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
June 30, 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 July 22, 1998 was 12,592,260 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 June 30, 1998 and December 31, 1997
Consolidated Statement of Operations 4
for the six months ended June 30, 1998 and 1997
Consolidated Statement of Cash Flows 5
for the six months ended June 30, 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 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED BALANCE SHEET (unaudited)
June 30, December 31,
1998 1997 *
Expressed in thousands of U.S. dollars
ASSETS
Current assets
Cash and short-term deposits $9,643 $10,784
Restricted deposits 1,923 1,537
Deposits with clearing organizations 7,048 4,734
Receivable from brokers and clearing organizations 262,479 359,205
Receivable from customers 372,632 350,807
Securities owned, at market value 80,516 63,262
Demand notes receivable 30 30
Other 16,128 27,945
750,399 818,304
Other assets
Stock exchange seats (approximate market value
$4,755; $5,592 in 1997) 1,525 1,542
Fixed assets, net of accumulated depreciation
of$8,579; $7,458 in 1997 9,719 9,128
Goodwill, at amortized cost 5,940 6,172
17,184 16,842
$767,583 $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 (unaudited)
June 30, December 31,
1998 1997 *
Expressed in thousands of U.S. dollars
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Drafts payable $14,214 $18,507
Bank call loans 56,432 23,755
Securities sold under agreements to repurchase 880 -
Payable to brokers and clearing organizations 324,514 422,173
Payable to customers 110,515 117,033
Securities sold, but not yet purchased,
at market value 40,197 31,090
Accounts payable and other liabilities 39,405 45,571
Income taxes payable 7,771 16,052
593,928 674,181
Subordinated loans payable 30 30
Shareholders' equity
Share capital
12,585,010 Class A non-voting shares
(1997 - 12,408,760 shares) 42,013 40,783
99,680 Class B voting shares 133 133
42,146 40,916
Contributed capital 1,333 1,333
Retained earnings 130,146 118,686
173,625 160,935
$767,583 $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 (unaudited)
FOR THE PERIOD ENDED JUNE 30,
Second Quarter ended Six months ended
June 30, June 30,
1998 1997 1998 1997
Expressed in thousands of U.S. dollars, except per share amounts
REVENUE:
Commissions $29,380 $18,941 $58,781 $37,794
Principal transactions, net 14,399 11,984 33,628 29,521
Interest 11,404 8,573 22,387 15,979
Underwriting fees 4,035 1,422 6,352 4,582
Advisory fees 4,776 2,585 10,538 5,450
Other 3,909 913 5,416 1,580
67,903 44,418 137,102 94,906
EXPENSES:
Compensation and related expenses 36,317 22,112 72,710 46,565
Clearing and exchange fees 2,078 1,822 4,196 3,575
Communications 5,630 3,658 10,894 7,222
Occupancy costs 3,415 2,255 6,455 4,549
Interest 5,939 4,261 12,156 7,339
Other 3,358 2,201 7,336 4,813
56,737 36,309 113,747 74,063
Profit before income taxes 11,166 8,109 23,355 20,843
Income tax provision 4,961 3,603 10,117 9,268
NET PROFIT FOR PERIOD $6,205 $4,506 $13,238 $11,575
Profit per share
- - basic $0.49 $0.37 $1.04 $0.94
- - diluted $0.47 $0.35 $1.01 $0.91
The accompanying notes are an integral part of these condensed
financial statements.
