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, 1998
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: 1-12043
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 April 30, 1998 was 12,598,760 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, 1998
and December 31, 1997
Consolidated Statement of Operations 4
for the three months ended
March 31, 1998 and 1997
Consolidated Statement of Cash Flows 5
for the three months ended
March 31, 1998 and 1997
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security-Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
(unaudited) 1998 1997*
Expressed in thousands of U.S. dollars
ASSETS
Current assets
Cash $ 15,322 $ 10,784
Restricted deposits 1,719 1,537
Deposits with clearing organizations 3,303 4,734
Receivable from brokers and clearing organizations 348,920 359,205
Receivable from customers 352,554 350,807
Securities owned, at market value 82,239 63,262
Demand notes receivable 30 30
Other 15,796 27,945
819,883 818,304
Other assets
Stock exchange seats (approximate market value
$5,909; $5,592 in 1997) 1,533 1,542
Fixed assets, net of accumulated depreciation of
$7,991; $7,458 in 1997) 9,222 9,128
Goodwill, at amortized cost 6,056 6,172
16,811 16,842
$836,694 $835,146
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
2
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
(unaudited) 1998 1997*
Expressed in thousands of U.S. dollars
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Drafts payable $ 19,935 $ 18,507
Bank call loans 31,766 23,755
Payable to brokers and clearing organizations 402,948 422,173
Payable to customers 113,300 117,033
Securities sold, but not yet purchased,
at market value 50,066 31,090
Accounts payable and other liabilities 44,699 45,571
Income taxes payable 5,391 16,052
668,105 674,181
Subordinated loans payable 30 30
Shareholders' equity
Share capital
12,598,760 Class A non-voting shares
(1997 - 12,408,760 shares) 42,264 40,783
99,680 Class B voting shares 133 133
42,397 40,916
Contributed capital 1,333 1,333
Retained earnings 124,829 118,686
168,559 160,935
$836,694 $835,146
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
3
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31,
(unaudited) 1998 1997
Expressed in thousands of U.S. dollars
REVENUE:
Commissions $29,401 $18,853
Principal transactions, net 19,229 17,537
Interest 10,983 7,406
Underwriting fees 2,317 3,160
Advisory fees 5,762 2,865
Other 1,507 667
69,199 50,488
EXPENSES:
Compensation and related expenses 36,393 24,453
Clearing and exchange fees 3,281 1,753
Communications 5,264 3,564
Occupancy costs 3,040 2,294
Interest 6,217 3,078
Other 2,815 2,612
57,010 37,754
Profit before income taxes 12,189 12,734
Income tax provision 5,156 5,665
NET PROFIT FOR THE PERIOD $7,033 $7,069
Profit per share
- basic $0.56 $0.57
- diluted $0.54 $0.55
The accompanying notes are an integral part of these condensed
financial statements.
4
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended March 31,
(unaudited) 1998 1997
Expressed in thousands of U.S. dollars
Cash flows from operating activities:
Net profit for the period $7,033 $7,069
Adjustments to reconcile net profit to net cash
provided by operating activities:
Non-cash items included in net profit:
Depreciation and amortization 658 271
Decrease (increase) in operating assets:
Restricted deposits (182) (497)
Deposits with clearing organizations 1,431 (30)
Receivable from brokers and clearing organizations 10,285 (22,066)
Receivable from customers (1,747) 2,452
Securities owned (18,977) 2,440
Other assets 12,150 793
Increase (decrease) in operating liabilities:
Drafts payable 1,428 13,311
Payable to brokers and clearing organizations (19,225) 38,361
Payable to customers (3,733) (15,141)
Securities sold, but not yet purchased 18,976 (13,558)
Accounts payable and other liabilities (872) (2,684)
Income taxes payable (10,661) (7,036)
Cash (used in) provided by operating activities (3,436) 3,685
Cash flows from investing and other activities:
Purchase of fixed assets (629) (258)
Cash used in investing activities (629) (258)
Cash flows from financing activities:
Cash dividends paid on Class A non-voting and
Class B shares (889) (746)
Issuance of Class A non-voting shares 1,516 1,006
Repurchase of Class A non-voting shares for cancellation (35) -
Increase (decrease) in bank call loans 8,011 (4,574)
Cash provided by (used in) financing activities 8,603 (4,314)
Increase (decrease) in cash 4,538 (887)
Cash, beginning of period 10,784 9,363
Cash, end of period $15,322 $8,476
The accompanying notes are an integral part of these condensed
financial statements.
5
FAHNESTOCK VINER HOLDINGS INC.
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of
Fahnestock Viner Holdings Inc. ("FVH") and its subsidiaries (the
"Company"). The principal subsidiaries of FVH are Fahnestock & Co.
Inc. ("Fahnestock") and First of Michigan Corporation ("FOM"),
registered broker-dealers in securities. All material intercompany
accounts have been eliminated in consolidation. The Company's
financial statements have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission ("SEC")
with respect to Form 10-Q and do not include all of the information
and footnotes required under accounting principles generally accepted
in the United States for complete financial statements. These financial
statements should be read in conjunction with the Company's most
recent annual report on Form 10-K for the year ended December 31,
1997 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 normal and recurring and necessary for
a fair presentation of the results of operations for the interim periods
presented have been made. The nature of the Company's business is
such that the results of operations for the interim periods are not
necessarily indicative of the results to be expected for a full year.
2. Profit per share
Profit per share was computed by dividing net profit by the
weighted average number of Class A non-voting and Class B shares
outstanding. Diluted profit per share includes the determinants
of basic profit per share and, in addition, gives effect to dilutive
potential Class A non-voting shares that were outstanding during the
period.
