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 Quarterly Period ended
March 31, 1997
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. 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, 1997 was 12,335,760 and 99,680 shares, respectively.
FAHNESTOCK VINER HOLDINGS INC. INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 2
as of March 31, 1997
and December 31, 1996
Consolidated Statement of Operations 3
for the three months ended
March 31, 1997 and 1996
Consolidated Statement of Cash Flows 4
for the three months ended
March 31, 1997 and 1996
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. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of
Security-Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(unaudited)
March 31, December 31,
1997 1996 *
Expressed in thousands of U.S.dollars
ASSETS
Current assets
Cash $ 8,476 $ 9,363
Restricted deposits 2,399 1,902
Receivable from brokers and clearing organizations 208,609 186,543
Receivable from customers 263,690 266,142
Securities owned, at market value 39,186 41,596
Demand notes receivable 30 30
Other 9,350 10,143
531,740 515,719
Other assets
Stock exchange seats (approximate market value
$3,720; $3,503 in 1996) 1,402 1,411
Fixed assets, net of accumulated depreciation of
$4,069; $3,853 in 1996) 1,898 1,856
Goodwill, at amortized cost 884 930
4,184 4,197
$535,924 $519,916
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Drafts payable $ 25,750 $ 12,439
Bank call loans 7,226 11,800
Payable to brokers and clearing organizations 232,326 193,965
Payable to customers 76,739 91,880
Securities sold, but not yet purchased,
at market value 19,198 32,756
Accounts payable and other liabilities 26,682 29,366
Income taxes payable 4,767 11,803
392,688 384,009
Subordinated loans payable 30 30
Shareholders' equity
Share capital
12,335,760 Class A non-voting shares
(1996 - 12,265,760 shares) 40,694 39,688
99,680 Class B voting shares 133 133
40,827 39,821
Contributed capital 1,099 1,099
Retained earnings 101,280 94,957
143,206 135,877
$535,924 $519,916
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements. 2
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
First quarter ended March 31,
1997 1996 *
Expressed in thousands of U.S.dollars
REVENUE:
Commissions $18,853 $19,389
Principal transactions 17,537 21,756
Interest 7,406 8,587
Underwriting fees 3,160 1,992
Advisory fees 2,865 3,290
Other 667 736
50,488 55,750
EXPENSES:
Compensation and related expenses 24,453 26,370
Clearing and exchange fees 1,753 1,929
Communications 3,564 3,877
Occupancy costs 2,294 2,346
Interest 3,078 4,795
Other 2,612 2,256
37,754 41,573
Profit before income taxes 12,734 14,177
Income tax provision 5,665 6,286
NET PROFIT FOR THE PERIOD $ 7,069 $ 7,891
Earnings per share
- primary $0.55 $0.63
- fully diluted $0.53 $0.61
* restated to conform with presentation adopted at December 31, 1996.
The accompanying notes are an integral part of these condensed financial
statements. 3
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
1997 1996
Expressed in thousands of U.S. dollars
Cash flows from operating activities:
Net profit for the period $ 7,069 $ 7,891
Adjustments to reconcile net profit
to net cash provided by operating
activities:
Non-cash items included in net profit:
Depreciation and amortization 271 173
Decrease (increase) in operating assets:
Restricted deposits (497) 121
Receivable from brokers and clearing
organizations (22,066) 85,024
Receivable from customers 2,452 (18,334)
Securities owned 2,410 1,431
Other assets 793 3,320
Increase (decrease) in operating liabilities:
Drafts payable 13,311 (2,357)
Payable to brokers and clearing
organizations 38,361 (16,073)
Payable to customers (15,141) (11,549)
Securities sold, but not yet purchased (13,558) (6,923)
Accounts payable and other liabilities (2,684) 294
Income taxes payable (7,036) (1,710)
3,685 41,308
Cash flows from investing and other activities:
Purchase of fixed assets (258) (80)
(258) (80)
Cash flows from financing activities:
Cash dividends paid on Class A non-voting
and Class B shares (746) (2,448)
Issuance of Class A non-voting shares 1,006 1,280
Decrease in bank call loans (4,574) (41,200)
(4,314) (42,368)
Decrease in cash (887) (1,140)
Cash, beginning of period 9,363 9,707
Cash, end of period $ 8,476 $ 8,567
The accompanying notes are an integral part of these condensed financial
statements. 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, 1996 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 presentation
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 12,797,051 in 1997,
12,495,251 in 1996. Fully diluted earnings per share reflects the effect of
outstanding employee stock options.
