| Impact on financial statements |
The following tables compare the reported condensed consolidated statement of financial condition and statement of operations as of and for the three months ending March 31, 2018, to the pro-forma amounts had the previous accounting standards been in effect:
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Condensed Consolidated Statement of Financial Condition |
|
|
|
|
|
|
|
As of March 31, 2018 |
|
|
|
|
As Reported |
|
Balances without the adoption of ASC 606 |
|
Effects of Change Higher/(Lower) |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
145,417 |
|
|
$ |
145,417 |
|
|
$ |
— |
|
Securities owned, at fair value |
|
4,104 |
|
|
4,104 |
|
|
— |
|
Receivables from clearing brokers |
|
55,842 |
|
|
55,842 |
|
|
— |
|
Receivables from other broker-dealers |
|
2,263 |
|
|
2,263 |
|
|
— |
|
Notes receivable from financial advisors, net |
|
6,522 |
|
|
57,038 |
|
|
(50,516 |
) |
Other receivables, net |
|
122,154 |
|
|
60,231 |
|
|
61,923 |
|
Fixed assets, net |
|
23,886 |
|
|
23,886 |
|
|
— |
|
Restricted assets |
|
760 |
|
|
760 |
|
|
— |
|
Intangible assets, net |
|
76,131 |
|
|
98,463 |
|
|
(22,332 |
) |
Goodwill |
|
124,210 |
|
|
124,210 |
|
|
— |
|
Contract acquisition costs, net |
|
73,234 |
|
|
— |
|
|
73,234 |
|
Cash surrender value of life insurance |
|
12,691 |
|
|
12,691 |
|
|
— |
|
Other assets |
|
36,941 |
|
|
36,586 |
|
|
355 |
|
|
|
|
|
|
|
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Total assets |
|
$ |
684,155 |
|
|
$ |
621,491 |
|
|
$ |
62,664 |
|
|
|
|
|
|
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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|
|
|
|
|
|
|
|
|
|
|
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Securities sold, but not yet purchased, at market value |
|
$ |
235 |
|
|
$ |
235 |
|
|
$ |
— |
|
Accrued compensation |
|
18,828 |
|
|
18,816 |
|
|
12 |
|
Commissions and fees payable |
|
95,937 |
|
|
63,366 |
|
|
32,571 |
|
Accounts payable and accrued liabilities |
|
52,205 |
|
|
51,874 |
|
|
331 |
|
Deferred rent |
|
2,571 |
|
|
2,571 |
|
|
— |
|
Deferred income taxes |
|
6,532 |
|
|
2,631 |
|
|
3,901 |
|
Deferred compensation liability |
|
18,340 |
|
|
18,340 |
|
|
— |
|
Accrued interest |
|
261 |
|
|
261 |
|
|
— |
|
Notes payable |
|
98,997 |
|
|
98,997 |
|
|
— |
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Total liabilities |
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$ |
293,906 |
|
|
$ |
257,091 |
|
|
$ |
36,815 |
|
|
|
|
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|
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Commitments and contingencies |
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|
|
|
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Sharedholders' equity: |
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|
|
|
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Preferred stock |
|
2 |
|
|
2 |
|
|
— |
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Common stock |
|
20 |
|
|
20 |
|
|
— |
|
Additional paid-in capital |
|
510,409 |
|
|
510,409 |
|
|
— |
|
Accumulated deficit |
|
(120,206 |
) |
|
(146,044 |
) |
|
25,838 |
|
|
|
|
|
|
|
|
Total shareholders equity of the Company |
|
390,225 |
|
|
364,387 |
|
|
25,838 |
|
|
|
|
|
|
|
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Noncontrolling interest |
|
24 |
|
|
13 |
|
|
11 |
|
|
|
|
|
|
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Total shareholders' equity |
|
390,249 |
|
|
364,400 |
|
|
25,849 |
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|
|
|
|
|
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Total liabilities and shareholders' equity |
|
$ |
684,155 |
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|
$ |
621,491 |
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|
$ |
62,664 |
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|
|
|
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|
|
|
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|
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Condensed Consolidated Statement of Operations |
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|
|
|
|
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Three Months Ended March 31, 2018 |
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As Reported |
|
Amounts without the adoption of ASC 606 |