4
FAHNESTOCK VINER HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
19981997
Expressed in thousands of U.S. dollars
Cash flows from operating activities:
Net profit for the year $13,238 $11,575
Adjustments to reconcile net profit to net
cash provided by (used in) operating activities:
Non-cash items included in net profit:
Depreciation and amortization 1,369 566
Decrease (increase) in operating assets,
Restricted deposits (386) (494)
Deposits with clearing organizations (2,314) (30)
Receivable from brokers and clearing organizations 96,726 (139,577)
Receivable from customers (21,825) 2,735
Securities owned (17,254) (4,436)
Other assets 11,818 885
Increase (decrease) in operating liabilities,
Drafts payable (4,293) (1,854)
Securities sold under agreements to repurchase 880 -
Payable to brokers and clearing organizations (97,659) 162,804
Payable to customers (6,518) 4,683
Securities sold, but not yet purchased 9,107 5,803
Accounts payable and other liabilities (6,166) (3,733)
Income taxes payable (8,281) (5,787)
Cash (used in) provided by operating activities (31,558) 33,140
Cash flows from investing and other activities:
Escrow deposit for stock of First of Michigan
Capital Corporation - (38,000)
Purchase of fixed assets (1,712) (517)
Cash used in investing and other activities (1,712) (38,517)
Cash flows from financing activities:
Cash dividends paid on Class A non-voting and
Class B shares (1,778) (1,498)
Issuance of Class A non-voting shares 1,529 1,577
Repurchase of Class A non-voting shares for
cancellation (299) -
Increase in bank call loans 32,677 5,500
Cash provided by financing activities 32,129 5,579
Net (decrease) increase in cash and
short-term deposits (1,141) 202
Cash and short-term deposits, beginning of period 10,784 9,363
Cash and short-term deposits, end of period $9,643 $9,565
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, financial position and cash
flows 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.
These consolidated financial statements are presented in U.S.
dollars.
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 weighted average
Class A non-voting and Class B shares outstanding and the effects of
Class A non-voting share options using the treasury stock method.
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 six
months ended June 30, 1997 has been restated to comply with FAS
128. Profit per share has been calculated as follows:
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
Basic weighted average
number of shares
outstanding 12,684,423 12,265,760 12,684,423 12,265,760
Net effect, treasury
stock method 462,222 427,325 423,418 427,325
Diluted common shares 13,146,645 12,693,085 13,107,841 12,693,085
Net profit for the
period $6,205,000 $4,506,000 $13,238,000 $11,575,000
Basic profit
per share $0.49 $0.37 $1.04 $0.94
Diluted profit
per share $0.47 $0.35 $1.01 $0.91
6
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.
At June 30, 1998, the net capital of Fahnestock as calculated
under the Rule was $97,345,000 or 23% of Fahnestock's aggregate
debit items. This was $86,695,000 in excess of the minimum
required net capital. At June 30, 1998, FOM's net capital as
calculated under the Rule was $8,730,000. This was $8,480,000 in
excess of the minimum required net capital.
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 net profit in the second quarter of 1998 were
$6,205,000 or $0.49 per share compared to $4,506,000 or $0.37 per
share for the second quarter of 1997, an increase of 38% in net
profit. Revenue for the second quarter of 1998 rose to a record
$67,903,000, an increase of 53% over revenue of $44,418,000 in the
second quarter of 1997, as commissions, investment banking
income, and asset management fees reached new highs, all
significantly affected by the acquisition of First of Michigan
Corporation ("FOM") in July 1997. FOM operates 25 retail branches
located in Michigan and employs approximately 170 investment
executives. Fahnestock and FOM together operate from 75 branches
located in fifteen states and employ approximately 715 investment
executives.
Net profit for the six months ended June 30, 1998 was
$13,238,000 or $1.04 per share compared to $11,575,000 or $0.94
per share for the comparable period of 1997, an increase of 14% in
net profit. Revenue for the first six months of 1998 was
$137,102,000, an increase of 44% compared to revenue of
$94,906,000 in the first six months of 1997.
There was a continuation of strong markets in the second
quarter of 1998 with stock indexes reaching new highs and with long
bond yields at secular lows, making for a positive investment
environment. Commission income and to a large extent, income
from principal transactions, depend on market volume levels.
Commission revenue increased 55% compared to the second quarter
1997 due to strong mutual fund activity and increases in listed
securities volume. Net revenue from principal transactions increased
by 20% in the second quarter 1998 from the comparable period of
1997. Investment banking revenues and advisory fees both showed
significant improvement in the second quarter of 1998 compared to
1997 due to increased underwriting and private placement activity.
