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MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Earnings for the quarter ended March 31, 2003 were $13.2 million or $0.52 per share compared with earnings of $1.3 million or $0.05 per share for the same period in 2002. Earnings before income taxes and non controlling interest during the first quarter of 2003 were $16.5 million compared with earnings of $2.4 million in the first quarter of 2002. The Company is reporting increased revenues in all operating lines, most significantly in investment income, where the Company realized profits from the sale of certain marketable securities. The Company is also pleased to report that the results of the wealth management division during the first quarter of 2003 reflect increased EBITDA generated from the integration of acquisitions which occurred in 2002. These increases are despite the decline in asset levels due to capital markets and the decline in the US dollar during the first quarter.
SEGMENTED OPERATING RESULTS
(in thousands of dollars)
Wealth | Corporate and | ||||||||||||||||||||
SEGMENTED EARNINGS | Management | Investment Portfolio | International | TOTAL | |||||||||||||||||
For the three months ended March 31, | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||
REVENUES | |||||||||||||||||||||
Management and | |||||||||||||||||||||
administration fees | $ | 37,417 | $ | 28,160 | $ | – | $ | – | $ | 944 | $ | 728 | $ | 38,361 | $ | 28,888 | |||||
Redemption fees | 3,050 | 2,045 | – | 274 | – | – | 3,050 | 2,319 | |||||||||||||
Financial services | 31,027 | 30,123 | – | – | 10 | 90 | 31,037 | 30,213 | |||||||||||||
Intersegment distribution fee revenue | – | – | 872 | 1,314 | – | – | 872 | 1,314 | |||||||||||||
Investment income | (61) | 75 | 18,052 | 1,195 | (530) | (5) | 17,461 | 1,265 | |||||||||||||
71,433 | 60,403 | 18,924 | 2,783 | 424 | 813 | 90,781 | 63,999 | ||||||||||||||
EXPENSES | |||||||||||||||||||||
Selling, general and administrative | 30,235 | 25,683 | 1,739 | 1,514 | 1,014 | 977 | 32,988 | 28,174 | |||||||||||||
Variable compensation | 18,045 | 17,275 | – | – | – | – | 18,045 | 17,275 | |||||||||||||
Trailer fees | 7,426 | 5,047 | – | – | – | – | 7,426 | 5,047 | |||||||||||||
Intersegment distribution fee expense | 872 | 1,314 | – | – | – | – | 872 | 1,314 | |||||||||||||
Amortization of deferred | |||||||||||||||||||||
sales commissions | 10,762 | 8,163 | – | – | – | – | 10,762 | 8,163 | |||||||||||||
Depreciation and amortization | 1,323 | 1,378 | 203 | 191 | 29 | 25 | 1,555 | 1,594 | |||||||||||||
Interest expense | 1,052 | 490 | 2,829 | 2,791 | 6 | 22 | 3,887 | 3,303 | |||||||||||||
69,715 | 59,350 | 4,771 | 4,496 | 1,049 | 1,024 | 75,535 | 64,870 | ||||||||||||||
OPERATING EARNINGS (LOSS) | 1,718 | 1,053 | 14,153 | (1,713) | (625) | (211) | 15,246 | (871) | |||||||||||||
Other items: | |||||||||||||||||||||
Equity earnings | – | – | 1,911 | 2,871 | – | – | 1,911 | 2,871 | |||||||||||||
EARNINGS (LOSS) BEFORE TAXES, AND | |||||||||||||||||||||
OTHER NON SEGMENTED ITEMS | $ | 1,718 | $ | 1,053 | $ | 16,064 | $ | 1,158 | $ | (625) | $ | (211) | 17,157 | 2,000 | |||||||
Dilution loss | (1,620) | – | |||||||||||||||||||
Oil and gas properties | 987 | 411 | |||||||||||||||||||
Income taxes | |||||||||||||||||||||
Current | 1,223 | 4,311 | |||||||||||||||||||
Future | 1,551 | (3,303) | |||||||||||||||||||
Non controlling interest | 564 | 84 | |||||||||||||||||||
$ | 13,186 | $ | 1,319 | ||||||||||||||||||
RESULTS OF THE WEALTH MANAGEMENT DIVISION
Management fee revenues during the first three months of 2003 were $37.4 million, an increase of $9.2 million from the $28.2 million earned in the same period of 2002. This increase is in large part due to the acquisition of DynamicNova, which occurred in October 2002.
