maturities greater than three months from the
purchase date and are recorded at market prices as follows (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Auction rate securities
|
|
$
|
78,750
|
|
|
$
|
49,400
|
|
Municipal debt securities
|
|
|
11,887
|
|
|
|
22,125
|
|
Equity securities
|
|
|
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
investments
|
|
$
|
90,637
|
|
|
$
|
73,427
|
|
|
|
|
|
|
|
|
The auction rate securities represent short-term municipal securities of high investment grade
rating, interest on which is exempt from Federal income tax.
NOTE 8 RELATED PARTY TRANSACTIONS
Receivables from related parties consist of the following (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Co-Investment Fund loans to employees and former
employees
|
|
$
|
4,376
|
|
|
$
|
4,390
|
|
Employee loans and other related party receivables
|
|
|
965
|
|
|
|
1,083
|
|
Less: Allowance for doubtful loans
|
|
|
(1,217
|
)
|
|
|
(2,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables from related parties
|
|
$
|
4,124
|
|
|
$
|
2,966
|
|
|
|
|
|
|
|
|
Related Party Loans
Co-Investment Funds
In 2000 and 2001 the Firm established an investment program for
employees wherein employees who qualified as accredited investors were able to contribute up to 4%
of their compensation to private equity funds (the Co-Investment Funds). The Co-Investment Funds
were established solely for employees of the Firm and invested side-by-side with the Firms
affiliates, Thomas Weisel Capital Partners, L.P. (a private equity fund formerly managed by the
Firm) and Thomas Weisel Venture Partners L.P. As part of this program, the Firm made loans to
employees for capital contributions to the Co-Investment Funds in amounts up to 400% of employees
contributions. The Firm holds as collateral the investment in the Co-Investment Funds and
establishes a reserve that reduces the carrying value of the receivable to the fair value of the
collateralized ownership interest of the employees and former employees in the Co-Investment Funds.
The Firm discontinued the investment program for employees in 2002. During the three and nine
months ended September 30, 2007, the Co-Investment Funds did not make any distributions. During the
three and nine months ended September 30, 2006, the Co-Investment Funds distributed $0.1 million
and $1.8 million, respectively, which was credited towards repayment of loans to employees.
Employee Loans
The Firm from time to time prior to its initial public offering made unsecured
loans to its employees. These loans were not part of a Firm program, but were made as a matter of
course. The Firm previously established a reserve for the face value of these loans. In June 2007,
two employees entered into agreements with the Firm that provide for repayment of their loans by
December 31, 2008. The agreements provide for repayment of the loans from funds generated through
repurchase by the Firm of
8
shares of the Firms common stock held by the employees if the
loans have not already been paid. As a result of these agreements, the Firm reversed the
previously established reserve of $790,000, which is included in other expense in the condensed
consolidated statements of operations for the nine months ended September 30, 2007.
Other Related Party Transactions
The Firm provides personal office services to Mr. Weisel, its Chairman and Chief Executive
Officer. Beginning January 1, 2006, the Firm reached an agreement with Mr. Weisel that he would
reimburse the Firm for out-of-pocket expenses the Firm incurs for these services. Amounts incurred
by the Firm for these services for the three months ended September 30, 2007 and 2006 were
approximately $87,000 and $58,000, respectively. Amounts incurred by the Firm for these services
for the nine months ended September 30, 2007 and 2006 were approximately $249,000 and $180,000,
respectively.
In addition, Mr. Weisel and certain other employees of the Firm from time to time use an
airplane owned by Ross Investments Inc., an entity wholly owned by Mr. Weisel, for business travel.
The Firm and Ross Investments Inc. have adopted a time-sharing agreement in accordance with Federal
Aviation Regulation 91.501 to govern the Firms use of the Ross Investments Inc. aircraft, pursuant
to which the Firm reimburses Ross Investments Inc. for the travel expenses in an amount generally
comparable to the expenses the Firm would have incurred for business travel on commercial airlines
for similar trips. For the three months ended September 30, 2007 and 2006, the Firm paid
approximately $57,000 and $28,000, respectively, to Ross Investments Inc. on account of such
expenses. For the nine months ended September 30, 2007 and 2006 the Firm paid $131,000 and
$394,000, respectively, to Ross Investments Inc. on account of such expenses. These amounts are
included in marketing and promotion expense within the condensed consolidated statements of
operations.
In September 2007, we entered into an amendment to our Employment Agreement with Mr. Weisel.
The amendment alters the timing of certain payments that may become due to Mr. Weisel thereunder
upon a termination of his employment by deferring such payments until six months following any such
termination. A copy of this amendment has been filed as an exhibit to this Quarterly Report on Form
10-Q.
According to a filing it made with the SEC on October 10, 2006, Fidelity Management & Research
Company (Fidelity) was the beneficial owner of approximately 11% of the Firms common stock
outstanding as a result of acting as investment adviser to various investment companies.
Subsequently, according to a filing it made with the SEC on May 10, 2007, Fidelity was the
beneficial owner of less than 10% of the Firms common stock outstanding. Fidelity is one of the
Firms largest institutional brokerage clients in terms of commission revenue, and is also the
parent company of TWPs primary clearing broker.
NOTE 9 NOTES PAYABLE
Notes payable consists of the following (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
December 31, 2006
|
|
|
|
Principal Amount
|
|
|
Carrying Amount
|
|
|
Principal Amount
|
|
|
Carrying Amount
|
|
Senior Note, floating mid-term AFR + 2.25%
(a)
|
|
$
|
13,000
|
|
|
$
|
12,213
|
|
|
$
|
13,000
|
|
|
$
|
12,056
|
|
Senior Note, floating mid-term AFR + 2.25%
(a)
|
|
|
10,000
|
|
|
|
9,395
|
|
|
|
10,000
|
|
|
|
9,274
|
|
Contingent Payment Senior Note, non interest bearing
(b)
|
|
|
2,384
|
|
|
|
1,916
|
|
|
|
4,417
|
|
|
|
3,536
|
|
Secured Note, floating at LIBOR + 2.85%
(c)
|
|
|
4,667
|
|
|
|
4,667
|
|
|
|
7,467
|
|
|
|
7,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
30,051
|
|
|
$
|
28,191
|
|
|
$
|
34,884
|
|
|
$
|
32,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The Firm has recorded the debt principal at a discount to reflect the below-market stated
interest rate of these notes at inception. The Firm amortizes the discount to interest expense
so that the interest expense approximates the Firms incremental borrowing rate.
|
|
(b)
|
|
The Contingent Payment Senior Note has a variable due date based upon distributions received
from certain private equity funds. The Firm has recorded the debt principal at a discount and
amortizes the discount to interest expense so that the interest expense on this non-interest
bearing note approximates the Firms incremental borrowing rate. During the three months ended
September 30, 2007 and 2006, the Firm received $0.6 million and $1.5 million in distributions
that were used to repay principal on this note. During the nine months ended September 30,
2007 and 2006, the Firm received $2.0 million and $5.6 million in distributions that were used
to repay principal on this note.
|
|
(c)
|
|
Amounts are due in equal monthly installments through December 2008. The note is secured by
all the fixed assets and leasehold improvements of the Firm.
|
As of September 30, 2007 and December 31, 2006, the fair value for each of the notes payable
presented above approximates the carrying value as of September 30, 2007 and December 31, 2006,
respectively.
9
In May 2007, the Firm entered into a $25.0 million temporary subordinated loan at an interest
rate of LIBOR plus 2.0%. The Firm repaid this loan in May 2007. The Firm incurred interest
expense of approximately $81,000 in connection with this loan during the nine months ended
September 30, 2007.
During the three and nine months ended September 30, 2006, the Firm incurred a commitment fee
of 1.0% on a $40.0 million subordinated borrowing facility. This facility, which was not drawn on
during the nine months ended September 30, 2006, was terminated by the Firm in November 2006.
The weighted-average interest rate for notes payable was 8.25% and 7.23% at September 30, 2007
and December 31, 2006, respectively.
Scheduled principal payments for notes payable at September 30, 2007 are as follows (
in
thousands
):
|
|
|
|
|
Remainder of 2007
|
|
$
|
933
|
|
2008
|
|
|
3,734
|
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
25,384
|
|
Thereafter
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,051
|
|
|
|
|
|
NOTE 10 EARNINGS PER SHARE
The Firm calculates its basic and diluted earnings per share in accordance with SFAS No. 128,
Earnings per Share
. Diluted shares outstanding for the three and nine months ended September 30,
2007 and 2006 are calculated including the effect of the dilutive instruments. The Firm uses the
treasury stock method to reflect the potential dilutive effect of the unvested restricted stock
units, the warrant and unexercised stock options.
Basic shares outstanding for the nine months ended September 30, 2006 are calculated assuming
exchange of the Firms Class C, D and D-1 redeemable convertible preference shares and Class A
shares for shares of common stock, notes payable and the warrant had been consummated on January 1,
2006. The shares of common stock issued pursuant to the Firms initial public offering are
considered outstanding from the date of the initial public offering and the shares of common stock
issued pursuant to the Firms follow-on offering are considered outstanding from the date of the
follow-on offering. See Note 1 Organization and Basis of Presentation for discussion of the
initial public offering, reorganization transactions and the follow-on offering.
The following table represents the calculation of basic and diluted earnings per share (
in
thousands, except per share data
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net income (loss)
|
|
$
|
(800
|
)
|
|
$
|
1,552
|
|
|
$
|
11,203
|
|
|
$
|
26,181
|
|
Less: Preferred dividends and accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common
shareholders and to Class A, B and C
shareholders
|
|
$
|
(800
|
)
|
|
$
|
1,552
|
|
|
$
|
11,203
|
|
|
$
|
24,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
26,196
|
|
|
|
25,839
|
|
|
|
26,188
|
|
|
|
23,377
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average restricted stock units
|
|
|
|
|
|
|
362
|
|
|
|
287
|
|
|
|
440
|
|
Weighted average warrant
|
|
|
|
|
|
|
17
|
|
|
|
64
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
26,196
|
|
|
|
26,218
|
|
|
|
26,539
|
|
|
|
23,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
$
|
0.43
|
|
|
$
|
1.05
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
$
|
0.42
|
|
|
$
|
1.03
|
|
10
Potential dilutive shares consist of the incremental common stock issuable for outstanding
restricted stock units, stock options and a warrant (both vested and non-vested) using the treasury
stock method. Potential dilutive shares are excluded from the computation of earnings per share if
their effect is anti-dilutive. The anti-dilutive stock options totaled 85,216 for the three and
nine months ended September 30, 2007 and totaled 32,831 for the three and nine months ended
September 30, 2006. The anti-dilutive warrant totaled 486,486 shares for the three months ended
September 30, 2007.
NOTE 11 SHARE-BASED COMPENSATION
On January 27, 2006 the Board approved and the Firm adopted the Thomas Weisel Partners Group,
Inc. Equity Incentive Plan (the Equity Incentive Plan) which provides for the awards of
non-qualified and incentive stock options, restricted stock and restricted stock units and other
share-based awards to officers, directors, employees, consultants and advisors of the Firm.
Initially, the Equity Incentive Plan provided for the issuance of up to a maximum of 5,000,000
shares. At the Firms Annual Meeting of Shareholders on May 23, 2007, the Firms shareholders
approved an amendment to the Equity Incentive Plan to increase the maximum number of shares that
may be issued thereunder by 1,150,000 shares. As a result, the total number of shares issuable
under the plan is 6,150,000 shares. Awards of stock options and restricted stock units under the
Equity Incentive Plan reduce the number of shares available for future issuance. The number of
shares available for future issuance under the Equity Incentive Plan at September 30, 2007 is
approximately 3,081,000 shares.
The Firm accounts for share-based compensation at fair value, in accordance with provisions
under SFAS No. 123(R),
Share-Based Payment
.
Stock Options
The Equity Incentive Plan provides for the grant of non-qualified or incentive stock options
(options) to officers, directors, employees, consultants and advisors for the purchase of newly
issued shares of the Firms common stock at a price determined by the Compensation Committee (the
Committee) of the Board at the date the option is granted. Under the Equity Incentive Plan,
options vest and are exercisable ratably over a four-year period from the date the option is
granted (although, in accordance with the terms of the Firms Equity Incentive Plan, options
granted to non-employee directors as regular directors compensation have no minimum vesting
period) and expire within ten years from the date of grant. The exercise prices, as determined by
the Committee, cannot be less than the fair market value of the shares on the grant date. Certain
options provide for accelerated vesting upon a change in control determinable by the Committee.
The fair value of each option award is estimated on the date of grant using a Black-Scholes
Merton option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2007
|
|
2006
|
Expected volatility
|
|
|
47.46
|
%
|
|
|
35.00
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
4.71
|
%
|
|
|
4.71
|
%
|
Dividend yield
|
|
|
|
%
|
|
|
|
%
|
Weighted-average grant date fair value
|
|
$
|
8.59
|
|
|
$
|
9.90
|
|
11
A summary of option activity under the Equity Incentive Plan for the nine months ended
September 30, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
(
in years
)
|
|
|
(
in thousands
)
|
|
Outstanding, December 31, 2006
|
|
|
32,831
|
|
|
$
|
22.70
|
|
|
|
9.23
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
52,385
|
|
|
|
18.09
|
|
|
|
10.00
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2007
|
|
|
85,216
|
|
|
$
|
19.87
|
|
|
|
9.20
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2007
|
|
|
64,697
|
|
|
$
|
18.97
|
|
|
|
9.42
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007, there were 64,697 options vested. The Firm has assumed that there
will be no forfeitures of the non-vested options outstanding as of September 30, 2007 and therefore
expects the total amount to vest over their remaining vesting period.
As of September 30, 2007 the total unrecognized compensation expense related to non-vested
options was approximately $0.2 million. This cost is expected to be recognized over a
weighted-average period of 2.5 years.
The Firm recorded $20,000 in non-cash expense in both the three months ended September 30,
2007 and 2006, respectively, with respect to options. The Firm recorded $0.5 million and $52,000 in
non-cash expense for the nine months ended September 30, 2007 and 2006, respectively, with respect
to options.
