UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE QUARTERLY PERIOD ENDED June 30,
2009
|
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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)
Delaware
|
|
20-3550472
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
San Francisco,
California 94104
(Address,
including zip code, and telephone number, including area code, of registrant’s
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
þ
|
Non-accelerated
filer
o
|
Smaller
reporting company
o
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
As of
August 5, 2009 there were 31,713,998 shares of the registrant’s common stock
outstanding, including 6,337,478 exchangeable shares of TWP Acquisition Company
(Canada), Inc., a wholly-owned subsidiary of the registrant. Each exchangeable
share is exchangeable at any time into a share of common stock of the
registrant, entitles the holder to dividend and other rights substantially
economically equivalent to those of a share of common stock, and, through a
voting trust, entitles the holder to a vote on matters presented to common
shareholders.
TABLE
OF CONTENTS
Item
Number
|
|
Page
|
|
PART I. FINANCIAL
INFORMATION
|
|
|
|
|
1. Unaudited Condensed
Consolidated Financial Statements
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
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|
3
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4
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4
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5
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5
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|
|
|
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6
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|
|
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6
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|
|
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7
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|
|
|
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7
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|
|
|
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8
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|
|
|
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9
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|
|
|
|
9
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|
|
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9
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|
|
|
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10
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|
|
|
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10
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|
|
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12
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|
|
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12
|
|
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13
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|
|
|
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14
|
|
|
|
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20
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
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23
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|
|
|
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24
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
25
|
|
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|
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25
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|
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|
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25
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|
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|
|
|
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|
S-1
|
|
|
|
|
E-1
|
|
PART
I — FINANCIAL INFORMATION
THOMAS
WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(In
thousands, except share and per share data)
(Unaudited)
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
89,433
|
|
|
$
|
116,588
|
|
Restricted
cash
|
|
|
6,743
|
|
|
|
6,718
|
|
Securities
owned
|
|
|
17,014
|
|
|
|
18,927
|
|
Receivable
from clearing brokers
|
|
|
26,177
|
|
|
|
12,064
|
|
Corporate
finance and syndicate receivables—net of allowance for doubtful accounts
of $939 and $950, respectively
|
|
|
4,893
|
|
|
|
5,716
|
|
Investments
in partnerships and other investments
|
|
|
39,931
|
|
|
|
43,815
|
|
Property
and equipment—net of accumulated depreciation and amortization of $105,645
and $102,047, respectively
|
|
|
17,483
|
|
|
|
20,581
|
|
Receivables
from related parties—net of allowance for doubtful loans of $2,792 and
$2,324, respectively
|
|
|
1,775
|
|
|
|
2,263
|
|
Other
intangible assets—net of accumulated amortization of $21,120 and $15,254,
respectively
|
|
|
18,601
|
|
|
|
23,229
|
|
Other
assets
|
|
|
29,868
|
|
|
|
31,749
|
|
Total
assets
|
|
$
|
251,918
|
|
|
$
|
281,650
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased
|
|
$
|
11,978
|
|
|
$
|
11,537
|
|
Payable
to clearing brokers
|
|
|
8
|
|
|
|
13
|
|
Accrued
compensation
|
|
|
13,785
|
|
|
|
21,824
|
|
Accrued
expenses and other liabilities
|
|
|
50,329
|
|
|
|
48,130
|
|
Notes
payable
|
|
|
22,310
|
|
|
|
22,101
|
|
Deferred
tax liability
|
|
|
5,638
|
|
|
|
6,144
|
|
Total
liabilities
|
|
|
104,048
|
|
|
|
109,749
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Note 13 to the condensed consolidated financial
statements)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Exchangeable
common stock—par value $0.01 per share, 6,539,478 and 6,639,478 shares
issued and outstanding, respectively
|
|
|
65
|
|
|
|
66
|
|
Common
stock—par value $0.01 per share, 100,000,000 shares authorized, 25,837,407
and 25,693,394 shares issued, respectively
|
|
|
258
|
|
|
|
257
|
|
Additional
paid-in capital
|
|
|
486,261
|
|
|
|
484,289
|
|
Accumulated
deficit
|
|
|
(322,503
|
)
|
|
|
(288,440
|
)
|
Accumulated
other comprehensive loss
|
|
|
(12,419
|
)
|
|
|
(14,745
|
)
|
Treasury
stock—at cost, 688,215 and 1,544,286 shares, respectively
|
|
|
(3,792
|
)
|
|
|
(9,526
|
)
|
Total
shareholders’ equity
|
|
|
147,870
|
|
|
|
171,901
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
251,918
|
|
|
$
|
281,650
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
THOMAS
WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
(In
thousands, except per share data)
(Unaudited)
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
$
|
14,268
|
|
|
$
|
22,939
|
|
|
$
|
25,294
|
|
|
$
|
34,435
|
|
Brokerage
|
|
|
27,743
|
|
|
|
34,860
|
|
|
|
57,199
|
|
|
|
70,994
|
|
Asset
management
|
|
|
6,445
|
|
|
|
1,865
|
|
|
|
9,170
|
|
|
|
2,214
|
|
Interest
income
|
|
|
170
|
|
|
|
1,848
|
|
|
|
545
|
|
|
|
4,873
|
|
Total
revenues
|
|
|
48,626
|
|
|
|
61,512
|
|
|
|
92,208
|
|
|
|
112,516
|
|
Interest
expense
|
|
|
(340
|
)
|
|
|
(1,498
|
)
|
|
|
(823
|
)
|
|
|
(3,578
|
)
|
Net
revenues
|
|
|
48,286
|
|
|
|
60,014
|
|
|
|
91,385
|
|
|
|
108,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
30,061
|
|
|
|
41,788
|
|
|
|
60,739
|
|
|
|
82,177
|
|
Brokerage
execution, clearance and account administration
|
|
|
6,492
|
|
|
|
6,394
|
|
|
|
12,904
|
|
|
|
12,872
|
|
Communications
and data processing
|
|
|
4,417
|
|
|
|
5,735
|
|
|
|
9,055
|
|
|
|
11,599
|
|
Depreciation
and amortization of property and equipment
|
|
|
1,926
|
|
|
|
1,933
|
|
|
|
4,529
|
|
|
|
3,820
|
|
Amortization
of other intangible assets
|
|
|
2,933
|
|
|
|
4,371
|
|
|
|
5,866
|
|
|
|
7,731
|
|
Marketing
and promotion
|
|
|
1,520
|
|
|
|
3,775
|
|
|
|
3,304
|
|
|
|
7,822
|
|
Occupancy
and equipment
|
|
|
4,581
|
|
|
|
5,274
|
|
|
|
8,668
|
|
|
|
10,661
|
|
Other
expense
|
|
|
7,272
|
|
|
|
7,630
|
|
|
|
20,249
|
|
|
|
15,594
|
|
Total
expenses excluding interest
|
|
|
59,202
|
|
|
|
76,900
|
|
|
|
125,314
|
|
|
|
152,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before taxes
|
|
|
(10,916
|
)
|
|
|
(16,886
|
)
|
|
|
(33,929
|
)
|
|
|
(43,338
|
)
|
Provision
for taxes (tax benefit)
|
|
|
(706
|
)
|
|
|
(6,759
|
)
|
|
|
134
|
|
|
|
(15,406
|
)
|
Net
loss
|
|
$
|
(10,210
|
)
|
|
$
|
(10,127
|
)
|
|
$
|
(34,063
|
)
|
|
$
|
(27,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(0.85
|
)
|
Diluted
net loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computation of per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
32,552
|
|
|
|
32,519
|
|
|
|
32,471
|
|
|
|
32,754
|
|
Diluted
weighted average shares outstanding
|
|
|
32,552
|
|
|
|
32,519
|
|
|
|
32,471
|
|
|
|
32,754
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
THOMAS
WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
(In
thousands)
(Unaudited)
|
|
Six
Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(34,063
|
)
|
|
$
|
(27,932
|
)
|
Non-cash
items included in net loss:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
4,529
|
|
|
|
3,820
|
|
Amortization
of other intangible assets
|
|
|
5,866
|
|
|
|
7,731
|
|
Share-based
compensation expense
|
|
|
9,620
|
|
|
|
8,034
|
|
Deferred
tax expense (benefit)
|
|
|
(910
|
)
|
|
|
(7,610
|
)
|
Provision
for doubtful corporate finance and syndicate receivable
accounts
|
|
|
520
|
|
|
|
(34
|
)
|
Credit
for facility lease loss
|
|
|
(383
|
)
|
|
|
—
|
|
Deferred
rent expense
|
|
|
(30
|
)
|
|
|
(346
|
)
|
Unrealized
and realized loss on investments in partnership and other securities and
other investments—net
|
|
|
1,883
|
|
|
|
2,031
|
|
Unrealized
and realized loss (gain) on warrants—net
|
|
|
(3,654
|
)
|
|
|
2,964
|
|
Interest
amortization on notes payable
|
|
|
209
|
|
|
|
429
|
|
Other
|
|
|
32
|
|
|
|
—
|
|
Net
effect of changes in operating assets and liabilities—net of effects from
acquisition:
|
|
|
|
|
|
|
|
|
Increase
in restricted cash
|
|
|
(25
|
)
|
|
|
—
|
|
Securities
owned and securities sold, but not yet purchased—net
|
|
|
6,792
|
|
|
|
30,927
|
|
Corporate
finance and syndicate receivables—net
|
|
|
100
|
|
|
|
13,810
|
|
Distributions
from investment partnerships
|
|
|
413
|
|
|
|
4,792
|
|
Other
assets
|
|
|
2,065
|
|
|
|
(6,050
|
)
|
Receivable
from/payable to clearing brokers—net
|
|
|
(13,589
|
)
|
|
|
1,581
|
|
Accrued
expenses and other liabilities
|
|
|
3,329
|
|
|
|
(29,685
|
)
|
Accrued
compensation
|
|
|
(8,105
|
)
|
|
|
(47,732
|
)
|
Net
cash used in operating activities
|
|
|
(25,401
|
)
|
|
|
(43,270
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment—net
|
|
|
(1,020
|
)
|
|
|
(2,133
|
)
|
Acquisition—net
of cash received
|
|
|
—
|
|
|
|
(8,109
|
)
|
Purchases
of investments in partnerships and other investments
|
|
|
(414
|
)
|
|
|
(2,411
|
)
|
Proceeds
from sale of investments in partnerships and other
investments
|
|
|
—
|
|
|
|
40,154
|
|
Net
cash provided by (used in) investing activities
|
|
|
(1,434
|
)
|
|
|
27,501
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Addition
of capital lease obligations
|
|
|
—
|
|
|
|
145
|
|
Repayment
of capital lease obligations
|
|
|
(20
|
)
|
|
|
(18
|
)
|
Repayment
of notes payable
|
|
|
—
|
|
|
|
(4,707
|
)
|
Cash
paid for net settlement of equity awards
|
|
|
(1,914
|
)
|
|
|
(834
|
)
|
Repurchase
or reacquisition of common stock
|
|
|
—
|
|
|
|
(7,428
|
)
|
Net
cash used in financing activities
|
|
|
(1,934
|
)
|
|
|
(12,842
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
1,614
|
|
|
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(27,155
|
)
|
|
|
(29,504
|
)
|
CASH
AND CASH EQUIVALENTS—Beginning of period
|
|
|
116,588
|
|
|
|
157,003
|
|
CASH
AND CASH EQUIVALENTS—End of period
|
|
$
|
89,433
|
|
|
$
|
127,499
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURE
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
333
|
|
|
$
|
3,016
|
|
Cash
paid for taxes
|
|
$
|
203
|
|
|
$
|
5,327
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
Issuance
of common shares and exchangeable common shares for acquisition of
Westwind
|
|
$
|
—
|
|
|
$
|
107,604
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Issuance
of shares in connection with vested restricted stock units
|
|
$
|
3,681
|
|
|
$
|
1,765
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
THOMAS
WEISEL PARTNERS GROUP, INC. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Organization
Thomas
Weisel Partners Group, Inc., a Delaware corporation, together with its
subsidiaries (collectively, the “Company”), is an investment banking firm
headquartered in San Francisco, California. The Company operates on an
integrated basis and is managed as a single operating segment providing
investment services that include investment banking, brokerage, equity research
and asset management.
The
Company conducts its investment banking, brokerage and equity research business
through the following subsidiaries:
|
·
|
Thomas
Weisel Partners LLC (“TWP”) – TWP is a registered broker-dealer under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is a
member of the New York Stock Exchange, Inc. (“NYSE”), American Stock
Exchange, the Financial Industry Regulatory Authority (“FINRA”) and the
Ontario Securities Commission. TWP is also a registered introducing broker
under the Commodity Exchange Act and a member of the National Futures
Association. TWP conducts certain of its activities through affiliates and
branch offices in Canada and the United Kingdom (“U.K.”) and through a
representative office in
Switzerland.
|
|
·
|
Thomas
Weisel Partners Canada Inc. (“TWPC”) – TWPC is an investment dealer
registered in the Canadian provinces of Ontario, Quebec, Alberta, British
Columbia, Saskatchewan, Manitoba and Nova Scotia and is a member of the
Investment Industry Regulatory Organization of Canada
(“IIROC”).
|
|
·
|
Thomas
Weisel Partners International Limited (“TWPIL”) – TWPIL is a U.K.
securities firm authorized by the Financial Services Authority in the
U.K.
|
TWP, TWPC
and TWPIL introduce on a fully disclosed basis proprietary and customer
securities transactions to other broker dealers (the “clearing brokers”) for
clearance and settlement.
The
Company primarily conducts its asset management business through Thomas Weisel
Capital Management LLC (“TWCM”), a registered investment adviser under the
Investment Advisers Act of 1940, as amended (“the Investment Advisors Act”).
TWCM 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”) is a registered investment
adviser under the Investment Advisers Act and 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”) is 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; and
|
|
·
|
Thomas
Weisel Venture Partners LLC (“TWVP”) is the managing general partner of a
venture capital fund that invests in emerging information technology
companies.
|
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 Exchange Act. Because the Company provides investment
services to its clients, it follows certain accounting guidance used by the
brokerage and investment industry.
The
preparation of the Company’s 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
condensed 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.
These
condensed consolidated financial statements should be read in conjunction with
the Company’s consolidated financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 2008.
Management
has evaluated subsequent events through August 7, 2009, which is the date that
the Company’s financial statements were issued. No material
subsequent events have occurred since June 30, 2009 that required recognition or
disclosure in these condensed consolidated financial statements, other than
those discussed in Note 4 – Investments in Partnerships and Other Investments,
Note 5 – Related Party Transactions and Note 13 – Commitments, Guarantees and
Contingencies.
Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies –
In
April
2009, the Financial Accounting Standards Board (“FASB”) issued amending and
clarifying guidance over business combinations to address application issues
raised by preparers, auditors and members of the legal profession on initial
recognition and measurement, subsequent measurement and accounting and
disclosure of assets and liabilities arising from contingencies in a business
combination. This guidance is effective for acquisitions on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company adopted the guidance on January 1, 2009, and the adoption
did not have a material impact on the Company’s condensed consolidated
statements of financial condition, operations and cash flows.
Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed
–
In April 2009, the FASB
issued guidance which provides additional regulation on determining whether a
market for a financial asset is not active and a transaction is not distressed
for fair value measurements. The guidance was effective for interim and annual
periods ending after March 15, 2009 and shall be applied prospectively. The
Company adopted the guidance on March 31, 2009, and the adoption did not have a
material impact on its condensed consolidated statements of financial condition,
operations and cash flows.
Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly –
In April
2009, the FASB issued a staff position, which provides additional guidance for
estimating fair value when the volume and level of activity for the asset or
liability have significantly decreased. This staff position also includes
guidance for identifying circumstances that indicate a transaction is not
orderly. The staff position was effective for interim and annual reporting
periods ending after June 15, 2009 and shall be applied prospectively. The
Company adopted the guidance on June 30, 2009, and the adoption did not have a
material impact on its condensed consolidated statements of financial condition,
operations and cash flows.
Interim Disclosures about Fair Value
of Financial Instruments –
In April 2009, the FASB issued guidance
pertaining to disclosures of fair value of financial instruments that requires
disclosure of fair value of financial
instruments for interim
reporting periods of publicly traded companies as well as in annual
financial statements.
The guidance was effective for interim reporting periods ending after June 15,
2009. The Company adopted the guidance on June 30, 2009, and the
adoption did not have a material impact on the Company’s condensed consolidated
statement of financial condition, operations and cash flows.
Subsequent Events –
In May
2009, the FASB issued guidance which establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
the financial statements are issued or are available to be issued. In
particular, the guidance sets forth (i) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The guidance
is effective for interim or annual financial periods ending after June 15, 2009
and shall be applied prospectively. The Company adopted the subsequent events
guidance on June 30, 2009, and the adoption did not have an impact on its
condensed consolidated statements of financial condition, operations and cash
flows.
Accounting for Transfers of
Financial Assets
– In June 2009, the FASB issued guidance to improve the
relevance, representational faithfulness and comparability of the information
that a reporting entity provides in its financial reports about a transfer of
financial assets, the effects of a transfer on its financial position, financial
performance and cash flows, and a transferor’s continuing involvement in
transferred financial assets. This guidance is effective for interim
and annual periods ending after November 15, 2009 and shall be applied
prospectively. The Company is currently evaluating the impact, if any, that the
adoption will have on its consolidated statements of financial condition,
operations and cash flows.
Consolidation of Variable Interest
Entities
– In June 2009, the FASB issued guidance with the objective to
amend certain requirements for accounting for the consolidation of variable
interest entities (“VIE”)
to improve financial
reporting by enterprises involved with VIEs and to provide more relevant and
reliable information to users of financial
statements. This
guidance is effective for annual reporting periods beginning after November 15,
2009, and for interim periods within that first annual reporting period. The
Company is currently evaluating the impact, if any, that the adoption will have
on its consolidated statements of financial condition, operations and cash
flows.
FASB Accounting Standards
Codification
and the
Hierarchy of Generally Accepted Accounting Principles
– In June 2009, the
FASB issued guidance with the objective to replace the original hierarchy of
accounting principles and to establish the FASB
Accounting Standards
Codification as the source of authoritative
accounting principles
recognized by the FASB. This is to be applied by nongovernmental
entities in the
preparation of financial statements in conformity with GAAP. Rules and
interpretive releases
of the Securities and Exchange Commission (“SEC”) under authority
of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The guidance is
effective
for financial statements issued for interim and annual periods ending after
September 15, 2009.
The Company is currently evaluating the impact, if
any, that the adoption of the guidance will have on its condensed consolidated
statements of financial condition, operations and cash flows.
Securities
owned and securities sold, but not yet purchased were as follows (
in thousands
):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
Securities
Sold, But
|
|
|
|
|
|
|
Securities
Sold, But
|
|
|
|
Securities
|
|
|
Not
Yet
|
|
|
Securities
|
|
|
Not
Yet
|
|
|
|
Owned
|
|
|
Purchased
|
|
|
Owned
|
|
|
Purchased
|
|
Equity
securities
|
|
$
|
13,022
|
|
|
$
|
598
|
|
|
$
|
12,095
|
|
|
$
|
1,465
|
|
Equity
index fund
|
|
|
—
|
|
|
|
11,380
|
|
|
|
—
|
|
|
|
10,072
|
|
Convertible
bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
6,402
|
|
|
|
—
|
|
Warrants
|
|
|
3,992
|
|
|
|
—
|
|
|
|
430
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
securities owned and securities sold, but not yet
purchased
|
|
$
|
17,014
|
|
|
$
|
11,978
|
|
|
$
|
18,927
|
|
|
$
|
11,537
|
|
At June
30, 2009 and December 31, 2008, securities sold, but not yet purchased were
collateralized by securities owned that are held at the clearing
brokers.
At June
30, 2009 and December 31, 2008, the Company did not hold securities that cannot
be publicly offered or sold unless registration has been affected under the
Securities Act, of 1933 as amended (the “Securities Act”), except for
warrants.
Warrants
are received from time to time as partial payment for investment banking
services.
The
warrants provide the Company with the right to purchase common shares in both
public and private companies. All warrants were non-transferable as
of June 30, 2009 and certain of them have restricted periods during which the
warrant may not be exercised.
Investments
in partnerships and other investments consisted of the following (
in thousands
):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Investments
in partnerships
|
|
$
|
28,725
|
|
|
$
|
32,654
|
|
|
|
|
|
|
|
|
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
8,734
|
|
|
|
8,913
|
|
Other
|
|
|
2,472
|
|
|
|
2,248
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships and other investments
|
|
$
|
39,931
|
|
|
$
|
43,815
|
|
Investments
in Partnerships
Investments
in partnerships consist of investments in private equity partnerships and
include the Company’s general partner interests in investment partnerships and
the fair value adjustments recorded to reflect the investments at fair value.
The Company 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 Company’s
general partner commitment, as provided in the underlying investment
partnerships’ partnership agreements. The Company 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 Company 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 Company recognizes the
allocated carried interest if and when this threshold is met.
Some of
the Company’s investments in partnerships interests meet the definition of a
VIE. The Company does not consolidate these VIEs because it has determined
that the Company is not the primary beneficiary. For general partnership
interests that do not qualify as VIEs, the partnership agreements have
established simple majority kick out rights for limited partner interests and
therefore the Company does not consolidate the partnerships
.
Other
Investments
As of
June 30, 2009, the Company held auction rate securities (“ARS”) with a par value
of $9.7 million and fair value of $8.7 million. The ARS are variable
rate debt instruments, having long-term maturity dates (approximately 25 to 31
years), but whose interest rates are reset through an auction process, most
commonly at intervals of 7, 28 and 35 days. The interest earned on these
investments is exempt from Federal income tax. All of the Company’s ARS are
backed by pools of student loans and were rated either Aaa, Aa3, A1, Ba3 or Baa3
at June 30, 2009 and either Aaa, Aa3 or A1 at December 31, 2008. The Company
continues to receive interest when due on its ARS and expects to continue to
receive interest when due in the future. The weighted-average Federal
tax exempt interest rate was 0.95% at June 30, 2009.
In 2008,
widespread auction failures resulted in a lack of liquidity for these previously
liquid securities. As a result, the principal balance of the Company’s ARS will
not be accessible until successful auctions occur, a buyer is found outside of
the auction process, the issuers and the underwriters establish a different form
of financing to replace these securities or final payments come due according to
the contractual maturities. As a result of the auction failures, the
Company evaluates the credit risk and liquidity risk associated with the
securities and compares the yields on its ARS to similarly rated municipal
issues and determined that its ARS had a fair value decline of $0.2 million in
the six months ended June 30, 2009.
In July
2009, the Company repurchased at par $13.2 million of ARS that
previously had been sold from its account in January 2008 to three
customers without those customers’ prior written consent.
Similar
to its ARS holdings at June 30, 2009,
the Company evaluated the credit
risk and liquidity risk associated with these securities and compared the yields
on these ARS to similarly rated municipal issues. As a result of this
evaluation, the Company determined that these ARS would have a fair value of
$12.4 million and recorded a fair value adjustment of $0.8 million in the six
months ended June 30, 2009.
Receivables
from related parties consisted of the following (
in thousands
):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Co-Investment
Fund loans to employees and former employees
|
|
$
|
3,947
|
|
|
$
|
3,947
|
|
Employee
loans and other related party receivables
|
|
|
620
|
|
|
|
640
|
|
Less
—
Allowance for doubtful
loans
|
|
|
(2,792
|
)
|
|
|
(2,324
|
)
|
|
|
|
|
|
|
|
|
|
Total
receivables from related parties
|
|
$
|
1,775
|
|
|
$
|
2,263
|
|
Related
Party Loans
Co-Investment Funds –
In 2000
and 2001, the Company 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 Company and
invested side-by-side with the Company’s affiliates, Thomas Weisel Capital
Partners, L.P. (a private equity fund formerly managed by the Company) and
Thomas Weisel Venture Partners L.P. As part of this program, the Company made
loans to employees for capital contributions to the Co-Investment Funds in
amounts up to 400% of employees’ contributions. The Company 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. During the three and six months ended June 30, 2009, the Company
increased the reserve related to the Co-Investment Funds by $0.1 and $0.5
million, respectively. There was no change to the reserve during the three and
six months ended June 30, 2008. The Company discontinued the investment program
for employees in 2002. The Co-Investment Funds did not make any distributions
that were credited towards repayment of the loans to employees during both the
three and six months ended June 30, 2009 and 2008.
Employee Loans —
The Company
from time to time prior to its initial public offering made unsecured loans to
its employees. These loans were not part of a Company program, but were made as
a matter of course. The Company previously established a reserve for the face
value of these loans. In June 2007, two employees entered into
agreements with the Company that provide for repayment of the loans by December
31, 2008, if they have not already been repaid, from funds generated through
repurchase by the Company of shares of the Company’s common stock held by the
employees.
In
September 2008, the two employees and the Company amended the agreements
described above to extend the repayment date of the loans to February
2011. As of June 30, 2009, the two employees have collectively repaid
$0.3 million of their outstanding loan balances in cash and from proceeds they
received through the repurchase by the Company of shares of the Company’s common
stock held by the employees. As of June 30, 2009, the fair market value of the
Company’s common stock held by each of the employees was equal to or greater
than the carrying amount of their loans.
Other
Transactions
Mr. Weisel,
the Company’s Chairman and Chief Executive Officer and certain other employees
of the Company from time to time use an airplane owned by Ross Investments Inc.
(“Ross”), an entity wholly-owned by Mr. Weisel, for business travel. The
Company and Ross have adopted a time-sharing agreement in accordance with
Federal Aviation Regulation 91.501 to govern the Company’s use of the Ross
aircraft, pursuant to which the Company reimburses Ross for the travel expenses
in an amount generally comparable to the expenses the Company would have
incurred for business travel on commercial airlines for similar trips. For the
three months ended June 30, 2009 and 2008, the Company paid approximately
$14,000 and $26,000, respectively, to Ross on account of such expenses. For the
six months ended June 30, 2009 and 2008, the Company paid approximately $41,000
and $32,000, respectively, to Ross on account of such expenses. These amounts
are included in marketing and promotion expense within the condensed
consolidated statements of operations. As of June 30, 2009 and December 31,
2008, the Company did not have any amounts payable to Ross.
In
addition, the Company provides personal office services to Mr. Weisel. In
accordance with an agreement he has with the Company, Mr. Weisel reimburses the
Company for out-of-pocket expenses the Company incurs for such services. Amounts
incurred by the Company for these services for both the three months ended June
30, 2009 and 2008 were approximately $73,000. Amounts incurred for the six
months ended June 30, 2009 and 2008 were approximately $139,000 and $191,000,
respectively. The receivable from Mr. Weisel at June 30, 2009 and December 31,
2008 was approximately $73,000.
The
amount outstanding at June 30, 2009 was paid by Mr. Weisel in July
2009.
In 2009,
the Company agreed to provide personal office services as needed to Mr.
Conacher, its President and Chief Operating Officer. Mr. Conacher
reimburses the Company for the cost of such services and for out-of-pocket
expenses it incurs on his behalf. Amounts incurred by the Company for the
three and six months ended June 30, 2009 were approximately $38,000 and $40,000,
respectively. The receivable from Mr. Conacher at June 30, 2009 was
approximately $38,000. The amount outstanding at June 30, 2009 was paid by Mr.
Conacher in July 2009.
On July
27, 2009, the Company entered into a President Employment Agreement, a
Relocation Agreement and a Side Agreement with Mr. Conacher, The
Relocation Agreement sets forth terms and conditions applicable to Mr.
Conacher’s relocation from Canada to the Company’s San Francisco office.
Pursuant to the Relocation Agreement, on August 5, 2009, Computershare Trust
Company of Canada, the trustee for the trust that distributes Company common
stock associated with vesting restricted stock units held by Canadian employees
of the Company, purchased from Mr. Conacher 175,000 shares of the Company’s
common stock at $4.00 per share, and the Company granted 175,000 options to Mr.
Conacher, with an exercise price of $4.00, which will vest in February 2011 and
be exercisable until August 2014.
On
January 2, 2008, the Company acquired Westwind Capital Corporation (“Westwind”),
a full-service, institutionally oriented, independent investment bank for a
purchase price of $156 million. The Company accounted for its
acquisition of Westwind utilizing the purchase method
.
The
following sets forth the other intangible assets associated with the acquisition
of Westwind as of June 30, 2009 (
dollar amounts in
thousands
):
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value June 30, 2009
|
|
Useful
Life
|
Customer
relationships
|
|
$
|
18,400
|
|
|
$
|
6,645
|
|
|
$
|
11,755
|
|
7.5
years
|
Non-compete
agreements
|
|
|
24,033
|
|
|
|
12,018
|
|
|
|
12,015
|
|
3.0
years
|
Investment
banking backlog
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
—
|
|
1.0
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other intangible assets
|
|
$
|
45,033
|
|
|
$
|
21,263
|
|
|
$
|
23,770
|
|
|
The
difference between the net book value of the other intangible assets presented
above and the amount presented within the condensed consolidated statements of
financial condition is due to a currency translation adjustment of $5.2 million
at June 30, 2009.
