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 September 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 2015, Suite 1110
20 Eglinton Avenue West
Toronto, Ontario, Canada M4R 1K8
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 416-322-1515
Former name, address and former fiscal year, if changed since last
report. Former Address: P.O. Box 16, Suite 1204
181 University Avenue
Toronto, Ontario, Canada M5H 3M7
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 September 30, 1996 was 12,263,285 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 September 30, 1996
and December 31, 1995
Consolidated Statement of Operations 3
for the nine months ended
September 30, 1996 and 1995
Consolidated Statement of Cash Flows 4
for the nine months ended
September 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. Not applicable
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
September 30,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
ASSETS
Current assets:
Cash $ 17,858 $ 9,707
Restricted deposits 1,183 1,242
Receivable from brokers
and clearing organ-
izations 239,838 303,610
Receivable from customers 263,489 253,184
Securities owned,at market 35,646 36,850
Secured demand notes rec-
eivable 30 30
Other assets 9,373 14,686
567,417 619,309
Other assets:
Stock exchange seats (approximate
market value $3,275; 1995 -
$2,911) 1,420 1,446
Fixed assets,net of accum-
ulated depreciation
of $3,472 (1995-
$3,118) 1,620 1,595
Goodwill, at amortized cost 977 1,116
4,017 4,157
$571,434 $623,466
*Condensed from audited financial statements
1
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
September 30,1996 December 31,1995
(unaudited) (*)
(Expressed in thousands of U.S. dollars)
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Drafts payable $ 9,838 $ 16,821
Bank call loans 14,500 41,200
Payable to brokers and
clearing organizations 259,602 319,843
Payable to customers 88,678 79,494
Securities sold not yet
purchased,at market 23,447 25,940
Accounts payable and
other liabilities 31,804 23,627
Taxes payable 12,581 9,106
440,450 516,031
Subordinated loans payable 30 30
Shareholders' equity:
Share capital
First preference shares
issuable in series - -
12,263,285 Class A non-voting
shares (11,940,410 in 1995) 39,647 37,513
99,680 Class B shares 133 133
39,780 37,646
Contributed capital 785 785
Retained earnings 90,389 68,974
130,954 107,405
$571,434 $623,466
*Condensed from audited financial statements
2
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Operations
For the nine months ended September 30, 1996
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
(Expressed in thousands of U.S. dollars, except per share amounts)
Revenue:
Commissions $ 14,759 $ 16,891 $ 49,582 $ 46,677
Principal transactions 15,895 18,419 72,787 49,394
Interest 7,831 9,976 24,601 26,320
Underwriting fees 1,464 1,121 6,618 2,506
Advisory fees 3,656 2,947 9,753 7,755
Other 2,158 1,436 5,623 4,279
45,763 50,790 168,964 136,931
Expenses:
Compensation and
related expenses 22,616 24,074 80,741 65,997
Clearing and
exchange fees 2,785 2,949 8,220 7,856
Communications 3,736 4,168 12,346 11,867
Occupancy costs 2,272 2,150 6,739 6,457
Interest 3,924 6,324 13,221 15,950
Other 818 1,126 3,001 3,650
36,151 40,791 124,268 111,777
Profit before income taxes 9,612 9,999 44,696 25,154
Income tax provision 4,058 4,062 19,594 10,902
NET PROFIT FOR PERIOD $ 5,554 $ 5,937 $ 25,102 $ 14,252
Profit per share
- -basic $0.45 $0.50 $2.02 $1.18
- -fully diluted $0.44 $0.48 $1.91 $1.15
3
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Changes in Cash Flows
For the nine months ended September 30, 1996
(unaudited)
1996 1995
(Expressed in thousands of U.S. dollars)
CASH PROVIDED BY (USED FOR):
Operating activities:
Net profit for the period $ 25,102 $14,252
Charges not affecting cash:
Depreciation and amortization 520 523
Loss on sale of exchange seat - 35
Decrease (increase) in non-cash
operating capital:
Restricted deposits 59 (73)
Receivable from brokers and
clearing organizations 63,772 (155,277)
Receivable from customers (10,305) (2,023)
Securities owned 1,205 (4,476)
Other assets 5,313 (3,090)
Drafts payable (6,983) 250
Payable to brokers and
clearing organization (60,241) 181,436
Payable to customers 9,184 (10,533)
Securities sold, not yet
purchased (2,493) 7,152
Accounts payable and other
liabilities 8,166 3,435
Income taxes payable 3,475 6,361
36,774 37,972
Investing and other activities:
Proceeds from sale of exchange seat - 115
Purchase stock exchange seats - (7)
Purchase of fixed assets (379) (657)
(379) (549)
Financing activities:
Cash dividends paid on Class A
non-voting and Class B shares (3,678) (1,827)
Issuance of Class A non-
voting shares 2,134 656
Repurchase of Class A non-voting
shares for cancellation - (1,146)
Decrease in bank call loans (26,700) (35,825)
(28,244) (38,142)
Increase (decrease) in cash 8,151 (719)
Cash, beginning of period 9,707 11,043
Cash, end of period $17,858 $10,324
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
12,449,093 in 1996, 12,065,863 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 September 30, 1996, the net capital of Fahnestock as calculated
under the Rule was $112,973,000 or 38% of Fahnestock's aggregate debit
items. This is $106,997,000 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 third quarter of 1996 were U.S.$5,554,000
or $0.45 compared to U.S. $5,937,000 or $0.50 per share for the
third quarter of 1995. Revenue for the third quarter of 1996 was
U.S. $45,763,000 compared to revenue of U.S. $50,790,000 in 1995.