|
Effects of Change Higher/(Lower) |
Revenues: |
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|
|
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Commissions |
|
$ |
163,286 |
|
|
$ |
146,038 |
|
|
$ |
17,248 |
|
Advisory fees |
|
114,383 |
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|
163,927 |
|
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(49,544 |
) |
Investment banking |
|
16,490 |
|
|
15,146 |
|
|
1,344 |
|
Principal transactions |
|
167 |
|
|
193 |
|
|
(26 |
) |
Interest and dividends |
|
787 |
|
|
781 |
|
|
6 |
|
Service fees |
|
24,902 |
|
|
24,902 |
|
|
— |
|
Other income |
|
9,369 |
|
|
9,463 |
|
|
(94 |
) |
Total revenues |
|
329,384 |
|
|
360,450 |
|
|
(31,066 |
) |
Expenses: |
|
|
|
|
|
|
Commissions and fees |
|
231,311 |
|
|
263,822 |
|
|
(32,511 |
) |
Compensation and benefits |
|
47,249 |
|
|
47,486 |
|
|
(237 |
) |
Non-cash compensation |
|
1,494 |
|
|
1,494 |
|
|
— |
|
Brokerage, communication and clearance fees |
|
5,319 |
|
|
5,071 |
|
|
248 |
|
Rent and occupancy, net of sublease revenue |
|
2,493 |
|
|
2,493 |
|
|
— |
|
Professional services |
|
5,018 |
|
|
4,636 |
|
|
382 |
|
Interest |
|
1,866 |
|
|
1,866 |
|
|
— |
|
Depreciation and amortization |
|
5,809 |
|
|
7,123 |
|
|
(1,314 |
) |
Acquisition-related expenses |
|
913 |
|
|
913 |
|
|
— |
|
Amortization of retention and forgivable loans |
|
76 |
|
|
3,156 |
|
|
(3,080 |
) |
Amortization of contract acquisition costs |
|
2,210 |
|
|
— |
|
|
2,210 |
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Other |
|
17,929 |
|
|
18,071 |
|
|
(142 |
) |
Total expenses |
|
321,687 |
|
|
356,131 |
|
|
(34,444 |
) |
Income before item shown below |
|
7,697 |
|
|
4,319 |
|
|
3,378 |
|
Change in fair value of contingent consideration |
|
(61 |
) |
|
(61 |
) |
|
— |
|
Income before income taxes |
|
7,636 |
|
|
4,258 |
|
|
3,378 |
|
Income tax expense |
|
2,172 |
|
|
521 |
|
|
1,651 |
|
Net income |
|
5,464 |
|
|
3,737 |
|
|
1,727 |
|
Net income attributable to noncontrolling interest |
|
1 |
|
|
1 |
|
|
— |
|
Net income attributable to the Company |
|
$ |
5,463 |
|
|
$ |
3,736 |
|
|
$ |
1,727 |
|
Dividends declared on preferred stock |
|
(8,508 |
) |
|
(8,508 |
) |
|
— |
|
Net loss available to common shareholders |
|
$ |
(3,045 |
) |
|
$ |
(4,772 |
) |
|
$ |
1,727 |
|
|
|
|
|
|
|
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Net loss per common share available to common shareholders (basic) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
— |
|
Net loss per common share available to common shareholders (diluted) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
— |
|
Weighted average common shares used in computation of per share data: |
|
|
|
|
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|
Basic |
|
195,898,794 |
|
|
195,898,794 |
|
|
— |
|
Diluted |
|
195,898,794 |
|
|
195,898,794 |
|
|
— |
|
The following table summarizes the impacts of ASC 606 adoption on the Company’s condensed consolidated statement of financial condition as of January 1, 2018.
The Company adjusted notes receivable from financial advisors, net by reclassifying all of its forgivable loans to contract acquisition costs, net in the condensed consolidated statements of financial position. Previously, forgivable loans were amortized based on their legal terms, typically forgiven over periods ranging from 3 to 7 years as long as the associated independent financial advisor remained in compliance with the terms of the forgivable loan. Under ASC 606, the acquisition costs, net are amortized over the expected useful lives of the independent financial advisors’ relationship period with the Company.
The Company adjusted intangible assets, net by eliminating a portion of net intangible asset that was created through the Company’s acquisition of Highland in 2014. ASC 606 requires that, at the time of the initial sale of a policy, the Company must estimate the variable consideration (future renewal commissions) and determine the transaction price as the unconstrained net present value of expected future renewal commissions. As such, the Company accelerated the revenues recognized under its insurance policies and recorded an increase to other receivables, net that was offset by the partial elimination of the net intangible asset and an increase to commissions and fees payable.