The
following sets forth the remaining amortization of the other intangible assets
based on accelerated and straight-line methods of amortization over the
respective useful lives as of June 30, 2009 (
in thousands
):
Remainder
of 2009
|
|
$
|
5,866
|
|
2010
|
|
|
10,889
|
|
2011
|
|
|
2,200
|
|
2012
|
|
|
1,720
|
|
2013
|
|
|
1,360
|
|
Thereafter
|
|
|
1,735
|
|
|
|
|
|
|
Total
amortization
|
|
$
|
23,770
|
|
Amortization
expense related to other intangible assets was $2.9 million and $4.4 million for
the three months ended June 30, 2009 and 2008, respectively. Amortization
expense related to other intangible assets was $5.8 million and $7.7 million for
the six months ended June 30, 2009 and 2008, respectively.
In
connection with the allocation of the Westwind purchase price consideration, the
Company recorded goodwill of $98.2 million. Subsequent to the
acquisition, the Company experienced a significant decline in its market
capitalization which was affected by the uncertainty in the financial markets.
Based on the difficult conditions in the business climate and the Company’s
perception that the climate was unlikely to change in the near term, the Company
recorded a full impairment charge to the goodwill asset of $92.6 million in the
third quarter of 2008. The difference between the goodwill balance
recorded on the acquisition date and the amount impaired during the year ended
December 31, 2008 is due to a currency translation adjustment of $5.6
million.
Notes
payable consisted of the following (
in thousands
):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Principal
Amount
|
|
|
Carrying
Amount
|
|
|
Principal
Amount
|
|
|
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR
(1)
+ 2.25%
(2)
|
|
$
|
13,000
|
|
|
$
|
12,610
|
|
|
$
|
13,000
|
|
|
$
|
12,492
|
|
Senior
Note, floating mid-term AFR
(1)
+ 2.25%
(2)
|
|
|
10,000
|
|
|
|
9,700
|
|
|
|
10,000
|
|
|
|
9,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
$
|
23,000
|
|
|
$
|
22,310
|
|
|
$
|
23,000
|
|
|
$
|
22,101
|
|
|
(1)
|
Applicable
Federal Rate.
|
|
(2)
|
The
Company has recorded the debt principal at a discount to reflect the
below-market stated interest rate of these notes at inception. The Company
amortizes the discount to interest expense so that the interest expense
approximates the Company’s incremental borrowing rate. The
effective interest rates at June 30, 2009 and December 31, 2008 were 4.79%
and 3.80%, respectively.
|
As of
June 30, 2009 and December 31, 2008, the fair value for each of the notes
payable presented above approximates the carrying value as of June 30, 2009 and
December 31, 2008, respectively.
The
weighted-average interest rate for notes payable was 4.01% and 5.17% at June 30,
2009 and December 31, 2008, respectively.
The
principal balances for the notes payable are due in February
2011.
Subordinated
Borrowings
In April
2008, TWP entered into a $25.0 million revolving note and cash subordination
agreement with its primary clearing broker and incurs an annual commitment fee
of 1.0%, or $0.3 million. The credit period in which TWP could draw on the note
ended on April 18, 2009. TWP renewed this agreement on April 30, 2009, and the
new credit period expires on April 30, 2010. As of June 30, 2009, TWP
does not have any balances outstanding under this facility.
TWPC has
a capital rental arrangement with a Canadian financial institution which is also
a member of the IIROC. Under this arrangement, the financial institution
provides subordinated loan capital to TWPC out of its capital up to CDN$8.0
million for bought deal underwriting commitments in return for a participation
in the underwriting. During the six months ended June 30, 2009, TWPC was
provided capital for a bought deal underwriting commitment and as a result
incurred a fee of $0.1 million.
Covenants
The
Senior Notes include financial covenants including restrictions on additional
indebtedness
and other
liabilities that could cause them to become callable
nd requirements that
the notes be repaid should the Company enter into a transaction to liquidate or
dispose of all or substantially all of its property, business or assets. The
Company was in compliance with all covenants at June 30, 2009.
The
Company records financial assets and liabilities at fair value in the condensed
consolidated statements of financial condition with unrealized gains (losses)
reflected in the condensed consolidated statements of operations.
The
degree of judgment used in measuring the fair value of financial instruments
generally correlates to the level of pricing observability. Pricing
observability is impacted by a number of factors, including the type of
financial instrument, whether the financial instrument is new to the market and
not yet established and the characteristics specific to the
transaction. Financial instruments with readily available active
quoted prices for which fair value can be measured generally will have a higher
degree of pricing observability and a lesser degree of judgment used in
measuring fair value. Conversely, financial instruments rarely traded
or not quoted will generally have less, or no, pricing observability and a
higher degree of judgment used in measuring fair value.
The
Company’s financial assets and liabilities measured and reported at fair value
are classified and disclosed in one of the following
categories:
|
·
|
Level
1 – Quoted prices are available in active markets for identical
investments as of the reporting date. Investments included in this
category are listed equities and equity index funds. The Company does not
adjust the quoted price of these investments, even in situations where it
holds a large position and a sale could reasonably be expected to affect
the quoted price.
|
|
·
|
Level
2 – Pricing inputs are other than quoted prices in active markets, which
are either directly or indirectly observable as of the reporting date, and
fair value is determined through the use of models or other valuation
methodologies. Investments generally included in this category are
convertible bonds.
|
|
·
|
Level
3 – Pricing inputs are unobservable for the investment and include
situations where there is little, if any, market activity for the
investment. The inputs used in the determination of fair value require
significant management judgment or estimation. Investments generally
included in this category are partnership interests in private investment
funds, warrants, auction rate securities and securities that cannot be
publicly offered or sold unless registration has been affected under the
Securities Act.
|
The
following is a summary of the fair value of the major categories of financial
instruments held by the Company (
in thousands
):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Assets
|
|
|
|
|
|
|
|
|
Securities
owned
|
|
$
|
17,014
|
|
|
$
|
18,927
|
|
Investments
in partnerships and other investments
|
|
|
39,931
|
|
|
|
43,815
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
56,945
|
|
|
$
|
62,742
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased
|
|
$
|
11,978
|
|
|
$
|
11,537
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
11,978
|
|
|
$
|
11,537
|
|
The
following is a summary of the Company’s financial assets and liabilities as of
June 30, 2009 that are accounted for at fair value on a recurring basis by level
in accordance with the fair value hierarchy described above (
in thousands
):
|
|
Level
1
(1)
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
13,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,022
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
3,992
|
|
|
|
3,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in partnerships and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in partnerships
|
|
|
—
|
|
|
|
—
|
|
|
|
28,725
|
|
|
|
28,725
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
8,734
|
|
|
|
8,734
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
2,472
|
|
|
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
13,022
|
|
|
$
|
—
|
|
|
$
|
43,923
|
|
|
$
|
56,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold, but not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
598
|
|
Equity
index fund
|
|
|
11,380
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
11,978
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,978
|
|
(1)
|
Included
in cash and cash equivalents is approximately $55 million of money market
funds that are considered Level I investments in the fair value
hierarchy.
|
The
following is a summary of changes in fair value of the Company’s financial
assets that have been classified as Level 3 for the three months ended June 30,
2009 (
in
thousands
):
|
|
Warrants
|
|
|
Investments
in Partnerships
|
|
|
Auction
Rate Securities
|
|
|
Other
Investments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
March 31,
2009
|
|
$
|
1,789
|
|
|
$
|
30,098
|
|
|
$
|
8,913
|
|
|
$
|
2,616
|
|
|
$
|
43,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
and unrealized gains (losses)
—
net
|
|
|
2,367
|
|
|
|
(1,381
|
)
|
|
|
(179
|
)
|
|
|
—
|
|
|
|
807
|
|
Purchases,
sales, issuances and settlements
—
net
|
|
|
(304
|
)
(1)
|
|
|
8
|
(2)
|
|
|
—
|
|
|
|
(144
|
)
|
|
|
(440
|
)
|
Cumulative
translation adjustment
|
|
|
140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
140
|
|
Transfers
in
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transfers
out
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
June 30,
2009
|
|
$
|
3,992
|
|
|
$
|
28,725
|
|
|
$
|
8,734
|
|
|
$
|
2,472
|
|
|
$
|
43,923
|
|
(1)
|
Warrants
are received from time to time as partial payment for investment banking
services. During the three months ended June 30, 2009, the
Company exercised $0.5 million of warrants that it held and disposed of
them subsequent to exercise.
|
(2)
|
Represents
the net of contributions to and distributions from investments in
partnerships.
|
The
following is a summary of changes in fair value of the Company’s financial
assets that have been classified as Level 3 for the six months ended June 30,
2009 (
in
thousands
):
|
|
Warrants
|
|
|
Investments
in Partnerships
|
|
|
Auction
Rate Securities
|
|
|
Other
Investments
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
December 31,
2008
|
|
$
|
430
|
|
|
$
|
32,654
|
|
|
$
|
8,913
|
|
|
$
|
2,248
|
|
|
$
|
44,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
and unrealized gains (losses)
—
net
|
|
|
3,182
|
|
|
|
(4,077
|
)
|
|
|
(179
|
)
|
|
|
165
|
|
|
|
(909
|
)
|
Purchases,
sales, issuances and settlements
—
net
|
|
|
247
|
(1)
|
|
|
148
|
(2)
|
|
|
—
|
|
|
|
59
|
|
|
|
454
|
|
Cumulative
translation adjustment
|
|
|
133
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
Transfers
in
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transfers
out
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
—
June 30,
2009
|
|
$
|
3,992
|
|
|
$
|
28,725
|
|
|
$
|
8,734
|
|
|
$
|
2,472
|
|
|
$
|
43,923
|
|
|
(1)
|
Warrants
are received from time to time as partial payment for investment banking
services. During the six months ended June 30, 2009, the
Company exercised $0.6 million of warrants that it held and disposed of
them subsequent to exercise.
|
|
(2)
|
Represents
the net of contributions to and distributions from investments in
partnerships.
|
During
the year ended December 31, 2008, ARS for which the auctions failed and where no
secondary market has developed were moved to Level 3, as the assets were subject
to valuation using unobservable inputs. These ARS continued to be
classified in Level 3 through June 30, 2009.
The total
net unrealized gains (losses) during the three and six months ended June 30,
2009 of $0.8 million and $(0.9) million, respectively, relate to financial
assets held by the Company as of June 30, 2009.
Realized
and unrealized gains (losses) from investments in partnerships and other
investments are included in asset management revenues in the condensed
consolidated statements of operations. Realized and unrealized gains
(losses) from securities owned and securities sold, but not yet purchased,
except those related to warrants, are included in brokerage revenues in the
condensed consolidated statements of operations.
Potential
dilutive shares consist of the incremental common stock issuable for outstanding
restricted stock units, options and a warrant (both vested and non-vested) using
the treasury stock method. Potential dilutive shares are excluded from the
computation of net loss per share if their effect is anti-dilutive. The
anti-dilutive options totaled 268,549 for both the three and six months ended
June 30, 2009. The anti-dilutive options totaled 85,216 for both the three and
six months ended June 30, 2008. The anti-dilutive warrant totaled 486,486 shares
for both the three and six months ended June 30, 2009, as well as for the three
and six months ended June 30, 2008.
The
following table is a reconciliation of net loss reported in the Company’s
condensed consolidated statements of operations to comprehensive loss (
in thousands
):
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,210
|
)
|
|
$
|
(10,127
|
)
|
|
$
|
(34,063
|
)
|
|
$
|
(27,932
|
)
|
Currency
translation adjustment
|
|
|
3,224
|
|
|
|
1,070
|
|
|
|
2,326
|
|
|
|
(2,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(6,986
|
)
|
|
$
|
(9,057
|
)
|
|
$
|
(31,737
|
)
|
|
$
|
(30,736
|
)
|
The Third
Amended and Restated Thomas Weisel Partners Group, Inc. Equity Incentive Plan
(the “Equity Incentive Plan”) provides for 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
Company. At the February 2009 Special Meeting of Shareholders, the shareholders
of the Company voted to approve an increase in the number of shares of the
Company’s common stock available for awards under the Equity Incentive Plan by
6,000,000 shares. At June 30, 2009 the total number of shares issuable under the
Equity Incentive Plan was 17,150,000 shares. Awards of stock options
and restricted stock units reduce the number of shares available for future
issuance. The number of shares available for future issuance under
the Equity Incentive Plan at June 30, 2009 was approximately 6,050,000 shares.
The Company accounts for share-based compensation at fair value.
Restricted
Stock Units
A summary
of non-vested restricted stock unit activity for the six months ended June 30,
2009 is presented below:
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Non-vested
—
December 31,
2008
|
|
|
7,316,712
|
|
|
$
|
8.58
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
3,075,077
|
|
|
|
3.10
|
|
Vested
|
|
|
(1,154,839
|
)
|
|
|
12.12
|
|
Cancelled
|
|
|
(347,581
|
)
|
|
|
5.51
|
|
|
|
|
|
|
|
|
|
|
Non-vested
—
June 30,
2009
|
|
|
8,889,369
|
|
|
$
|
6.35
|
|
The fair
value of the shares vested during the three and six months ended June 30, 2009
was $1.2 million and $4.8 million, respectively. The fair value of the shares
vested during the three and six months ended June 30, 2008 was $44,700 and $7.5
million, respectively.
As of
June 30, 2009, there was $37.4 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
2.4 years.
During
the three and six months ended June 30, 2009 the Company recorded
$5.2 million and $9.6 million, respectively, in non-cash compensation
expense with respect to grants of restricted stock units. During the three and
six months ended June 30, 2008 the Company recorded $4.1 million and $8.0
million, respectively, in non-cash compensation expense with respect to grants
of restricted stock units.
The
Company accounts for income taxes by recognizing deferred tax assets and
liabilities based upon temporary differences between the financial reporting and
tax basis 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 year ended December 31, 2008, the Company determined that it was
more-likely-than-not that its U.S. deferred tax assets would not be
realized. The Company made this determination primarily based on the
significant losses it incurred in 2008 as a result of the severe economic
downturn and its effect on the capital markets. As of June 30, 2009, the
Company continued to carry a full valuation allowance on its U.S. and U.K.
deferred tax assets due to continued losses incurred during the six months ended
June 30, 2009.