Net sales of managed assets in the first quarter of 2003 were $33 million, before accounting for expected net redemptions of DynamicNova products of $128 million. Net sales activity continues to be in asset categories providing income that earn lower than average management fees. DynamicNova assets generate a higher than average management fee allowing average fees earned on all products to increase from 1.68% in the first quarter of 2002 to 1.73% in the current quarter.
During the first quarter of 2003, clients redeemed assets worth $503 million including $169 million relating to DynamicNova assets. Redemption fee revenues earned on those redemptions were $3.4 million. By comparison, total redemptions in the same period of 2002 were $299 million, generating redemption fee revenues of $2.4 million. The reduction in the average redemption fee rate reflects an aging of assets and the implementation of a short redemption fee schedule.
Financial service revenue was $31.0 million in the first three months of 2003 compared to $30.1 million in the same period of the previous year. In the first quarter of 2003, Dundee Wealth earned commission revenue of $22.6 million of which 85% (2002 – 87%) was generated by the retail division. Corporate finance revenue increased 28% in the first quarter of 2003 to $3.7 million with Dundee Securities participating in 36 financing transactions.
Selling, general and administrative expenses in the wealth management division were $30.2 million in the first quarter of 2003 compared with $25.7 million for the same period of 2002. Approximately $3.0 million of this increase pertains to DynamicNova operations. Dynamic has successfully reduced DynamicNova’s operating costs by approximately $1.0 million per month, and it expects further reductions throughout the remainder of the year. Fund mergers, scheduled for completion in the summer of 2003, are also expected to result in further cost reductions. The remaining increase in the current quarter’s selling, general and administrative expenses of the wealth management division relates to sub-advisory fees that were inherited as part of the DynamicNova transaction.
Variable compensation costs increased from approximately $17.3 million in the first quarter of 2002 to $18.0 million in the first quarter of 2003. Contribution margins have remained constant at about 35.5%. The increase is attributable to increases in financial service activity.
Amortization of deferred sales commission increased marginally to $10.8 million in the current quarter from $8.2 million in the same quarter of 2002. Most of this increase relates to amortization of commissions acquired pursuant to the DynamicNova transaction.
During the current quarter, the wealth management division paid an average commission rate of 4.0% on sales of units purchased on a deferred sales charge basis, for an aggregate of approximately $9 million. At the end of the quarter, the carrying value of deferred sales commissions was $78.6 million. The contingent fee payable if all assets sold on a deferred sales charge basis were redeemed on March 31, 2003, approximates $133 million (2002 –$120 million).
Trailer fees paid by the Company during the first quarter of 2003 were $7.4 million (2002 – $5.0 million), representing 0.4% of the average assets managed which are subject to trailer fees, or approximately 24% of total management fee revenues from these assets.
RESULTS OF CORPORATE AND INVESTMENT PORTFOLIO ACTIVITIES
The following table summarizes the carrying value of the Company’s investment portfolio as at March 31, 2003.
(in thousands of dollars) | ||||
Book | Market | |||
March 31, 2003 | Value | Value | ||
Equity accounted investments | ||||
Black Hawk Mining Inc. | $ | 2,867 | $ | 3,145 |
Breakwater Resources Ltd. | 25,111 | 9,341 | ||
Dundee Realty Corporation | 143,013 | 145,094 | ||
Zemex Corporation | 35,568 | 39,412 | ||
Other | 6,757 | 5,483 | ||
Marketable securities | 42,468 | 32,789 | ||
Other portfolio investments | 141,203 | 192,211 | ||
$ | 396,987 | $ | 427,475 | |
Consolidated investments | ||||
Dundee Wealth Management Inc. | 316,669 | |||
Eurogas Corporation | 13,668 | |||
$ | 757,812 |
During the first quarter of 2003, the Company realized cash proceeds of $53.9 million and gains of $16.5 million from the sale of securities.
