SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended March 31, 1996
or
___ 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: 1-14416
FAHNESTOCK VINER HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada 98-0080034
State or jurisdiction of (I.R.S. Employer
incorporation or organization Identification number)
P.O. Box 16, Suite 1204
181 University Avenue
Toronto, Ontario, Canada M5H 3M7
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 416-364-3397
Former name, address and former fiscal year, if changed since last
report. Not Applicable
Indicate by check mark whether 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. Yes [x] No [ ]
The number of shares of the Company's Class A non-voting shares and
Class B voting shares (being the only classes of common stock of
the Company), outstanding on March 31, 1996 was 12,144,535 and
99,680 shares, respectively.
FAHNESTOCK VINER HOLDINGS INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 1
as at March 31, 1996
and December 31, 1995
Consolidated Statement of Operations 3
for the three months ended
March 31, 1996 and 1995
Consolidated Statement of Cash Flows 4
for the three months ended
March 31, 1996 and 1995
Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Not applicable
Item 3. Not applicable
Item 4. Not applicable
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
March 31,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
ASSETS
Current assets:
Cash $ 8,567 $ 9,707
Restricted deposits 1,121 1,242
Receivable from brokers
and clearing organ-
izations 218,586 303,610
Receivable from customers 271,518 253,184
Securities owned,at market 35,419 36,850
Secured demand notes rec-
eivable 30 30
Other assets 11,366 14,686
546,607 619,309
Other assets:
Stock exchange seats 1,437 1,446
Fixed assets,net of accum-
ulated depreciation
of $2,993 (1995-
$2,876) 1,557 1,595
Goodwill, at amortized cost 1,070 1,116
4,064 4,157
$550,671 $623,466
*Condensed from audited financial statements
1
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
March 31,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Drafts payable $ 14,464 $ 16,821
Bank call loans _ 41,200
Payable to brokers and
clearing organizations 303,770 319,843
Payable to customers 67,945 79,494
Securities sold not yet
purchased,at market 19,017 25,940
Accounts payable and
other liabilities 23,921 23,627
Taxes payable 7,396 9,106
436,513 516,031
Subordinated loans payable 30 30
Shareholders' equity:
Share capital
First preference shares
issuable in series - -
12,144,535 Class A non-voting
shares (11,940,410 in 1995) 38,793 37,513
99,680 Class B shares 133 133
38,926 37,646
Contributed capital 785 785
Retained earnings 74,417 68,974
114,128 107,405
$550,671 $623,466
*Condensed from audited financial statements
2
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Operations
For the three months ended March 31, 1996
(unaudited)
First quarter ended March 31,
1996 1995
(Expressed in thousands of U.S. dollars,except per share amounts)
Revenue:
Commissions $ 17,483 $ 13,909
Principal transactions 23,592 14,501
Interest 8,425 8,042
Underwriting fees 1,903 672
Advisory fees 2,614 2,301
Other 1,733 1,323
55,750 40,748
Expenses:
Compensation and
related expenses 26,686 20,345
Clearing and
exchange fees 2,788 2,442
Communications 4,158 3,723
Occupancy costs 2,192 2,188
Interest 4,795 4,718
Other 954 1,311
41,573 34,727
Profit before income taxes 14,177 6,021
Income tax provision 6,286 2,877
NET PROFIT FOR PERIOD $ 7,891 $ 3,144
Profit per share
- -basic $0.63 $0.26
- -fully diluted $0.61 $0.26
3
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Changes in Cash Flows
For the three months ended March 31, 1996
(unaudited)
1996 1995
(Expressed in thousands of U.S. dollars)
CASH PROVIDED BY (USED FOR):
Operating activities:
Net profit for the period $ 7,891 $ 3,144
Charges not affecting cash:
Depreciation and amortization 173 169
Decrease (increase) in non-cash
operating capital:
Restricted deposits 121 (141)
Receivable from brokers and
clearing organizations 85,024 (12,268)
Receivable from customers (18,334) ( 687)
Securities owned 1,431 ( 2,312)
Other assets 3,320 ( 905)
Drafts payable ( 2,357) ( 176)
Payable to brokers and
clearing organization (16,073) 24,906
Payable to customers (11,549) ( 15,192)
Securities sold, not yet
purchased ( 6,923) 3,424
Accounts payable and other
liabilities 294 ( 1,914)
Income taxes payable ( 1,710) 1,276
41,308 ( 676)
Investing and other activities:
Purchase stock exchange seats - ( 7)
Purchase of fixed assets ( 80) ( 242)
( 80) ( 249)
Financing activities:
Cash dividends paid on Class A
non-voting and Class B shares (2,448) ( 1,827)
Issuance of Class A non-
voting shares 1,280 656
Repurchase of Class A non-voting
shares for cancellation - ( 925)
Increase (decrease) in
bank call loans (41,200) 2,450
(42,368) 354
Decrease in cash ( 1,140) ( 571)
Cash, beginning of period 9,707 11,043
Cash, end of period $ 8,567 $10,472
4
FAHNESTOCK VINER HOLDINGS INC.