The
Company’s effective tax rate for the three and six months ended June 30, 2009
was 6.5% and (0.4)%, respectively. The Company’s effective tax rate for the
three and six months ended June 30, 2008 was 40.0% and 35.5%, respectively. The
tax provision for the six months ended June 30, 2009 relates to the Company’s
operations in Canada. The change in the effective tax rate is primarily due to
the increase in the valuation allowance associated with the U.S. net operating
losses incurred during the three and six months ended June 30,
2009.
Commitments
Lease
Commitments
The
Company leases office space and computer equipment under non-cancelable
operating leases which extend to 2016 and which may be extended as prescribed
under renewal options in the lease agreements. The Company has entered into
several non-cancelable sub-lease agreements for certain facilities or floors of
facilities which are co-terminus with the Company’s lease for the respective
facilities or floors of facilities. Facility and computer equipment
lease expenses charged to operations for the three months ended June 30, 2009
and 2008 was $3.3 million and $4.0 million, respectively, net of
sublease income of $0.9 million and $1.0 million, respectively. Facility and
computer equipment lease expenses charged to operations for the six months ended
June 30, 2009 and 2008 was $6.8 million and $8.2 million,
respectively, net of sublease income of $1.6 million and $1.9 million,
respectively.
At June
30, 2009, the Company had a lease loss liability of $7.0 million related to
office space that it vacated in 2008 and in prior years. The lease
loss liability was estimated as the net present value of the difference between
lease payments and receipts under expected sublease agreements.
Fund
Capital Commitments
At
June 30, 2009, the Company’s Asset Management Subsidiaries had commitments
to invest in affiliated investment partnerships. These commitments are generally
called as investment opportunities are identified by the underlying
partnerships. The Company’s Asset Management Subsidiaries’
commitments at June 30, 2009 were as follows (
in thousands
):
Global
Growth Partners I
|
|
$
|
414
|
|
Global
Growth Partners II
|
|
|
352
|
|
Global
Growth Partners IV (S)
|
|
|
287
|
|
Healthcare
Venture Partners
|
|
|
241
|
|
|
|
|
|
|
Total
Fund Capital Commitments
|
|
$
|
1,294
|
|
In
addition to the commitments set forth in the table above, the Company has
committed $8.3 million to investments in unaffiliated funds. Through June 30,
2009, the Company has funded $4.3 million of these commitments and the Company’s
remaining unfunded commitment as of June 30, 2009 was $4.0 million. These
commitments may be called in full at any time.
Guarantees
Broker-Dealer
Guarantees and Indemnification
The
Company’s 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 Company may be required to reimburse the clearing brokers for
losses on these obligations. The Company has established procedures to reduce
this risk by monitoring trading within accounts and requiring deposits in excess
of regulatory requirements.
In
February 2009, the Company recorded a loss of approximately $5.1 million due to
a customer who failed to pay for several equity
purchases that the Company executed at the customer’s request. Based
on the Company’s agreement with its primary clearing broker, the Company was
required to settle and pay for those transactions on the customer’s behalf.
The Company recorded the loss in bad debt expense which is included in other
expense in the condensed consolidated statements of operations. The
Company believes the loss was incurred as a result of fraudulent activity on the
part of the customer and is vigorously pursuing that customer for the losses
incurred upon liquidating those positions.
The Company is a member of
various securities exchanges. Under the standard membership agreements, 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 Company’s 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 Company to be required to make payments under these
arrangements is remote. The Company has not recorded any loss contingency for
this indemnification.
Guaranteed
Compensation
The
Company has entered into guaranteed compensation agreements, and obligations
under these agreements are being accrued ratably over the related service
period. Total unaccrued obligations at June 30, 2009 for services to be provided
subsequent to June 30, 2009 were $2.3 million.
Director
and Officer Indemnification
The
Company has 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 Company for all losses, damages, costs and
expenses incurred by the indemnified person arising out of such person’s service
in such capacity, subject to the limitations imposed by Delaware law. The
Company has not recorded any loss contingency for this
indemnification.
Tax
Indemnification Agreement
In
connection with its initial public offering, the Company 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
Company’s reorganization. The tax indemnification agreement included provisions
that permit the Company to control any tax proceeding or contest which might
result in it being required to make a payment under the tax indemnification
agreement. The Company has not recorded any loss contingency for this
indemnification.
Contingencies
Loss
Contingencies
The
Company is involved in a number of judicial, regulatory and arbitration matters
arising in connection with its business. The outcome of matters the Company 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 Company’s results of
operations in any future period, and a significant judgment could have a
material adverse impact on the Company’s condensed consolidated
statements
of financial condition, operations and cash flows. The Company
may in the future become involved in additional litigation in the ordinary
course of its business, including litigation that could be material to the
Company’s business.
The
Company 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, in view of the inherent difficulty of predicting the
outcome of those 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.
Additionally,
the Company will record receivables for insurance recoveries for legal
settlements and expenses when such amounts are covered by insurance and recovery
of such losses or costs are considered probable of recovery. These amounts
will be recorded as other assets in the condensed consolidated statements of
financial condition and will reduce other expense to the extent such losses or
costs have been incurred, in the condensed consolidated statements of
operations.
The
following discussion describes significant developments with respect to the
Company’s litigation matters that have occurred subsequent to December 31,
2008.
Updated
Matters
Auction Rate Securities
– The Company has
received inquiries from FINRA requesting information concerning purchases
through the Company of ARS by Private Client Services
customers. Based upon press reports, approximately forty firms,
including the Company, have received inquiries from the Enforcement Department
of FINRA regarding retail customer purchases through those firms of
ARS. The Company is cooperating with FINRA while it conducts its
investigation. The Company notes that a number of underwriters of ARS
entered into settlements with the SEC and other regulators in connection with
those underwriters’ sales and underwriting practices. The Company did
not, at any time, underwrite ARS or manage the associated
auctions. In connection with such auctions, the Company merely served
as agent for its customers when buying in auctions managed by those
underwriters. Accordingly, the Company distinguishes its conduct from
such underwriters and is prepared to assert these and other defenses should
FINRA seek to bring an action in the future. Nevertheless, there can
be no assurance that FINRA will not take regulatory action.
On July
23, 2009, the staff of the Enforcement Department of FINRA (the “Staff”) advised
the Company, that the Staff has made a preliminary determination to recommend
disciplinary action in connection with the Company’s transactions in ARS on
behalf of its customers, including transactions for and with the Company. The
Staff’s recommendation involves potential violations of FINRA and Municipal
Securities Rulemaking Board rules and certain anti-fraud and other provisions of
the federal securities laws in connection with the purchase and sales of ARS and
certain statements and disclosures made in connection with those purchases and
sales. A Staff preliminary determination is neither a formal allegation nor is
it evidence of wrongdoing. The Company now has the opportunity to provide its
perspective on relevant events and alleged conduct and to address issues raised
prior to any formal action being taken.
The
Company is continuing to work with the Staff to bring this matter to a close as
expeditiously as practicable and, as applicable, will provide the Staff with
legal and factual arguments relating to the preliminary determination, but there
can be no assurance that those efforts will be successful or that a disciplinary
proceeding will not be brought. The Company is prepared to contest vigorously
any formal disciplinary action that would result in a censure, fine, or other
sanction that could be material to its business, financial position or results
of operations. If FINRA were to institute disciplinary action, it is possible
that such action could result in a material adverse effect on the Company’s
business, financial position or results of operations. However, the Company is
unable to determine at this time the impact of the ultimate resolution of this
matter.
In
addition to the FINRA investigation, the Company has been named (along with two
employees) in a FINRA arbitration filed by one of its retail customers who
purchased ARS as part of his 401(k) Profit Sharing Plan account. The
amount of the claim in that matter is not material to the
Company. The Company has filed its answer to the customer’s
complaint, and the parties will now proceed toward discovery. The
Company believes it has meritorious defenses to the action and intends to
vigorously defend such action as it applies to the Company. The Company has also
received notice of a second FINRA arbitration filed by another one of its retail
clients who purchased ARS as part of his account. The Company is currently
reviewing and investigating the claim and will file its formal response. The
Company believes it has it has meritorious defenses to this action as well and
will vigorously defend such action.
While the
Company’s review of the need and amount for any loss contingency reserve has led
the Company to conclude that, based upon currently available information, it has
adequately established a provision for loss contingencies related to ARS
matters, the Company is not able to predict with certainty the outcome of any
such matters, nor the amount if any, of an eventual settlement or
judgment.
In re Initial Public Offering
Securities Litigation –
The Company 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
Company acted as a co-lead manager in one offering, a co-manager in 32
offerings, and as a syndicate member in 10 offerings. The Company 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 court’s 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 filed a motion for class
certification on a new basis and subsequently scheduled discovery. In
April 2009, the parties entered into a comprehensive settlement agreement that
has been submitted to the Court (which is subject to, among other things,
approval by the Court) that the Company believes will result in the resolution
of this matter for an amount that will be covered by its relevant insurance
policies. Settlement papers have been signed by the Court, and the insurance
carriers have been notified and are prepared to make payment on the Company’s
behalf on or before the court determined August 27, 2009 payment
date.
Resolved Matters
In re Openwave Systems Inc.
Securities Litigation
– The Company 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 Company
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 Company, 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 Company believes it
has meritorious defenses to the action and intends to vigorously defend such
action as it applies to the Company.
In re Netlist, Inc. Securities
Litigation
– The Company 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 Company 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 Netlist’s underwriters, including the Company, based on
alleged misstatements and omissions in the disclosure documents for the
offering. The complaint essentially alleges that the registration
statement relating to Netlist’s initial public offering was materially false and
misleading. The Company denies liability in connection with this
matter and has filed a motion to dismiss that was granted without prejudice by
the court. Plaintiffs have now filed an amended complaint and the
Company has now filed another motion to dismiss. The Company believes it has
meritorious defenses to the action and intends to vigorously defend such action
as it applies to the Company.
In re Vonage Holdings Corp.
Securities Litigation
– The Company 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 Company 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 Vonage’s directed share program and violations of
Federal securities laws against Vonage and certain of its directors and senior
officers as well as Vonage’s underwriters, including the Company, 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 filed
motions to dismiss. In 2009, the court issued an order dismissing all
claims against the underwriters, with leave to re-file certain of those
claims. The Company believes it has meritorious defenses to these
actions and intends to vigorously defend such actions as they apply to the
Company.
The
majority of the Company’s 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 Company. The securities owned by the
Company may be pledged by the clearing brokers. The amount receivable from or
payable to the clearing brokers in the Company’s condensed consolidated
statements of financial condition represent amounts receivable or payable in
connection with the trading of proprietary positions and the clearance of
customer securities transactions. As of June 30, 2009 and December 31,
2008, the Company’s cash on deposit with the clearing brokers was not
collateralizing any liabilities to the clearing brokers.
In
addition to the clearing brokers, the Company 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, the
Company may be exposed to credit risk. The Company seeks to control credit risk
by following an established credit approval process and monitoring credit limits
with counterparties.
The
Company’s trading activities include providing securities brokerage services to
institutional and retail clients. To facilitate these customer transactions, the
Company purchases proprietary securities positions (“long positions”) in equity
securities, convertible, other fixed income securities and equity index funds.
The Company also enters into transactions to sell securities not yet purchased
(“short positions”), which are recorded as liabilities in the condensed
consolidated statements of financial condition. The Company 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
the Company’s 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 ensure compliance with limits established by the Company. The associated
interest rate risk of these securities is not deemed material to the
Company.
The
Company is also exposed to market risk through its investments in partnerships
and through certain loans to employees collateralized by such investments. In
addition, as part of the Company’s investment banking and asset management
activities, the Company 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 Company to market
risk. These activities are subject, as applicable, to risk guidelines and
procedures designed to manage and monitor market risk.
TWP is a
registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule
(the “Net Capital Rule”) under the Exchange Act administered by the SEC and
FINRA, 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 FINRA 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.
TWPC is a
registered investment dealer in Canada and is subject to the capital
requirements of the IIROC. In addition, TWPIL is a registered U.K.
broker-dealer and is subject to the capital requirements of the Financial
Securities Authority.
The table
below summarizes the minimum capital requirements for the Company’s
broker-dealer subsidiaries as of June 30, 2009 (
in thousands
):
|
|
Required
Net Capital
|
|
|
Net
Capital
|
|
|
Excess
Net Capital
|
|
TWP
|
|
$
|
1,000
|
|
|
$
|
36,136
|
|
|
$
|
35,136
|
|
TWPC
|
|
|
215
|
|
|
|
14,323
|
|
|
|
14,108
|
|
TWPIL
|
|
|
1,673
|
|
|
|
1,915
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,888
|
|
|
$
|
52,374
|
|
|
$
|
49,486
|
|
The
following table represents net revenues by geographic area (
in thousands
):
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
2009
|
|
|
2008
|
|
|
|
2009
|
|
|
2008
|
|
United
States
|
$
|
36,376
|
|
$
|
51,129
|
|
|
|
$
|
65,939
|
|
|
$
|
92,664
|
|
Other
countries
|
|
11,910
|
|
|
8,885
|
|
|
|
|
25,446
|
|
|
|
16,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenue
|
$
|
48,286
|
|
$
|
60,014
|
|
|
|
$
|
91,385
|
|
|
$
|
108,938
|
|
No single
customer accounted for more than 10% of the Company’s net revenues during the
three or six months ended June 30, 2009. During the three months ended June
30, 2008, brokerage revenue received from a single customer accounted for 10.6%
of the Company’s net revenues. No single customer accounted for 10%
or more of the Company’s net revenues during the six months ended June 30,
2008.
Net
revenues from countries other than the United States consist primarily of net
revenues from Canada. Net revenues from Canada during the three and six months
ended June 30, 2009 accounted for 79% and 80%, respectively, of net revenues
from other countries and during the three and six months ended June 30, 2008
accounted for 100% and 83%, respectively, of net revenues from other
countries.