The Company announced in January 2003 that it proposed to acquire Dundee Realty and create the Dundee Real Estate Investment Trust into which certain property of Dundee Realty would be transferred. In March 2003, Zemex Corporation announced that it was being acquired by a Peruvian company at a price of US$8.80 per share. Both these transactions contributed to market appreciation of over $37 million in the investment portfolio in the first quarter of this year. Subsequent to the quarter end, the Zemex transaction has closed and the Dundee Realty transaction is proceeding as planned. As mentioned in previous reports, the Company’s investment portfolio is managed with a long-term perspective. Therefore, gains and losses from trading activity will vary significantly from quarter to quarter.
Dispositions discussed above resulted in a shift in the category mix of the portfolio. As at March 31, 2003, 79% of the market value of the investment portfolio was invested in public company securities compared with 75% at the end of 2002. Mutual funds and other liquid investments represent 8% of the total portfolio, down from 12% at the end of last year. Private companies continue to represent 13% of the overall portfolio.
Income generated by the investment portfolio during the current quarter is summarized in the table below.
(in thousands of dollars) | ||||
for the three months ended March 31, | 2003 | 2002 | ||
Interest, dividends and foreign exchange | $ | 272 | $ | 1,230 |
Realized investment gains | 23,145 | 939 | ||
Realized investment losses | (6,659) | (951) | ||
16,758 | 1,218 | |||
Share of earnings of equity | ||||
accounted investments | 2,333 | 1,958 | ||
Gains (losses) from dilutions of interest | ||||
in equity accounted investments | (422) | 913 | ||
$ | 18,669 | $ | 4,089 |
In accordance with Canadian generally accepted accounting principles, certain of the Company’s investments are accounted for using the equity method whereby the Company includes its proportionate interest in the earnings and losses of these investments in the Company’s consolidated earnings. Earnings from equity accounted investees aggregated $1.9 million in 2003 compared to $2.9 million in 2002. In the current quarter, equity earnings of $2.4 million generated from our investment in Dundee Realty were partially offset by losses from our investments in Breakwater and Black Hawk.
General operating costs of corporate and investment portfolio activities have increased modestly from $4.5 million in the first quarter of 2002 to $4.8 million in the first quarter of 2003.
RESULTS OF INTERNATIONAL ACTIVITIES
The Dundee Leeds Group, a subsidiary of The Dundee Bank, provides administration and accounting services to third party hedge and investment funds with over $14 billion in assets. In the fourth quarter of 2002, the Company made extensive changes to its management and operations in the Dundee Leeds Group. These changes have resulted in improved efficiencies and a 30% increase in revenues in the current quarter compared to the same period of last year. These improvements were accomplished without significant increases in operating costs, and our international operations are now running at an approximate break even level.
OIL AND GAS SALES, NET OF ROYALTIES
Eurogas earned $4.9 million in oil and gas revenues in the first quarter of 2003 compared with $1.4 million in 2002. Current year results include $2.3 million in natural gas marketing revenue relating to a natural gas storage facility in Canada. Operating costs have increased from $0.4 million in the first quarter of 2002 to $2.6 million in 2003.
INTEREST EXPENSE
Consolidated interest expense, after intersegment eliminations, was $3.6 million for the first quarter of 2003 compared with $3.2 million in 2002. Approximately 70% of the Company’s total interest expense, or $2.5 million, relates to the Company’s $150 million, 6.70% senior debentures issued in September 1997.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization costs in both the first quarters of 2003 and 2002 was approximately $1.9 million.
EARNINGS PER SHARE
Earnings per share is computed by dividing net earnings for the period by the weighted average number of Class A subordinate voting shares and Class B common shares outstanding during the period of 25,326,965 (2002 –25,681,157). Share options outstanding were not dilutive.