Notes to Consolidated Financial Statements
(unaudited)
1. Financial Statements
The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include
all of the information and notes generally required by accounting
principles generally accepted in the United States for complete
financial statements. The financial statements should be read in
conjunction with the registrant's annual report for the year ended
December 31, 1995 which should be consulted for a summary of the
significant accounting policies utilized by the Company. All
adjustments which, in the opinion of management, are necessary for
a fair statement of the results of operations for the interim
periods presented have been made. All adjustments made are of a
recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results for a full year.
2. Earnings per share
Primary earnings per share are based on the weighted average
number of Class A non-voting and Class B shares outstanding of
12,495,251 in 1996, 12,035,449 in 1995. Fully diluted profit per
share reflects the effect of outstanding employee stock options.
3. Net Capital Requirements
The Company's principal broker-dealer subsidiary, Fahnestock
& Co., Inc. ("Fahnestock"), is subject to the Uniform Net Capital
Rule (the "Rule") of the Securities and Exchange Commission and the
net capital rule of the New York Stock Exchange (the "NYSE").
Fahnestock has elected to use the alternative method permitted by
the Rule which requires that it maintain minimum net capital of 2%
of aggregate debit items arising from customer transactions. The
NYSE may prohibit a member firm from expanding its business or
paying dividends if resulting net capital would be less than 5% of
aggregate debit items.
At March 31, 1996, the net capital of Fahnestock as calculated
under the Rule was $96,078,000 or 31% of Fahnestock's aggregate
debit items. This is $89,899,000 in excess of the minimum required
net capital.
5
Item 2.
Managements' Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The securities industry is directly affected by general economic
and market conditions, including fluctuations in volume and price
levels of securities and changes in interest rates, all of which
have an impact on commissions and firm trading and investment
income as well as on liquidity. Substantial fluctuations can occur
in revenues and net income due to these and other factors.
Unaudited profits in the first quarter of 1996 were U.S.$7,891,000
or $0.63 compared to U.S. $3,144,000 or $0.26 per share for the
first quarter of 1995. Revenue for the first quarter of 1996 was
U.S. $55,750,000, an increase of 37% over revenue of U.S.
$40,748,000 in 1995.
High volume and higher stock prices continued through the first quarter
1996 as the stock market set new records. Individual investors continued
to support markets, contributing to record mutual fund sales and absorbing
the substantial new issue calendar. Commission income and to a large extent,
income from principal transactions, depend on market volume levels. Commission
revenue showed a gain of 26% compared to the first quarter 1995. Principal
transactions, particularly trading in over-the-counter issues, as well as
convertible, corporate and government bonds, showed significant gains during
the first quarter 1996 with revenue from these sources 63% higher than in
the comparable period of 1995. Interest revenue was up moderately due to an
increase in rates in the beginning of March. Underwriting fees increased
reflecting stronger market activity compared to a weak 1995. Advisory fees
increased by 14% compared to the first quarter 1995 as a result of new
advisory accounts and higher levels of assets under management. Expenses,
while up for the quarter when compared to 1995, were held in line and allowed
a pre-tax gross margin of 25%. Compensation and clearing and exchange fees
have significant components which are volume driven. Volume levels in 1996
were significantly stronger than in 1995. Relatively fixed expenses such as
communications and occupancy costs remained consistent with 1995 levels.
