Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Assets and Liabilities

v3.7.0.1
Fair Value of Assets and Liabilities
6 Months Ended
Jun. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value of Assets and Liabilities
Fair Value of Assets and Liabilities
Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market or income approach are used to measure fair value.

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

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

Level 2 — Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3 — Unobservable inputs which reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

The following tables present the carrying values and estimated fair values at June 30, 2017 and December 31, 2016 of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. Such instruments are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.
 
 
 
June 30, 2017
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
Total Estimated Fair Value
Cash and cash equivalents
 
$
88,852


$
88,852


$

 
$
88,852

Receivables from clearing brokers
 
55,422




55,422

 
55,422

Receivables from other broker-dealers
 
2,346




2,346

 
2,346

Notes receivables, net (1)
 
33,923




33,923

 
33,923

Other receivables, net
 
50,119




50,119

 
50,119

 
 
$
230,662


$
88,852


$
141,810

 
$
230,662

 
 





 

Liabilities
 





 

Accrued compensation
 
$
20,743


$


$
20,743

 
$
20,743

Commissions and fees payable
 
61,696




61,696

 
61,696

Accounts payable and accrued liabilities (2)
 
35,425




35,425

 
35,425

Accrued interest
 
410




410

 
410

Notes payable, net (3)
 
30,573




28,755

 
28,755

 
 
$
148,847


$


$
147,029

 
$
147,029


(1) Carrying value approximates fair value, which is determined based on a valuation technique to convert future cash payments or forgiveness transactions to a single discounted preset value amount.
(2) Excludes contingent consideration liabilities of $2,777.
(3) Estimated fair value based on then current rates at which similar amounts of debt could be borrowed.



 
 
December 31, 2016
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
Total Estimated Fair Value
Cash and cash equivalents
 
$
98,930


$
98,930


$

 
$
98,930

Receivables from clearing brokers
 
41,492




41,492

 
41,492

Receivables from other broker-dealers
 
853




853

 
853

Notes receivables, net (1)
 
32,611




32,611

 
32,611

Other receivables, net
 
54,634




54,634

 
54,634

 
 
$
228,520


$
98,930


$
129,590

 
$
228,520

 
 





 

Liabilities
 





 

Accrued compensation
 
$
26,299


$


$
26,299

 
$
26,299

Commissions and fees payable
 
60,594




60,594

 
60,594

Accounts payable and accrued liabilities (2)
 
32,732




32,732

 
32,732

Accrued interest
 
281




281

 
281

Notes payable, net (3)
 
26,417




24,494

 
24,494

 
 
$
146,323


$


$
144,400

 
$
144,400


(1) Carrying value approximates fair value, which is determined based on a valuation technique to convert future cash payments or forgiveness transactions to a single discounted preset value amount.
(2) Excludes contingent consideration liabilities of $7,144.
(3) Estimated fair value based on then current rates at which similar amounts of debt could be borrowed.
The following tables presents the financial assets and liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016:

 
 
June 30, 2017
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
 Level 3
 
Total Estimated Fair Value
Certificates of deposit
 
$
513


$
513


$


$


$
513

Debt securities
 
2,454




2,454




2,454

U.S. Treasury notes
 
100




100




100

Common stock and warrants
 
1,200


335


865




1,200

Total
 
$
4,267

 
$
848

 
$
3,419

 
$

 
$
4,267

 
 
 
 
 
 
 
 
 
 
 
Liabilites
 
 
 
 
 
 
 
 
 
 
Contingent consideration payable
 
$
2,777


$


$


$
2,777


$
2,777

Debt securities
 
(117
)



(117
)



(117
)
U.S. Treasury notes
 
(151
)



(151
)



(151
)
Common stock and warrants
 
(83
)

(83
)





(83
)
Total
 
$
2,426

 
$
(83
)
 
$
(268
)
 
$
2,777

 
$
2,426



 
 
December 31, 2016
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
 Level 3
 
Total Estimated Fair Value
Certificates of deposit
 
$
443


$
443


$


$


$
443

Debt securities
 
1,850




1,850




1,850

U.S. Treasury notes
 
101




101




101

Common stock and warrants
 
1,149


494


655




1,149

Total
 
$
3,543

 
$
937

 
$
2,606

 
$

 
$
3,543

 
 
 
 
 
 
 
 
 
 
 
Liabilites
 
 
 
 
 
 
 
 
 
 
Contingent consideration payable
 
$
7,144


$


$


$
7,144


$
7,144

Debt securities
 
25




25




25

U.S. Treasury notes
 
96




96




96

Common stock and warrants
 
261


261






261

Total
 
$
7,526

 
$
261

 
$
121

 
$
7,144

 
$
7,526




As of June 30, 2017 and December 31, 2016, approximately $3,428 and $3,161, respectively, of securities owned were deposited with clearing brokers and may be sold or hypothecated by the clearing brokers pursuant to clearing agreements with such clearing brokers. Securities sold, but not yet purchased, represents obligations of the Company’s subsidiaries to purchase the specified financial instrument at the then current market price. Accordingly, these transactions result in off-balance-sheet risk as the Company’s subsidiaries’ ultimate obligation to repurchase such securities may exceed the amount recognized in the consolidated statements of financial condition.

Debt securities and U.S. Treasury notes are valued based on recently executed transactions, market price quotations, and pricing models that factor in, as applicable, interest rates and bond default risk spreads.

Warrants are carried at a discount to fair value as determined by using the Black-Scholes option pricing model due to illiquidity. This model takes into account the underlying securities' current market values, the underlying securities' market volatility, the terms of the warrants, exercise prices and risk-free return rate. As of June 30, 2017 and December 31, 2016, the fair values of the warrants were $692 and $252, respectively, and are included in common stock and warrants (Level 2) above.

From time to time, Ladenburg receives common stock as compensation for investment banking services. These securities are restricted under applicable securities laws and may be freely traded only upon the effectiveness of a registration statement covering them or upon the satisfaction of the requirements of Rule 144 of the Securities Act of 1933, as amended, including the requisite holding period. Restricted common stock is classified as Level 2 securities.

Set forth below are changes in the carrying value of contingent consideration related to acquisitions, which is included in accounts payable and accrued liabilities:

Fair value of contingent consideration as of December 31, 2015
 
$
2,813

Payments
 
(827
)
Change in fair value of contingent consideration
 
216

Fair value of contingent consideration in connection with 2016 acquisitions
 
4,942

Fair value of contingent consideration as of December 31, 2016
 
$
7,144

Payments
 
(1,505
)
Change in fair value of contingent consideration
 
(152
)
Fair value of contingent consideration as of March 31, 2017
 
$
5,487

Payments
 
(2,773
)
Change in fair value of contingent consideration
 
63

Fair value of contingent consideration as of June 30, 2017
 
$
2,777