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 June 30, 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 June 30, 1996 was 12,244,535 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 June 30, 1996
and December 31, 1995
Consolidated Statement of Operations 3
for the six months ended
June 30, 1996 and 1995
Consolidated Statement of Cash Flows 4
for the six months ended
June 30, 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. Submission of Matters to a Vote of Security Holders 8
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
June 30,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
ASSETS
Current assets:
Cash $ 9,052 $ 9,707
Restricted deposits 1,093 1,242
Receivable from brokers
and clearing organ-
izations 284,399 303,610
Receivable from customers 270,139 253,184
Securities owned,at market 39,562 36,850
Secured demand notes rec-
eivable 30 30
Other assets 7,077 14,686
611,352 619,309
Other assets:
Stock exchange seats (approximate
market value $3,877; 1995 -
$2,911) 1,428 1,446
Fixed assets,net of accum-
ulated depreciation
of $3,351 (1995-
$3,118) 1,596 1,595
Goodwill, at amortized cost 1,024 1,116
4,048 4,157
$615,400 $623,466
*Condensed from audited financial statements
1
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
June 30,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Drafts payable $ 11,371 $ 16,821
Bank call loans 23,150 41,200
Payable to brokers and
clearing organizations 319,613 319,843
Payable to customers 75,227 79,494
Securities sold not yet
purchased,at market 15,196 25,940
Accounts payable and
other liabilities 30,859 23,627
Taxes payable 14,052 9,106
489,468 516,031
Subordinated loans payable 30 30
Shareholders' equity:
Share capital
First preference shares
issuable in series - -
12,244,535 Class A non-voting
shares (11,940,410 in 1995) 39,523 37,513
99,680 Class B shares 133 133
39,656 37,646
Contributed capital 785 785
Retained earnings 85,461 68,974
125,902 107,405
$615,400 $623,466
*Condensed from audited financial statements
2
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Operations
For the six months ended June 30, 1996
(unaudited)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
(Expressed in thousands of U.S. dollars,except per share amounts)
Revenue:
Commissions $ 17,340 $ 15,877 $ 34,823 $ 29,786
Principal transactions 33,300 16,474 56,892 30,975
Interest 8,345 8,302 16,770 16,344
Underwriting fees 3,251 713 5,154 1,385
Advisory fees 3,483 2,507 6,097 4,808
Other 1,732 1,520 3,465 2,843
67,451 45,393 123,201 86,141
Expenses:
Compensation and
related expenses 31,439 21,578 58,125 41,923
Clearing and
exchange fees 2,647 2,465 5,435 4,907
Communications 4,452 3,976 8,610 7,699
Occupancy costs 2,275 2,119 4,467 4,307
Interest 4,502 4,908 9,297 9,626
Other 1,229 1,213 2,183 2,524
46,544 36,259 88,117 70,986
Profit before income taxes 20,907 9,134 35,084 15,155
Income tax provision 9,250 3,963 15,536 6,840
NET PROFIT FOR PERIOD $11,657 $ 5,171 $ 19,548 $ 8,315
Profit per share
- -basic $0.94 $0.43 $1.57 $0.69
- -fully diluted $0.91 $0.42 $1.54 $0.67
3
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Cash Flows
For the six months ended June 30, 1996
(unaudited)
1996 1995
(Expressed in thousands of U.S. dollars)
CASH PROVIDED BY (USED FOR):
Operating activities:
Net profit for the period $ 19,548 $ 8,315
Charges not affecting cash:
Depreciation and amortization 343 350
Decrease (increase) in non-cash
operating capital:
Restricted deposits 149 ( 68)
Receivable from brokers and clearing
organizations 19,211 (93,263)
Receivable from customers (16,955) 9,802
Securities owned ( 2,712) ( 2,358)
Other assets 7,609 ( 9,553)
Drafts payable ( 5,450) 2,085
Payable to brokers and clearing organizations ( 230) 106,727
Payable to customers ( 4,267) ( 4,727)
Securities sold, not yet purchased (10,744) 11,698
Accounts payable and other liabilities 7,232 767
Income taxes payable 4,946 3,652
18,680 33,427
Investing and other activities:
Purchase stock exchange seats - ( 7)
Purchase of fixed assets ( 234) ( 472)
( 234) ( 479)
Financing activities:
Cash dividends paid on Class A
non-voting and Class B shares ( 3,061) ( 1,827)
Issuance of Class A non-voting shares 2,010 656
Repurchase of Class A non-voting
shares for cancellation - ( 956)
Decrease in bank call loans (18,050) (32,125)
(19,101) (34,252)
Decrease in cash ( 655) ( 1,304)
Cash, beginning of period 9,707 11,043
Cash, end of period $ 9,052 $ 9,739
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
12,429,534 in 1996, 12,084,658 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 June 30, 1996, the net capital of Fahnestock as calculated
under the Rule was $112,091,000 or 36% of Fahnestock's aggregate
debit items. This is $105,877,000 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 second quarter of 1996 were U.S.$11,657,000
or $0.94 compared to U.S. $5,171,000 or $0.43 per share for the
second quarter of 1995, and increase of 125% in net profit. Revenue for the
second quarter of 1996 was U.S. $67,451,000, an increase of 49% over revenue
of U.S. $45,393,000 in 1995.