Market conditions and interest rate levels impact the revenue and earnings
potential of broker-dealers in securities. Since the beginning of March,
interest rates have increased to an eight-month high. Going forward in an
environment of higher interest rates, it is reasonable to expect increased
volatility in the markets. We believe that our conservative operating
policies and our diligent attention to the control of expenses ensures the
Company's profitability for the remainder of 1996.
6
Liquidity and Capital Resources
Total assets at March 31, 1996 were U.S. $550,671,000, a decrease
of 12% from U.S. $623,466,000 at December 31, 1995. This net
decrease is attributable to mainly to a decrease in receivables
from brokers and clearing organizations and receivables from
customers. Receivables from brokers and clearing organizations and
customers can flucuate dramatically on a day-to-day basis. The level
of these receivables, generally, over the course of the quarter was
not lower than year end levels, except on the final day. Liquid assets
accounted for 99% of total assets, consistent with year-end levels.
The Company satisfies its need for funds from its own cash
resources, internally-generated funds, term and subordinated
borrowings, collateralized borrowing consisting primarily of bank
loans, and uncommitted lines of credit. The amount of Fahnestock's
bank borrowings fluctuates in response to changes in the level of
the Company's securities inventories and customer-related
borrowings as well as changes in stock loan balances. Fahnestock
has arrangements with banks for borrowings on a fully
collateralized basis. At March 31, 1996, no such borrowings were
outstanding.
Management believes that funds from operations, combined with
Fahnestock's capital base and available lines of credit, will
satisfy the Company's needs in the foreseeable future.
On February 23, 1996, the Company paid a cash dividend of US$0.20
per Class A non-voting and Class B share totalling $2,448,000 from
available cash on hand.
On April 19, 1996, the board of directors declared a regular quarterly
cash dividend of US$0.05 per Class A non-voting and Class B share payable
on May 23, 1996 to shareholders of record May 9, 1996.
On May 16, 1995 the Company announced that it intended to purchase
up to 800,000 Class A non-voting shares by way of a Normal Course
Issuer Bid through the facilities of The Toronto Stock Exchange
(approximately 8.5% of the public float). The Company stated that
it believed that the Class A non-voting shares were then
undervalued and that repurchase of such shares at current market
prices was an appropriate use of corporate funds. In the first
quarter 1996 the Company made no such purchases. Unless terminated
earlier by the Company, the Normal Course Issuer Bid will terminate
on May 17, 1996. Copies of the Notice of Intention to make the
Normal Course Issuer Bid as filed with securities regulatory
authorities may be obtained from the Company free of charge.
7
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Fahnestock has been named as defendant in various legal
actions and matters for arbitration before the New York
Stock Exchange and the National Association of Securities
Dealers. The claims vary substantially in amount, but the
Registrant believes that, in the aggregate, they will not
have a material adverse effect on its business.
Reich is subject to certain claims and litigation which
may be material to Reich but which management does not
believe to be material to the Registrant.
Item 2. Not applicable
Item 3. Not applicable
Item 4. Not applicable
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits-
Financial Data Schedule included as Exhibit 27
(b) Reports on Form 8-K- None
8
SIGNATURES
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 hereunto duly authorized, in the City
of Toronto, Ontario, Canada on the 19th day of April, 1996
FAHNESTOCK VINER HOLDINGS INC.
Registrant
By:__/s/ A.G.Lowenthal___
A.G. Lowenthal,Chairman
(Principal Financial Officer)
By:__/s/ E.K.Roberts____
E.K. Roberts, President
(Duly Authorized Officer)
9