The
following table represents long lived assets by geographic area based on the
physical location of the assets (
in thousands
):
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
14,130
|
|
|
$
|
17,261
|
|
Other
countries
|
|
|
3,353
|
|
|
|
3,320
|
|
|
|
|
|
|
|
|
|
|
Total
long lived assets
—
net
|
|
$
|
17,483
|
|
|
$
|
20,581
|
|
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, 2008, and in
Part II, Item 1A – “Risk Factors” of this Quarterly Report on Form
10-Q. See “Where You Can Find More Information” in Part I,
Item 1 – “Business” of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q in Item 2 – “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and in other sections
includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 as amended (“the Exchange Act”), and Section
21E of the Exchange Act, as amended. In some cases, you can identify
these statements by forward-looking words such as “may”, “might”, “will”,
“should”, “expect”, “plan”, “anticipate”, “believe”, “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, 2008 and in Part II, Item
1A – “Risk Factors” of this Quarterly Report on Form 10-Q.
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, except as required by
Federal securities law.
Forward-looking
statements include, but are not limited to, the following:
·
|
Our
statements in Part I, Item 2 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” that
–
|
o
|
we
expect to expand our trading in Canadian securities as our energy and
mining analysts begin to make a greater impact on our U.S. and European
accounts, and we will be hiring U.S. based energy bankers and analysts to
capitalize on our capabilities in these
sectors;
|
o
|
we
expect the electronic trading and commission sharing programs to increase
our market share of the expanding volume of shares traded by institutional
clients through alternative trading
platforms;
|
o
|
we
currently plan to continue to selectively hire senior professionals,
particularly in revenue generating areas, in the belief that it will lead
to a higher level of revenue
productivity;
|
o
|
we
may carry out repurchases of our common stock from time to time in the
future and our Board of Directors may authorize additional repurchases in
the future, in each case for the purpose of settling obligations to
deliver common stock to employees who have received Restricted Stock Units
under our Equity Incentive Plan;
and
|
o
|
we
believe that our current level of equity capital, current cash balances,
funds anticipated to be provided by operating activities and funds
available to be drawn under temporary loan agreements, will be adequate to
meet our liquidity and regulatory capital requirements for the next 12
months.
|
Overview
We are an
investment bank focused principally on growth companies and growth investors.
Our business is managed as a single operating segment, and we generate revenues
by providing financial services that include investment banking, brokerage,
equity research and asset management. We take a comprehensive approach in
providing these services to growth companies.
We are
exposed to volatility and trends in the general securities market and the
economy. In the latter half of 2007, uncertainty and turmoil in the global
financial markets began to impact our capital markets activity. In
2008 and through the first six months of 2009, we experienced a dramatic
slowdown in the capital markets that led to a significant decline in the number
of our investment banking transactions. As transactions declined, it was
important for us to align out costs with expected revenues to maintain our
capital.
During
2008, we took significant steps to reduce our cost structure and reshape our
operations in an effort to preserve capital, retain key personnel and position
the Company to take advantage of the dislocation in the marketplace when capital
market activity returned. The most significant of these measures has been the
reduction in our headcount. During 2009, we reduced our headcount by
approximately 110 employees, which follows a net headcount reduction in 2008 of
approximately 200 employees. As of July 31, 2009, we had
approximately 455 employees, a 40% reduction from the beginning of
2008.
In
addition to the headcount reductions, as a cost saving measure, we reduced base
salaries for employees with titles of Vice President and above by 10%, including
our Chief Executive Officer, President and our other executive officers, and we
reduced the base compensation for non-employee directors from $75,000 to
$50,000, effective January 1, 2009. Although we believe our
professionals to be our most important asset, and their compensation and
benefits have been our most significant expenditure, we undertook these
reductions in an effort to align this expenditure to revenues.
In an
effort to position ourselves to take advantage of the dislocation in the
marketplace when the capital markets activity returns, we continue to recruit
high quality talent who possess deep relationships. Since the
beginning of 2008, we have hired 11 senior investment banking and 21 senior
brokerage professionals, many of which came from bulge bracket firms. Over this
challenging period we have maintained the same number of banking calling
officers through which we expect to engage clients and generate revenues as
conditions improve.
Consolidated
Results of Operations
Our
results of operations depend on a number of market factors, including market
conditions and valuations for growth companies and growth investors, 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.
Notwithstanding
this exposure to volatility and trends, in order to provide value to our
clients, we have made a long-term commitment to maintaining a substantial,
full-service 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.
The
following table provides a summary of our results of operations (
dollar amounts
in
thousands
):
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Net
revenues
|
|
$
|
48,286
|
|
|
$
|
60,014
|
|
|
|
(19.5
|
)%
|
|
$
|
91,385
|
|
|
$
|
108,938
|
|
|
|
(16.1
|
)%
|
Loss
before taxes
|
|
|
(10,916
|
)
|
|
|
(16,886
|
)
|
|
|
(35.4
|
)
|
|
|
(33,929
|
)
|
|
|
(43,338
|
)
|
|
|
(21.7
|
)
|
Net
loss
|
|
|
(10,210
|
)
|
|
|
(10,127
|
)
|
|
|
0.8
|
|
|
|
(34,063
|
)
|
|
|
(27,932
|
)
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
$
|
(1.05
|
)
|
|
$
|
(0.85
|
)
|
|
|
|
|
Diluted
net loss per share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
$
|
(1.05
|
)
|
|
$
|
(0.85
|
)
|
|
|
|
|
The
following table sets forth our revenues, both in dollar amounts and as a
percentage of net revenues (
dollar amounts
in
thousands
):
|
|
Three
Months Ended
June
30,
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
$
|
14,268
|
|
|
$
|
22,939
|
|
|
|
(37.8
|
)%
|
|
$
|
25,294
|
|
|
$
|
34,435
|
|
|
|
(26.5
|
)%
|
Brokerage
|
|
|
27,743
|
|
|
|
34,860
|
|
|
|
(20.4
|
)
|
|
|
57,199
|
|
|
|
70,994
|
|
|
|
(19.4
|
)
|
Asset
management
|
|
|
6,445
|
|
|
|
1,865
|
|
|
|
nm
|
(1)
|
|
|
9,170
|
|
|
|
2,214
|
|
|
|
nm
|
|
Interest
income
|
|
|
170
|
|
|
|
1,848
|
|
|
|
(90.8
|
)
|
|
|
545
|
|
|
|
4,873
|
|
|
|
(88.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
48,626
|
|
|
|
61,512
|
|
|
|
(20.9
|
)
|
|
|
92,208
|
|
|
|
112,516
|
|
|
|
(18.0
|
)
|
Interest
expense
|
|
|
(340
|
)
|
|
|
(1,498
|
)
|
|
|
(77.3
|
)
|
|
|
(823
|
)
|
|
|
(3,578
|
)
|
|
|
(77.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
48,286
|
|
|
$
|
60,014
|
|
|
|
(19.5
|
)%
|
|
$
|
91,385
|
|
|
$
|
108,938
|
|
|
|
(16.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking
|
|
|
29.5
|
%
|
|
|
38.2
|
%
|
|
|
|
|
|
|
27.7
|
%
|
|
|
31.6
|
%
|
|
|
|
|
Brokerage
|
|
|
57.5
|
|
|
|
58.1
|
|
|
|
|
|
|
|
62.6
|
|
|
|
65.2
|
|
|
|
|
|
Asset
management
|
|
|
13.3
|
|
|
|
3.1
|
|
|
|
|
|
|
|
10.0
|
|
|
|
2.0
|
|
|
|
|
|
Interest
income
|
|
|
0.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
0.6
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
100.7
|
|
|
|
102.5
|
|
|
|
|
|
|
|
100.9
|
|
|
|
103.3
|
|
|
|
|
|
Interest
expense
|
|
|
(0.7
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Investment
Banking Revenue
Our
investment banking revenue includes (i) management fees, underwriting fees,
selling concessions and agency placement fees earned through our participation
in public offerings and private placements of equity and debt securities,
including convertible debt, (ii) fees earned as a strategic advisor in
mergers and acquisitions and similar transactions and (iii) the value of
warrants received as partial payment for investment banking services. 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.
The
following table sets forth our investment banking revenues and the number of
investment banking transactions (
dollar amounts
in thousands
):
|
|
Three
Months Ended
June
30,
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Investment
banking revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
raising
|
|
$
|
8,132
|
|
|
$
|
13,854
|
|
|
|
(41.3
|
)%
|
|
$
|
16,733
|
|
|
$
|
21,242
|
|
|
|
(21.2
|
)%
|
Strategic
advisory
|
|
|
6,136
|
|
|
|
9,085
|
|
|
|
(32.5
|
)
|
|
|
8,561
|
|
|
|
13,193
|
|
|
|
(35.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment banking revenue
|
|
$
|
14,268
|
|
|
$
|
22,939
|
|
|
|
(37.8
|
)%
|
|
$
|
25,294
|
|
|
$
|
34,435
|
|
|
|
(26.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
banking transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
raising
|
|
|
21
|
|
|
|
26
|
|
|
|
|
|
|
|
32
|
|
|
|
45
|
|
|
|
|
|
Strategic
advisory
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment banking transactions
|
|
|
28
|
|
|
|
32
|
|
|
|
|
|
|
|
43
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
revenue per transaction
|
|
$
|
510
|
|
|
$
|
717
|
|
|
|
|
|
|
$
|
588
|
|
|
$
|
626
|
|
|
|
|
|
Three Months Ended June 30, 2009
versus 2008
—
Investment banking revenue decreased $8.7 million in the three months
ended June 30, 2009 from 2008. Our average revenue per transaction
decreased to $0.5 million during the three months ended June 30, 2009 from
$0.7 million in 2008. During the three months ended June 30, 2009 and 2008
we closed 28 and 32 investment banking transactions, respectively. The change in
our number of transactions is primarily due to the decline in capital raising
activity. During the three months ended June 30, 2009 and 2008, 42.3% and 30.6%,
respectively, of our investment banking revenue was earned from the five largest
transactions during the respective periods.
Capital
raising revenue accounted for 57% and 60% of our investment banking revenue in
the three months ended June 30, 2009 and 2008, respectively. Capital raising
revenue decreased $5.7 million to $8.1 million in the three months ended June
30, 2009 from 2008. Our average revenue per capital raising transaction
decreased to $0.3 million during the three months ended June 30, 2009 from
$0.5 million in 2008. Our results highlight the benefit of our diversified
sector strategy as in the first quarter of 2009, the majority of our capital
raising revenue was a result of transactions in our mining sector while in the
second quarter of 2009, the majority of our capital raising revenue was a result
of transactions in our technology sector.
Strategic
advisory revenue accounted for 43% and 40% of our investment banking revenue in
the three months ended June 30, 2009 and 2008, respectively. Strategic advisory
revenue decreased $2.9 million to $6.1 million in the three months ended
June 30, 2009 from 2008. Our average revenue per strategic advisory transaction
decreased to $0.9 million during the three months ended June 30, 2009 from $1.5
million in 2008.
Six Months Ended June 30, 2009
versus 2008
—
Investment banking revenue decreased $9.1 million in the six months ended
June 30, 2009 from 2008. Our average revenue per transaction was
$0.6 million during both the six months ended June 30, 2009 and 2008.
During the six months ended June 30, 2009 and 2008 we closed 43 and 55
investment banking transactions, respectively. The change in our number of
transactions is primarily due to the decline in capital raising activity. During
the six months ended June 30, 2009 and 2008, 41.8% and 23.2%, respectively, of
our investment banking revenue was earned from the five largest transactions
during the respective periods. During the six months ended June 30, 2009 our
investment banking revenue included $5.4 million of revenue generated from a
single capital raising transaction.
Capital
raising revenue accounted for 66% and 62% of our investment banking revenue in
the six months ended June 30, 2009 and 2008, respectively. Capital raising
revenue decreased $4.5 million to $16.7 million in the six months ended June 30,
2009 from 2008. Our average revenue per capital raising transaction was $0.5
million during both the six months ended June 30, 2009 and 2008. Our results
highlight the benefits of our diversified sector strategy as in the first
quarter of 2009 the majority of our capital raising revenue was a
result of transactions in our mining sector while in the second quarter of 2009
majority of our capital raising revenue was a result of transactions in our
technology sector.
Strategic
advisory revenue accounted for 34% and 38% of our investment banking revenue in
the six months ended June 30, 2009 and 2008, respectively. Strategic advisory
revenue decreased $4.6 million to $8.6 million in the six months ended June
30, 2009 from 2008. Our average revenue per strategic advisory transaction
decreased to $0.8 million during the six months ended June 30, 2009 from $1.3
million in 2008.
Brokerage
Revenue
Our
brokerage revenue includes (i) commissions paid by customers for brokerage
transactions in equity securities, (ii) spreads paid by customers on convertible
debt securities, (iii) trading gains (losses) which result from market
making activities from our commitment of capital to facilitate customer
transactions and from proprietary trading activities relating to our convertible
debt and special situations trading groups, (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 equity research.
The
concentration in brokerage revenue among our ten largest brokerage clients was
28% and 52% for the three months ended June 30, 2009 and 2008, respectively,
which represents approximately $7.7 million and $18.1 million of brokerage
revenue, respectively. The concentration in brokerage revenue among our ten
largest brokerage clients was 28% and 35% for the six months ended June 30, 2009
and 2008, respectively, which represents approximately $16.0 million and $24.8
million of brokerage revenue, respectively.
Three and Six Months Ended June 30,
2009 versus 2008
—
Brokerage revenue decreased by $7.1 million and $13.8 million in the
three and six months ended June 30, 2009 from 2008, respectively. The decrease
in brokerage revenues was primarily attributable to lower revenue from our
institutional business in the United States due to a reduction in our average
daily volume of shares traded for our customers.
The
combined average daily volume on the New York Stock Exchange and the Nasdaq was
approximately 3.8 billion shares during both the three and six months ended June
30, 2009, an increase of 14.6% and 2.7% from the three and six months ended June
30, 2008, respectively. Our combined average daily customer trading volume
decreased 14.8% and 6.5%, respectively, for the three and six months ended June
30, 2009 from 2008.
We have
taken steps over the past year, including broadening our geographic coverage and
developing our product offerings within electronic trading, 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.
Our asset
management revenue includes (i) fees from investment partnerships we
manage, (ii) realized and unrealized gains (losses) on investments in private
equity partnerships which are primarily allocations of the appreciation and
depreciation in fair value of the underlying partnership investments, (iii) fees
we earn from the management of equity distributions received by our clients,
(iv) other asset management-related realized and unrealized gains (losses)
on investments not associated with private equity partnerships and (v) realized
and unrealized gains (losses) on warrants received as partial payment for
investment banking services. Our investments in partnerships include the
following private investment funds: Thomas Weisel Capital Partners (“TWCP”),
Thomas Weisel Global Growth Partners (“TWGGP”) Thomas Weisel Healthcare Venture
Partners (“TWHVP”) and Thomas Weisel Venture Partners
(“TWVP”).