The Firm will issue new shares of common stock upon exercise of stock options.
Restricted Stock Units
A summary of non-vested restricted stock unit activity for the nine months ended September 30,
2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
Non-vested, December 31, 2006
|
|
|
1,897,485
|
|
|
$
|
15.13
|
|
Issued
|
|
|
1,499,350
|
|
|
|
18.04
|
|
Vested
|
|
|
(595,355
|
)
|
|
|
15.08
|
|
Cancelled
|
|
|
(423,080
|
)
|
|
|
16.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, September 30, 2007
|
|
|
2,378,400
|
|
|
$
|
16.73
|
|
|
|
|
|
|
|
|
|
|
The fair value of the shares vested during the three and nine months ended September 30, 2007
was $0.6 million and $11.0 million, respectively. The fair value of the shares vested during both
the three and nine months ended September 30, 2006 was $0.3 million.
As of September 30, 2007 there was $30.5 million of total unrecognized compensation expense
related to non-vested restricted stock unit awards. This cost is expected to be recognized over a
weighted-average period of 2.6 years.
The Firm recorded $3.3 million and $9.2 million in non-cash compensation expense for the three
and nine months ended September 30, 2007, respectively, with respect to grants of restricted stock
units. The Firm recorded $2.2 million and $5.2 million in non-cash compensation expense for the
three and nine months ended September 30, 2006, respectively, with respect to grants of restricted
stock units.
12
NOTE 12 INCOME TAXES
The Firm accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income
Taxes
, which requires the recognition of deferred tax assets and liabilities based upon temporary
differences between the financial reporting and tax bases of its assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets when it is more likely than
not that a portion or all of the deferred tax assets will not be realized.
During the three months ended March 31, 2006, the Firm recognized a one-time tax benefit upon
conversion to a corporation in connection with the establishment of its deferred tax asset
balances, partially offset by a valuation allowance. The valuation allowance was recorded because
management at that time, concluded that a portion of the deferred tax benefit, which resulted from
unrealized capital losses, more likely than not would not be realized due to the uncertainty of the
Firms ability to generate future capital gains to offset such capital losses.
During the three months ended March 31, 2007, the Firm determined that, due to realized and
previously unanticipated expected future capital gains, the valuation allowance would be reduced to
zero. As a result the Firm recognized deferred tax benefits during 2007 resulting in 16.3% and 6.0%
reductions in the effective tax rates for the three and nine months ended September 30, 2007,
respectively. The expected future capital gains were realized during the six months ended June 30,
2007.
The Firms effective tax rate for the three and nine months ended September 30, 2007 was 62.2%
and 34.9%, respectively. The effective tax rate for the three and nine months ended September 30,
2006 was (8.3)% and (59.4)%, respectively. The increase in the Firms effective tax rate from the
prior-year periods is primarily due the one-time tax benefit in 2006 as discussed above.
The Firm does not provide for distribution taxes on the undistributed earnings of its foreign
subsidiaries as the Firm intends to reinvest such earnings indefinitely.
NOTE 13 COMMITMENTS, GUARANTEES AND CONTINGENCIES
Commitments
Lease Commitments
The Firm leases office space and computer equipment under noncancelable operating leases which
extend to 2016 and which may be extended as prescribed under renewal options in the lease
agreements. The Firm has entered into several noncancelable sub-lease agreements for certain
facilities or floors of facilities which are co-terminus with the Firms lease for the respective
facilities or floors of facilities. Facility and computer equipment lease expenses charged to
operations for the three months ended September 30, 2007 and 2006 was $4.2 million and $3.2
million, respectively. Facility and computer equipment lease expenses charged to operations for
the nine months ended September 30, 2007 and 2006 was $11.1 million and $9.5 million, respectively.
The Firm signed a forbearance agreement with the lessor of certain office space it occupies in
San Francisco that provided a reduction in the rent payments from November 1, 2003 to October 31,
2005. There were certain non-financial and financial events that would automatically terminate the
forbearance agreement, requiring the Firm to reimburse the forbearance amount of $3.3 million to
the lessor. The most significant terminating events included the Firm merging with another entity,
recording annual revenues greater than $316 million or recording pre-tax income equal to or greater
than $40 million, in each case prior to the end of the original lease term in 2010. During the
three months ended September 30, 2007, the Firm and the lessor entered into an amendment to the
lease agreement whereby the contingent forbearance amount would be removed in exchange for a total
fee of $1.3 million. During the three months ended September 30, 2007, $0.3 million of the total
fee is included in occupancy and equipment expense on the condensed consolidated statements of
operations as this portion of the payment relates to office space no longer occupied by the Firm.
The remaining $1.0 million of the total fee will be expensed over the remaining life of the
original lease agreement.
13
Fund Capital Commitments
At September 30, 2007, the Firm and the Firms Asset Management Subsidiaries had commitments
to invest an additional $3.7 million into affiliated investment partnerships. Such commitments may
be satisfied by direct investments and are generally required to be made as investment
opportunities are identified by the underlying partnerships. The Firm and the Firms Asset
Management Subsidiaries commitments at September 30, 2007 are as follows (
in thousands
):
|
|
|
|
|
Global Growth Partners I
|
|
$
|
887
|
|
Global Growth Partners II
|
|
|
870
|
|
Tailwind Capital Partners
|
|
|
985
|
|
Thomas Weisel Healthcare Venture Partners
|
|
|
581
|
|
Thomas Weisel India Opportunity Fund
|
|
|
379
|
|
Thomas Weisel Venture Partners
|
|
|
35
|
|
|
|
|
|
Total Fund Capital Commitments
|
|
$
|
3,737
|
|
|
|
|
|
In addition to the above commitments, in March 2007, the Firm committed $5.0 million to an
investment in an unaffiliated fund. This commitment may be called in full at any time. During the
three and nine months ended September 30, 2007, this unaffiliated fund called $0.2 million and $0.7
million, respectively, of this commitment. The remaining unfunded portion of this commitment as of
September 30, 2007 is $4.3 million. The Firm currently anticipates transferring this investment and
the related commitment to a fund sponsored by the Firm in exchange for its contributed capital
through the date of transfer. This commitment is not reflected in the table above.
In April 2007, the Firm committed $10.0 million to an investment in an unaffiliated fund. This
commitment may be called in full at any time. During the three and nine months ended September 30,
2007, this unaffiliated fund called $0.3 million of this commitment. The remaining unfunded portion
of this commitment as of September 30, 2007 is $9.7 million. The Firm currently anticipates
transferring this investment and the related commitment to a fund sponsored by the Firm in exchange
for its contributed capital through the date of transfer. This commitment is not reflected in the
table above.
In July 2007, the Firm also committed $4.9 million to an investment in an unaffiliated fund.
This commitment may be called in full at any time. The Firm currently anticipates transferring this
investment and the related commitment to a fund sponsored by the Firm. This commitment is not
reflected in the table above.
Guarantees
Broker-Dealer Guarantees and Indemnification
The Firms customers transactions are introduced to the clearing brokers for execution,
clearance and settlement. Customers are required to complete their transactions on settlement date,
generally three business days after the trade date. If customers do not fulfill their contractual
obligations to the clearing brokers, the Firm may be required to reimburse the clearing brokers for
losses on these obligations. The Firm has established procedures to reduce this risk by monitoring
trading within accounts and requiring deposits in excess of regulatory requirements.
The Firm is a member of various securities exchanges. Under the standard membership agreement,
members are required to guarantee the performance of other members and, accordingly, if another
member becomes unable to satisfy its obligations to the exchange, all other members would be
required to meet the shortfall. The Firms liability under these arrangements is not quantifiable
and could exceed the cash and securities it has posted as collateral. However, management believes
that the potential for the Firm to be required to make payments under these arrangements is
considered remote. The Firm has not recorded any loss contingency for this indemnification.
Guaranteed Compensation
Consistent with practice in prior years, guaranteed compensation agreements were entered into
during the three and nine months ended September 30, 2007. These obligations are being accrued
ratably over the service period of the agreements. Total unaccrued obligations at September 30,
2007 for services to be provided subsequent to September 30, 2007 were $10.9 million, of which $0.3
million, $7.0 million and $3.6 million is to be paid in 2007, 2008 and 2009, respectively.
Director and Officer Indemnification
In connection with its initial public offering, the Firm entered into agreements that provide
indemnification to its directors, officers and other persons requested or authorized by the Board
to take actions on behalf of the Firm for all losses, damages, costs and expenses incurred by the
indemnified person arising out of such persons service in such capacity, subject to the
limitations imposed by Delaware law. The Firm has not recorded any loss contingency for this
indemnification.
14
Tax Indemnification Agreement
In connection with its initial public offering, the Firm entered into a tax indemnification
agreement to indemnify the members of Thomas Weisel Partners Group LLC against the full amount of
certain increases in taxes that relate to activities of Thomas Weisel Partners Group LLC and its
affiliates prior to the Firms initial public offering. The tax indemnification agreement included
provisions that permit the Firm to control any tax proceeding or contest which might result in it
being required to make a payment under the tax indemnification agreement. The Firm has not recorded
any loss contingency for this indemnification.
Contingencies
Loss Contingencies
The Firm is involved in a number of judicial, regulatory and arbitration matters arising in
connection with its business, including those listed below. The outcome of matters the Firm is
involved in cannot be determined at this time, and the results cannot be predicted with certainty.
There can be no assurance that these matters will not have a material adverse effect on the Firms
results of operations in any future period and a significant judgment could have a material adverse
impact on the Firms condensed consolidated statements of financial condition, operations and cash
flows. The Firm may in the future become involved in additional litigation in the ordinary course
of its business, including litigation that could be material to the Firms business.
In accordance with SFAS No. 5,
Accounting for Contingencies
, the Firm reviews the need for any
loss contingency reserves and establishes reserves when, in the opinion of management, it is
probable that a matter would result in liability, and the amount of loss, if any, can be reasonably
estimated. Generally, with respect to matters the Firm is involved in, in view of the inherent
difficulty of predicting the outcome of these matters, particularly in cases in which claimants
seek substantial or indeterminate damages, it is not possible to determine whether a liability has
been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the
case is close to resolution, in which case no reserve is established until that time.
Investment Banking Matters
In re AirGate PCS, Inc. Securities Litigation
The Firm is a defendant in a purported class
action litigation brought in connection with a secondary offering of AirGate PCS, Inc. in December
2001 where the Firm acted as a co-manager. The complaint, filed in the United States District Court
for the Northern District of Georgia on May 17, 2002, alleges violations of Federal securities laws
against AirGate and certain of its directors and officers as well as AirGates underwriters,
including the Firm, based on alleged misstatements and omissions in the registration statement. The
underwriters original motion to dismiss was granted, but the Court permitted plaintiffs to amend
their complaint. Subsequently, the plaintiffs filed an amended complaint and the underwriters again
moved to dismiss. The Court granted in part and denied in part the second motion to dismiss,
dismissing all claims and allegations against the Firm except a single claim under Section 11 of
the Securities Act of 1933. The Firm has answered the one surviving claim, and the case has
proceeded to the discovery phase. The Firm believes it has meritorious defenses to the action and
intends to vigorously defend such action as it applies to the Firm.
Borghetti v. Campus Pipeline
A putative shareholder derivative action was brought in the
Third Judicial District Court in Salt Lake County, Utah on October 5, 2004 against Campus Pipeline
in connection with a sell-side mergers and acquisitions engagement in which the Firm acted as a
financial advisor to Campus Pipeline. Plaintiffs alleged breach of fiduciary duty, fraud and
similar related claims against Campus Pipelines directors, officers, attorneys and the Firm. On
May 3, 2005, the court granted in part and denied in part the Firms motion to dismiss, dismissing
all claims against the Firm except the breach of fiduciary duty claim. Thereafter, on April 23,
2007, the court granted the Firms motion for summary judgment with respect to the remaining claims
against the Firm, although the plaintiffs subsequently have appealed this decision. The Firm has
denied liability in connection with this matter. The Firm believes it has meritorious defenses to
the action and intends to vigorously defend such action as it applies to the Firm.
In re First Horizon Pharmaceutical Corporation Securities Litigation
The Firm is a defendant
in a purported class action litigation brought in connection with a secondary offering of First
Horizon Pharmaceutical Corporation in April 2002 where the Firm acted as a co-manager. The
consolidated amended complaint, filed in the United States District Court for the Northern District
of Georgia on September 2, 2003, alleges violations of Federal securities laws against First
Horizon and certain of its directors and officers as well as First Horizons underwriters,
including the Firm, based on alleged false and misleading statements in the registration statement
and other documents. The underwriters motion to dismiss was granted by the court in September
2004. The plaintiffs appealed the dismissal to the United States Court of Appeals for the Eleventh
Circuit, and, on September 26, 2006, the Circuit Court vacated the dismissal and remanded the case
to the District Court and instructed the District Court to permit the plaintiffs to replead their
claim. The Firm believes it has meritorious defenses to these actions and intends to vigorously
defend such actions as they apply to the Firm.
In re Friedmans Inc. Securities Litigation
In September 2003, the Firm acted as lead
manager on a follow-on offering of common stock of Friedmans Inc. Plaintiffs have filed a
purported class action suit against Friedmans and its directors, senior officers and outside
accountants as well as Friedmans underwriters, including the Firm, in the United States District
Court for the Northern
15
District of Georgia, alleging that the registration statement for the offering and a previous
registration statement dated February 2, 2002 were fraudulent and materially misleading because
they overstated revenue and inventory, understated allowances for uncollectible accounts, and
failed to properly account for impairment of a particular investment. Friedmans is currently
operating its business in bankruptcy. The Firm has denied liability in connection with this matter.
A consolidated amended complaint has been filed in this matter. On September 7, 2005, the court
denied the underwriters motion to dismiss. The Firm believes it has meritorious defenses to these
actions and intends to vigorously defend such actions as they apply to the Firm.
