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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Month of November 1998
MFC BANCORP LTD.
(Exact Name of Registrant as specified in its charter)
6 Rue Charles-Bonnet, 1206 Geneva, Switzerland
(41 22) 818 2999
(Address and telephone number of Registrant's executive office)
(Indicate by check mark whether the Registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
[ X ] Form 20-F [ ] Form 40-F
(Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes No X
--------- ---------
(If "Yes" is marked, indicate below the file number assigned to the Registrant
in connection with Rule 12g3-2(b): 82- ).
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MFC BANCORP LTD.
1998 THIRD QUARTER REPORT
TO SHAREHOLDERS
SEPTEMBER 30, 1998
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on historical
events, constitute forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995. These statements
appear in a number of different places in this report and include statements
regarding the intent, belief or current expectations of MFC Bancorp Ltd., and
its directors and officers, primarily with respect to the future market size
and future operating performance of MFC Bancorp Ltd. and its subsidiaries.
Forward-looking statements include, without limitation, statements regarding
the outlook for future operations, forecasts of future costs and expenditures,
evaluation of market conditions, the outcome of legal proceedings, the
adequacy of reserves, or other business plans. Investors are cautioned that
any such forward-looking statements are not guarantees and may involve risks
and uncertainties, and that actual results may differ from those in the
forward-looking statements as a result of various factors such as general
economic and business conditions, including changes in interest rates, prices
and other economic conditions; actions by competitors; natural phenomena;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings; technological development;
future decisions by management in response to changing conditions; the ability
to execute prospective business plans; and misjudgments in the course of
preparing forward-looking statements.
<PAGE> 3
MFC BANCORP LTD.
1998 THIRD QUARTER REPORT
President's Letter to Shareholders:
We are pleased to enclose the Company's third quarter results for 1998.
Revenues and earnings remained strong in the third quarter of 1998. The
following table is a summary of selected financial information concerning the
Company for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
---------------------- ----------------------
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(U.S. Dollars in (Canadian Dollars in
thousands except per thousands except per
share amounts) share amounts)
Information Only
<S> <C> <C> <C> <C>
Revenue $ 54,733 $ 44,100 $ 80,125 $ 60,704
Net income 12,880 9,658 18,858 13,295
Net income per share:
Basic 1.05 0.80 1.54 1.10
Fully diluted 0.95 0.74 1.39 1.02
September 30, December 31, September 30, December 31,
1998 1997 1998 1997
------------- ------------ ------------- ------------
(U.S. Dollars in (Canadian Dollars in
thousands except per thousands except per
share amounts) share amounts)
Information Only
Cash and cash equivalents $ 42,514 $ 29,544 $ 64,872 $ 42,222
Securities 48,162 52,863 73,491 75,546
Total assets 174,703 158,765 266,580 226,890
Accrued losses, claims
and settlement expenses 2,991 5,874 4,564 8,395
Debt 26,372 29,110 40,241 41,602
Shareholders' equity 92,952 84,078 141,837 120,156
Net book value per share 7.71 6.82 11.77 9.75
- ---------------
Notes:
A key strategic proprietary investment is the Company's royalty interest,
consisting of an indirect interest in an iron ore mine located in
Newfoundland, Canada. The Company's mineral royalty interest is stated on the
Company's balance sheet at its historical cost of $1.7 million. The value of
the interest was appraised by an independent valuator in October 1998 at an
average of $30.0 million on a pre-tax basis using an 11% rate of return and a
market comparison model. The difference between the historical cost and the
appraisal value of the royalty interest is equal to approximately $2.35 per
share.
</TABLE>
The Company is in the financial services business specializing in private and
investment banking internationally. The Company's banking business is
conducted by its wholly-owned subsidiary, MFC Merchant Bank S.A. (the "Bank"),
a licensed full-service Swiss bank acquired in early February 1997. In the
third quarter of 1997, the Company acquired Bank Rinderknecht AG
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("BRA"), which was active in private banking and securities trading for Swiss
and foreign customers since 1870. Following the acquisition, the Company
merged BRA with the Bank.
Private banking focuses on asset management and servicing the Bank's worldwide
base of clients, including corporations, small to mid-sized institutions and
high net-worth individuals. Investment banking services include providing
finance and advisory services to clients with respect to corporate finance
transactions and underwriting issuances of securities. The Company's
personalized approach to client development for both its private and
investment banking activities has continued to increase its client base. The
Company will continue to focus on providing its clients with creative
solutions through both its existing operations and strategic acquisitions and
alliances.
The Bank requires substantially less regulatory capital than traditional North
American banks as the majority of its customer deposits are placed in the
European fiduciary market. Such placements are off-balance sheet items which
allow the Bank to generate fee income without tying up significant amounts of
its capital. On the other hand, the traditional method of placing deposits,
whereby income is generated on the spread between deposits and return on
investments, requires significant amounts of capital, which will hinder
growth. The Bank does not engage in commercial or real estate lending.