LIQUIDITY AND CAPITAL RESOURCES
General operations and other transactions during the current quarter have resulted in an inflow of cash and short term investments, increasing the balance from $119.5 million at the end of 2002 to $151.6 million as at March 31, 2003. Additionally, approximately 8% of the market value of the Company’s portfolio is invested in liquid investments, including money market instruments, bonds and mutual funds. The Company’s main operating subsidiaries operate in a regulated environment and are therefore subject to requirements whereby they must maintain required levels of capital. At March 31, 2003, all regulated entities complied with regulatory capital requirements and reported excess capital of over $34 million.
Significant changes in the Company’s cash position since year end include:
•
Cash flows from operations, before changes in non cash working capital items, increased to $11.7 million from $5.6 million in the prior year. Improvements in operating cash flows are most prominent in the wealth management division.
•
Proceeds from sales of investments were $53.9 million, $3.3 million of which was reinvested in the portfolio.
•
During the first quarter of 2003, the Company financed $8.3 million of deferred sales commissions.
•
The Company made a $5.0 million, semi-annual interest payment to its debenture holders in respect of its $150 million, 6.70% senior debentures.
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The Company paid $2.0 million towards the purchase price for acquiring the non controlling interest in a subsidiary of Dundee Wealth.
•
The Company acquired in the open market 322,900 shares of Dundee Wealth at a cost of $1.9 million.
On April 24, 2003, the Company successfully renegotiated its revolving term credit facility with a Canadian chartered bank and increased its operating line from $30 million to $55 million. Similar to the Company’s previous arrangements, the new facility bears interest on a tiered basis in accordance with the Company’s senior debt rating. The Company drew an additional $20 million under the new facility to permanently repay all amounts owing under Dundee Wealth’s credit facility.
Management is of the view that cash flows generated from management and advisory activities, together with the Company’s borrowing facilities, will be sufficient to meet ongoing working capital requirements, including planned capital spending and debt servicing requirements.
SHARE CAPITAL
At March 31, 2003, there were 24,269,190 Class A subordinate voting shares and 1,049,193 Class B common shares outstanding. During the first quarter, the Company issued 20,029 subordinate shares and added $133,000 to its stated capital as part of its Share Incentive Plan.
As of March 31, 2003, the Company purchased for cancellation, 30,500 subordinate shares at $14.06 per share pursuant to a normal course issuer bid expiring on March 31, 2004.
This document contains certain forward-looking statements that reflect the current views and/or expectations of Dundee Bancorp Inc. with respect to its performance, business and future events. Such statements by their nature, involve a number of risks, uncertainties and assumptions. Actual results and events may vary materially from those expressed or implied in these statements.
Dundee Bancorp Inc. is primarily a holding company dedicated to wealth management and financial services. Its domestic financial service activities are carried out through its 84% owned subsidiary, Dundee Wealth Management Inc. Dundee Bancorp also provides financial services internationally through offices in Bermuda and the Cayman Islands. Together, these domestic and international financial services operations provide a broad range of financial products and services to individuals, institutions and corporations. Dundee Bancorp also holds and manages its own portfolio of investments, both directly and indirectly, through wholly owned subsidiaries. The portfolio includes both publicly traded and private companies in a variety of sectors, including real estate, resources and financial services.