In re Initial Public Offering Securities Litigation
The Firm is a defendant in several
purported class actions brought against numerous underwriters in connection with certain initial
public offerings in 1999 and 2000. These cases have been consolidated in the United States District
Court for the Southern District of New York and generally allege that underwriters accepted
undisclosed compensation in connection with the offerings, entered into arrangements designed to
influence the price at which the shares traded in the aftermarket and improperly allocated shares
in these offerings. The actions allege violations of Federal securities laws and seek unspecified
damages. Of the 310 issuers named in these cases, the Firm acted as a co-lead manager in one
offering, a co-manager in 32 offerings, and as a syndicate member in 10 offerings. The Firm has
denied liability in connection with these matters. On June 10, 2004, plaintiffs entered into a
definitive settlement agreement with respect to their claims against the issuer defendants and the
issuers present or former officers and directors named in the lawsuits, however, approval of the
proposed settlement remains on hold pending the resolution of the class certification issue
described below. By a decision dated October 13, 2004, the Federal district court granted
plaintiffs motion for class certification, however, the underwriter defendants petitioned the U.S.
Court of Appeals for the Second Circuit to review that certification decision. On December 5, 2006
the Second Circuit vacated the district courts class certification decision and the plaintiffs
subsequently petitioned the Second Circuit for a rehearing. On April 6, 2007, the Second Circuit
denied the rehearing request. In May 2007, the plaintiffs indicated they intended to seek class
certification on a new basis and intend to proceed with limited discovery. The Firm believes it
has meritorious defenses to these actions and intends to vigorously defend such actions as they
apply to the Firm.
In re Intermix Media, Inc
.
The Firm has been named a defendant in a purported class action
lawsuit filed in August 2006 arising out of the sale of Intermix to News Corporation in September
2005. The complaint was filed in the United States District Court for the Central District of
California and alleges various misrepresentations and/or omissions of material information that
would have demonstrated that the sale was not fair from a financial point of view to the
shareholders of Intermix. The Firm acted as a financial advisor to Intermix in connection with the
sale and rendered a fairness opinion with respect to the sale. The Firm believes it has meritorious
defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.
In re Leadis Technology, Inc. Securities Litigation
The Firm has been a defendant in a
purported class action litigation brought in connection with Leadis Technology, Inc.s initial
public offering in June 2004 in which the Firm served as a co-manager for Leadis. The consolidated
complaint, filed in the United States District Court for the Northern District of California on
August 8, 2005, alleged violations of Federal securities laws against Leadis and certain of its
directors and officers as well as the companys underwriters, including the Firm, based on alleged
misstatements and omissions in the registration statement. On March 1, 2006 the complaint against
the Firm in this matter was dismissed by the court with prejudice. Subsequently, on March 28, 2006,
the plaintiffs in this matter appealed the dismissal. The Firm believes it has meritorious defenses
to these actions and intends to vigorously defend such actions as they apply to the Firm.
In re Openwave Systems Inc. Securities Litigation
The Firm has been named as a defendant in
a purported class action lawsuit filed in June 2007 in connection with a secondary offering of
common stock by Openwave Systems in December 2005 where the Firm acted as a co-manager. The
complaint, filed in the United States District Court for the Southern District of New York alleges
violations of Federal securities laws against Openwave Systems, various officers and directors as
well as Openwave Systems underwriters, including the Firm, based on alleged misstatements and
omissions in the disclosure documents for the offering. The underwriters motion to dismiss was
granted in October 2007, however, the plaintiffs may appeal the dismissal. The Firm believes it has
meritorious defenses to the action and intends to vigorously defend such action as it applies to
the Firm.
In re Merix Securities Litigation
The Firm has been a defendant in a purported class action
suit brought in connection with an offering in January 2004 involving Merix Corporation in which it
served as co-lead manager for Merix. On September 15, 2005, the United States District Court for
the District of Oregon entered an order dismissing all claims against the underwriter defendants,
including the Firm, and the Merix defendants. A portion of the claim under Section 12(a)(2) of the
Securities Exchange Act of 1934 was dismissed with prejudice, and the remainder of that claim and
the Section 11 claim were dismissed with leave to re-file. Plaintiffs subsequently filed an amended
complaint and on September 28, 2006 the Court dismissed the remaining claims with prejudice.
Following the September 28 th dismissal, plaintiffs have filed a notice of appeal to the United
States Court of Appeals for the Ninth Circuit. The Firm has denied liability in connection with
this matter. The Firm believes it has meritorious defenses to these actions and intends to
vigorously defend such actions as they apply to the Firm.
16
In Re SeraCare Life Sciences, Inc. Securities Litigation
The Firm has been named a defendant
in a purported class action lawsuit filed in July 2006 arising out of alleged false and misleading
financial statements issued between 2003 and 2006 by SeraCare Life Sciences, Inc. The complaint was
filed in the United States District Court for the Southern District of California and alleges
violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 against certain of
SeraCares current and former officers and directors, its former auditor, and its controlling
shareholders and investment bankers, including the Firm, due to the Firm having been a co-manager
of SeraCares 2005 secondary offering of common stock. In March 2007, certain of the claims against
the Firm were dismissed, although because these claims were dismissed without prejudice, the
plaintiffs have subsequently filed an amended complaint. In July 2007, the defendants, including
the Firm, filed a motion to dismiss the amended complaint. SeraCare has disclosed that it filed
for bankruptcy in March 2006. The Firm believes it has meritorious defenses to these actions and
intends to vigorously defend such actions as they apply to the Firm.
In re U.S. Auto Parts Network, Inc. Securities Litigation
The Firm has been named a
defendant in a purported class action lawsuit filed in March 2007 with respect to the initial
public offering of U.S. Auto Parts Network, Inc. on February 8, 2007 and subsequent public
disclosures by U.S. Auto Parts. The Firm was an underwriter and a co-book manager of the U.S. Auto
Parts initial public offering. The complaint, which was filed in the United States District Court,
Central District of California, Western Division, alleges violations of various Federal securities
laws against U.S. Auto Parts and certain of its directors and officers as well as U.S. Auto Parts
underwriters, including the Firm, based on, among other things, alleged false and misleading
statements. Subsequently, additional complaints relating to this matter have been filed, which the
Firm expects to be consolidated with the initial complaint. The Firm believes it has meritorious
defenses to these actions and intends to vigorously defend such actions as they apply to the Firm.
In re Vonage Holdings Corp. Securities Litigation
The Firm is a defendant named in purported
class action lawsuits filed in June 2006 arising out of the May 2006 initial public offering of
Vonage Holdings Corp. where the Firm acted as a co-manager. The complaints, filed in the United
States District Court for the District of New Jersey and in the Supreme Court of the State of New
York, County of Kings, allege misuse of Vonages directed share program and violations of Federal
securities laws against Vonage and certain of its directors and senior officers as well as Vonages
underwriters, including the Firm, based on alleged false and misleading statements in the
registration statement and prospectus. In January 2007 the plaintiffs complaints were transferred
to the U.S. District Court for the District of New Jersey and the defendants have filed motions to
dismiss. The Firm believes it has meritorious defenses to these actions and intends to vigorously
defend such actions as they apply to the Firm.
In re Netlist, Inc. Securities Litigation
The Firm has been named as a defendant in an
amended complaint for a purported class action lawsuit filed in November 2007 in connection
with the initial public offering of Netlist in November 2006 where the Firm acted as a lead
manager. The amended complaint, filed in the United States District Court for the Central
District of California, alleges violations of federal securities laws against Netlist, various
officers and directors as well as Netlists underwriters, including the Firm, based on alleged
misstatements and omissions in the disclosure documents for the offering. The complaint
essentially alleges that the registration statement relating to Netlists initial public
offering was materially false and misleading. The Firm denies liability in connection with
this matter. The Firm believes it has meritorious defenses to the action and intends to
vigorously defend such action as it applies to the Firm.
Other Matters
FINRA Review of Autex Blockdata Reporting
On August 8, 2006, the Firm received an inquiry
letter from FINRA (successor to the NASD), indicating that it was reviewing the Firms reporting of
advertised trading volume through the Autex Blockdata system with respect to a particular
transaction on a specified trading day in the third quarter of 2005 and requesting information and
documentation relating to that transaction and the Firms policies and procedures with respect to
reporting advertised volume through the Autex Blockdata system. Subsequently, in September 2006,
the FINRA published a Notice to Members regarding the communication of accurate information to
services that communicate trading data to the marketplace. On November 27, 2006, FINRA advised the
Firm by letter it had made a preliminary determination to recommend disciplinary action based upon
a violation of the NASDs rules. Since that time, the Firm and other industry participants have
engaged in discussions with FINRA staff regarding Autex Blockdata reporting activity. These and
other discussions may resolve the matter without formal enforcement action, however, if FINRA were
to continue to pursue an enforcement action against the Firm, the Firm could be liable for monetary
penalties or other enforcement remedies.
Claims by Former Partners of the Firm
In December 2006, counsel representing five former
partners of Thomas Weisel Partners Group LLC (the predecessor to the Firm) threatened to initiate
litigation against the Firm claiming, among other things, the former partners right to the receipt
of capital contributions made by them prior to their respective departures. The parties have agreed
to arbitrate these claims. The Firm believes it has meritorious defenses to these claims and
intends to vigorously defend against such claims.
Settled Matters
IRS Information Requests Relating to Tax Products
As previously disclosed, we had received
requests for information from the Internal Revenue Service, or IRS, regarding its referrals of
clients to a third-party provider of tax products in 1999, 2000 and 2001. We cooperated with these
requests and received an offer of settlement regarding this matter from the IRS. Subsequently, we
engaged in discussions with the IRS regarding the settlement offer and ultimately settled this
matter with the IRS in July 2007. The settlement amount was paid during the three months ended
September 30, 2007.
17
NOTE 14 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CREDIT RISK OR MARKET RISK
Concentration of Credit Risk and Market Risk
The majority of TWPs transactions, and consequently the concentration of its credit exposure,
is with its clearing brokers. The clearing brokers are also the primary source of short-term
financing for both securities purchased and securities sold, not yet purchased by the Firm. TWPs
securities owned may be pledged by the clearing brokers. The amount receivable from or payable to
the clearing brokers in the Firms condensed consolidated statements of financial condition
represents amounts receivable or payable in connection with the trading of proprietary positions
and the clearance of customer securities transactions. As of September 30, 2007 and December 31,
2006, TWPs cash on deposit with the clearing brokers was not collateralizing any liabilities to
the clearing brokers.
In addition to the clearing brokers, TWP is exposed to credit risk from other brokers, dealers
and other financial institutions with which it transacts business. In the event counterparties do
not fulfill their obligations, TWP may be exposed to credit risk. TWP seeks to control credit risk
by following an established credit approval process and monitoring credit limits with
counterparties.
TWPs trading activities include providing securities brokerage services to institutional and
retail clients. To facilitate these customer transactions, TWP purchases proprietary securities
positions (long positions) in equity securities, convertible and other fixed income securities.
TWP also enters into transactions to sell securities not yet purchased (short positions), which
are recorded as liabilities on the condensed consolidated statements of financial condition. TWP is
exposed to market risk on these long and short securities positions as a result of decreases in
market value of long positions and increases in market value of short positions. Short positions
create a liability to purchase the security in the market at prevailing prices. Such transactions
result in off-balance sheet market risk as TWPs ultimate obligation to satisfy the sale of
securities sold, not yet purchased may exceed the amount recorded in the condensed consolidated
statements of financial condition. To mitigate the risk of losses, these securities positions are
marked to market daily and are monitored by management to assure compliance with limits established
by TWP. The associated interest rate risk of these securities is not deemed material to TWP.
The Firm is also exposed to market risk through its investments in partnership investments and
through certain loans to employees collateralized by such investments. In addition, as part of the
Firms investment banking and asset management activities, and generally in connection with the
development of new asset management products, the Firm from time to time takes long and short
positions in publicly traded equities and related options and other derivative instruments and
makes private equity investments, all of which expose the Firm to market risk. These activities are
subject, as applicable, to risk guidelines and procedures designed to manage and monitor market
risk.
Included in accrued compensation at December 31, 2006 is an employment agreement whose value
was indexed to publicly traded shares of an unrelated entity. This agreement was considered a
derivative under applicable GAAP and, accordingly, was being marked to market through compensation
and benefits expense in the condensed consolidated statements of operations. During the three
months ended September 30, 2007, the liability related to this employee agreement was paid to the
employee. The fair value of this derivative liability was zero and $1.9 million at September 30,
2007 and December 31, 2006, respectively. The Firm reduced its exposure to fluctuations in the
value of the employment agreement by purchasing shares of the underlying security. In accordance
with the Firms stated accounting policy, these shares were carried at market value with
fluctuations in value reflected in asset management revenues in the condensed consolidated
statements of operations.
NOTE 15 REGULATED BROKER-DEALER SUBSIDIARIES
TWP is a registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule (the
Net Capital Rule) under the Securities Exchange Act of 1934 administered by the SEC and NYSE,
which requires the maintenance of minimum net capital. TWP has elected to use the alternative
method to compute net capital as permitted by the Net Capital Rule, which requires that TWP
maintain minimum net capital, as defined, of $1.0 million. These rules also require TWP to notify
and sometimes obtain approval from the SEC and NYSE for significant withdrawals of capital or loans
to affiliates.
Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash
dividends or make any unsecured advances or loans to its parent or employees if such payment would
result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum
dollar amount requirement.
As of September 30, 2007, TWPs net capital was $48.1 million, which was $47.1 million in
excess of its required minimum.
In addition, TWPIL, a subsidiary of the Firm located in the U.K., is a registered U.K.
broker-dealer and is subject to the capital requirements of the Financial Securities Authority. As
of September 30, 2007, TWPIL was in compliance with these requirements.