The Company also conducts proprietary investing/merchant banking activities,
which consist of the Company using its own resources and expertise to invest
for its own account. These activities concentrate on the identification and
acquisition of control of undervalued assets and the development and
realization of the full potential thereof. The Company invests globally with
the objective of maximizing total return measured through both long-term
appreciation and recognized gains.
The Company has established a solid foundation for its financial services
business and looks forward to continued growth in the last quarter of 1998.
Respectfully submitted,
M.J. Smith
November 1998 President
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MFC BANCORP LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
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MFC BANCORP LTD.
CONSOLIDATED BALANCE SHEETS
As at September 30, 1998 and 1997
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1998 1997
---------------- ---------- ----------
(U.S. Dollars) (Canadian Dollars)
Information Only
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 42,514 $ 64,872 $ 94,700
Securities 48,162 73,491 86,706
Loans 24,793 37,832 25,483
Receivables 33,063 50,451 26,462
Property held for sale 4,097 6,251 8,097
Notes receivable 4,744 7,239 8,621
Excess cost of net assets acquired 12,281 18,740 18,136
Premises and equipment 1,918 2,926 3,641
Prepaid and other 3,131 4,778 3,639
---------- ---------- ----------
$ 174,703 $ 266,580 $ 275,485
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 18,478 $ 28,196 $ 79,869
Accounts payable and accrued expenses 32,287 49,265 32,917
Debt 26,372 40,241 44,832
Accrued losses, claims and
settlement expenses 2,991 4,564 7,473
---------- ---------- ----------
80,128 122,266 165,091
Minority interest 1,623 2,477 2,465
Shareholders' equity
Common shares 43,034 65,666 70,265
Cumulative translation adjustment 6,114 9,331 (365)
Retained earnings 43,804 66,840 38,029
---------- ---------- ----------
92,952 141,837 107,929
---------- ---------- ----------
$ 174,703 $ 266,580 $ 275,485
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1998 1998 1997
---------------- ---------- ----------
(U.S. Dollars) (Canadian Dollars)
Information Only
<S> <C> <C> <C>
Revenues
Banking and financial services $ 24,131 $ 35,326 $ 18,534
Investments 29,585 43,310 40,802
Other 1,017 1,489 1,368
---------- ---------- ----------
54,733 80,125 60,704
Expenses
Investments 28,032 41,036 31,650
General and administrative 11,432 16,735 12,252
Interest 2,427 3,553 3,593
---------- ---------- ----------
41,891 61,324 47,495
---------- ---------- ----------
Income before income taxes 12,842 18,801 13,209
Provision for income taxes (176) (257) (170)
---------- ---------- ----------
12,666 18,544 13,039
Minority interest 214 314 256
---------- ---------- ----------
Net income $ 12,880 $ 18,858 $ 13,295
========== ========== ==========
Earnings per share:
Basic $ 1.05 $ 1.54 $ 1.10
========== ========== ==========
Fully diluted $ 0.95 $ 1.39 $ 1.02
========== ========== ==========
Weighted average number of shares
outstanding (in thousands) 14,835 14,835 13,600
========== ========== ==========
Dividends paid on:
Common shares $ 257 $ 369 $ 104
========== ========== ==========
Preferred shares $ - $ - $ 396
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1998 and 1997
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1998 1998 1997
---------------- ---------- ----------
(U.S. Dollars) (Canadian Dollars)
Information Only
<S> <C> <C> <C>
Revenues
Banking and financial services $ 4,711 $ 7,391 $ 10,301
Investments 12,408 18,602 15,670
Other 146 237 284
---------- ---------- ----------
17,265 26,230 26,255
Expenses
Investments 9,963 15,044 13,353
General and administrative 3,216 4,916 4,480
Interest expense 846 1,279 1,418
---------- ---------- ----------
14,025 21,239 19,251
---------- ---------- ----------
Income before income taxes 3,240 4,991 7,004
Provision for income taxes (8) (15) (161)
---------- ---------- ----------
3,232 4,976 6,843
Minority interest 44 70 166
---------- ---------- ----------
Net income $ 3,276 $ 5,046 $ 7,009
========== ========== ==========
Earnings per share:
Basic $ 0.28 $ 0.42 $ 0.57
========== ========== ==========
Fully diluted $ 0.26 $ 0.39 $ 0.52
========== ========== ==========
Weighted average number of shares
outstanding (in thousands) 14,617 14,617 13,938
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Canadian Dollars
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Inflow (outflow) of cash and cash equivalents
related to the following activities:
Operating
Net income $ 18,858 $ 13,295
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Items not affecting cash
Depreciation and amortization 1,397 1,184
Gain on investments (847) (1,878)
Gain on debt securities (7,660) (2,715)
Minority interest (314) (256)
Other (836) (3,951)
------------ ------------
10,598 5,679
Changes in current assets
and liabilities
Investments 6,208 6,531
Receivables (27,789) (3,976)
Properties held for sale 507 165
Accounts payable and accrued expenses 23,782 (1,641)
Accrued losses, claims and settlement
expenses (1,925) (3,711)
Other 1,179 (1,231)
------------ ------------
12,560 1,816
Financing
Net (decrease) increase in deposits (6,539) 18,621
Loan repayments (3,719) (10,132)