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Condensed Consolidated Statement of Financial Condition |
|
|
|
|
|
|
|
|
|
As Reported |
|
Adjustments |
|
Adjusted |
|
|
December 31, 2017 |
|
Investment Banking |
Insurance Renewals |
Costs to obtain or fulfill a contract |
|
January 1, 2018 |
ASSETS |
|
(Audited) |
|
|
|
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|
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Cash and cash equivalents |
|
$ |
172,103 |
|
|
— |
|
— |
|
— |
|
|
$ |
172,103 |
|
Securities owned, at fair value |
|
3,881 |
|
|
— |
|
— |
|
— |
|
|
3,881 |
|
Receivables from clearing brokers |
|
48,543 |
|
|
— |
|
— |
|
— |
|
|
48,543 |
|
Receivables from other broker-dealers |
|
2,822 |
|
|
— |
|
— |
|
— |
|
|
2,822 |
|
Notes receivable from financial advisors, net |
|
47,369 |
|
|
— |
|
— |
|
(40,566 |
) |
|
6,803 |
|
Other receivables, net |
|
60,707 |
|
|
(137 |
) |
58,786 |
|
— |
|
|
119,356 |
|
Fixed assets, net |
|
23,621 |
|
|
— |
|
— |
|
— |
|
|
23,621 |
|
Restricted assets |
|
760 |
|
|
— |
|
— |
|
— |
|
|
760 |
|
Intangible assets, net |
|
103,611 |
|
|
— |
|
(23,645 |
) |
— |
|
|
79,966 |
|
Goodwill |
|
124,210 |
|
|
— |
|
— |
|
— |
|
|
124,210 |
|
Contract acquisition costs, net |
|
— |
|
|
— |
|
— |
|
61,340 |
|
|
61,340 |
|
Cash surrender value of life insurance |
|
12,711 |
|
|
— |
|
— |
|
— |
|
|
12,711 |
|
Other assets |
|
31,687 |
|
|
25 |
|
$ |
— |
|
— |
|
|
31,712 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
632,025 |
|
|
$ |
(112 |
) |
$ |
35,141 |
|
$ |
20,774 |
|
|
$ |
687,828 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, but not yet purchased, at fair value |
|
$ |
231 |
|
|
— |
|
— |
|
— |
|
|
$ |
231 |
|
Accrued compensation |
|
33,343 |
|
|
(110 |
) |
— |
|
— |
|
|
33,233 |
|
Commissions and fees payable |
|
67,221 |
|
|
— |
|
29,395 |
|
— |
|
|
96,616 |
|
Accounts payable and accrued liabilities |
|
40,478 |
|
|
(104 |
) |
— |
|
(1,133 |
) |
|
39,241 |
|
Deferred rent |
|
2,151 |
|
|
— |
|
— |
|
— |
|
|
2,151 |
|
Deferred income taxes |
|
2,968 |
|
|
28 |
|
1,489 |
|
2,118 |
|
|
6,603 |
|
Deferred compensation liability |
|
18,161 |
|
|
— |
|
— |
|
— |
|
|
18,161 |
|
Accrued interest |
|
232 |
|
|
— |
|
— |
|
— |
|
|
232 |
|
Notes payable |
|
96,849 |
|
|
— |
|
— |
|
— |
|
|
96,849 |
|
Total liabilities |
|
$ |
261,634 |
|
|
$ |
(186 |
) |
$ |
30,884 |
|
$ |
985 |
|
|
$ |
293,317 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock |
|
$ |
2 |
|
|
— |
|
— |
|
— |
|
|
$ |
2 |
|
Common stock |
|
20 |
|
|
— |
|
— |
|
— |
|
|
20 |
|
Additional paid-in capital |
|
520,135 |
|
|
— |
|
— |
|
— |
|
|
520,135 |
|
Accumulated deficit |
|
(149,778 |
) |
|
74 |
|
4,257 |
|
19,778 |
|
|
(125,669 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity of the Company |
|
370,379 |
|
|
74 |
|
4,257 |
|
19,778 |
|
|
394,488 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
12 |
|
|
— |
|
— |
|
11 |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
370,391 |
|
|
74 |
|
4,257 |
|
19,789 |
|
|
394,511 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
632,025 |
|
|
$ |
(112 |
) |
$ |
35,141 |
|
$ |
20,774 |
|
|
$ |
687,828 |
|
|