18
NOTE 16 PRO FORMA, AS ADJUSTED
The Firm completed its initial public offering on February 7, 2006 and converted to a
corporation from a limited liability company on this date. This conversion was the result of a
series of reorganization transactions that were carried out to cause Thomas Weisel Partners Group,
Inc. to succeed to the business of the Thomas Weisel Partners Group LLC (see Note 1 Organization
and Basis of Presentation). The pro forma, as adjusted amounts presented on the face of the Firms
condensed consolidated statements of operations are based upon the Firms historical condensed
consolidated financial statements as adjusted to reflect the reorganization transactions as though
they had taken place on January 1, 2006.
Interest Expense, Preferred Dividends and Accretion
The pro forma, as adjusted information included in the condensed consolidated statements of
operations reflects interest expense that would have been incurred and preferred dividends and
accretion that would not have been incurred had the following taken place on January 1, 2006:
|
|
|
the issuance of common stock in exchange for all of the Class A members interests and
all of the Class C convertible preference stock;
|
|
|
|
|
the issuance of common stock, a $10.0 million principal unsecured, senior floating-rate
note and a $10.0 million principal unsecured, senior non-interest bearing note in exchange
for all of the Class D convertible preference stock;
|
|
|
|
|
the issuance of common stock, a $13.0 million principal unsecured, senior floating-rate
note and a warrant, with a fair value of $4.6 million determined by applying a
Black-Scholes option pricing model with an exercise price of $15 based on the initial
public offering price of $15 per share, for the purchase of 486,486 of the Firms common shares.
|
On a pro forma basis, net revenues for the nine months ended September 30, 2006 were decreased
by the estimated interest expense for the notes payable of $0.1 million. In addition, net income
attributable to common shareholders and to Class A, B and C shareholders was increased by $1.6
million to reflect the elimination of preferred dividends and accretion.
Income Taxes
The pro forma, as adjusted information included in the condensed consolidated statements of
operations reflects income taxes that would have been incurred had the Firm been converted to a
corporation and subjected to U.S. Federal and state tax on its income beginning January 1, 2006.
Prior to the reorganization of the Firm from a limited liability company to a corporation, all
income and losses of the Firm, except income from its foreign subsidiaries, were reportable by the
individual members of the limited liability company in accordance with U.S. Federal and state
income tax regulations.
On a pro forma basis, the tax benefit for the nine months ended September 30, 2006 was
decreased by the estimated additional tax expense of $1.5 million as if the Firm was a corporation
beginning January 1, 2006. The additional tax expense is attributable to the Firms applicable tax
rate, a combination of Federal, state and local income tax rates, of 42% applied to the Firms pro
forma net income for the period beginning January 1, 2006 through February 6, 2006.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes that appear elsewhere in this Quarterly
Report on
Form 10-Q
. This discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. Actual results and the timing of events may
differ significantly from those projected in forward-looking statements due to a number of factors,
including those set forth in Part I, Item 1A Risk Factors of our Annual Report on
Form 10-K
for
the fiscal year ended December 31, 2006. See Where You Can Find More Information on page -ii- of
this Quarterly Report on
Form 10-Q
.
Overview
We are an investment bank focused principally on the technology, healthcare and consumer
sectors of the economy, which we refer to as our target sectors. We were founded in 1998 and
initially capitalized through investments from our founding partners and more than 20 venture
capital and private equity firms. On February 7, 2006, Thomas Weisel Partners Group, Inc. succeeded
to the business of Thomas Weisel Partners Group LLC and completed an initial public offering of its
common stock.
Our business is managed as a single operating segment, and we generate revenues by providing
financial services that include investment banking, brokerage, research and asset management. We
take a comprehensive approach in providing these services to growth companies in our target
sectors. We are exposed to volatility and trends in the general securities market and the economy,
and we are specifically exposed to volatility and trends
in our target sectors. Notwithstanding this exposure to volatility and trends in our target
sectors, in order to provide value to our clients, we have made a long-term commitment to
maintaining a substantial, full-service
19
integrated business platform. As a result of this commitment, if business conditions result in
decreases to our revenues, we may not experience corresponding decreases in the expense of
operating our business.
Announcement of Acquisition
In October 2007, we announced the signing of an agreement to acquire Westwind Partners
(Westwind), a full service, institutionally oriented, independent investment bank focused on the
energy and mining sectors. Westwind, which was founded in 2002 and is headquartered in Toronto,
has additional offices in Calgary, Montreal and London and has approximately 100 employees.
Westwinds mining and energy teams will greatly expand our industry coverage. In addition, with
Westwinds presence in Toronto, Calgary, Montreal and London, our geographic coverage will further
extend into both Canada and London through this acquisition.
Under the agreement, we will indirectly acquire all of Westwinds outstanding shares and
Westwind will become an indirect subsidiary of us in exchange for an aggregate of $45 million in
cash and 7,009,112 shares of our common stock (including exchangeable shares, which are shares
of our Canadian subsidiary that are exchangeable for shares of our common stock).
The purchase price is approximately $155 million, which consists $45 million of cash,
7,009,112 shares of the Firms common stock valued at $15.35 per share (based on the average
closing price over a five day period starting two days prior to the acquisition announcement
date of October 1, 2007 and ending two days after the announcement date) and direct acquisition
costs estimated to be $2.2 million consisting primarily of legal, accounting and advisory fees.
Consolidated Results of Operations
Our results of operations depend on a number of market factors, including market conditions
and valuations for companies in the technology, healthcare and consumer sectors, as well as general
securities market conditions. Trends in the securities markets are also affected by general
economic trends, including fluctuations in interest rates, flows of funds into and out of the
markets and other conditions. In addition to these market factors, our revenues from period to
period are substantially affected by the timing of investment banking transactions in which we are
involved. Fees for many of the services we provide are earned only upon the completion of a
transaction. Accordingly, our results of operations in any individual year or quarter may be
affected significantly by whether and when significant transactions are completed.
The following table provides a summary of the results of our operations (
in thousands, except
percentages and per share amounts
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
2007
|
|
2006
|
|
% Change
|
|
2007
|
|
2006
|
|
% Change
|
Net revenues
|
|
$
|
63,712
|
|
|
$
|
58,120
|
|
|
|
9.6
|
%
|
|
$
|
212,140
|
|
|
$
|
199,831
|
|
|
|
6.2
|
%
|
Income (loss) before taxes
|
|
|
(2,114
|
)
|
|
|
1,433
|
|
|
|
(247.5
|
)
|
|
|
17,197
|
|
|
|
16,422
|
|
|
|
4.7
|
|
Net income (loss)
|
|
|
(800
|
)
|
|
|
1,552
|
|
|
|
(151.5
|
)
|
|
|
11,203
|
|
|
|
26,181
|
|
|
|
(57.2
|
)
|
Net income (loss) attributable
to common shareholders and to
Class A, B and C shareholders
|
|
$
|
(800
|
)
|
|
$
|
1,552
|
|
|
|
(151.5
|
)%
|
|
$
|
11,203
|
|
|
$
|
24,573
|
|
|
|
(54.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
$
|
0.43
|
|
|
$
|
1.05
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
|
|
|
|
$
|
0.42
|
|
|
$
|
1.03
|
|
|
|
|
|
20
Revenues
The following table sets forth our revenues for the three and nine months ended September 30,
2007 and 2006, both in dollar amounts and as a percentage of net revenues (
dollar amounts in
thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
%
|
|
|
September 30,
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
25,542
|
|
|
$
|
22,228
|
|
|
|
14.9
|
%
|
|
$
|
94,439
|
|
|
$
|
86,878
|
|
|
|
8.7
|
%
|
Brokerage
|
|
|
30,344
|
|
|
|
30,682
|
|
|
|
(1.1
|
)
|
|
|
85,426
|
|
|
|
94,845
|
|
|
|
(9.9
|
)
|
Asset management
|
|
|
6,714
|
|
|
|
4,123
|
|
|
|
62.8
|
|
|
|
26,711
|
|
|
|
16,459
|
|
|
|
62.3
|
|
Interest income
|
|
|
3,799
|
|
|
|
4,197
|
|
|
|
(9.5
|
)
|
|
|
12,686
|
|
|
|
9,471
|
|
|
|
33.9
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
920
|
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
66,399
|
|
|
|
61,230
|
|
|
|
8.4
|
|
|
|
220,182
|
|
|
|
207,653
|
|
|
|
6.0
|
|
Interest expense
|
|
|
(2,687
|
)
|
|
|
(3,110
|
)
|
|
|
(13.6
|
)
|
|
|
(8,042
|
)
|
|
|
(7,822
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
63,712
|
|
|
$
|
58,120
|
|
|
|
9.6
|
%
|
|
$
|
212,140
|
|
|
$
|
199,831
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
|
40.1
|
%
|
|
|
38.3
|
%
|
|
|
|
|
|
|
44.5
|
%
|
|
|
43.5
|
%
|
|
|
|
|
Brokerage
|
|
|
47.6
|
|
|
|
52.8
|
|
|
|
|
|
|
|
40.3
|
|
|
|
47.5
|
|
|
|
|
|
Asset management
|
|
|
10.5
|
|
|
|
7.1
|
|
|
|
|
|
|
|
12.6
|
|
|
|
8.2
|
|
|
|
|
|
Interest income
|
|
|
6.0
|
|
|
|
7.2
|
|
|
|
|
|
|
|
6.0
|
|
|
|
4.7
|
|
|
|
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
104.2
|
|
|
|
105.4
|
|
|
|
|
|
|
|
103.8
|
|
|
|
103.9
|
|
|
|
|
|
Interest expense
|
|
|
(4.2
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking Revenue
Our investment banking revenues include (i) management fees, underwriting fees, selling
concessions and agency placement fees earned through our participation in public offerings and
private placements of equity and convertible debt securities and (ii) fees earned as strategic
advisor in mergers and acquisitions and similar transactions. Investment banking revenues are
typically recognized at the completion of each transaction. Underwriting revenues are presented net
of related expenses. Unreimbursed expenses associated with private placement and advisory
transactions are recorded as non-compensation expenses.
Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006.
Investment
banking revenue increased $3.3 million in the three months ended September 30, 2007 from the same
period in 2006. Our average revenue per transaction increased to $1.7 million during the three
months ended September 30, 2007 from $1.4 million in the same period of 2006. During the three
months ended September 30, 2007 we closed 15 investment banking transactions compared to 16 during
the same period of 2006.
Capital raising revenue accounted for approximately 39.6% and 62.8% of our investment banking
revenue in the three months ended September 30, 2007 and 2006, respectively. Capital raising
revenue decreased $3.8 million to $10.1 million in the three months ended September 30, 2007
compared to $13.9 million in the same period of 2006. Our average revenue per capital raising
transaction decreased to $1.0 million during the three months ended September 30, 2007 from
$1.3 million in the same period of 2006. During the
three months ended September 30, 2007 we closed 10 capital raising transactions compared to 11
transactions in the same period of 2006.
21
Strategic advisory revenue accounted for approximately 60.4% and 37.2% of our investment
banking revenue in the three months ended September 30, 2007 and 2006, respectively. Strategic
advisory revenue increased $7.1 million to $15.4 million in the three months ended September 30,
2007 compared to $8.3 million in the same period of 2006. Our average revenue per strategic
advisory transaction increased to $3.1 million during the three months ended September 30, 2007
from $1.7 million in the same period of 2006. During both the three months ended September 30, 2007
and 2006 we closed 5 strategic advisory transactions.
Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006.
Investment
banking revenue increased $7.6 million in the nine months ended September 30, 2007 from the same
period in 2006. Our average revenue per transaction increased to $1.7 million during the nine
months ended September 30, 2007 from $1.5 million in the same period of 2006. During the nine
months ended September 30, 2007 we closed 55 investment banking transactions compared to 59 during
the same period of 2006. We joint book-managed our own initial public offering and follow-on
offering during the nine months ended September 30, 2006 but did not include those transactions in
our transaction count, did not recognize revenue relating to those transactions and did not include
those transactions in calculating our revenue per transaction measures.
Capital raising revenue accounted for 54.2% and 81.6% of our investment banking revenue in the
nine months ended September 30, 2007 and 2006, respectively. Capital raising revenue decreased
$19.7 million to $51.2 million in the nine months ended September 30, 2007 compared to $70.9
million in the same period of 2006. Our average revenue per capital raising transaction decreased
to $1.2 million during the nine months ended September 30, 2007 from $1.4 million during the same
period of 2006. During the nine months ended September 30, 2007 we closed 42 capital raising
transactions compared to 49 during the same period of 2006.
Strategic advisory revenue accounted for 45.8% and 18.4% of our total investment banking
revenue in the nine months ended September 30, 2007 and 2006, respectively. Strategic advisory
revenue increased $27.2 million to $43.2 million in the nine months ended September 30, 2007
compared to $16.0 million in the same period of 2006. Our average revenue per strategic advisory
transaction increased to $3.3 million during the nine months ended September 30, 2007 from
$1.6 million during the same period of 2006. The increase in our average revenue per strategic
advisory transaction was primarily due to a single strategic advisory transaction which resulted in
$13.4 million of revenue during the three months ended March 31, 2007. During the nine months ended
September 30, 2007 we closed 13 strategic advisory transactions compared to 10 during the same
period of 2006.