Net interest revenue (interest revenue less interest expense) increased
by 27% in the second quarter of
7
1998 compared to the second quarter of 1997 as a result of higher
client balances brought about both by the addition of the FOM
business and a generally more active client business in 1998
compared to 1997. Expenses, other than interest, increased by 59%
in the second quarter of 1998 compared to 1997, with FOM
accounting for a substantial portion of the increase.
Operations at FOM improved in the second quarter, as the
population of investment executives stabilized. The contribution of
FOM continued to fall short of expectations, however, the process
of rebuilding has begun. Higher than normal costs associated with
terminations, transferring client accounts, repopulating branches and
other attendant costs reduced profit margins in the second quarter of
1998, but are expected to reach more normal levels during the
second half of 1998.
Liquidity and Capital Resources
Total assets at June 30, 1998 of $767,583,000 decreased by
approximately 8% from $835,146,000 at December 31, 1997 due to
a decline in the level of receivables from brokers and clearing
organizations. 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 June 30, 1998 $56,432,000 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 and May 22, 1998, the Company paid cash
dividends of U.S.$0.07, quarterly per Class A non-voting and Class
B shares totaling $1,778,000 from available cash on hand.
On July 22, 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 August 21, 1998 to shareholders of record on
August 7, 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
8
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.
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
On May 11, 1998, the Company held an annual and
special meeting of shareholders with the following results:
The following people were elected as directors of the
Company: J.L. Bitove, R. Crystal, A.G. Lowenthal, K.W.
McArthur, A.W. Oughtred, E.K. Roberts and B. Winberg for
the ensuing year or until their successors be elected.
[Voted: For 95,179; Against -0-; Withheld -0-]
Coopers & Lybrand, Chartered Accountants, were appointed
auditors of the Company until termination of the next Annual
Meeting of the Company at a remuneration to be fixed by the
directors.
[Voted: For 95,179; Against -0-; Withheld -0-]
The amendment to the Company's 1996 Equity Incentive
Plan (the "Plan") increasing the number of Class A non-
voting shares that may be issued under the Plan and other
plans of the Company from 1,850,000 Class A non-voting
shares to 2,100,000 Class A non-voting shares was
confirmed.
[Voted: For 95,179; Against -0-; Withheld -0-]
9
ITEM 5. Other Information
Fahnestock & Co. Inc. was the subject of disciplinary
actions by the New York Stock Exchange pursuant to four
examinations conducted by the Exchange's Member Firm
Regulation Division for the years 1993 through 1996.
Without admitting or denying findings of deficiencies in various areas
of the business, Fahnestock agreed to pay a $100,000 fine
and to retain an independent consultant to review its systems
and procedures and to make recommendations that would
prevent a recurrence of such deficiencies. Fahnestock agreed
to advise the Exchange of the steps to be taken to implement
the recommendations contained in the report. The Company
does not believe that implementation of such
recommendations will have a material adverse impact on
Fahnestock's operations.
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
10
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 22nd day of July, 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)
11
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<ARTICLE> BD
<LEGEND> EXHIBIT 27
Financial Data Schedule for the second quarter ended June 30, 1998
required pursuant to Item 601(c) of Regulation S-K and Regulation S-B
and Rule 401 of Regulation S-T.
</LEGEND>
<CIK> 0000791963
<NAME> FAHNESTOCK VINER HOLDINGS INC.
<MULTIPLIER> 1
<CURRENCY> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,643,000
<RECEIVABLES> 456,380,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 201,937,000
<INSTRUMENTS-OWNED> 80,516,000
<PP&E> 9,719,000
<TOTAL-ASSETS> 767,582,000
<SHORT-TERM> 56,342,000
<PAYABLES> 189,092,000
<REPOS-SOLD> 880,000
<SECURITIES-LOANED> 307,327,000
<INSTRUMENTS-SOLD> 40,197,000
<LONG-TERM> 30,000
<COMMON> 42,146,000
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<OTHER-SE> 131,479,000
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<FEE-REVENUE> 4,776,000
<INTEREST-EXPENSE> 5,939,000
<COMPENSATION> 36,317,000
<INCOME-PRETAX> 11,166,000
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