Borrowings 15,515 14,017
Issuance of shares, net of repurchase (4,703) 3,982
Dividends paid (369) (500)
Other (40) -
------------ ------------
145 25,988
Investing
Net decrease in loans 5,585 7,696
Purchases of subsidiaries, net of
cash acquired (760) 41,802
Other (224) (165)
------------ ------------
4,601 49,333
Exchange rate effect on cash and
cash equivalents 5,344 -
------------ ------------
Increase in cash and cash equivalents 22,650 77,137
Cash and cash equivalents:
Beginning of period 42,222 17,563
------------ ------------
End of period $ 64,872 $ 94,700
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MFC BANCORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited)
NOTE 1. Basis of Presentation
---------------------
The consolidated financial statements contained herein include the accounts of
MFC Bancorp Ltd. and its subsidiaries (the "Company").
The interim period consolidated financial statements have been prepared by the
Company in accordance with Canadian generally accepted accounting principles.
All financial summaries included are presented on a comparative and consistent
basis showing the figures for the corresponding period in the preceding year.
The preparation of financial data is based on accounting principles and
practices consistent with those used in the preparation of annual financial
statements. Certain information and footnote disclosure normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These interim
period statements should be read together with the audited consolidated
financial statements and the accompanying notes included in the Company's
latest annual report on Form 20-F. In the opinion of the Company, its
unaudited interim consolidated financial statements contain all adjustments
necessary in order to present a fair statement of the results of the interim
periods presented.
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
NOTE 2. Nature of Business
------------------
The Company is in the financial services business and its principal activities
focus on private and investment banking.
NOTE 3. Earnings Per Share
------------------
Basic earnings per share are computed on the weighted average number of shares
outstanding during the period. For the calculation of fully diluted earnings
per share, under Canadian generally accepted accounting principles, options
are deemed to be exercised at the date of grant and convertible securities are
deemed to be converted at the date of issuance.
Under U.S. generally accepted accounting principles, options affect diluted
earnings per share when "in-the-money".
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NOTE 4. Reporting Currency
------------------
The Company reports its results in Canadian dollars. Certain amounts herein
have also been reported in U.S. dollars for reference purposes. Amounts
reported in U.S. dollars have been translated from Canadian dollars at a rate
of U.S.$1.00 = Canadian $1.5259 for period end purposes and U.S.$1.00 =
Canadian $1.4639 for the nine months ended September 30, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and the
financial condition of the Company for the three and nine months ended
September 30, 1998, respectively, should be read in conjunction with the
consolidated financial statements and related notes included elsewhere herein.
In this document, unless the context otherwise requires, the "Company" refers
to MFC Bancorp Ltd. and its subsidiaries and all references to monetary
amounts are in Canadian dollars unless otherwise indicated. Selected
financial information has also been provided in U.S. dollars for information
purposes.
RESULTS OF OPERATIONS - Nine Months Ended September 30, 1998
------------------------------------
The Company operates in the financial services business, specializing in
private and investment banking internationally. It also engages in
proprietary investing/merchant banking activities for its own account. The
Company conducts its banking activities through its wholly-owned subsidiary,
MFC Merchant Bank S.A. (the "Bank"), which was acquired in February 1997. The
Company further expanded its operations by acquiring the MFC Securities group
of companies ("MFC Securities") and Bank Rinderknecht AG ("BRA") in the second
and third quarters of 1997, respectively.
Revenues in the nine months ended September 30, 1998 increased by
approximately 32.0% to $80.1 million from $60.7 million in the comparative
period of 1997. The increase is primarily attributable to an increase in
revenues from banking and financial services to $35.3 million in the current
period from $18.5 million in the comparative period of 1997. In the first
nine months of 1998, revenues from sales of investment securities increased to
$43.3 million from $40.8 million in the same period of 1997.
Costs and expenses increased to $61.3 million in the nine months ended
September 30, 1998 from $47.5 million in the comparative period of 1997,
primarily as a result of an increase in costs and expenses from sales of
investment securities. General and administrative expenses increased to $16.7
million in the nine months ended September 30, 1998 from $12.3 million in the
same period of 1997, primarily due to the acquisition of the Bank, MFC
Securities and BRA. Interest expense was $3.6 million during the first nine
months of 1998 and 1997, respectively.