The
following table sets forth our asset management revenues (
dollar amounts
in
thousands
):
|
|
Three
Months Ended
June
30,
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Asset
management revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
$
|
3,333
|
|
|
$
|
3,469
|
|
|
|
(3.9
|
)%
|
|
$
|
6,923
|
|
|
$
|
7,129
|
|
|
|
(2.9
|
)%
|
Investments
in partnerships realized and unrealized gains (losses)
—
net
|
|
|
151
|
|
|
|
331
|
|
|
|
(54.3
|
)
|
|
|
(1,698
|
)
|
|
|
(1,758
|
)
|
|
|
(3.4
|
)
|
Other
securities realized and unrealized gains (losses)
—
net
|
|
|
2,961
|
|
|
|
(1,935
|
)
|
|
|
nm
|
|
|
|
3,945
|
|
|
|
(3,157
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
asset management revenue
|
|
$
|
6,445
|
|
|
$
|
1,865
|
|
|
|
nm
|
|
|
$
|
9,170
|
|
|
$
|
2,214
|
|
|
|
nm
|
|
Three Months Ended June 30, 2009
versus 2008
—
Investments in partnerships realized and unrealized gains (losses) were
as follows (
dollar amounts in
thousands
):
|
|
Three
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Investments
in partnerships realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
TWCP
|
|
$
|
(387
|
)
|
|
$
|
(396
|
)
|
|
|
(2.2
|
)
|
TWGGP
|
|
|
(211
|
)
|
|
|
(76
|
)
|
|
|
nm
|
|
TWHVP
|
|
|
(961
|
)
|
|
|
1,487
|
|
|
|
nm
|
|
TWVP
|
|
|
(251
|
)
|
|
|
(1,002
|
)
|
|
|
(74.9
|
%)
|
Other
|
|
|
1,961
|
|
|
|
318
|
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships realized and unrealized gains
(losses)
|
|
$
|
151
|
|
|
$
|
331
|
|
|
|
(54.3
|
)%
|
Net
realized and unrealized investment gains during the three months ended June 30,
2009 were due to our interest in a partnership which has invested in a privately
held company that experienced significant growth in its operating results since
our interest was acquired at the beginning of 2008. This gain was offset by
realized and unrealized losses attributable to our partnership interests in
private portfolio companies caused by both downward valuations of those
companies seeking capital in the current environment and declining operating
results.
We
recorded net investment gains in other securities of $3.0 million
in the
three months ended June 30, 2009 compared to net investment losses of $1.9
million in 2008 primarily due to an increase in unrealized and realized gains on
warrants during the three months ended June 30, 2009
.
Six Months Ended June 30, 2009
versus 2008
—
Investments in partnerships realized and unrealized gains (losses) were
as follows (
dollar amounts in
thousands
):
|
|
Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Investments
in partnerships realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
TWCP
|
|
$
|
(1,292
|
)
|
|
$
|
(460
|
)
|
|
|
nm
|
|
TWGGP
|
|
|
(573
|
)
|
|
|
(89
|
)
|
|
|
nm
|
|
TWHVP
|
|
|
(1,584
|
)
|
|
|
(1,141
|
)
|
|
|
38.8
|
%
|
TWVP
|
|
|
(1,604
|
)
|
|
|
(279
|
)
|
|
|
nm
|
|
Other
|
|
|
3,355
|
|
|
|
211
|
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in partnerships realized and unrealized gains
(losses)
|
|
$
|
(1,698
|
)
|
|
$
|
(1,758
|
)
|
|
|
(3.4
|
)%
|
Net
realized and unrealized investment gains during the six months ended June 30,
2009 were due to our interest in a partnership which has invested in a privately
held company that experienced significant growth in its operating results since
our interest was acquired at the beginning of 2008. This gain was offset by
realized and unrealized losses attributable to our partnership interests in
private portfolio companies caused by both downward valuations of those
companies seeking capital in the current environment and declining operating
results.
We
recorded net investment gains in other securities of $3.9 million in the six
months ended June 30, 2009 compared to net investment losses of $3.2 million in
2008 primarily due to an increase in unrealized and realized gains on warrants
during the six months ended June 30, 2009.
Net
Revenues by Geographic Segment
The
following table sets forth our net revenues by geographic segment (
in thousands
):
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
2009
|
|
2008
|
|
United
States
|
|
$
|
36,376
|
|
|
$
|
51,129
|
|
|
$
|
65,939
|
|
|
$
|
92,664
|
|
Other
countries
|
|
|
11,910
|
|
|
|
8,885
|
|
|
|
25,446
|
|
|
|
16,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenue
|
|
$
|
48,286
|
|
|
$
|
60,014
|
|
|
$
|
91,385
|
|
|
$
|
108,938
|
|
No single
customer accounted for more than 10% of net revenues during the three and six
months ended June 30, 2009. During the three months ended June 30, 2008,
brokerage revenue received from a single customer accounted for 10.6% of net
revenues. No single customer accounted for 10% or more of net
revenues during the six months ended June 30, 2008.
Net
revenues from countries other than the United States consist primarily of net
revenues from Canada. Net revenues from Canada during the three and six months
ended June 30, 2009 accounted for 79% and 80%, respectively, of net revenues
from other countries and during the three and six months ended June 30, 2008
accounted for 100% and 83%, respectively, of net revenues from other
countries.
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
June
30,
|
|
|
|
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
Expenses
excluding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits expense
|
|
$
|
30,061
|
|
|
$
|
41,788
|
|
|
|
(28.1
|
)%
|
|
$
|
60,739
|
|
|
$
|
82,177
|
|
|
|
(26.1
|
)%
|
Non-compensation
expense
|
|
|
29,141
|
|
|
|
35,112
|
|
|
|
(17.0
|
)
|
|
|
64,575
|
|
|
|
70,099
|
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses excluding interest
|
|
$
|
59,202
|
|
|
$
|
76,900
|
|
|
|
(23.0
|
)%
|
|
$
|
125,314
|
|
|
$
|
152,276
|
|
|
|
(17.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits expense
|
|
|
62.3
|
%
|
|
|
69.6
|
%
|
|
|
|
|
|
|
66.5
|
%
|
|
|
75.5
|
%
|
|
|
|
|
Non-compensation
expense
|
|
|
60.3
|
|
|
|
58.5
|
|
|
|
|
|
|
|
70.6
|
|
|
|
64.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
122.6
|
%
|
|
|
128.1
|
%
|
|
|
|
|
|
|
137.1
|
%
|
|
|
139.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of employees
|
|
|
504
|
|
|
|
647
|
|
|
|
|
|
|
|
517
|
|
|
|
660
|
|
|
|
|
|
Compensation
and Benefits Expense
Compensation
and benefits expense to secure the services of our employees has historically
been the largest component of our total expenses. Compensation and benefits
expense includes salaries, overtime, bonuses, commissions, share-based
compensation, benefits, severance, employment taxes and other employee
costs.
We pay
discretionary bonuses based on a combination of company 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 related service periods. These bonuses make up a significant portion of our
compensation and benefits expense.
Share-based
awards constitute a portion of our compensation expense, and as a general
matter, vest over a three or four-year service period, are subject to continued
employment and, accordingly, are recorded as non-cash compensation expense
ratably over the service period beginning on 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. During the six months ended June 30, 2009,
2,753,000 restricted stock unit equity awards were granted to employees in
conjunction with our 2008 discretionary bonus plan. Additionally, during the six
months ended June 30, 2009, 322,000 performance-based restricted stock unit
equity awards were granted to employees as part of our regular hiring process.
As of June 30, 2009, there was $37.4 million of unrecognized compensation
expense related to non-vested restricted stock unit awards, which is expected to
be recognized over a weighted-average period of 2.4 years.
Since
January 2009,
we
have reduced our total headcount by approximately 19% as part of our ongoing
efforts to reduce our operating costs in order to mitigate the effect of the
decline in revenues. In addition, base salaries for employees with titles of
Vice President and above were reduced by 10%, including our Chief Executive
Officer, President and our other executive officers, and we reduced the base
compensation for non-employee directors from $75,000 to $50,000, effective as of
January 1, 2009
. These reductions in headcount and base
salaries are expected to result in a further decrease in our compensation and
benefits expense in future
periods.
Three Months Ended June 30, 2009
versus 2008
—
Compensation and benefits expense decreased $11.7 million in the three
months ended June 30, 2009 from 2008. This change was the result of a decrease
in salary, commissions, bonus and related taxes and benefits expense of $4.5
million, $1.7 million, $4.9 million and $0.8 million, respectively, due to the
40% reduction in our headcount from January 2, 2008 through July 2009. The
number of employees at June 30, 2009 and 2008 were 502 and 647,
respectively.
Six Months Ended June 30, 2009
versus 2008
—
Compensation and benefits expense decreased $21.4 million in the six
months ended June 30, 2009 from 2008. This change was the result of a decrease
in salary, commissions, bonus and related taxes and benefits expense of $9.9
million, $2.5 million, $6.7 million and $2.6 million, respectively, due to the
40% reduction in our headcount from January 2, 2008 through July 2009. The
number of employees at June 30, 2009 and 2008 were 502 and 647,
respectively.
Non-Compensation
Expenses
Our
non-compensation expenses include (i) brokerage execution, clearance and account
administration, (ii) communications and data processing, (iii) depreciation and
amortization of property and equipment, (iv) amortization of other intangible
assets, (v) goodwill impairment, (vi) marketing and promotion, (vii) occupancy
and equipment and (viii) other expenses.
Our
expense reduction initiatives are reflective in our non-compensation expenses,
which totaled $29.1 million in the three months ended June 30, 2009,
representing a 17% decline from the three months ended June 30, 2008 expense of
$35.1 million, and an 18% decline from the three months ended March 31, 2009
expense of $35.4 million.
Three Months Ended June 30, 2009
versus 2008
—
Non-compensation expense decreased $7.7 million in the three months ended June
30, 2009 from 2008. Marketing and promotion expense decreased $2.3
million primarily due to a reduction of client related employee travel expenses.
Communications and data processing expense and other expense decreased $1.3
million and $2.1 million, respectively, primarily due to decreased employee
communication expenses related to the reduction of headcount and the
consolidation our service providers. Amortization of intangible assets decreased
$1.4 million due to the use of an accelerated method of amortization and the
full amortization of our investment banking backlog intangible in the fourth
quarter of 2008.
Six Months Ended June 30, 2009
versus 2008
—
Non-compensation expense decreased $5.5 million in the six months ended June 30,
2009 from 2008. The decrease is primarily in marketing and promotion
expense, occupancy and equipment expense, communications and data processing
expense and amortization of intangible assets of $4.5 million, $2.0 million,
$2.5 million and $1.9 million, respectively. Marketing and promotion expense
decreased primarily due to a reduction of client related employee travel.
Occupancy and equipment expense decreased primarily due to exiting or subletting
offices in India, New York and San Francisco during 2008. Communications and
data processing expenses decreased primarily due to the reduction of headcount
and the consolidation our service providers. Amortization of intangible assets
decreased due to the use of an accelerated method of amortization and the full
amortization of our investment banking backlog intangible in the fourth quarter
of 2008. This decrease is offset by a loss of approximately $5.1 million due to
a customer who failed to pay for several equity
purchases that we executed at the customer’s request. Based on our
agreement with our primary clearing broker, we were required to settle and pay
for those transactions on the customer’s behalf.
Provision
for Taxes
We
account for income taxes by recognizing deferred tax assets and liabilities
based upon temporary differences between the financial reporting and tax basis
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 year ended December 31, 2008, we determined that it was more-likely-than-not
that our U.S. deferred tax assets would not be realized. We made this
determination primarily based on the significant losses we incurred in 2008 as a
result of the severe economic downturn and its effect on the capital markets. As
of June 30, 2009, we continued to carry a full valuation allowance on our
U.S. and U.K. deferred tax assets due to continued losses incurred during the
six months ended June 30, 2009.
Our
effective tax rate for the three and six months ended June 30, 2009 was 6.5% and
(0.4)%, respectively. Our effective tax rate for the three and six months ended
June 30, 2008 was 40.0% and 35.5%, respectively. The tax provision for the six
months ended June 30, 2009 relates to our operations in Canada. The change in
the effective tax rate is due to the valuation allowance associated with the
U.S. net operating losses incurred during the three and six months ended June
30, 2009.
Liquidity
and Capital Resources
We
believe that our current level of equity capital, current cash balances, funds
anticipated to be provided by operating activities and funds available to be
drawn under temporary loan agreements, will be adequate to meet our liquidity
and regulatory capital requirements for the next 12 months.
Cash
Flows
Cash and
cash equivalents were $89.4 million at June 30, 2009, a decrease of $27.2
million from $116.6 million at December 31, 2008.
Operating
activities used $25.1 million of cash and cash equivalents during the six
months ended June 30, 2009. Our net loss excluding non-cash items
contributed $15.1 million to the decrease in cash. Additionally in
February 2009, we made aggregate cash bonus payments to our employees of $21.7
million. The overall decrease in cash is partially offset by a decrease in our
net securities owned positions, primarily due to the liquidation of our
convertible bonds, as well as a decrease in our corporate finance receivables
related to the collection of receivables that we had at year end
Investing
and financing activities used $3.7 million of cash and cash equivalents during
the six months ended June 30, 2009 primarily due to the net settlement of $1.9
million of equity awards that became deliverable to our employees during the
period. We also used $1.0 million for the purchase of property and
equipment and $0.7 million for the purchase of partnership investments and other
investments.
Auction
Rate Securities
In
December 2007 and in January 2008, we sold a substantial portion of our auction
rate securities (“ARS”) holdings at par in order to partially fund our
acquisition of Westwind and to contribute capital to
Thomas
Weisel Partners LLC (“TWP”), our U.S. broker-dealer subsidiary, in order for it
to
to make bonus payments to our
employees attributable to the acceleration and cessation of mid-year
retention bonuses announced in connection with the Westwind acquisition.
In February 2008, widespread auction failures resulted in a lack of liquidity
for these previously liquid securities. As a result, we disclosed that the
principal balance of the $10.4 million of ARS we held as of January 31, 2008
would not be accessible until successful auctions occur, a buyer is found
outside of the auction process, the issuers and the underwriters establish a
different form of financing to replace these securities or final payments come
due according to the contractual maturities. As of June 30, 2009, we held
ARS with a par value of $9.7 million, having had redemptions at par of $0.7
million.