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. Profit per share for the three months ended
March 31, 1997 has been restated to comply with FAS 128. Profit per
share has been calculated as follows:
March 31,
1998 1997
Basic weighted average number of
shares outstanding 12,670,362 12,424,551
Net effect, treasury stock method 377,068 482,162
Diluted common shares 13,047,430 12,906,713
Net profit for the period $7,033,000 $7,069,000
Basic profit per share $0.56 $0.57
Diluted profit per share $0.54 $0.55
3. Net Capital Requirements
The Company's principal broker-dealer subsidiaries, Fahnestock
and FOM, are subject to the Uniform Net Capital Rule (the "Rule") of
the SEC and the net capital rule of the New York Stock Exchange (the
"NYSE"). Both Fahnestock and FOM have elected to use the
alternative method permitted by the Rule which requires that they
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.
6
At March 31, 1998, the net capital of Fahnestock as calculated
under the Rule was $101,524,000 or 24% of Fahnestock's aggregate
debit items. This was $93,003,000 in excess of the minimum required
net capital. At March 31, 1998, FOM's net capital as calculated under
the Rule was $6,738,000. This was $6,438,000 in excess of the
minimum required net capital.
ITEM 2.
Management's' 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 1998 were U.S.$7,033,000
or $0.56 per share compared to U.S.$7,069,000 or $0.57 per share for
the first quarter of 1997. Revenue for the first quarter of 1998 was
U.S. $69,199,000 compared to revenue of U.S. $50,488,000 in 1997,
an increase of 37%. Approximately 67% of the increase in revenue is
attributable to the business of FOM, a broker-dealer which was
acquired in July 1997. FOM operates 25 retail branches located in
Michigan and employs approximately 200 investment executives.
Fahnestock and FOM, operate from 75 branches located in fifteen
states and employ approximately 725 investment executives.
Commission income and to a large extent, income from principal
transactions, depend on market volume levels. Commission revenue
increased 56% compared to the first quarter 1997 due primarily to the
production generated by the FOM branches, which contributed to 75%
of the increase. Market conditions remained strong in the first quarter
of 1998 with the Dow Jones industrial average reaching the 9000 mark
for the first time. Interest rates remained low and stable in the first
quarter of 1998 which set the scene for the continued strong markets of
the first quarter. Net revenue from principal transactions increased 10%
in the first quarter 1998 from the comparable period of 1997. A strong
performance from all of the trading departments in 1998 was reduced
somewhat by a loss on a market hedge position in the quarter. Net
interest revenue (the difference between interest revenue and interest
expense) increased approximately 10% over 1997 levels. Net interest
revenue was affected adversely by problems associated with the
transfer out of client accounts due to the FOM broker defections.
Underwriting fees declined by 27% in 1998 compared to 1997.
Advisory fees increased by 101% compared to the first quarter 1997
primarily as a result of the addition of the FOM business. Expenses,
other than interest increased by 46% for the quarter compared to 1997,
with the FOM operations accounting for 78% of the increase. Overall
market volume levels in the first quarter of 1998 were higher than in
the comparable quarter of 1997 and thus, compensation expense and
clearing and exchange fees which have significant volume-driven
components increased in 1998 compared to 1997. Operations at FOM
continued to be impacted during the quarter by uncertainties related to
the loss of investment executives and branches as reported in the fourth
quarter of 1997. This has resulted in higher than expected expenses of
consolidating FOM's operations including expenses incurred closing
branches,
7
repopulating other branches, transferring client accounts and attendant
costs. FOM's contributions to revenue were also lower than expected
because of the uncertainties created by the defection of investment
executives and consequent branch disruptions.
Liquidity and Capital Resources
Total assets at March 31, 1998 of U.S. $836,694,000 approximated
the U.S.$835,146,000 total at December 31, 1997. Liquid assets
accounted for 98% of total assets, consistent with year end levels. The
Company satisfies its need for funds from its own cash resources,
internally-generated funds, 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 margin debt as well as changes in stock loan balances.
Fahnestock has arrangements with banks for borrowings on a fully
collateralized basis. At March 31, 1998 $31,766,000 of such
borrowings were outstanding.
Management believes that funds from operations, combined with
Fahnestock's capital base and available credit facilities, are sufficient for
the Company's needs in the foreseeable future.
On February 20, 1998, the Company paid a cash dividend of
U.S.$0.07 per Class A non-voting and Class B shares totaling
$889,000 from available cash on hand.
On April 20, 1998, the board of directors declared a regular
quarterly cash dividend of $0.07 per Class A non-voting and Class B
share payable on May 22, 1998 to shareholders of record on May 8,
1998.
Factors Affecting "Forward-Looking Statements"
This report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended ( the "Act"), and Section 21E of the Exchange Act. These
forward-looking statements relate to anticipated financial performance,
future revenues or earnings, business prospects and anticipated market
performance of the Company, including statements related to its
acquisition of First of Michigan. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to:
(i)transaction volume in the securities markets, (ii)the volatility of the
securities markets, (iii)fluctuations in interest rates, (iv)changes in
regulatory requirements which could affect the cost and manner of
doing business, (v)fluctuations in currency rates, (vi)general economic
conditions, both domestic and international, (vii)changes in the rate of
inflation and the related impact on the securities markets,
(viii)competition from existing financial institutions and other new
participants in the securities markets, (ix)legal developments affecting
the litigation experience of the securities industry, and (x)changes in
federal and state tax laws which could affect the popularity of products
sold by the Company. In addition, the results or expectations of the
Company will be impacted by factors associated with the acquisition of
First of Michigan and its integration with the Company's existing
business. There can be no assurance that the Company has correctly or
completely identified and assessed all of the factors affecting the
Company's business. The Company does not undertake any obligation
to publicly update or revise any forward-looking statements.
8
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 and Use of Proceeds
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
9
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 20th day of April, 1998.
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)
10