As at March 31, 2003 and December 31, 2002
(expressed in thousands of Canadian dollars) (unaudited)
March 31, | December 31, | |||
2003 | 2002 | |||
ASSETS | ||||
Cash and short term investments | $ | 151,591 | $ | 119,467 |
Brokerage securities owned | 10,357 | 12,201 | ||
Accounts receivable | 48,316 | 48,830 | ||
Income taxes receivable | 855 | – | ||
Client accounts receivable | 343,709 | 230,730 | ||
Investment portfolio | 396,987 | 428,925 | ||
Deferred sales commissions | 78,596 | 81,089 | ||
Capital and other assets (note 5) | 283,455 | 278,750 | ||
TOTAL ASSETS | $ | 1,313,866 | $ | 1,199,992 |
LIABILITIES | ||||
Bank indebtedness | $ | – | $ | 7,374 |
Accounts payable and accrued liabilities | 56,821 | 61,977 | ||
Brokerage securities sold short | 6,158 | 4,845 | ||
Client deposits and related liabilities | 369,256 | 260,711 | ||
Income taxes payable | – | 613 | ||
Corporate debt | 239,962 | 238,628 | ||
Future income tax liabilities | 39,985 | 38,434 | ||
712,182 | 612,582 | |||
NON CONTROLLING INTEREST | 109,777 | 108,444 | ||
SHAREHOLDERS’ EQUITY | ||||
Share capital | ||||
Common shares | 331,339 | 331,514 | ||
Retained earnings | 160,568 | 147,452 | ||
491,907 | 478,966 | |||
TOTAL LIABILITIES AND | ||||
SHAREHOLDERS’ EQUITY | $ | 1,313,866 | $ | 1,199,992 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2003 and 2002
(expressed in thousands of Canadian dollars, except per share amounts) (unaudited)
2003 | 2002 | |||
REVENUE | ||||
Management and administration fees | $ | 38,361 | $ | 28,888 |
Redemption fees | 3,050 | 2,319 | ||
Financial services | 31,037 | 30,213 | ||
Oil and gas sales ,net of royalties | 4,879 | 1,383 | ||
77,327 | 62,803 | |||
Investment income | 16,758 | 1,218 | ||
94,085 | 64,021 | |||
EXPENSES | ||||
Selling, general and administrative | 33,441 | 28,523 | ||
Variable compensation | 18,045 | 17,275 | ||
Trailer fees | 7,426 | 5,047 | ||
Operating costs, oil and gas properties | 2,566 | 430 | ||
61,478 | 51,275 | |||
OPERATING EARNINGS BEFORE INTEREST, | ||||
TAXES AND OTHER NON CASH ITEMS | 32,607 | 12,746 | ||
Amortization of deferred sales commissions | 10,762 | 8,163 | ||
Depreciation, depletion and amortization | 1,979 | 1,876 | ||
Interest expense | 3,633 | 3,167 | ||
OPERATING EARNINGS (LOSS) | 16,233 | (460) | ||
Share of earnings of equity accounted investees | 1,911 | 2,871 | ||
Dilution loss | (1,620) | – | ||
Income taxes | ||||
Current | (1,223) | (4,311) | ||
Future | (1,551) | 3,303 | ||
Non controlling interest | (564) | (84) | ||
NET EARNINGS FOR THE PERIOD | $ | 13,186 | $ | 1,319 |
RETAINED EARNINGS AT | ||||
BEGINNING OF PERIOD | $ | 147,452 | $ | 105,746 |
Net earnings | 13,186 | 1,319 | ||
Goodwill impairment loss | – | (3,948) | ||
Change in opening retained earnings to | ||||
account for changes in accounting policies | ||||
of equity accounted investees, net of tax | – | (2,124) | ||
Premiums related to cancellation of share capital | (70) | (2,436) | ||
RETAINED EARNINGS AT END OF PERIOD | $ | 160,568 | $ | 98,557 |
EARNINGS PER SHARE | ||||
Basic earnings per share | $ | 0.52 | $ | 0.05 |
Diluted earnings per share | $ | 0.52 | $ | 0.05 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2003 and 2002
(expressed in thousands of Canadian dollars) (unaudited)
2003 | 2002 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
Net earnings | $ | 13,186 | $ | 1,319 |
Non cash items in earnings: | ||||
Depreciation, depletion and amortization | 12,741 | 10,039 | ||
Net investment (gains) losses | (16,485) | 4 | ||
Share of unremitted equity earnings | (1,911) | (2,871) | ||
Dilution loss | 1,620 | – | ||
Future income taxes | 1,551 | (3,303) | ||
Non controlling interest | 564 | 84 | ||
Other | 405 | 349 | ||
11,671 | 5,621 | |||
Changes in: | ||||
Accounts receivable | 514 | 2,557 | ||
Accounts payable and accrued liabilities | (5,341) | (5,254) | ||