Our investment banking engagements usually relate to only one potential transaction and do not
provide us with long-term contracted sources of revenue. As a result, our investment banking
revenues have and likely will continue to vary significantly between periods. In addition, our
investment banking revenues are affected by the overall level of capital raising activity in the
marketplace and, in particular, in our target sectors. Based on data from Dealogic, PrivateRaise, Bloomberg and other data sources, we estimate
that aggregate gross proceeds raised in U.S. equity capital markets transactions, including IPOs,
secondary offerings, convertible debt securities offerings, registered direct offerings and private placements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Capital Raising Activity (U.S. Equity Capital Markets)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Capital raising transactions in our target sectors
|
|
|
193
|
|
|
|
197
|
|
|
|
713
|
|
|
|
825
|
|
Capital raising transactions in all market sectors
|
|
|
340
|
|
|
|
360
|
|
|
|
1,300
|
|
|
|
1,472
|
|
Our target sectors as a percentage of total
transactions
|
|
|
56.8
|
%
|
|
|
54.7
|
%
|
|
|
55.4
|
%
|
|
|
56.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds raised by companies in our target
sectors (
in billions
)
|
|
$
|
20.4
|
|
|
$
|
13.9
|
|
|
$
|
82.5
|
|
|
$
|
77.3
|
|
Gross proceeds raised in U.S. equity capital
markets (
in billions
)
|
|
$
|
46.9
|
|
|
$
|
34.9
|
|
|
$
|
201.5
|
|
|
$
|
151.1
|
|
Our target sectors as a percentage of total gross
proceeds
|
|
|
43.4
|
%
|
|
|
39.7
|
%
|
|
|
41.0
|
%
|
|
|
51.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees generated from equity capital markets in our
target sectors (
in billions
)
|
|
$
|
0.64
|
|
|
$
|
0.47
|
|
|
$
|
2.61
|
|
|
$
|
2.30
|
|
Based upon the market information presented above, for the three months ended September 30,
2007, within our target sectors the number of transactions decreased 2.0% while the gross proceeds
raised and the total capital markets fees generated increased 46.9%
and 35.7%, respectively, during the three months ended September 30, 2007 from the same period
in 2006. This compares to our number of capital raising transactions and revenue which decreased
9.1% and 27.6%, respectively, in the three months ended September 30, 2007 compared to the same
period of 2006.
22
For the nine months ended September 30, 2007, within our target sectors the number of
transactions decreased 13.6% while the gross proceeds raised and the total capital markets fees
generated increased 6.8% and 13.3%, respectively, during the nine months ended September 30, 2007
from the same period in 2006. This compares to our number of capital raising transactions and
revenue which decreased 14.3% and 27.8%, respectively, in the nine months ended September 30, 2007
compared to the same period in 2006.
Our investment banking revenues are also affected by the overall level of mergers and
acquisitions activity in the marketplace and, in particular, in our target sectors. Based on data
from Securities Data Corp., mergers and acquisitions activity is estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Mergers and Acquisitions Activity (All U.S. Companies)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Announced acquisitions and mergers of U.S.
companies in our target sectors
|
|
|
301
|
|
|
|
306
|
|
|
|
913
|
|
|
|
919
|
|
Announced acquisitions and mergers of U.S.
companies in all market sectors
|
|
|
603
|
|
|
|
606
|
|
|
|
1,840
|
|
|
|
1,796
|
|
Our target sectors as a percentage of total
transactions
|
|
|
49.9
|
%
|
|
|
50.5
|
%
|
|
|
49.6
|
%
|
|
|
51.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of announced acquisitions and mergers of
U.S. companies in our target sectors (
in billions
)
|
|
$
|
159
|
|
|
$
|
128
|
|
|
$
|
575
|
|
|
$
|
406
|
|
Value of announced acquisitions and mergers of
U.S. companies in all market sectors (
in billions
)
|
|
$
|
312
|
|
|
$
|
252
|
|
|
$
|
1,207
|
|
|
$
|
933
|
|
Our target sectors as a percentage of total value
|
|
|
50.9
|
%
|
|
|
50.6
|
%
|
|
|
47.6
|
%
|
|
|
43.5
|
%
|
Based upon the market information presented above, for the three months ended September 30,
2007, for the announced acquisitions and mergers within our target sectors, the number of
transactions decreased by 1.6% and the market value of such transactions increased by 24.4% during
the three months ended September 30, 2007 compared to the same period in 2006. This compares to our
number of acquisition and merger transactions which remained constant and our revenue from such
transactions which increased 86.5% in the three months ended September 30, 2007 compared to the
same period in 2006.
For the nine months ended September 30, 2007, within our target sectors the number of
transactions decreased by 0.7% and the market value of such transactions increased by 41.6% during
the nine months ended September 30, 2007 compared to the same period in 2006. This compares to our
number of acquisition and merger transactions which increased 30.0% and our revenue from such
transactions which increased to $43.2 million from $16.0 million in the nine months ended September
30, 2007 compared to the same period in 2006.
Brokerage Revenue
Our brokerage revenues include (i) commissions paid by customers from brokerage transactions
in equity securities, (ii) spreads paid by customers on convertible debt securities, (iii) trading
gains and losses which result from market making activities and from our commitment of capital to
facilitate customer transactions, (iv) advisory fees paid to us by high-net-worth individuals and
institutional clients of our private client services group, which are generally based on the value
of the assets we manage, and (v) fees paid to us for research.
Three and Nine Months Ended September 30, 2007 versus Three and Nine Months Ended September
30, 2006.
Brokerage revenue decreased $0.3 million and $9.4 million in the three and nine months
ended September 30, 2007 compared to the same periods in 2006, respectively. The decreases were
primarily attributable to decreases in trading volumes in our institutional equity and convertible
debt trading business, partially offset by performance improvements in our middle markets and
private client services businesses.
The combined average daily volume on the New York Stock Exchange and Nasdaq was approximately
3.8 billion shares during both the three and nine months ended September 30, 2007, an increase of
13.5% and 3.4%, respectively, compared to the same periods in 2006. Our combined average daily
customer trading volume during the three and nine months ended September 30, 2007 compared
to the same periods 2006 decreased 0.2% and 15.0%, respectively, primarily due to declines in
the volume of shares we traded for our institutional brokerage customers. We believe the decline in
our trading volume for institutional customers during the three and nine months ended September 30,
2007 is partially due to the increased use of alternative trading systems by our customers, a
decrease in
23
the willingness of our traditional brokerage customers to pay full service commissions
in order to access our equity research and other factors. In response to these factors, we have
taken several steps, including (i) increasing our focus on middle markets customers, who account
for an increasing amount of trading commissions with the brokerage industry and who, in many cases,
are engaging in investing activities that utilize our equity research, (ii) developing our product
offerings within electronic trading in order to attract and retain trading volume from customers
who are shifting away from utilizing full service brokerage services and increasing their use of
alternative trading systems and (iii) broadening our geographic coverage.
In 2007 we established branch offices in the Midwest and we hired two teams in Europe of
senior institutional sales professionals formerly associated with the Prudential Equity Group. In
connection with the addition of these European-based sales teams, we have opened an office in
London and are opening an office in Zurich. This expansion of our institutional sales department is
an important step in our strategy to broaden our account base as well as to expand our business in
Europe.
Asset Management Revenue
Our asset management revenues include (i) fees from investment partnerships we manage, (ii)
allocation of the appreciation and depreciation in the fair value of our investments in the
underlying partnerships, (iii) fees we earn from the management of equity distributions received by
our clients and (iv) other asset management-related realized and unrealized gains and losses on
investments not associated with investment partnerships, primarily equity securities.
Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006.
Asset
management revenue increased by $2.6 million in the three months ended September 30, 2007 from the
same period in 2006. The fluctuation was primarily due to increased investment gains in
partnerships of $2.2 million due to gains from several of our investment funds, as well as
increased management fees of $1.0 million during the three months ended September 30, 2007 from the
same period in 2006. The increase was partially offset by a decrease of $0.6 million in investment
gains in other securities during the three months ended September 30, 2007 from the same period in
2006.
Management fees increased $1.0 million, or 36.0%, to $3.9 million in the three months ended
September 30, 2007 from $2.9 million in the same period of 2006. This fluctuation was primarily due
to an increase in management fees received from Thomas Weisel Global Growth Partners LLC and Thomas
Weisel Healthcare Venture Partners of $0.7 million and $0.2 million, respectively, in the three
months ended September 30, 2007 from the same period in 2006.
Investment gains in partnerships increased $2.2 million to $3.0 million in the three months
ended September 30, 2007 from $0.8 million in the same period of 2006. This fluctuation was
primarily due to an increase in investment gains from Thomas Weisel Healthcare Venture Partners and
Thomas Weisel Global Growth Partners of $2.2 million and $0.8 million, respectively, in the three
months ended September 30, 2007 from the same period in 2006. This increase was partially offset
by the decrease in investment gains from Thomas Weisel Capital Partners of $0.8 million.
Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006
. Asset
management revenue increased by $10.3 million in the nine months ended September 30, 2007 from the
same period in 2006. The fluctuation was primarily due to increased investment gains in
partnerships of $7.7 million due to gains from several of our investment funds, as well as
increased management fees of $2.5 million during the nine months ended September 30, 2007 from the
same period in 2006. Investment gains in other securities remained consistent at $0.5 million for
both the nine months ended September 30, 2007 and 2006.
Management fees increased $2.5 million, or 26.8%, to $12.0 million in the nine months ended
September 30, 2007 from $9.5 million in the same period of 2006. The increase was primarily due to
an increase in management fees received from Thomas Weisel Global Growth Partners LLC of $1.7
million, Thomas Weisel India Opportunity LLC of $0.5 million and Thomas Weisel Healthcare Venture
Partners of $0.4 million.
Investment gains in partnerships increased $7.7 million to $14.2 million in the nine months
ended September 30, 2007 from $6.5 million in the same period of 2006. This increase was due to an
increase of net realized gains allocated to us in respect to our previously waived management fees,
increases in gains from investment funds allocated to us with respect to our carried interest and
an overall increase in gains within our investment funds.
Other Revenue
Nine Months Ended September 30, 2007.
Other revenue of $0.9 million recorded in the nine
months ended September 30, 2007 relates to the gain, net of selling costs, on the non-recurring
sale and licensing of certain software previously developed for internal use. At the time of sale
there were no amounts capitalized relating to this software.
24
Expenses Excluding Interest
The following table sets forth information relating to our expenses excluding interest, both
in dollar amounts and as a percentage of net revenues (
dollar amounts in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
%
|
|
|
September 30,
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
Expenses excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
$
|
38,304
|
|
|
$
|
33,648
|
|
|
|
13.8
|
%
|
|
$
|
119,689
|
|
|
$
|
110,983
|
|
|
|
7.8
|
%
|
Non-compensation expense
|
|
|
27,522
|
|
|
|
23,039
|
|
|
|
19.5
|
|
|
|
75,254
|
|
|
|
72,426
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
excluding interest
|
|
$
|
65,826
|
|
|
$
|
56,687
|
|
|
|
16.1
|
%
|
|
$
|
194,943
|
|
|
$
|
183,409
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
60.1
|
%
|
|
|
57.9
|
%
|
|
|
|
|
|
|
56.4
|
%
|
|
|
55.5
|
%
|
|
|
|
|
Non-compensation expense
|
|
|
43.2
|
|
|
|
39.6
|
|
|
|
|
|
|
|
35.5
|
|
|
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
103.3
|
%
|
|
|
97.5
|
%
|
|
|
|
|
|
|
91.9
|
%
|
|
|
91.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of employees
|
|
|
659
|
|
|
|
581
|
|
|
|
|
|
|
|
623
|
|
|
|
560
|
|
|
|
|
|
Compensation and Benefits Expense
Compensation and benefits expenses to secure the services of our employees have been the
largest component of our total expenses excluding interest. Compensation and benefits expense
includes salaries, overtime, bonuses, commissions, share-based compensation, benefits, employment
taxes and other employee costs.
We have a discretionary bonus plan based on a combination of firm and individual performance
and we have entered into guaranteed contractual agreements with employees that require specified
bonus payments, both of which are accrued over the service periods. These bonuses make up a
significant portion of our compensation and benefits expense, particularly for our senior
professionals.
Share-based awards constitute a portion of our compensation expense, vest over a four-year
service period (except for the share-based awards issued in connection with our initial public
offering which vest over a three-year period), are subject to continued employment and,
accordingly, are recorded as non-cash compensation expense ratably over the service period
beginning at the date of grant. As a result, our aggregate compensation expense has been, and will
continue to be, impacted as we recognize multiple years of share-based compensation expense
associated with the vesting of prior year grants in 2007 and subsequent years. As an example, in
February 2007 we granted share-based awards with a grant date fair value of $23.0 million, which
amount will be recognized in compensation expense over the four-year vesting period beginning in
February 2007 and ending in January 2011. As of September 30, 2007, there was (i) $10.1 million of
unrecognized compensation expense related to non-vested restricted stock unit awards made in
connection with our initial public offering, which is expected to be recognized over a
weighted-average period of 1.3 years and (ii) an additional $20.4 million of unrecognized
compensation expense related to non-vested restricted stock unit awards made subsequent to our
initial public offering, which is expected to be recognized over a weighted-average period of
3.4 years.
In 2007, we do not currently anticipate that we will be able to achieve our target of
maintaining our aggregate annual compensation and benefits expense (excluding expenses relating to
share-based awards made in connection with our initial public offering) within the range of 55% and
58% of net revenues (excluding investment gains and losses attributable to investments in
partnerships and other securities). New business initiatives and efforts to expand existing
businesses generally require that we incur compensation and benefits expense before realizing
associated additional revenues. In particular, our Discovery Research revenue falling short of
expectations and our decision to expand our sales force into Europe will increase our ratio of
compensation and benefits expense to net revenue in 2007. Accordingly, because we may not be able
to retain our professionals if we were to maintain
compensation and benefits within that target range, we will continue to evaluate thoroughly
business and personnel decisions with respect to their impact on compensation and benefits expense.
25
Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006.
Compensation and benefits expense increased $4.7 million in the three months ended September 30,
2007 from the same period in 2006, primarily due to an increase in compensation expense relating to
share-based awards during the three months ended September 30, 2007 as compared the three months
ended September 30, 2006. In addition, the average number of employees has increased during the
three months ended September 30, 2007 as compared to the three months ended September 30, 2006
which has increased compensation and benefits expense during the same period. Compensation and
benefits expense during the three months ended September 30, 2007 and 2006 included $1.9 million
and $2.2 million, respectively, of non-cash compensation expense relating to share-based awards
made in connection with our initial public offering.
Compensation and benefits expense (excluding expense relating to share-based awards made in
connection with our initial public offering), as a percentage of net revenues (excluding investment
gains and losses attributable to investments in partnerships and other securities) increased to 60%
in the three months ended September 30, 2007 from 55% in the three months ended September 30, 2006.
Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006.
Compensation
and benefits expense increased $8.7 million in the nine months ended September 30, 2007 from the
same period in 2006, primarily due to an increase in compensation expense relating to share-based
awards during the nine months ended September 30, 2007 as compared the nine months ended September
30, 2006. In addition, the average number of employees has increased during the nine months ended
September 30, 2007 as compared to the nine months ended September 30, 2006 which has increased
compensation and benefits expense during the same period. Compensation and benefits expense during
the nine months ended September 30, 2007 and 2006 included $5.6 million and $5.1 million,
respectively, of non-cash compensation expense relating to share-based awards made in connection
with our initial public offering.
Compensation and benefits expense (excluding expense relating to share-based awards made in
connection with our initial public offering), as a percentage of net revenues (excluding investment
gains and losses attributable to investments in partnerships and other securities) increased to 58%
in the nine months ended September 30, 2007 from 55% in the nine months ended September 30, 2006.
Non-Compensation Expenses
Our non-compensation expenses include brokerage execution, clearance and account
administration, communications and data processing, depreciation and amortization, marketing and
promotion, occupancy and equipment, and other expenses.
Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006.
Non-compensation expense increased $4.5 million in the three months ended September 30, 2007 from
the same period in 2006. The fluctuation was primarily the result of an increase in other expenses
and marketing and promotion expense of $2.9 million and $1.1 million, respectively. We recorded
insurance recoveries of legal fees from our participation in an initial public offering securities
litigation matter net of expenses during both the three months ended
September 30, 2007 and 2006, however, the net recoveries were $2.3 million greater in 2006 as
compared to amounts recorded in 2007, resulting in a comparative increase in other expense in 2007.
Marketing and promotion expense increased primarily due to an increase in travel and entertainment
related to the geographic expansion of our business.
Nine Months Ended
September 30, 2007 versus Nine Months Ended September 30, 2006.
Non-compensation expenses
increased $2.8 million in the nine months ended September 30, 2007 from the same period in 2006.
The fluctuation was primarily the result of an increase in other expenses and marketing and
promotion expense of $3.9 million and $2.0 million, respectively. We recorded insurance
recoveries of legal fees from our participation in an initial public offering securities
litigation matter net of expenses during both the nine months ended
September 30, 2007 and 2006, however, the net recoveries were $2.0 million greater in 2006
as compared to amounts recorded in 2007, resulting in a comparative increase in other expense
in 2007. Marketing and promotion expense increased primarily due to increased travel and
entertainment related to the geographic expansion of our business. These increases were
partially offset by a decrease of $2.6 million in brokerage, execution, clearance and account
administration expense due to improved efficiencies in pricing in our trade execution practices
and lower NYSE exchange rate fees, as well as less clearance charges associated with lower
trading volume.
26
Provision for Taxes
Before completion of our initial public offering on February 7, 2006, we were a limited
liability company and all of our income and losses were reportable by our individual members and,
accordingly, the U.S. Federal and state income taxes payable by our members, based upon their share
of our net income, had not been reflected in our historical consolidated financial statements.
In connection with our initial public offering we reorganized from a limited liability company
into a corporation, and following that reorganization became subject to U.S. Federal and state
income taxes. We account for income taxes in accordance with SFAS No. 109,
Accounting for Income
Taxes
, which requires the recognition of deferred tax assets and liabilities based upon temporary
differences between the financial reporting and tax bases of our assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets when it is more likely than
not that a portion or all of the deferred tax assets will not be realized. During the three months
ended March 31, 2006, we recognized a one-time tax benefit upon conversion to a corporation in
connection with the establishment of our deferred tax asset balances, partially offset by a
valuation allowance. The valuation allowance was recorded because management at that time,
concluded that a portion of the deferred tax benefit, which resulted from unrealized capital
losses, more likely than not would not be realized due to the uncertainty of our ability to
generate future capital gains to offset such capital losses.
During the three months ended March 31, 2007, we determined that, due to realized and
previously unanticipated expected future capital gains, the valuation allowance would be reduced to
zero. As a result we recognized deferred tax benefits during 2007 resulting in 16.3% and 6.0%
reductions in the effective tax rates for the three and nine months ended September 30, 2007,
respectively. The expected future capital gains were realized during the six months ended June 30,
2007.
Our effective tax rate for the three and nine months ended September 30, 2007 was 62.2% and
34.9%, respectively. Our effective tax rate for the three and nine months ended September 30, 2006
was (8.3)% and (59.4)%, respectively. The increase in our effective tax rate from the prior-year
periods is primarily due to the one-time tax benefit in 2006, discussed above.
Liquidity and Capital Resources
Prior to our initial public offering in February 2006, we historically satisfied our capital
and liquidity requirements through capital raised from our partners and strategic investors,
internally generated cash from operations and available credit from market sources. In February
2006, we completed our initial public offering of common stock, raising $66.2 million in net
proceeds, and, in May 2006, we completed a follow-on public offering of common stock, raising $76.0
million in net proceeds. We believe that our current level of equity capital, which includes the
net proceeds from our initial public offering and our follow-on offering of common stock, funds
anticipated to be provided by operating activities and funds available under temporary loan
agreements, will be adequate to meet our liquidity and regulatory capital requirements for the next
12 months.
The following table represents our most liquid assets as of September 30, 2007 (
in thousands
):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,700
|
|
Other investments
|
|
|
90,637
|
|
|
|
|
|
Total
|
|
$
|
177,337
|
|
|
|
|
|
Other investments include $78.8 million in auction rate securities at September 30, 2007.
Debt Financing
In connection with our initial public offering of common stock, we issued $33 million of
unsecured senior notes to our former Class D and Class D-1 shareholders and are required to make
principal and interest payments on these notes in accordance with their terms. As of September 30,
2007, the outstanding principal balance under these notes was $25.4 million and is due in 2011.
We also have a financing arrangement with General Electric Capital Corporation that is secured
by furniture, equipment and leasehold improvements, with a 3-year term and a variable interest rate
at LIBOR plus 2.85%. As of September 30, 2007, the outstanding balance under this facility was $4.7
million.
Bonus and Share-Based Compensation
The timing of bonus and retention compensation payments to our employees may significantly
affect our cash position and liquidity from period to period. While our employees are generally
paid salaries semi-monthly during the year, bonus and retention compensation payments, which make
up a larger portion of total compensation, are generally paid at selected times during the year.
Bonus and retention compensation payments are generally paid in February and July. In February and
July 2007 we made aggregate cash bonus payments to our employees of approximately $28.9 million and
$28.1 million, respectively.
27
Beginning in 2007 and continuing thereafter, share-based awards in the form of restricted
stock units that we previously granted will vest and become deliverable. For example, on or about
February 9, 2008, approximately 265,000 shares of freely transferable common stock will become
deliverable to our employees in respect of share-based awards granted on February 9, 2007. Our cash
position and liquidity will be affected to the extent we elect to settle a portion of these vesting
shares through a net settlement feature as provided for in SFAS No. 123(R),
Share-Based Payment,
to
meet the minimum statutory income tax withholding requirements of our employees. During the three
months ended September 30, 2007, 43,134 freely transferable shares of common stock became
deliverable to our employees in respect of share-based awards previously granted. In settlement of
these share-based awards, we delivered 32,306 shares of common stock and settled the remaining
10,828 shares through net settlement in the amount of approximately $151,000.
Regulatory Net Capital and Other Amounts Required to be Maintained at Broker-Dealer
Subsidiary
Thomas Weisel Partners LLC, our wholly-owned subsidiary and a registered securities
broker-dealer, is subject to the net capital requirements of the NYSE and the SECs uniform net
capital rule. NYSE and SEC regulations also provide that equity capital may not be withdrawn or
cash dividends paid if certain minimum net capital requirements are not met. As of September 30,
2007, Thomas Weisel Partners LLC net capital was $48.1 million, which was $47.1 million in excess
of its required minimum. Regulatory net capital requirements change daily based on certain
investment and underwriting activities.
Our primary clearing broker is also the primary source of the short-term financing of our
securities inventory. In connection with the provision of the short-term financing, Thomas Weisel
Partners LLC is required to maintain deposits with our clearing broker. These deposits are
classified as receivable from clearing brokers. During the nine months ended September 30, 2007,
increases in our securities inventory resulted in an increase of $13.6 million in the deposits we
were required to maintain. This increase in the deposit resulted in a decrease to cash and cash
equivalents on the condensed consolidated statements of financial position and an increase in the
receivable from clearing brokers of $13.6 million.
Due to the nature of our investment banking and brokerage businesses, liquidity is of critical
importance to us. Accordingly, we regularly monitor our liquidity position, including our cash and
net capital positions. From time to time we may borrow funds under temporary subordinated loan
agreements with our primary clearing broker. Such funds would constitute capital for purposes of
calculating our net capital position.
Short Term Planned Use of Cash
In November 2007, one of our asset management affiliates established an investment partnership
to invest primarily in small capitalization growth stocks that are publicly traded. In connection
with establishing this investment partnership, we made a seed investment in this partnership of an
aggregate of $15 million.
In October 2007, we announced the signing of an agreement to acquire Westwind Partners. At
the closing of this transaction, which is expected to occur in January 2008, we will make a cash
payment of $45 million as the cash portion of the consideration for this acquisition. In addition,
we expect to make cash payments of approximately $2.2 million for acquisition related costs.
Cash Flows
Cash and cash equivalents decreased $57.4 million to $86.7 million at September 30, 2007 from
$144.1 million at December 31, 2006.
Operating
activities used $30.2 million of cash during the nine months ended September 30,
2007. Our net income less non-cash items provided $10.6 million of cash and cash equivalents
during the nine months ended September 30, 2007. Non-cash items included in our net income of $11.2
million were depreciation and share-based compensation expenses of $4.8 million and $9.2 million,
respectively, offset by gains from partnership and other investments of $14.3 million. The net
effect of changes in operating assets and liabilities resulted in the
use of $40.8 million of cash
during the nine months ended September 30, 2007, primarily due to a decrease of $22.5 million in
accrued compensation reflecting mid-year payments of incentive compensation. In addition, $13.6
million of the decrease was attributable to the increase in receivable from clearing brokers
discussed in Liquidity and Capital Resources above.
Investing activities used $21.1 million of cash during the nine months ended September 30,
2007, including the purchase of $112.1 million of municipal and auction-rate securities, purchases
of investments in private equity partnerships of $2.0 million and property and equipment of
$1.8 million. This decrease in cash and cash equivalents is partially offset by proceeds from sale
of other investments of $94.9 million.
During
the nine months ended September 30, 2007, financing activities
used $6.1 million of
cash, primarily due to repayments of notes payable of $29.8 million and share repurchases of
$1.2 million, partially offset by an addition to notes payable of $25.0 million. We entered into a
temporary subordinated loan in May 2007. We repaid the $25.0 million under the temporary
subordinated loan in May 2007.
28
Contractual Obligations
There have been no material changes during the period covered by this report, outside of the
ordinary course of our business, to the contractual obligations specified in the table of
contractual obligations disclosed in Part II, Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended
December 31, 2006.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions about future events that affect
the amounts reported in our condensed consolidated financial statements and their notes. Actual
results could differ significantly from those estimates. We believe that the following discussion
addresses our most critical accounting policies, which are those that are most important to the
presentation of our financial condition and results of operations and require managements most
difficult, subjective and complex judgments.
Fair Value of Financial Instruments
Securities owned, Securities sold, but not yet purchased and Other investments in our
condensed consolidated statements of financial condition consist of financial instruments carried
at fair value or amounts that approximate fair value, with related unrealized gains or losses
recognized in our results of operations. The use of fair value to measure these financial
instruments, with related unrealized gains and losses recognized immediately in our results of
operations, is fundamental to our condensed consolidated financial statements. The fair value of a
financial instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Fair values of our financial instruments are generally obtained from quoted market prices in
active markets, broker or dealer price quotations, or alternative pricing sources with reasonable
levels of price transparency. To the extent certain financial instruments trade infrequently or are
non-marketable securities and, therefore, have little or no price transparency, we value these
instruments using methodologies such as the present value of known or estimated cash flows and
generally do not adjust underlying valuation assumptions unless there is substantive evidence
supporting a change in the value of the underlying instrument or valuation assumptions (such as
similar market transactions, changes in financial ratios or changes in credit ratings of the
underlying companies).
Financial instruments we own (long positions) are marked to bid prices and instruments we have
sold but not yet purchased (short positions) are marked to offer prices. If liquidating a position
is reasonably expected to affect its prevailing market price, our valuation is adjusted generally
based on market evidence or predetermined policies. In certain circumstances, such as for highly
illiquid positions, managements estimates are used to determine this adjustment.
Private Equity Investment Partnerships
Investments in partnerships include our general and limited partnership interests in
investment partnerships. These interests are carried at fair value based on our percentage interest
in the underlying partnerships. The net assets of the investment partnerships consist primarily of
investments in marketable and non-marketable securities. The underlying investments held by such
partnerships are valued based on quoted market prices, or estimated fair value if there is no
public market. Such estimates of fair value of the partnerships non-marketable investments are
ultimately determined by us or our affiliates in our capacity as general partner and, in the case
of an investment in an unaffiliated investment partnership, are based on financial statements
prepared by an unaffiliated general partner. Due to the inherent uncertainty of valuation, fair
values of these non-marketable investments may differ from the values that would have been used had
a ready market existed for these investments, and the differences could be material. Adjustments to
carrying value are made if there are third-party transactions evidencing a change in value.
Downward adjustments are also made, in the absence of third-party transactions, if we determine
that the expected realizable value of the investment is less than the carrying value. In reaching
that determination, we consider many factors, including, but not limited to, the operating cash
flows and financial performance of the companies relative to budgets or projections, trends within
sectors and/or regions, underlying business models, expected exit timing and strategy, and any
specific rights or terms associated with the investment, such as conversion features and
liquidation preferences. In cases where an estimate of fair value is determined based on financial
statements prepared by an unaffiliated general partner, such financial statements are generally
unaudited other than audited year-end financial statements. Upon receipt of audited financial
statements from an investment partnership, we adjust the fair value of the investments in our
subsequent financial statements to reflect the audited partnership results.