ARS are
variable rate debt instruments, having long-term maturity dates (approximately
25 to 31 years), but whose interest rates are reset through an auction process,
most commonly at intervals of 7, 28 and 35 days. The interest earned on these
investments is exempt from Federal income tax. All of our ARS are backed by
pools of student loans and were rated either Aaa, Aa3, A1, Ba3 or Baa3 at June
30, 2009. We evaluate the credit risk and liquidity risk associated with
these securities and compare the yields on our ARS to similarly rated municipal
issues. As a result of this evaluation, we determined that our ARS had a
fair value decline of $0.2 million in the six months ended June 30,
2009. The fair value of these securities is $8.7 million at
June 30, 2009.
In July 2009, we
repurchased at par $13.2 million of ARS that previously had been sold
from our account in January 2008 to three customers without those
customers’ prior written consent. We similarly evaluated the credit risk
and liquidity risk associated with these securities and compared the yields on
these ARS to similarly rated municipal issues. As a result of this
evaluation, we determined that these ARS would have a fair value of $12.4
million and recorded a loss contingency of $0.8 million in the six months ended
June 30, 2009.
We
continue to receive interest when due on our ARS and expect to continue to
receive interest when due in the future. The weighted-average Federal tax
exempt interest rate was 0.9% at June 30, 2009. Our ARS are held at our
primary broker dealer and are included in net capital, subject to haircuts
determined in accordance with guidance from the Division of Trading and Markets
of the
Securities
and Exchange Commission (“
SEC") under Rule 15c3-1 under the
Securities Exchange Act of 1934 (the “Net Capital
Rule”).
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 June 30, 2009, the outstanding principal balance under
these notes was $23.0 million which is due in February 2011. These notes contain
covenants regarding additional debt and other liabilities that could
cause them to become callable
and
requirements that the notes be repaid should the Company enter into a
transaction to liquidate or dispose of all or substantially all of its property,
business or assets
. As of June 30, 2009 we are currently in compliance
with these covenants.
In April
2008, TWP, entered into a $25.0 million revolving note and cash subordination
agreement with our clearing broker. TWP will need to satisfy certain
covenants in order to draw funds under this loan agreement, and
there can be no assurances
that those conditions will be satisfied at that time. These covenants
include the following: (i) maintaining a certain level of equity, (ii) meeting a
certain level of net capital based upon regulatory financial statement filings,
(iii) continuing to employ Thomas W. Weisel as Chief Executive Officer, (iv)
continuing to operate TWP’s investment banking and brokerage operations and (v)
demonstrating TWP’s investment banking and brokerage operations continue to
generate a specified percentage of total revenues. TWP renewed this
agreement on April 30, 2009, and the new credit period expires on April 30,
2010. As of June 30, 2009, TWP does not have any balances outstanding under this
facility.
Bonus
and Net Settlement of Restricted Stock Units
The
timing of bonus 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 payments, which make
up a larger portion of total compensation, have historically been paid in
February and July.
As of
July 30, 2009 we have made aggregate cash bonus payments to our employees of
approximately $27.1 million and granted equity awards with a grant date fair
value of $9.5 million.
During
the six months ended June 30, 2009, approximately 1,380,000 shares of freely
transferable common stock became deliverable to our employees in respect of
share-based awards previously granted. We elected to settle a portion of these
vesting shares through a net settlement feature to meet the minimum employee
statutory income tax withholding requirements. During the six months
ended June 30, 2009, we made payments of $1.9 million related to the net
settlement of shares. Our cash position and liquidity will be
effected to the extent we elect to continue to settle a portion of vesting
shares through net settlement in the future.
Regulatory
Net Capital and Other Amounts Required to be Maintained at Broker-Dealer
Subsidiary
We have
the following registered securities broker-dealers:
|
·
|
Thomas
Weisel Partners LLC (“TWP”)
|
|
·
|
Thomas
Weisel Partners Canada Inc.
(“TWPC”)
|
|
·
|
Thomas
Weisel Partners International Limited
(“TWPIL”)
|
TWP is a
registered U.S. broker-dealer that is subject to the Net Capital Rule
administered by the SEC and the Financial Industry Regulatory Authority
(“FINRA”), which requires the maintenance of minimum net capital. SEC and FINRA
regulations also provide that equity capital may not be withdrawn or cash
dividends paid if certain minimum net capital requirements are not
met.
TWPC is a
registered investment dealer in Canada and is subject to the capital
requirements of the Investment Industry Regulatory Organization of
Canada. TWPIL is a registered U.K. broker-dealer and is subject to
the capital requirements of the Financial Securities Authority.
The table
below summarizes the minimum capital requirements for our broker-dealer
subsidiaries as of June 30, 2009 (
in thousands
):
|
|
Required
Net Capital
|
|
|
Net
Capital
|
|
|
Excess
Net Capital
|
|
TWP
|
|
$
|
1,000
|
|
|
$
|
36,136
|
|
|
$
|
35,136
|
|
TWPC
|
|
|
215
|
|
|
|
14,323
|
|
|
|
14,108
|
|
TWPIL
|
|
|
1,673
|
|
|
|
1,915
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,888
|
|
|
$
|
52,374
|
|
|
$
|
49,486
|
|
Regulatory
net capital requirements change based on certain investment and underwriting
activities.
Our
clearing brokers are also the primary source of the short-term financing of our
securities inventory. In connection with the provision of the
short-term financing, we are required to maintain deposits with our clearing
brokers. These deposits are included in our net receivable from or
payable to clearing brokers in the condensed consolidated financial
statements.
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.
In
April 2008, TWP entered into a $25.0 million revolving note and subordinated
loan agreement. The credit period in which TWP could draw on the note
ended on April 18, 2009. TWP renewed this agreement on April 30, 2009 and the
new credit period expires April 30, 2010. From time to time we may
borrow funds under this subordinated loan agreement or under similar liquidity
facilities. Such funds would constitute capital for purposes of calculating our
net capital position. This facility is available subject to certain covenants
including the maintenance of at least $32 million in net capital. We were in
compliance with all such provisions.
Off-Balance
Sheet Arrangements
In
the ordinary course of business we enter into various types of off-balance sheet
arrangements including certain reimbursement guarantees, which include
contractual commitments and guarantees. For a discussion of our activities
related to these off-balance sheet arrangements, see Note 13 –
Contingencies, Commitments and Guarantees and Note 14 – Financial Instruments
with Off-Balance Sheet Risk, Credit Risk or Market Risk to our condensed
consolidated financial statements.
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 –
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of our Annual Report on Form 10-K for the year ended December 31,
2008.
Critical
Accounting Policies and Estimates.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in our
condensed consolidated financial statements and the related notes. Actual
results could differ significantly from those estimates. The accounting policies
that are most important to the presentation of our financial condition and
results of operations and require management’s most difficult, subjective and
complex judgments include the following:
·
Fair
Value of Financial Instruments
·
Investment
in Partnerships and Other Investments
·
Liability
for Lease Losses
·
Legal
and Other Contingent Liabilities
·
Allowance
for Doubtful Accounts
·
Deferred
Tax Valuation Allowance
·
Goodwill
and Long-Lived Assets
For
further discussion regarding these policies, refer to Part II, Item 7
– “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies and Estimates” of our Annual Report on
Form 10-K for the year ended December 31, 2008.
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
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
June 30, 2009 and December 31, 2008. 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 period-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
period.
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, investment banking
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 over-the-counter equity and convertible
debt 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 contractual maturity
date.
As of
June 30, 2009 (
in
thousands
):
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
Remainder
of 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
June
30,
2009
|
|
Inventory
positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Warrants—long
(1)
|
|
|
1,490
|
|
|
|
174
|
|
|
|
2,101
|
|
|
|
107
|
|
|
|
—
|
|
|
|
120
|
|
|
|
3,992
|
|
|
|
3,992
|
|
Equity
securities—long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,022
|
|
Total—long
|
|
|
1,490
|
|
|
|
174
|
|
|
|
2,101
|
|
|
|
107
|
|
|
|
—
|
|
|
|
120
|
|
|
|
3,992
|
|
|
|
17,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598
|
|
Equity
index fund—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,380
|
|
Total—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(2)
|
|
|
9,650
|
|
|
|
8,734
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,472
|
|
(1)
|
Maturity
date is based on the warrant expiration date. An assumption of
expiration date was made when none was
available.
|
(2)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
As of
December 31, 2008 (
in
thousands
):
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2008
|
|
Inventory
positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
7,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,500
|
|
|
$
|
12,550
|
|
|
$
|
6,402
|
|
Warrants—long
(1)
|
|
|
250
|
|
|
|
153
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
430
|
|
|
|
430
|
|
Equity
securities—long
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,095
|
|
Total—long
|
|
|
250
|
|
|
|
1,153
|
|
|
|
7,077
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,500
|
|
|
|
12,980
|
|
|
|
18,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,464
|
|
Equity
index fund—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,073
|
|
Total—short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(2)
|
|
|
9,650
|
|
|
|
8,913
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248
|
|
(1)
|
Maturity
date is based on the warrant expiration date. An assumption of
expiration date was made when none was
available.
|
(2)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
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. These
investments are carried at fair value in accordance with industry guidance, and
as of June 30, 2009 and December 31, 2008, the fair value of these investments
was $28.7 million and $32.7 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. 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.
Interest
rate risk represents the potential loss from adverse changes in market interest
rates. As we may hold U.S. Treasury securities, ARS, and 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. 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. In addition, we issued floating rate notes to California
Public Employees’ Retirement System and Nomura America Investment, Inc., and
therefore we are exposed to the risk of higher interest payments on those notes
if interest rates rise.
The
tables below provide information about our financial instruments that are
sensitive to changes in interest rates. For inventory positions, other
investments and notes payable, the tables present principal cash flows with
contractual maturity dates.
As of
June
30, 2009 (
in thousands
):
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
Remainder
of 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
June
30,
2009
|
|
Inventory
positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(3)
|
|
|
9,650
|
|
|
|
8,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR + 2.25%
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
12,610
|
|
Senior
Note, floating mid-term AFR + 2.25%
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
9,700
|
|
(1)
|
The
weighted average interest rate was 0.95% at June 30,
2009.
|
(2)
|
We
have recorded the debt principal at a discount to reflect the below-market
stated interest rate of these notes at inception. We amortize the discount
to interest expense so that the interest expense approximates our
incremental borrowing rate. The weighted average interest rate was 4.01%
at June 30, 2009.
|
(3)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
As of
December 31, 2008 (
in
thousands
):
|
|
Maturity
Date
|
|
|
|
|
|
|
Carrying
Value
as of
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
Principal
|
|
|
December
31,
2008
|
|
Inventory
positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
bonds—long
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
7,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,500
|
|
|
$
|
12,550
|
|
|
$
|
6,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
rate securities
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,650
|
(3)
|
|
|
9,650
|
|
|
|
8,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Note, floating mid-term AFR + 2.25%
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
12,492
|
|
Senior
Note, floating mid-term AFR + 2.25%
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
9,609
|
|
(1)
|
The
weighted average interest rate was 1.91% at December 31,
2008.
|
(2)
|
We
have recorded the debt principal at a discount to reflect the below-market
stated interest rate of these notes at inception. We amortize the discount
to interest expense so that the interest expense approximates our
incremental borrowing rate. The weighted average interest rate was 5.17%
at December 31, 2008.
|
(3)
|
Represents
contractual maturity date. Please refer to further discussion regarding
auction rate securities included in the “Liquidity and Capital Resources”
section above.
|
Our broker-dealer subsidiaries place
and execute 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, but 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 or payable to the
clearing brokers in the condensed consolidated financial statements represents
amounts receivable or payable in connection with the proprietary and customer
trading activities. As of June 30, 2009 and December 31, 2008, our cash on
deposit with the clearing brokers of $57.8 million and $69.3 million,
respectively, 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.
During
the six months ended June 30, 2009, we recorded a loss of $5.1 million due to a
customer who failed to pay for several equity purchases that
we executed at the customer’s request. Based on our agreement with our
primary clearing broker, we were required to settle and pay for those
transactions on the customer’s behalf. We recorded the loss in bad debt expense
which is included in other expense in the condensed consolidated statements of
operations. We believe the loss was incurred as a result of
fraudulent activity on the part of the customer and are vigorously pursuing that
customer for the losses incurred upon liquidating those positions.
Effects
of Inflation
Due
to the fact that 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, results of operations and cash
flows.
Regulatory
and Legal Risk
Legal risk includes
the risk of customer and/or regulatory claims in connection with ARS matters.
While these claims may not be the result of any wrongdoing, we do, at a minimum,
incur costs associated with investigating and defending against such
claims. In addition, we are generally subject to extensive legal and
regulatory requirements and are subject to potentially sizable adverse legal
judgments or arbitration awards, and fines, penalties, and other sanctions for
non-compliance with those legal and regulatory requirements. We have
comprehensive procedures addressing issues such as regulatory capital
requirements, sales and trading practices, use of and safekeeping of customer
funds, the extension of credit, including margin loans, collection activities,
money laundering and record keeping. We act as an underwriter or selling group
member in equity offerings, and we have potential legal exposure to claims
relating to these securities offerings. To manage this exposure, a committee of
senior executives reviews proposed underwriting commitments to assess the
quality of the offering and the adequacy of due diligence investigation
.
We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed or
submitted under the Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Our
disclosure controls and procedures are also designed to ensure that information
required to be disclosed in the reports we file or submit under the Exchange Act
is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
During
the three months ended June 30, 2009, we
carried out an
evaluation
, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as
of June 30, 2009.
There
were no changes in our internal control over financial reporting in the three
months ended June 30, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
The
certifications required by Section 302 of the Sarbanes-Oxley Act of 2002
are filed as exhibits 31.1 and 31.2 to this Quarterly Report on Form
10-Q.
The
following describes significant developments with respect to our litigation
matters that occurred in the three months ended June 30, 2009, and through the
filing date, and should be read in conjunction with our discussion set forth in
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, 2008.
Auction Rate Securities
– We
have received inquiries from FINRA requesting information concerning purchases
through us of ARS by Private Client Services customers. Based upon
press reports, approximately forty firms, including ours, have received
inquiries from the Enforcement Department of FINRA regarding retail customer
purchases through those firms of ARS. We are cooperating with FINRA
while it conducts its investigation. We note that a number of
underwriters of ARS entered into settlements with the Securities and Exchange
Commission (“SEC”) and other regulators in connection with those underwriters’
sales and underwriting practices. We did not, at any time, underwrite
ARS or manage the associated auctions. In connection with such
auctions, we merely served as agent for our customers when buying in auctions
managed by those underwriters. Accordingly, we distinguish our
conduct from such underwriters and are prepared to assert these and other
defenses should FINRA seek to bring an action in the
future. Nevertheless, there can be no assurance that FINRA will not
take regulatory action.