Bank indebtedness | (7,374) | 1,483 | ||
Income taxes payable | (1,468) | (3,569) | ||
Brokerage securities owned, net | 3,157 | 1,549 | ||
Client accounts receivable, net of | ||||
deposits and related liabilities | (4,434) | (15,249) | ||
CASH USED IN OPERATING ACTIVITIES | (3,275) | (12,862) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
Proceeds on dispositions of portfolio investments | 53,851 | 989 | ||
Acquisitions of portfolio investments | (3,306) | (3,073) | ||
Sales commissions paid on | ||||
distribution of mutual funds | (8,269) | (6,631) | ||
Acquisition of shares in subsidiary | (1,931) | – | ||
Acquisition of non controlling interest (note 2) | (2,000) | – | ||
Other | (2,034) | (2,829) | ||
CASH PROVIDED FROM (USED IN) | ||||
INVESTING ACTIVITIES | 36,311 | (11,544) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
(Decrease) increase in corporate debt | (1,317) | 3,819 | ||
Issuance of Class A subordinate shares, net of costs | 102 | 1,179 | ||
Issuance of shares in subsidiaries | ||||
to non controlling interest | 627 | 521 | ||
Dividends paid to non controlling shareholders | (136) | – | ||
Issuance of shares in Eurogas to | ||||
non controlling interest | 242 | – | ||
Acquisition of Class A subordinate shares | (430) | (12,190) | ||
CASH USED IN FINANCING ACTIVITIES | (912) | (6,671) | ||
NET INCREASE (DECREASE) | ||||
IN CASH DURING THE PERIOD | 32,124 | (31,077) | ||
Cash and short term investments, beginning of period | 119,467 | 117,995 | ||
CASH AND SHORT TERM INVESTMENTS, | ||||
END OF PERIOD | $ | 151,591 | $ | 86,918 |
Cash flows from operating activities | ||||
include the following: | ||||
Interest paid | $ | 3,633 | $ | 3,167 |
Taxes paid | $ | 3,529 | $ | 8,420 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003 and 2002
(tabular amounts expressed in thousands of Canadian dollars except per share amounts) (unaudited)
Dundee Bancorp Inc., (“Dundee Bancorp” or the “Company”) is primarily a holding company dedicated to wealth management and financial services. Its domestic financial service activities are carried out through its 84% owned subsidiary, Dundee Wealth Management Inc. (“Dundee Wealth”). Dundee Bancorp also provides financial services internationally through offices in Bermuda and the Cayman Islands. Together, these domestic and international financial services operations provide a broad range of financial products and services to individuals, institutions and corporations. Dundee Bancorp also holds and manages its own portfolio of investments, both directly and indirectly, through wholly owned subsidiaries. The portfolio includes both publicly listed and private companies in a variety of sectors, including real estate, reso urces and financial services.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting principles and methods of application as those disclosed in note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2002. These interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2002.
2.
BUSINESS COMBINATIONS
On March 28, 2003, the Company acquired all shares of the Canada Dominion Group of Companies that it did not already own, being 49%, for cash of $4,000,000, $1,000,000 of which was paid at closing and $3,000,000 to be paid in three equal annual installments of $1,000,000. As the payable is non-interest bearing, it has been discounted at a rate of 6.7% with the resulting $2,639,000 being reported as corporate debt.
The acquisition has been accounted for as a purchase transaction and accordingly, the purchase price was allocated to the assets and liabilities acquired based on their estimated fair value on the date of acquisition. Investment management contracts acquired have been determined to have an indefinite life and therefore, the related intangible asset is not subject to amortization.