The investment partnerships in which we are a general partner may allocate carried interest
and make carried interest distributions to the general partner if the partnerships investment
performance reaches a threshold as defined in the respective partnership
agreements. We recognize the allocated carried interest when this threshold is met, however
future investment underperformance may require amounts previously distributed to us to be returned
to the partnership.
29
We earn fees from the investment partnerships which we manage or of which we are a general
partner. Such management fees are generally based on the net assets or committed capital of the
underlying partnerships. Through March 31, 2007, we agreed in certain cases to waive management
fees, in lieu of making a cash contribution, in satisfaction of our general partner investment
commitments to the investment partnerships. In these cases, we generally recognize our management
fee revenues at the time when we are allocated a special profit interest in realized gains from
these partnerships. With respect to the investment partnerships existing as of March 31, 2007, we
will no longer waive management fees subsequent to March 31, 2007.
Liability for Lease Losses
Our accrued expenses and other liabilities include a liability for lease losses related to
office space that we subleased due to staff reductions in prior years. The liability for lease
losses was $5.5 million at September 30, 2007 and will expire with the termination of the relevant
facility leases through 2010. We estimate our liability for lease losses as the net present value
of the differences between lease payments and receipts under sublease agreements.
Legal and Other Contingent Liabilities
We are involved in various pending and potential complaints, arbitrations, legal actions,
investigations and proceedings related to our business. Some of these matters involve claims for
substantial amounts, including claims for punitive and other special damages. The number of
complaints, arbitrations, legal actions, investigations and regulatory proceedings against
financial institutions like us has been increasing in recent years. We have, after consultation
with counsel and consideration of facts currently known by management, recorded estimated losses in
accordance with SFAS No. 5,
Accounting for Contingencies
, to the extent that a claim may result in
a probable loss and the amount of the loss can be reasonably estimated. The determination of these
reserve amounts requires significant judgment on the part of management and our ultimate
liabilities may be materially different. In making these determinations, management considers many
factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant,
the basis and validity of the claim, the likelihood of successful defense against the claim and the
potential for, and magnitude of, damages or settlements from such pending and potential complaints,
arbitrations, legal actions, investigations and proceedings, and fines and penalties or orders from
regulatory agencies. See Note 13 Commitments, Guarantees and Contingencies for a further
description of legal proceedings.
If a potential adverse contingency should become probable or be resolved for an amount in
excess of the established reserves during any period, our results of operations in that period and,
in some cases, succeeding periods could be materially adversely affected.
Allowance for Doubtful Accounts
Our receivables include corporate finance and syndicate receivables relating to our advisory
and investment banking engagements. We also have receivables from our clearing brokers in
connection with the clearing of our brokerage transactions. We record an allowance for doubtful
accounts on these receivables based on the number of days past due and on a specific identification
basis. Management is continually evaluating our receivables for collectibility and possible
write-off by examining the facts and circumstances surrounding each specific case where a loss is
deemed a possibility.
Deferred Tax Valuation Allowance
As a corporation, we are subject to Federal and state income taxes. In determining our
provision for income taxes, we recognize deferred tax assets and liabilities based on the
difference between the carrying value of assets and liabilities for financial and tax reporting
purposes. For our investments in partnerships, adjustments to the carrying value are made based on
determinations of the fair value of underlying investments held by such partnerships. Both upward
and downward adjustments to the carrying value of investment partnerships, which are recorded as
unrealized gains and losses in the condensed consolidated statements of operations, represent
timing differences until such time as these gains and losses are realized. During 2006, we had net
unrealized capital losses on these investment partnerships. Due to our determination in February
2006 of the uncertainty of our ability to generate future realized capital gains to offset capital
losses, in February 2006 we recorded a valuation allowance for the deferred tax asset attributable
to net unrealized losses in our investment partnerships. During the three months ended March 31,
2007, we determined that, due to realized and previously unanticipated expected future capital
gains, the valuation allowance would be reduced to zero as we realize the deferred tax benefit
during 2007. For the three and nine months ended September 30, 2007, we reduced the valuation
allowance by $0.4 million and $1.1 million, respectively. As of September 30, 2007, the remaining
valuation allowance is $0.3 million.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our business and financing activities directly expose us to various types of risks, including
(i) market risk relating to, among other things, the changes in the market value of equity or debt
instruments and (ii) interest rate risk relating to the effect of changes in interest rates and the
yield curve on the value of debt instruments that we hold and our payment obligations in respect of
notes that we have issued. We are also exposed to other risks in the conduct of our business such
as credit risk and the effects of inflation. Our exposure to these risks could be material to our
condensed consolidated financial statements. Set forth below is a discussion of some of these risks
together with quantitative information regarding the aggregate amount and value of financial
instruments that we hold or in which we maintain a position or that we have issued and that remain
outstanding, in each case, as of September 30, 2007 and December 31, 2006. Due to the nature of our
business, in particular our trading business, the amount or value of financial instruments that we
hold or maintain a position in will fluctuate on a daily and intra-day basis and the quarter-end
values and amounts presented below are not necessarily indicative of the exposures to market risk,
interest rate risk and other risks we may experience at various times throughout any given year.
Market Risk
Market risk represents the risk of loss that may result from the change in value of a
financial instrument due to fluctuations in its market price. Market risk may be exacerbated in
times of trading illiquidity when market participants refrain from transacting in normal quantities
and/or at normal bid-offer spreads. Our exposure to market risk is directly related to our role as
a financial intermediary in customer trading and to our market-making and investment activities,
which activities include committing from time to time to purchase large blocks of stock from
publicly-traded issuers or their significant shareholders. We trade in equity and convertible debt
securities as an active participant in both listed and OTC equity and convertible markets and
typically maintain securities in inventory to facilitate our market-making activities and customer
order flow. Market risk is inherent in financial instruments.
The following tables categorize our market risk sensitive financial instruments by type of
security and, where applicable, by maturity date as of September 30, 2007 and December 31, 2006.
As of September 30, 2007 (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
Expected Maturity Date
|
|
|
Total
|
|
|
as of
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
September 30,
|
|
|
|
of 2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Amount
|
|
|
2007
|
|
Inventory positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds long
|
|
$
|
|
|
|
$
|
4,565
|
|
|
$
|
3,042
|
|
|
$
|
2,000
|
|
|
$
|
8,918
|
|
|
$
|
106,237
|
|
|
$
|
124,762
|
|
|
$
|
164,631
|
|
Equity securities long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long
|
|
|
|
|
|
|
4,565
|
|
|
|
3,042
|
|
|
|
2,000
|
|
|
|
8,918
|
|
|
|
106,237
|
|
|
|
124,762
|
|
|
|
183,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,551
|
|
|
|
9,551
|
|
|
|
9,658
|
|
U.S. Treasury securities
short
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
10,135
|
|
Equity securities short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
14,551
|
|
|
|
19,551
|
|
|
|
131,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
78,750
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,750
|
|
|
|
78,750
|
|
Municipal debt securities
|
|
|
11,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,887
|
|
|
|
11,887
|
|
|
|
|
(a)
|
|
Represents earlier of contractual maturity or repricing date, which we believe represents the
market risk inherent in the underlying instrument.
|
31
As of December 31, 2006 (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
Expected Maturity Date
|
|
|
Total
|
|
|
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Amount
|
|
|
2006
|
|
Inventory positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds long
|
|
$
|
7,960
|
|
|
$
|
17,877
|
|
|
$
|
5,369
|
|
|
$
|
2,000
|
|
|
$
|
1,597
|
|
|
$
|
60,678
|
|
|
$
|
95,481
|
|
|
$
|
111,773
|
|
Equity securities long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long
|
|
|
7,960
|
|
|
|
17,877
|
|
|
|
5,369
|
|
|
|
2,000
|
|
|
|
1,597
|
|
|
|
60,678
|
|
|
|
95,481
|
|
|
|
137,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
|
|
18,374
|
|
|
|
21,824
|
|
|
|
22,610
|
|
U.S. Treasury securities
short
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
5,002
|
|
Equity securities short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
|
|
18,374
|
|
|
|
26,824
|
|
|
|
90,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
|
49,400
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,400
|
|
|
|
49,400
|
|
Municipal debt securities
|
|
|
22,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,125
|
|
|
|
22,125
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
|
|
|
(a)
|
|
Represents earlier of contractual maturity or repricing date, which we believe represents the
market risk inherent in the underlying instrument.
|
In connection with our asset management activities, we provide seed investment funds for new
asset management products to be invested in long and short positions in publicly traded equities
and related options and other derivative instruments. These seed investments are included in the
tables presented above.
In addition to the positions set forth in the table above, we maintain investments in private
equity, venture capital and other investment funds we manage or have managed. These investments
are carried at fair value in accordance with industry guidance and as of September 30, 2007 and
December 31, 2006 the carrying amount of these investments was $58.9 million and $45.6 million,
respectively.
From time to time we may use a variety of risk management techniques and hedging strategies in
the ordinary course of our brokerage activities, including establishing position limits by product
type and industry sector, closely monitoring inventory turnover, maintaining long and short
positions in related securities and using exchange-traded equity options and other derivative
instruments.
In connection with our brokerage activities, management reviews reports appropriate to the
risk profile of specific trading activities. Typically, market conditions are evaluated and
transaction details and securities positions are reviewed. These activities seek to ensure that
trading strategies are within acceptable risk tolerance parameters, particularly when we commit our
own capital to facilitate client trading. Our accounting department is actively involved in
ensuring the integrity and clarity of the daily profit and loss statements, to the extent that we
maintain trading positions for a period longer than one day. Activities include price verification
procedures, position reconciliation and review of transaction booking. We believe that these
procedures, which stress timely communications between our traders, institutional brokerage
management and senior management, are important elements in evaluating and addressing market risk.
As described in Note 14 Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market
Risk to our condensed consolidated financial statements, we were a party to an employment agreement
the value of which was indexed to publicly traded shares of an unrelated entity. This agreement was
considered a derivative under applicable GAAP and, accordingly, was marked to market through
compensation and benefits expense in our condensed consolidated statements of operations. During
the three months ended September 30, 2007, the liability related to this employee agreement was
paid to the employee. The fair value of this derivative liability was zero and $1.9 million at
September 30, 2007 and December 31, 2006, respectively, and is not reflected in the December 31,
2006 table above. We also reduced our exposure to fluctuations in the value of the employment
agreement by purchasing shares of the underlying security, which are included under Other
investments in the December 31, 2006 table above. In accordance with our stated accounting policy,
these shares were carried at market value with fluctuations in value reflected in asset management
revenues in the condensed consolidated statements of operations.
32
Interest Rate Risk
Interest rate risk represents the potential loss from adverse changes in market interest
rates. As we may hold U.S. Treasury securities and other fixed income securities, as well as
convertible debt securities, and incur interest-sensitive liabilities from time to time, we are
exposed to interest rate risk arising from changes in the level and volatility of interest rates
and in the shape of the yield curve. We issued floating rate notes to California Public Employees
Retirement System and Nomura America Investment, Inc. in connection with our reorganization on
February 7, 2006 and, therefore, are exposed to the risk of higher interest payments on those notes
if interest rates rise. Additionally, we are exposed to higher interest payments through our
variable rate secured financing arrangement with General Electric Capital Corporation. Certain of
these interest rate risks may be managed through the use of short positions in U.S. government and
corporate debt securities and other instruments.
The tables below provide information about our financial instruments that are sensitive to
changes in interest rates and their carrying value as of September 30, 2007 and December 31, 2006,
which approximates fair value. For inventory positions, other investments and notes payable, the
tables present principal cash flows with expected maturity dates.
As of September 30, 2007 (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
Expected Maturity Date
|
|
|
Total
|
|
|
as of
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
September 30,
|
|
|
|
of 2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Amount
|
|
|
2007
|
|
Inventory positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds long
|
|
$
|
|
|
|
$
|
4,565
|
|
|
$
|
3,042
|
|
|
$
|
2,000
|
|
|
$
|
8,918
|
|
|
$
|
106,237
|
|
|
$
|
124,762
|
|
|
$
|
164,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,551
|
|
|
|
9,551
|
|
|
|
9,658
|
|
U.S. Treasury securities short
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
10,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
14,551
|
|
|
|
19,551
|
|
|
|
19,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities (a)
|
|
|
78,750
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,750
|
|
|
|
78,750
|
|
Municipal debt securities (b)
|
|
|
11,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,887
|
|
|
|
11,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Note, floating
mid-term AFR + 2.25% (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
|
|
13,000
|
|
|
|
12,213
|
|
Senior Note, floating
mid-term AFR + 2.25% (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
9,395
|
|
Contingent Payment
Senior Note, non
interest bearing (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,384
|
|
|
|
|
|
|
|
2,384
|
|
|
|
1,916
|
|
Secured Note, floating at
LIBOR + 2.85% (e)
|
|
|
933
|
|
|
|
3,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,667
|
|
|
|
4,667
|
|
|
|
|
(a)
|
|
The weighted average interest rate was 4.49% at September 30, 2007.
|
|
(b)
|
|
The weighted average interest rate was 3.74% at September 30, 2007.
|
|
(c)
|
|
We have recorded the debt principal at a discount to reflect the below-market stated interest
rate of these notes. We amortize the discount to interest expense so that the interest expense
approximates our incremental borrowing rate. The weighted average interest rate was 6.78% at
September 30, 2007.
|
|
(d)
|
|
The Contingent Payment Senior Note has a variable due date based upon distributions received
from certain private equity funds. We have recorded the debt principal at a discount and
amortize the discount to interest expense so that the interest expense on this non-interest
bearing note approximates our incremental borrowing rate. The weighted average interest rate
was 17.54% at September 30, 2007.
