01—Abstract
Summary
Summary of the 10-K filed March 9, 2010. Cited figures are marked; the original filing is the authoritative source.
LPL Investment Holdings Inc. reported 2009 net revenues of $2.75 billiona, down from $3.12 billion in 2008, while net income rose to $47.5 million from $45.5 million.
The company describes itself as a leading provider of technology, brokerage and investment advisory services to independent financial advisors, financial advisors at financial institutions, registered investment advisors and financial institutions. It reported 11,950 financial advisors, 3.9 million funded client accounts and $279.4 billionb in client assets as of December 31, 2009, and it states it was the largest independent broker-dealer as reported by Financial Planning magazine from 1996 through 2009. The decline in revenue was driven mainly by market conditions.
Commission revenue fell 9.9%, advisory fees fell 15.2% and asset-based fees fell 22.5%, the last reflecting lower interest rates that reduced cash sweep fees. Restructuring charges rose to $58.7 millionc from $15.0 million, tied to the 2008 strategic business review and the 2009 consolidation of the Affiliated Entities into LPL Financial. Management expects that consolidation to cost about $74.2 million in total and to produce annual savings of $29.8 million.
Leverage remains significant. At year-end the company had $1.37 billiond of senior credit facilities and subordinated notes, including $550.0 million of 10.75% senior unsecured subordinated notes due 2015. Operating cash flow was $271.2 million, and the company states it was in compliance with its covenants.
The Majority Holders, investment funds affiliated with TPG and Hellman & Friedman, own approximately 57.1% of capital stock on a fully diluted basis. There is no established public trading market for the common equity, and no dividends have been paid in the past four fiscal years.
02—Key points
Key Highlights
- Net revenues were $2.75 billion in 2009, down 11.8% from $3.12 billion in 2008, while net income increased 4.4% to $47.5 million.
- Commissions fell 9.9% to $1.48 billion, advisory fees fell 15.2% to $704.1 million, and asset-based fees fell 22.5% to $272.9 million.
- Network scale at year-end: 11,950 financial advisors, 3.9 million funded client accounts, and $279.4 billion in client assets; the company says it was the largest independent broker-dealer by total revenues per Financial Planning, 1996-2009.
- Recurring revenue was 57.3% of net revenue in 2009, compared with 58.5% in 2008.
- Restructuring charges rose to $58.7 million from $15.0 million; the Affiliated Entities consolidation is expected to cost about $74.2 million in total and to save $29.8 million annually.
- Total indebtedness of $1.37 billion at December 31, 2009, including $550.0 million of 10.75% senior unsecured subordinated notes due 2015; operating cash flow was $271.2 million.
- The Majority Holders (TPG and Hellman & Friedman) own approximately 57.1% of capital stock on a fully diluted basis, and the company has no established public trading market for its common equity.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 9, 2010Financial Statements
| Revenue | $2.75B |
| Operating Expenses | $2.58B |
| Net Income | $47.52M |
| EPS (Basic) | $0.54 |
| EPS (Diluted) | $0.47 |
| Shares Outstanding (Basic) | 86.65M |
| Shares Outstanding (Diluted) | 98.49M |
05—Questions
Frequently Asked Questions
Why did revenue decline in 2009 while net income increased?
Net revenues fell 11.8% to $2.75 billion, driven by market turbulence that reduced transaction commissions, lower advisory fees on declining client asset values, and lower asset-based fees from the decline in interest rates affecting cash sweep programs. Net income rose 4.4% to $47.5 million, helped by lower production expenses, compensation and benefits (down 21.2%), and general and administrative expenses (down 18.0%), as well as a lower effective tax rate of 34.5% versus 51.0%.
How much debt does the company carry and when does it mature?
Total indebtedness was $1.37 billion at December 31, 2009. This consisted of $819.2 million under senior secured credit facilities, with the term loan maturing June 28, 2013, and $550.0 million of 10.75% senior unsecured subordinated notes due December 15, 2015. On January 25, 2010, the revolving credit facility was increased from $100.0 million to $218.2 million. The company states it was in compliance with its covenants at year-end.
Who controls the company and can public shareholders influence decisions?
The Majority Holders, investment funds affiliated with TPG and Hellman & Friedman LLC, own approximately 57.1% of capital stock on a fully diluted basis. The filing states they have significant influence over corporate transactions and can strongly influence or effectively control decisions while they continue to hold a significant amount of stock, even if below 50%.
Does the company pay dividends or have a public market for its shares?
There is no established trading market for the common equity. As of December 31, 2009, there were 75 holders of 86,790,789 common shares and 1,070 holders of 7,423,973 restricted common shares. No dividends were paid in the past four fiscal years, and the company does not anticipate paying dividends in the foreseeable future.
What is the company's key revenue risk from interest rates?
Interest rates affect the cash sweep programs. The average effective federal funds rate was 0.16% in 2009, compared with 1.92% in 2008, and asset-based fees fell 22.5%, partly due to this decline. The company estimates that a 10 basis point change in short-term rates, if accompanied by a commensurate fee change, could change income before income taxes by $11.6 million annually.
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