Investment management contracts | $ | 3,609 |
Other assets acquired | 774 | |
Liabilities assumed | (744) | |
$ | 3,639 | |
Consideration paid: | ||
Cash | $ | 1,000 |
Deferred acquisition obligation | 2,639 | |
$ | 3,639 |
An additional $1,000,000 was paid in respect of a non-compete agreement with the former shareholder which is being amortized over a three year period.
3.
SHARE BASED COMPENSATION
Dundee Bancorp, and its 84% owned subsidiary, Dundee Wealth may issue shares pursuant to their respective Share Incentive Plans. The terms under which shares may be issued to employees and others pursuant to these plans are detailed in note 10 to the Company’s consolidated financial statements for the year ended December 31, 2002. Details of the Dundee Wealth Share Incentive Plans are included in note 11 to the consolidated financial statements of Dundee Wealth for the year ended December 31, 2002.
SHARE PURCHASE PLANS
During the first quarter of 2003, participants contributed $34,000 to Dundee Bancorp’s Share Purchase Plan and received 2,529 Subordinate Shares issued from treasury. The Company recognized compensation expense of $34,000 in respect of the Share Purchase Plan, all of which was used to purchase subordinate shares in the open market.
During the first quarter of 2003, participants contributed $544,000 to the Dundee Wealth Share Purchase Plans and received 139,792 common shares issued from treasury. Included in consolidated operating results is compensation expense of $544,000 in respect of the Dundee Wealth Share Purchase Plans of which $311,000 was used to purchase common shares of Dundee Wealth in the open market and $233,000 was used to issue common shares of Dundee Wealth from treasury. In accordance with the terms of the Share Purchase Plans, Dundee Wealth cancelled 355 common shares during the first quarter of 2003 following the departure of an independent financial advisor.
SHARE BONUS PLANS AND RESERVED SHARE ARRANGEMENTS
Dundee Bancorp issued 2,500 Subordinate Shares from treasury to an officer of the Company during the first quarter of 2003. Included in consolidated operating results is compensation expense of $31,000 in respect of these shares.
During the first quarter of 2003, the Company’s subsidiary, Dundee Wealth, issued 393,576 common shares from treasury to employees and independent financial advisors.
DEFERRED SHARE BONUS PLANS
During the first quarter of 2003, Dundee Wealth issued 16,141 common shares from treasury pursuant to its Deferred Share Bonus Plans and recognized compensation expense of $6,000.
SHARE OPTION PLANS
The Company uses the intrinsic method to measure compensation expense related to awards of stock options to employees. In accordance with CICA requirements, the Company must provide pro forma earnings determined using the fair value method. Under this method, the fair value of stock options is determined on their grant date and is recorded as compensation expense over the period that the stock options vest. There were no stock options issued in the first quarter of 2003. Pro forma earnings in respect of options issued in previous years and new awards of stock options issued by equity accounted investees is summarized below:
Equity | |||||||||||
Accounted | Dundee | Dundee | |||||||||
Investees | Wealth | Eurogas | Bancorp | Total | |||||||
Earnings as reported | $ | 13,186 | |||||||||
Valuation of options amortized | |||||||||||
over vesting period | $ | (180) | $ | (113) | $ | (27) | $ | (31) | (351) | ||
Non controlling interest | 32 | ||||||||||
Pro Forma Income | $ | 12,867 | |||||||||
Pro Forma Basic and Diluted Earnings per Share | $ | 0.51 | |||||||||
DEFERRED SHARE UNITS
During the first quarter of 2003, the Company issued 3,884 deferred share units pursuant to the terms of its Deferred Share Unit Plan. The Company recognized directors fee expense of $52,000 in respect of this arrangement.
4.