|
|
(e)
|
|
The weighted average interest rate was 8.64% at September 30, 2007.
|
|
(f)
|
|
Represents earlier of contractual maturity or repricing date, which we believe represents the
interest rate risk inherent in the underlying instrument.
|
33
As of December 31, 2006 (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
Expected Maturity Date
|
|
|
Total
|
|
|
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Amount
|
|
|
2006
|
|
Inventory positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds long
|
|
$
|
7,960
|
|
|
$
|
17,877
|
|
|
$
|
5,369
|
|
|
$
|
2,000
|
|
|
$
|
1,597
|
|
|
$
|
60,678
|
|
|
$
|
95,481
|
|
|
$
|
111,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
|
|
18,374
|
|
|
|
21,824
|
|
|
|
22,610
|
|
U.S. Treasury securities short
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
5,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
|
|
18,374
|
|
|
|
26,824
|
|
|
|
27,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities (a)
|
|
|
49,400
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,400
|
|
|
|
49,400
|
|
Municipal debt securities (b)
|
|
|
22,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,125
|
|
|
|
22,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Note, floating
mid-term AFR + 2.25% (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
|
|
13,000
|
|
|
|
12,056
|
|
Senior Note, floating
mid-term AFR + 2.25% (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
9,274
|
|
Contingent Payment
Senior Note, non
interest bearing (d)
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
1,544
|
|
|
|
2,500
|
|
|
|
|
|
|
|
4,417
|
|
|
|
3,536
|
|
Secured Note, floating at
LIBOR + 2.85% (e)
|
|
|
3,733
|
|
|
|
3,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,467
|
|
|
|
7,467
|
|
|
|
|
(a)
|
|
The weighted average interest rate was 3.77% at December 31, 2006.
|
|
(b)
|
|
The weighted average interest rate was 5.20% at December 31, 2006.
|
|
(c)
|
|
We have recorded the debt principal at a discount to reflect the below-market stated interest
rate of these notes. We amortize the discount to interest expense so that the interest expense
approximates our incremental borrowing rate. The weighted average interest rate was 7.01% at
December 31, 2006.
|
|
(d)
|
|
The Contingent Payment Senior Note has a variable due date based upon distributions received
from certain private equity funds. We have recorded the debt principal at a discount and
amortize the discount to interest expense so that the interest expense on this non-interest
bearing note approximates our incremental borrowing rate. The weighted average interest rate
was 6.94% at December 31, 2006.
|
|
(e)
|
|
The weighted average interest rate was 7.84% at December 31, 2006.
|
|
(f)
|
|
Represents earlier of contractual maturity or repricing date, which we believe represents the
interest rate risk inherent in the underlying instrument.
|
Credit Risk
Our broker-dealer subsidiary places and executes customer orders. The orders are then settled
by unrelated clearing organizations that maintain custody of customers securities and provide
financing to customers. The majority of our transactions, and consequently the concentration of our
credit exposure, is with our clearing brokers. The clearing brokers are also the primary source of
our short-term financing (securities sold, not yet purchased), which is collateralized by cash and
securities owned by us and held by the clearing brokers. Our securities owned may be pledged by the
clearing brokers. The amount receivable from/payable to the clearing brokers represents amounts
receivable/payable in connection with the proprietary and customer trading activities. As of
September 30, 2007 and December 31, 2006, our cash on deposit with the clearing brokers was not
collateralizing any liabilities to the clearing brokers. In addition to the clearing brokers, we
are exposed to credit risk from other brokers, dealers and other financial institutions with which
we transact business.
Through indemnification provisions in our agreement with our clearing organizations, customer
activities may expose us to off-balance sheet credit risk. We may be required to purchase or sell
financial instruments at prevailing market prices in the event a customer fails to settle a trade
on its original terms or in the event cash and securities in customer margin accounts are not
sufficient to fully cover customer obligations. We seek to control the risks associated with
brokerage services for our customers through customer screening and selection procedures as well as
through requirements that customers maintain margin collateral in compliance with governmental and
self-regulatory organization regulations and clearing organization policies.
34
Effects of Inflation
Because our assets are generally liquid in nature, they are not significantly affected by
inflation. However, the rate of inflation affects our expenses, such as employee compensation,
office leasing costs and communications charges, which may not be readily recoverable in the price
of services offered by us. To the extent inflation results in rising interest rates and has other
adverse effects upon the securities markets, it may adversely affect our financial position and
results of operations.
Item 4. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures
. Based on the evaluation of our
disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and
15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive
Officer and our Chief Financial Officer have concluded that as of the end of the period covered by
this report, our disclosure controls and procedures were effective.
(b)
Changes in internal controls
. During the three months ended September 30, 2007 we
made the following changes in our internal control over financial reporting:
In conjunction with demonstrating compliance with Section 404 of the Sarbanes-Oxley Act by the
end of 2007, we are in the process of assessing the effectiveness of our internal control over
financial reporting. In particular, during the third quarter of 2007 we:
|
|
|
Continued to implement software that tracks the testing and adherence of internal
controls;
|
|
|
|
|
Continued to carry out the evaluation and testing of the effectiveness of internal
controls; and
|
|
|
|
|
Continued to formalize and enhance certain internal controls and the processes relating
to those internal controls.
|
We have not completed this process, and in the course of evaluating and testing our internal
control over financial reporting, management may identify deficiencies that would need to be
addressed and remediated.
There were no other changes in our internal control over financial reporting in the three
months ended September 30, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The following describes significant developments with respect to our litigation matters that
occurred in the three months ended September 30, 2007, and through the filing date, and should be
read in conjunction with our discussion set forth under (i) Note 16 Commitments, Guarantees and
Contingencies in Part VI, Item 15 of our Annual Report on Form 10-K for the year ended December 31,
2006 and (ii) Note 12 Commitments, Guarantees and Contingencies in Part I, Item 1 of our
Quarterly Reports on Form 10-Q for the three months ended March 31, 2007 and June 30, 2007.
|
|
|
In re Netlist, Inc. Securities Litigation Lawsuit Filed.
We have been named as a
defendant in an amended complaint for a purported class action lawsuit filed in November 2007 in connection with the initial public offering of Netlist in November 2006 where we
acted as a lead manager. The amended complaint, filed in the United States District Court
for the Central District of California, alleges violations of federal securities laws
against Netlist, various officers and directors as well as Netlists underwriters,
including us, based on alleged misstatements and omissions in the disclosure documents for
the offering. The complaint essentially alleges that the registration statement relating
to Netlists initial public offering was materially false and misleading. We deny
liability in connection with this matter. We believe we have meritorious defenses to the
action and intend to vigorously defend such action as it applies to us.
|
|
|
|
|
IRS Information Requests Relating to Tax Products Matter Settled
. As previously
disclosed, we had received requests for information from the Internal Revenue Service, or
IRS, regarding its referrals of clients to a third-party provider of tax products in 1999,
2000 and 2001. We cooperated with these requests and received an offer of settlement
regarding this matter from the IRS. Subsequently, we engaged in discussions with the IRS
regarding the settlement offer and ultimately settled this matter with the IRS in July 2007.
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Item 1A. Risk Factors
The following discussion supplements and amends the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2006.
There are numerous risks associated with our recent entry into an agreement to acquire
Westwind Partners.
On October 1, 2007 we announced that we had entered into an agreement to acquire
Westwind Partners, a full service, institutionally oriented, independent investment bank
headquartered in Toronto, Canada and focused on the energy and mining sectors. These risks
are described in detail in the proxy statement we have filed with the SEC relating to the
Westwind transaction and include, without limitation, the following:
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Thomas Weisel Partners and Westwind may experience difficulties, unexpected
costs and delays in integrating their businesses, business models and cultures and
the combined company may not realize synergies, efficiencies
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35
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or cost savings from the transaction. Even if Thomas Weisel Partners and Westwind
are able to integrate such businesses and operations successfully, there can be no
assurance that this integration will result in any synergies, efficiencies or cost
savings. If we are unable to integrate Westwind personnel successfully or retain
key Thomas Weisel Partners or Westwind personnel after the transaction is completed,
our business may suffer,
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We could be subject to unknown liabilities of Westwind, which could cause us to
incur substantial financial obligations and harm our business.
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The transaction is subject to conditions to closing that could result in the
transaction being delayed or not consummated, which could negatively impact our
stock price and future business and operations. In order to obtain required
regulatory approvals, we may become subject to conditions that we do not currently
anticipate.
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Following the acquisition of Westwind, we may become subject to additional risks
relating to Westwinds business, such as (i) Westwinds focus on specific sectors
of the economy such as energy and mining and (ii) Westwinds focus on Canada and
business dependent on the health and/or growth of the Canadian economy. In
addition, we will become further subject to foreign currency risk and the
political, economic, legal, operational and other risks that are inherent in
operating in a foreign country.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our initial public offering of common stock closed on February 7, 2006, and on that date we
issued 4,783,670 shares of our common stock in a registered public offering pursuant to a
Registration Statement on Form S-1, which was declared effective by the SEC on February 1, 2006
(Commission file number 333-129108), and pursuant to an additional Registration Statement on Form
S-1 (Commission file number 333-131470), which was filed on February 1, 2006 pursuant to SEC Rule
462(b) and which became effective automatically upon filing. On February 10, 2006, our underwriters
exercised their option to acquire additional shares of our common stock, and as a result we issued
130,770 additional shares of our common stock on February 14, 2006. The net offering proceeds to us
from the offering of these 4,914,440 shares, after subtracting the unaffiliated underwriters
discount and other expenses, were approximately $66.2 million.
During the period beginning February 7, 2006 and ending September 30, 2007, the proceeds of
our initial public offering were used as follows: (i) approximately $7.9 million was used to pay
off notes payable, (ii) approximately $18.3 million was used to increase the capital of our
broker-dealer subsidiary, Thomas Weisel Partners LLC, and (iii) $10.0 million was used to provide
seed investment funds for new asset management products. As of September 30, 2007 approximately
$30.0 million remains invested in municipal debt securities, auction rate securities and tax exempt
money market funds. It is our expectation that the full amount of the proceeds of the offering will
be used by us for general corporate purposes, including strategic acquisitions and investments.
In March 2007, we repurchased 28,646 shares of our common stock in a private transaction at
the purchase price of $16.09 per share for a total cost of approximately $0.5 million. In May 2007,
we repurchased 30,000 shares of our common stock in a private transaction at the purchase price of
$16.00 per share for a total cost of approximately $0.5 million. In September 2007, we repurchased
42,336 shares of our common stock in a private transaction at the purchase price of $7.11 per share
for a total cost of approximately $0.3 million. These repurchases were funded through cash and cash
equivalents. The shares were retired upon repurchase.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the three months ended
September 30, 2007.
Item 5. Other Information
None.
Item 6. Exhibits
See the Exhibit Index on page E-1 for a list of the exhibits being filed or furnished with or
incorporated by reference into this Quarterly Report on Form 10-Q.
36
SIGNATURES
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 thereunto duly authorized.
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THOMAS WEISEL PARTNERS GROUP, INC.
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Date: November 13, 2007
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By:
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/s/ Thomas W. Weisel
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Name:
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Thomas W. Weisel
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Title:
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Chairman and Chief Executive Officer
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Date: November 13, 2007
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By:
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/s/ David A. Baylor
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Name:
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David A. Baylor
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Title:
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Chief Financial Officer
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S-1
EXHIBIT INDEX
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Incorporated by Reference
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Exhibit
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File
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Date of
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Exhibit
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Filed
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Number
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Exhibit Description
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Form
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Number
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First Filing
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Number
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Herewith
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2.1
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Plan of Reorganization and
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S-1/A
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333-129108
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12/13/2005
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2.1
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Merger Agreement, dated as
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of October 14, 2005, by and
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among Thomas Weisel Partners
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Group LLC, Thomas Weisel
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Partners Group, Inc. and
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TWPG Merger Sub LLC
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2.2
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Agreement and Plan of Merger
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10-K
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000-51730
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3/29/2006
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2.2
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between Thomas Weisel
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Partners Group, Inc. and
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Thomas Weisel Partners Group
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LLC
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3.1
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Certificate of Incorporation
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S-1
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333-129108
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10/19/2005
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3.1
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3.2
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By-Laws
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S-1
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333-129108
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10/19/2005
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3.2
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4.1
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Form of Common Stock
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10-K
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000-51730
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3/29/2006
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4.1
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Certificate
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4.2
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Registration Rights Agreement
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10-K
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000-51730
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3/29/2006
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4.2
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4.3
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Warrant
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10-K
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000-51730
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3/29/2006
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4.3
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10.1+
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Amended and Restated Equity
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10-Q
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000-51730
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8/10/2007
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10.1
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Incentive Plan
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10.2
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Amendments to the Fully
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10-Q
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000-51730
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8/10/2007
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10.2
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Disclosed Clearing Agreement
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dated as of August 15, 2005
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by and between National
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Financial Services LLC and
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Thomas Weise Partners LLC
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10.3
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Lease, dated as of September
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10-Q
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000-51730
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8/10/2007
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10.3
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30, 2007, between SP4 190 S.
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LASALLE, L.P. and Thomas
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Weisel Partners Group, Inc.
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10.4+
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First Amendment to CEO
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Employment Agreement
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10.5
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Lease, dated as of August 1,
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X
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2007, between Farallon
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Capital Management, L.L.C
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and Thomas Weisel Partners
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Group, Inc.
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10.6
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Lease, dated as of September
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X
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1, 2007, between
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Schweizerische
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Rückversicherungs-Gesellschaft,
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and Thomas Weisel
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Partners International
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Limited
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31.1
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Rule 13a-14(a) Certification
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X
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of Chief Executive Officer
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31.2
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Rule 13a-14(a) Certification
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X
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of Chief Financial Officer
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32.1
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Section 1350 Certification
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X
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of Chief Executive Officer
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32.2
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Section 1350 Certification
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X
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of Chief Financial Officer
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+
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Indicates a management contract or a compensatory arrangement.
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E-1
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