Net income in the nine months ended September 30, 1998 was $18.9 million or
$1.54 per share on a basic basis ($1.39 per share on a fully diluted basis),
compared to $13.3 million or $1.10 per share on a basic basis ($1.02 per share
on a fully diluted basis) in the same period of 1997. Increased revenues from
banking and financial services contributed to improved earnings in the nine
months ended September 30, 1998, which were partially offset by increased
costs and expenses related to investment securities and higher general and
administrative expenses.
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RESULTS OF OPERATIONS - Three Months Ended September 30, 1998
-------------------------------------
Revenues in the third quarter of 1998 were $26.2 million, compared to $26.3
million in the comparative quarter of 1997. In the three months ended
September 30, 1998, revenues from banking and financial services decreased to
$7.4 million from $10.3 million in the comparative period of 1997, primarily
as a result of weaker capital markets. In the current quarter of 1998,
revenues from sales of investment securities increased to $18.6 million from
$15.7 million in the comparative period of 1997.
Costs and expenses increased to $21.2 million in the three months ended
September 30, 1998 from $19.3 million in the three months ended September 30,
1997, primarily as a result of an increase in costs and expenses from sales of
investment securities. During the current period, costs and expenses related
to sales of investment securities increased to $15.0 million from $13.4
million in the comparative period of 1997. General and administrative
expenses increased to $4.9 million in the current period of 1998 from $4.5
million in the same period of 1997, primarily due to an expansion of
activities at the Bank. Interest expense was $1.3 million during the three
months ended September 30, 1998, compared to $1.4 million in the three months
ended September 30, 1997.
Net income in the quarter ended September 30, 1998 was $5.0 million or $0.42
per share on a basic basis ($0.39 per share on a fully diluted basis),
compared to $7.0 million or $0.57 per share on a basic basis ($0.52 per share
on a fully diluted basis) in the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's cash and cash equivalents were $64.9
million, compared to $94.7 million at September 30, 1997. At September 30,
1998, the Company had securities of $73.5 million, compared to $86.7 million
at September 30, 1997.
Operating Activities
- --------------------
Operating activities provided cash of $12.6 million in the nine months ended
September 30, 1998, compared to $1.8 million for the same period in 1997. The
Company's purchase of debt securities resulted in a gain of $7.7 million in
the nine months ended September 30, 1998. A decrease in investments provided
cash of $6.2 million in the nine months ended September 30, 1998, compared to
$6.5 million in the nine months ended September 30, 1997. An increase in
receivables related to trading activities used cash of $27.8 million in the
current period of 1998, compared to $4.0 million in the same period of 1997.
An increase in accounts payable and accrued expenses primarily related to
trading activities provided cash of $23.8 million in the current period of
1998, compared to a decrease in same using cash of $1.6 million in the same
period of 1997. The Company expects to generate sufficient cash flow from
operations to meet its working capital requirements.
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Financing Activities
- --------------------
Financing activities provided cash of $0.1 million in the nine months ended
September 30, 1998, compared to $26.0 million in the same period in 1997. A
net decrease in deposits used cash of $6.5 million during the current period
of 1998, compared to an increase in deposits providing cash of $18.6 million
in the comparative period of 1997. A net increase in borrowings provided cash
of $11.8 million in the nine months ended September 30, 1998, compared to $3.9
million in the comparative period of 1997. Net repurchases of the Company's
shares used cash of $4.7 million in the nine months ended September 30, 1998,
compared to an issuance of shares providing cash of $4.0 million in the
comparative period of 1997. During the nine months ended September 30, 1998,
the Company used $0.4 million to pay cash dividends to common shareholders.
Investing Activities
- --------------------
Investing activities provided cash of $4.6 million in the nine months ended
September 30, 1998, primarily as a result of payments received on the
Company's outstanding loans. Payments made with respect to the acquisition of
MFC Securities and the Bank in 1997 used cash of $0.8 million in the current
period of 1998. In the comparative period of 1997, the net purchase of
subsidiaries provided cash of $41.8 million.
The Company anticipates that there will be further purchases of businesses or
commitments to projects during the fourth quarter of 1998. To achieve its
long-term goals of expanding its asset-base and earnings both with respect to
client services and proprietary investments, the Company may require
substantial capital resources. The necessary resources will be generated from
cash flow from operations, cash on hand, borrowing against its assets and/or
the sale of assets.
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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, thereunto duly authorized.
Registrant MFC BANCORP LTD.
------------------------------
By /s/ Michael J. Smith
------------------------------
MICHAEL J. SMITH, PRESIDENT
Date November 27, 1998
------------------------------