On July
23, 2009, the staff of the Enforcement Department of FINRA (the “Staff”) advised
us, that the Staff has made a preliminary determination to recommend
disciplinary action in connection with our transactions in ARS on behalf of our
customers, including transactions for and with us. The Staff’s recommendation
involves potential violations of FINRA and Municipal Securities Rulemaking Board
rules and certain anti-fraud and other provisions of the federal securities laws
in connection with the purchase and sales of ARS and certain statements and
disclosures made in connection with those purchases and sales. A Staff
preliminary determination is neither a formal allegation nor is it evidence of
wrongdoing. We now have the opportunity to provide our perspective on relevant
events and alleged conduct and to address issues raised prior to any formal
action being taken.
We are
continuing to work with the Staff to bring this matter to a close as
expeditiously as practicable and, as applicable, will provide the Staff with
legal and factual arguments relating to the preliminary determination, but there
can be no assurance that those efforts will be successful or that a disciplinary
proceeding will not be brought. We are prepared to contest vigorously any formal
disciplinary action that would result in a censure, fine, or other sanction that
could be material to our business, financial position or results of operations.
If FINRA were to institute disciplinary action, it is possible that such action
could result in a material adverse effect on our business, financial position or
results of operations. However, we are unable to determine at this time the
impact of the ultimate resolution of this matter.
In
addition to the FINRA investigation, we have been named (along with two
employees) in a FINRA arbitration filed by one of our retail customers who
purchased ARS as part of his 401(k) Profit Sharing Plan account. The
amount of the claim in that matter is not material to us. We have
filed our answer to the customer’s complaint, and the parties will now proceed
toward discovery. We believe we have meritorious defenses to the
action and intend to vigorously defend such action as it applies to us. We have
also received notice of a second FINRA arbitration filed by another one of our
retail clients who purchased ARS as part of his account. We are currently
reviewing and investigating the claim and will file our formal response shortly.
We expect that we will have meritorious defenses to this action as well and will
vigorously defend such action.
While our
review of the need and amount for any loss contingency reserve has led us to
conclude that, based upon currently available information, we have adequately
established a provision for loss contingencies related to ARS matters,
we are
not able to predict with certainty the outcome of any such matters, nor the
amount if any, of an eventual settlement or judgment.
In
re Initial Public Offering Securities Litigation –
We are 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, we acted as a co-lead manager in one offering, a
co-manager in 32 offerings, and as a syndicate member in 10 offerings. We have
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 court’s 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 filed a motion for class
certification on a new basis and subsequently scheduled discovery. In
April 2009, the parties entered into a comprehensive settlement agreement that
has been submitted to the Court (which is subject to, among other things,
approval by the Court) that we believe will result in the resolution of this
matter for an amount that will be covered by our relevant insurance policies.
Settlement papers have been signed by the Court and the insurance carriers have
been noticed and are prepared to make payment on our behalf on or before the
court determined August 27, 2009 payment
date.
Resolved
Matters
In re Openwave
Systems Inc. Securities Litigation
– We have 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
we 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 us, 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. We believe we have
meritorious defenses to the action and intend to vigorously defend such action
as it applies to us.
In re Netlist,
Inc. Securities Litigation
– 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 Netlist’s 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 Netlist’s
initial public offering was materially false and misleading. We deny
liability in connection with this matter and have filed a motion to dismiss that
was granted without prejudice by the court. Plaintiffs have now filed
an amended complaint and we have now filed another motion to dismiss. We believe
we have meritorious defenses to the action and intend to vigorously defend such
action as it applies to us.
In re Vonage
Holdings Corp. Securities Litigation
– We are 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 we 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 Vonage’s directed share program and violations of
Federal securities laws against Vonage and certain of its directors and senior
officers as well as Vonage’s underwriters, including us, 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 filed motions
to dismiss. In 2009, the court issued an order dismissing all claims
against the underwriters, with leave to re-file certain of those
claims. We believe we have meritorious defenses to these actions and
intend to vigorously defend such actions as they apply
us.
Item 1A.
Risk Factors
The following discussion supplements the risk factors previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2008.
Regulatory
and legal developments related to auction rate securities could adversely affect
our business, financial condition, operations and cash flows.
Since
February 2008, the auctions through which most ARS are sold and interest rates
are determined have failed, resulting in a lack of liquidity for these
securities.
We,
together with many other firms in the financial services industry, have received
inquiries from FINRA requesting information concerning purchases of ARS by our
customers. Separately, we have been named in FINRA arbitrations filed by two
retail customers who purchased ARS.
We
did not, at any time, underwrite ARS or manage the associated auctions. We acted
as agent for our customers when buying in auctions managed by underwriters.
Nevertheless, some combination of FINRA and/or our customers could seek to
compel us to purchase ARS from our customers, although we do not have sufficient
regulatory capital nor do we have cash or borrowing capacity to repurchase all
of the ARS held by those customers. We are and have been exploring potential
solutions for our Private Client Services customers and have supported the
efforts of industry participants, including particularly the efforts of those
underwriters of ARS who have entered into settlements with the SEC and other
regulators that contain “best efforts” commitments to repurchase ARS, to resolve
issues relating to the lack of liquidity for ARS. We have filed Statements of
Claims with FINRA against the various investment banks who acted as the
underwriters and auction managers of most of the ARS currently held by our
customers. Through this process, we hope to secure for our customers relief that
is the same as or equivalent to the relief that these entities have agreed to
provide to their own retail customers.
On
July 23, 2009, the Staff advised us that it has made a preliminary
determination to recommend disciplinary action in connection with our
transactions in ARS on behalf of our customers, including transactions for and
with us. The Staff’s recommendation involves potential violations of FINRA and
Municipal Securities Rulemaking Board rules and certain anti-fraud and other
provisions of the federal securities laws in connection with the purchase and
sales of ARS and certain statements and disclosures made in connection with
those purchases and sales. A Staff preliminary determination is neither a formal
allegation nor is it evidence of wrongdoing. We now have the opportunity to
provide our perspective on relevant events and alleged conduct and to address
issues raised prior to any formal action being taken.
We are
continuing to work with the Staff to bring this matter to a close as
expeditiously as practicable and, as applicable, will provide the Staff with
legal and factual arguments relating to the preliminary determination, but there
can be no assurance that those efforts will be successful or that a disciplinary
proceeding will not be brought. We are prepared to contest vigorously any formal
disciplinary action that would result in a censure, fine, or other sanction that
could be material to our business, financial position or results of operations.
If FINRA were to institute disciplinary action, it is possible that such action
could result in a material adverse effect on our business, financial position or
results of operations. However, we are unable to determine at this time the
impact of the ultimate resolution of this matter.
Repurchases
of Common Stock during the Three Months Ended June 30, 2009
During
the three months ended June 30, 2009, we repurchased the following shares of our
common stock:
Month
|
|
Number
of Shares
|
|
|
Average
Purchase Price per Share
|
|
April
|
|
|
|
|
|
|
Employee
transactions
(1)
|
|
|
9,377
|
|
|
$
|
3.99
|
|
May
|
|
|
|
|
|
|
|
|
Employee
transactions
(1)
|
|
|
60,798
|
|
|
|
4.72
|
|
June
|
|
|
|
|
|
|
|
|
Employee
transactions
(1)
|
|
|
6,944
|
|
|
|
5.59
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
77,119
|
|
|
$
|
4.71
|
|
(1)
|
Includes
shares of common stock that were otherwise scheduled to be delivered to
employees in respect of vesting restricted stock units. These
shares were withheld from delivery (under the terms of grants under the
Equity Incentive Plan) to offset tax withholding obligations of the
employee recipients that occur upon the vesting of restricted stock
snits. In lieu of delivering these shares to the employee
recipients, we satisfied a portion of their tax withholding obligations
with cash in an amount equivalent to the value of such shares on the
scheduled delivery date.
|
The
Board of Directors has authorized the repurchase up to 2,000,000 shares of
common stock for the purpose of settling obligations to deliver common stock in
the future to employees who have received restricted stock units under our
Equity Incentive Plan. Additional repurchases pursuant to this
authority may be carried out from time to time in the
future. Furthermore, our Board of Directors may authorize additional
repurchases for the purpose of settling obligations to deliver common stock in
the future to employees who have received restricted stock units under our
Equity Incentive Plan.
None.
At our
Annual Meeting of Shareholders held on May 20, 2009, our
shareholders:
|
·
|
elected
seven directors to serve for terms expiring at our subsequent Annual
Meeting of Shareholders; and
|
|
·
|
ratified
the appointment of Deloitte & Touche LLP to serve as our independent
registered public accounting firm for
2009.
|
Further
information regarding these matters is set forth in our 2009 Annual Proxy
Statement, filed with the SEC on April 16, 2009.
The table
below shows the results of the shareholders’ voting:
|
|
Votes
in Favor
|
|
|
Votes
Against
|
|
|
Votes
Withheld / Abstentions
|
|
|
Broker
Non-Voted
|
|
Election
of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
W. Weisel
|
|
|
20,740,722
|
|
|
|
—
|
|
|
|
613,585
|
|
|
|
10,157,975
|
|
Matthew
R. Barger
|
|
|
19,751,265
|
|
|
|
—
|
|
|
|
1,603,042
|
|
|
|
10,157,975
|
|
Michael
W. Brown
|
|
|
20,750,481
|
|
|
|
—
|
|
|
|
603,826
|
|
|
|
10,157,975
|
|
B.
Kipling Hagopian
|
|
|
20,349,792
|
|
|
|
—
|
|
|
|
1,004,515
|
|
|
|
10,157,975
|
|
Timothy
A. Koogle
|
|
|
15,557,307
|
|
|
|
—
|
|
|
|
5,797,000
|
|
|
|
10,157,975
|
|
Alton
F. Irby III
|
|
|
18,494,622
|
|
|
|
—
|
|
|
|
2,859,685
|
|
|
|
10,157,975
|
|
Thomas
I.A. Allen
|
|
|
19,632,941
|
|
|
|
—
|
|
|
|
1,721,366
|
|
|
|
10,157,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratification
of independent registered public accounting firm
|
|
|
21,330,430
|
|
|
|
22,207
|
|
|
|
1,670
|
|
|
|
10,157,975
|
|
Not
applicable.
Item 6.
Exhibits
Refer to
the Exhibit Index for a list of the exhibits being filed or furnished with
or incorporated by reference into this Quarterly Report on Form
10-Q.
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.
|
THOMAS
WEISEL PARTNERS GROUP, INC.
|
|
|
|
Date:
August 7, 2009
|
By:
|
/s/
Thomas W. Weisel
|
|
|
Name: Thomas
W. Weisel
|
|
|
Title: Chairman
and Chief Executive Officer
|
|
|
|
Date:
August 7, 2009
|
By:
|
/s/
Ryan Stroub
|
|
|
Name: Ryan
Stroub
|
|
|
Title: Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
Date
of
|
|
Exhibit
|
|
Filed
|
Number
|
|
Exhibit
Description
|
|
Form
|
|
Number
|
|
First
Filing
|
|
Number
|
|
Herewith
|
2.1
|
|
Plan
of Reorganization and Merger Agreement, dated as of October 14, 2005,
by and among Thomas Weisel Partners Group LLC, Thomas Weisel Partners
Group, Inc. and TWPG Merger Sub LLC
|
|
S-1/A
|
|
333-129108
|
|
12/13/2005
|
|
|
2.1
|
|
|
|
2.2
|
|
Agreement
and Plan of Merger between Thomas Weisel Partners Group, Inc. and Thomas
Weisel Partners Group LLC
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
2.2
|
|
|
|
2.3
|
|
Arrangement
Agreement dated as of September 30, 2007 by and among Thomas Weisel
Partners Group, Inc., TWP Acquisition Company (Canada), Inc., Westwind
Capital Corporation, and Lionel Conacher, as Shareholders’
Representative
|
|
8-K
|
|
000-51730
|
|
10/1/2007
|
|
|
2.1
|
|
|
|
3.1
|
|
Certificate
of Incorporation
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
3.1
|
|
|
|
3.2
|
|
By-Laws
|
|
S-1
|
|
333-129108
|
|
10/19/2005
|
|
|
3.2
|
|
|
|
3.3
|
|
Certificate
of Designations, Preferences and Rights of the Special Voting Preferred
Stock of Thomas Weisel Partners Group, Inc.
|
|
8-K
|
|
000-51730
|
|
1/1/2008
|
|
|
3.3
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.1
|
|
|
|
4.2
|
|
Registration
Rights Agreement
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.2
|
|
|
|
4.3
|
|
Warrant
|
|
10-K
|
|
000-51730
|
|
3/29/2006
|
|
|
4.3
|
|
|
|
10.1
|
|
Amendment
No. 1 to Amended and Restated CEO Employment Agreement
|
|
10-Q
|
|
000-51730
|
|
5/8/09
|
|
|
10.1
|
|
|
|
10.2
|
|
Amendment No. 1 to Amended and
Restated President
Employment
Agreement
|
|
10-Q
|
|
000-51730
|
|
5/8/09
|
|
|
10.2
|
|
|
|
10.3
|
|
Revolving
Note and Cash Subordination Agreement
|
|
10-Q
|
|
000-51730
|
|
5/8/09
|
|
|
10.3
|
|
|
|
10.4
|
|
President’s
Employment Agreement
|
|
8-K
|
|
000-51730
|
|
7/29/09
|
|
|
10.1
|
|
|
|
10.5
|
|
Relocation
Letter
|
|
8-K
|
|
000-51730
|
|
7/29/09
|
|
|
10.2
|
|
|
|
10.6
|
|
Side
Letter
|
|
8-K
|
|
000-51730
|
|
7/29/09
|
|
|
10.3
|
|
|
|
10.7
|
|
Option
Award Agreement
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
31.1
|
|
Rule 13a-14(a)
Certification of Chief Executive Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
31.2
|
|
Rule 13a-14(a)
Certification of Chief Financial Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
32.1
|
|
Section 1350
Certification of Chief Executive Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
32.2
|
|
Section 1350
Certification of Chief Financial Officer
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
X
|
E-1