SEGMENTED INFORMATION
Financial information is presented according to the following operating segments:
WEALTH MANAGEMENT
The wealth management segment includes the operating results and net assets of the Company’s financial services subsidiary, Dundee Wealth. This segment provides investment management and administrative services to Dynamic, DynamicNova, Dynamic Power and Dynamic Focus+ Mutual Fund families, the Viscount Wealth Management Program, Dundee Precious Metals Inc., Dynamic Venture Opportunities Fund Ltd., CMP Resource Limited Partnerships, Canada Dominion Resources Limited Partnerships, high net worth private individuals, institutions and corporations. This operating segment also includes the retail distribution and brokerage subsidiaries of Dundee Wealth which are engaged in retail distribution of financial products and are also engaged in institutional sales, trading, and research and investment banking.
CORPORATE AND INVESTMENT PORTFOLIO ACTIVITIES
The corporate and investment portfolio activities include various revenues and expenses incurred at the corporate level, including revenues generated and expenses incurred in the management of the Company’s investment portfolio. Investment activities carried out by certain foreign subsidiaries are included in this segment.
INTERNATIONAL ACTIVITIES
The Company’s international activities are carried out through several wholly owned subsidiaries located in Bermuda and the Cayman Islands. Through these entities, the Company provides investment management and administrative services to mutual funds, hedge funds and other investment clients.
(in thousands of dollars) | ||||||||||||||||||||||
Corporate and | ||||||||||||||||||||||
Wealth | Investment | |||||||||||||||||||||
SEGMENTED EARNINGS | Management | Portfolio | International | TOTAL | ||||||||||||||||||
For the three months ended March 31, | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenues | $ | 71,433 | $ | 60,403 | $ | 18,924 | $ | 2,783 | $ | 424 | $ | 813 | $ | 90,781 | $ | 63,999 | ||||||
Expenses | 69,715 | 59,350 | 4,771 | 4,496 | 1,049 | 1,024 | 75,535 | 64,870 | ||||||||||||||
OPERATING EARNINGS (LOSS) | 1,718 | 1,053 | 14,153 | (1,713) | (625) | (211) | 15,246 | (871) | ||||||||||||||
Other items: | ||||||||||||||||||||||
Equity earnings | – | – | 1,911 | 2,871 | – | – | 1,911 | 2,871 | ||||||||||||||
EARNINGS (LOSS) BEFORE | ||||||||||||||||||||||
TAXES, AND OTHER | ||||||||||||||||||||||
NON SEGMENTED ITEMS | $ | 1,718 | $ | 1,053 | $ | 16,064 | $ | 1,158 | $ | (625) | $ | (211) | $ | 17,157 | $ | 2,000 | ||||||
Dilution loss | (1,620) | – | ||||||||||||||||||||
Oil and gas properties | 987 | 411 | ||||||||||||||||||||
Income taxes | ||||||||||||||||||||||
Current | 1,223 | 4,311 | ||||||||||||||||||||
Future | 1,551 | (3,303) | ||||||||||||||||||||
Non controlling interest | 564 | 84 | ||||||||||||||||||||
$ | 13,186 | $ | 1,319 | |||||||||||||||||||
5.
CAPITAL AND OTHER ASSETS
as at March 31,2003 | as at Dec.31,2002 | |||||||||
Accumulated | Net Book | Net Book | ||||||||
Cost | Amortization | Value | Value | |||||||
Capital Assets | $ | 60,802 | $ | 40,088 | $ | 20,714 | $ | 21,134 | ||
Goodwill | 73,846 | 14,551 | 59,295 | 59,307 | ||||||
Investment management contracts | 159,649 | 7,446 | 152,203 | 148,594 | ||||||
Oil and gas properties | 39,923 | 2,620 | 37,303 | 37,223 | ||||||
Corporate debt issue costs | 1,565 | 862 | 703 | 742 | ||||||
Other | 13,270 | 33 | 13,237 | 11,750 | ||||||
$ | 349,055 | $ | 65,600 | $ | 283,455 | $ | 278,750 | |||
6.
SUBSEQUENT EVENT
Subsequent to March 31, 2003, Dundee Wealth and IPC Financial Network Inc. announced that the merger transaction pursuant to which Dundee Wealth was to have acquired IPC Financial Network Inc. had been terminated effective as of May 2, 2003.
NOTES
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