Commission income and to a large extent, income from principal transactions,
depend on market volume levels. Commission revenue showed a decrease of
13% compared to the third quarter 1995 due to lower levels of activity
by individual investors during the first part of the quarter which was not
completely offset when activity picked up again in September. Principal
transactions deceased 14% in the third quarter 1996 from the comparable
period of 1995. While revenue from principal transactions for the quarter was
substantial, it was down compared to the prior year due to greater
volatility in the stock and bond markets.Interest revenue was down 22%
due to a decrease in stock loan activity. Net interest,however, was 7%
higher in 1996 than in 1995. Underwriting fees increased by 31% despite
a slower underwriting market in July and August 1996. Advisory fees increased
by 24% compared to the third quarter 1995 as a result of higher levels of
assets under management compared to 1995. This increase in advisory business
is not expected to continue for the balance of the year due to the
retirement of one of the Company's key asset management employees. The
Company will not retain the managed assets under his direct supervision. No
significant impact on net earnings is expected. Expenses were down for the
quarter compared to 1995 due to lower interest costs and lower compensation
costs. Compensation and clearing and exchange fees have significant
components which are volume driven. Volume levels in the third quarter of
1996 were lower than in the comparable quarter of 1995. Communications
costs decreased in 1996 compared to 1995 due to the impact of newly
negotiated contracts. 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. The recent summer slowdown and
stock market decline ended with markets moving sharply higher after
investors' confidence was buoyed by the decision of the U.S. Federal
Reserve not to raise interest rates. Concern over higher interest rates
has been substantially reduced by indications that inflation remains under
control and that the U.S. economiy's growth rate has been moderated. The
stock market has reached record levels and the direction of the markets
from these levels will be determined by corporate earnings and changes
in interest rates.
6
Liquidity and Capital Resources
Total assets at September 30, 1996 were U.S.$571,434,000, a decrease
of 1% from U.S.$623,466,000 at December 31, 1995. This net decrease
is attributable mainly to a decrease in receivables from brokers and
clearing organizations partly offset by an increase in cash and receivables
from customers. Receivables from brokers and clearing organizations and
customers can fluctuate dramatically on a period-to-period basis. The level of
these receivables over the course of the quarter was not significantly 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 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 September 30, 1996 $14,500,000 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 U.S.$0.20 per
Class A non-voting and Class B shares totaling $2,448,000 from available
cash on hand. On May 23 and August 23, 1996, the Company paid cash dividends
of $0.05 per Class A non-voting and Class B share totaling $613,000 and
$617,000, respectively from cash on hand.
On October 17, 1996, the board of directors declared a regular quarterly
cash dividend of $0.05 per Class A non-voting and Class B share payable
on November 22, 1996 to shareholders of record November 8, 1996.
7
PART II
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 Security Dealers. These 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 managment does not believe to be
material to the Registrant.
Item 2. Not applicable
Item 3. Not applicable
Item 4. Not applicable
Item 5. Other Information
On August 28, 1996 the Registrant's Class A non-voting shares
were listed for trading on The New York Stock Exchange under
the symbot "FVH". The Company believes that this listing will
improve investor awareness of Fahnestock Viner Holdings Inc.
The Class A non-voting shares are no longer quoted on NASDAQ
but continue to be listed on The Toronto Stock Exchange under
the symbol "FHV.A".
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 17th day of October, 1996.
FAHNESTOCK VINER HOLDINGS INC.
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