High volume and higher stock prices continued through the second quarter of
1996 as the stock market continued its upward spiral. Individual investors
made record net investments into mutual funds and other financial instruments.
Commission income and to a large extent, income from principal transactions,
depend on market volume levels. Commission revenue showed a gain of 9%
compared to the second quarter 1995. Principal transactions, particularly
trading in NASDAQ securities and convertible bonds, showed significant gains
during the second quarter 1996 with revenue from trading sources 102% higher
than in the comparable period of 1995. Interest revenue was flat in the
second quarter of 1996 compared the same period in 1995. Underwriting fees
increased dramatically by 356%, reflecting stronger market activity compared
to a weak 1995. Advisory fees increased by 39% 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 31%. Compensation and
clearing and exchange fees have significant components which are volume
driven. Volume levels in 1996 were significantly stronger than in 1995.
Communications costs increased in 1996 compared to 1995 due to the opening
in 1996 of Freedom Investments Inc., our discount brokerage arm, which
is a communications-based operation. Relatively fixed expenses such as
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, 1996
interest rates have been on the rise. Interest rates have increased during
this period based on higher levels of economic activity and lower levels of
unemployment in the U.S. The Company expects U.S. interest rates to edge
upward slightly over the balance of the year. This could tend to increase
market volatility somewhat, however the Company expects that the "baby boom"
savings phenomenon will continue to create net inflows to mutual funds and
other financial instruments.
One of the key employees of the Company's wholly-owned subsidiary, Hudson
Capital Advisors Inc. has announced his retirement. Because of the close
association of this employee and his clients, it is unlikely that the firm
will retain the assets under management. While it is not expected
that this will impact profitability in a meaningful way, it is expected
to have a significant impact on assets under management by Hudson Capital.
6
Liquidity and Capital Resources
Total assets at June 30, 1996 were U.S. $615,400,000, a decrease
of 1% from U.S. $623,466,000 at December 31, 1995. This net
decrease is attributable primarily to a decrease in receivables
from brokers and clearing organizations, partly offest by an increase in
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. 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
bankloans, 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 June 30, 1996,
$23,150,000 of 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 May 23, 1996, the Company paid a cash
dividend of US$0.05 per Class A non-voting and Class B share totalling
$613,000.
On July 16, 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 August 23, 1996 to shareholders of record August 9, 1996.
On June 21, 1996 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 8.3% 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 second
quarter 1996 the Company made no such purchases. Unless terminated
earlier by the Company, the Normal Course Issuer Bid will terminate
on June 24, 1997. 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.
Between May 18, 1995 and May 17, 1996, pursuant to an previous Normal
Course Issuer Bid, the Company purchase 27,600 Class A non-voting shares
at a weighted average price per share of $Cdn.10.81.
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. Submission of Matters to a Vote of Security Holders
On May 29, 1996, at an Annual and Special Meeting of Shareholders
of the Company, holders of the Class B voting shares elected
the directors nominated by management; appointed Coopers &
Lybrand to act as the Company's auditors and authorized the
Directors to fix their remuneration; and confirmed the
resolution passed by the Directors on April 19, 1996 approving
the Company's 1996 Equity Incentive Plan. Holders of Class A
non-voting shares of the Company are entitled to attend and
speak at the Annual and Special Meeting of Shareholders but
are not entitled to vote with respect to the matters referred
to above.
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 16th day of July, 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