Statement of Financial Accounting Standards No. 128 - Earnings Per Share
("FAS 128") requires a change in the method of calculation for both primary
and fully-diluted earnings per share for periods ended after December 15,
1997. The Company plans to adopt FAS 128 in the fourth quarter of 1997 for
the year ended December 31, 1997. If FAS 128 had been adopted at March 31,
1997, basic earnings per share would be $0.57 and $0.65, respectively, for
the quarters ended March 31, 1997 and 1996 and diluted earnings per share
would be $0.55 and $0.63, respectively,for the quarters ended March 31, 1997
and 1996.
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 equal to 2% of aggregate debit items arising from
customer transactions, as defined. 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, 1997, the net capital of Fahnestock as calculated under the
Rule was $127,069,953 or 42% of Fahnestock's aggregate debit items. This is
$121,000,855 in excess of the minimum required net capital.
5
ITEM 2.
Managements' Discussion and Analysis of Financial Condition and 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.
Results of Operations
Unaudited profits in the first quarter of 1997 were U.S.$7,069,000 or $0.55
per share compared to U.S.$7,891,000 or $0.63 per share for the first quarter
of 1996, a decline of 10% in net profit. Revenue for the first quarter of
1997 was U.S. $50,488,000 compared to revenue of U.S. $55,750,000 in 1996, a
decline of 9%. While revenues and earnings did not reach the high levels
achieved in the first quarter of 1996, the first quarter of 1997 showed
significant improvement from the results reported for the last two quarters
of 1996.
Commission income and to a large extent, income from principal transactions,
depend on market volume levels. Commission revenue showed a decrease of 3%
compared to the first quarter 1996 due to lower levels of activity by
individual investors commencing in March 1997. Through February 1997,
Fahnestock's commission business compared favorably with the prior year.
Weakening markets and increased volatility in March were caused by investor
concern over predictions of rising interest rates and mixed inflation
indications. Revenue from principal transactions decreased 19% in the first
quarter 1997 from the comparable period of 1996. 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 14% due to a decrease in stock loan activity, although net
interest revenue (the difference between interest revenue and interest
expense) increased by 14% due to a lower average cost of funds in 1997
compared to 1996. Underwriting fees increased by 59% due to high levels
of IPO activity as well as the success of the Company's new structured asset
activities. Advisory fees decreased by 13% compared to the first quarter 1996
as a result of the retirement of one of the Company's key employees at
Hudson Capital Advisors in the third quarter of 1996. The Company did
not retain the managed assets under his direct supervision. No significant
impact on net earnings has resulted. Expenses were down by 9% for the
quarter compared to 1996 due to lower interest costs and lower compensation
costs. Overall volume levels in the first quarter of 1997 were lower than in
the comparable quarter of 1996. Compensation and clearing and exchange fees
have significant components which are volume driven and thus decreased in
1997 compared to 1996. Communications costs decreased moderately in 1997
compared to 1996 due to the impact of newly negotiated contracts. Relatively
fixed expenses such as occupancy costs remained consistent with 1996 levels.
In recent weeks investors appear to sitting on the side-lines assessing
possible future interest rate tightening by the Federal Reserve and awaiting
first quarter corporate earnings reports. These factors will impact the
volume levels and direction of the markets in the months ahead.
6
Liquidity and Capital Resources
Total assets at March 31, 1997 were U.S.535,924,000, an increase of 3% from
U.S.$519,916,000 at December 31, 1996. This net increase is attributable
mainly to an increase in receivables from brokers and clearing organizations
partly. 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 borrowings 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, 1997 $25,750,000 of such borrowings were
outstanding.
Management believes that funds from operations, combined with Fahnestock's
capital base and available credit facilities, will satisfy the Company's
needs in the foreseeable future.
On February 21, 1997, the Company paid a cash dividend of U.S.$0.06 per
Class A non-voting and Class B shares totaling $746,000 from available cash
on hand.
On April 21, 1997, the board of directors declared a regular quarterly cash
dividend of $0.06 per Class A non-voting and Class B share payable on May 23,
1997 to shareholders of record on May 9, 1997.
7
PART II
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or its
subsidiaries are parties or to which any of their respective properties are
subject. The Company's subsidiaries are parties to legal proceedings
incidental to their respective businesses. The materiality of legal matters
on the Company's future operating results depends on the level of future
results of operations as well as the timing and ultimate outcome of such
legal matters.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders
Not applicable
Item 5. Other Information
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 21st day of April, 1997.
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