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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Fee required)
For the fiscal year ended Commission file number
December 31, 1995 1-14416
___Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee
required)
For the transition period from _________ to _________.
FAHNESTOCK VINER HOLDINGS INC.
(Exact name of registrant as
specified in its charter)
Ontario, Canada 98-0080034
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
P.O. Box 16, Suite 1204 M5H 3M7
181 University Ave.,
Toronto, Ontario,Canada
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:416-364-3397
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Class A non-voting shares
Indicate by check mark whether the 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the Company held
by non-affiliates of the Company cannot be calculated because no
class of voting stock of the Company is publicly traded.
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 December 31, 1995 was 11,940,410 and
99,680 shares, respectively.
TABLE OF CONTENTS
Item
No. Page
PART I
1. Business 1
2. Properties 19
3. Legal Proceedings 20
4. Submission of Matters to a Vote
of Security Holders 20
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
6. Selected Financial Data 26
7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 27
8. Financial Statements and Supplementary
Data 34
(See F1-F15)
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 34
PART III
10. Directors and Executive Officers
of the Registrant 34
11. Executive Compensation 37
12. Security Ownership of Certain Beneficial
Owners and Management 41
13. Certain Relationships and Related
Transactions 43
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 44
(See E1-E2)
Signatures 45
/TABLE
PART I
Item 1. BUSINESS
Introduction
Fahnestock Viner Holdings Inc., formerly called E.A. Viner Holdings
Limited and immediately prior to that called Goldale Investments
Limited (the "Company"), maintains its registered office and
principal place of business at 181 University Avenue, Suite 1204,
Toronto, Ontario M5H 3M7 and its telephone number is (416)364-3397.
The Company was originally incorporated under the laws of British
Columbia. Pursuant to Certificate and Articles of Continuation
effective October 12, 1977, the Company's legal existence was
continued under the Business Corporation Act (Ontario) as if it had
been incorporated as an Ontario corporation.
The Company is a holding company and carries on no active business.
It owns, directly or through intermediate subsidiaries, Fahnestock
& Co., Inc. (formerly Edward A. Viner & Co., Inc.), a New York
corporation ("Fahnestock"), Freedom Investments, Inc., a Delaware
corporation ("Freedom"), Pace Securities Inc., a New York
corporation ("Pace"), and Hudson Capital Advisors Inc., a New York
corporation ("Hudson Capital"). Fahnestock, Hudson Capital, Freedom
and Pace are sometimes collectively referred to as the "Operating
Subsidiaries". Through the Operating Subsidiaries, the Company is
engaged in the securities brokerage and trading business and offers
investment advisory and other related financial services.
Fahnestock is the principal Operating Subsidiary. Fahnestock is
engaged in the securities brokerage business in the United States
and, through the agency of local licensed broker-dealers,
Fahnestock operates offices in Buenos Aires, Argentina and Caracas,
Venezuela. Freedom has succeeded to the discount securities
brokerage business of Pace (which discontinued operations in July,
1995) in the United States. Hudson Capital is engaged in the
investment advisory business in the United States.
On December 13, 1993, Fahnestock purchased all of the issued shares
of Reich & Co. Inc, an Alabama corporation ("Reich"), a United
States brokerage firm based in New York City. Reich is not
currently engaged in the brokerage or any other operating business.
Reich's brokerage accounts have been transferred to Fahnestock.
At December 31, 1995, Fahnestock employed 564 full-time registered
representatives and 399 employees in trading, research, investment
banking, investment advisory services, public finance and support
positions for Fahnestock's 51 offices in the United States
(operating as Fahnestock in the Northeast and Florida, as the
B.C.Christopher division of Fahnestock in the Midwest and as the
W.H. Newbold's Son division of Fahnestock in Pennsylvania) and for
Freedom in its offices in Omaha, Nebraska. Fahnestock and Freedom
are broker-dealers registered with the Securities and Exchange
Commission (the "SEC") and in all other jurisdictions where their
respective businesses requires registration. Fahnestock, in
addition to its United States operations, conducts business in
Caracas and Buenos Aires through local broker-dealers who are
licensed under the laws of Venezuela and Argentina, respectively.
General
The operations of the Company and the Operating Subsidiaries are
within a single industry segment. No material part of the Company's
revenues, taken as a whole, are derived from a single customer or
group of customers.
The Operating Subsidiaries are engaged in a broad range of
activities in the securities brokerage business, including retail
securities brokerage, institutional sales, bond trading and
investment banking - offering both corporate and public finance
services, underwriting, research, market making and investment
advisory and asset management services.
Fahnestock and Freedom are members of the New York Stock Exchange,
Inc. ("NYSE") and the National Association of Securities Dealers,
Inc. ("NASD"); and Fahnestock is a member of the American Stock
Exchange, Inc. ("AMEX"), the Chicago Stock Exchange Incorporated
("CSE"), the Chicago Board Options Exchange, Inc. ("CBOE"), the
Philadelphia Stock Exchange, Inc. ("PHLX"), the New York Futures
Exchange, Inc. ("NYFE"), the National Futures Association ("NFA")
and the Securities Industry Association ("SIA"). In addition,
Fahnestock has satisfied the requirements of the Municipal
Securities Rulemaking Board ("MSRB") for effecting customer
transactions in municipal securities.
Fahnestock, which acts as a clearing broker for Freedom, is also a
member of the Securities Investor Protection Corporation ("SIPC"),
which provides, in the event of the liquidation of a broker-dealer,
protection for customers' accounts (including the customer accounts
of other securities firms when it acts on their behalf as a
clearing broker) held by the firm of up to $500,000 for each
customer, subject to a limitation of $100,000 for claims for cash
balances. SIPC is funded through assessments on registered
broker-dealers which may not exceed 1% of a broker-dealer's gross
revenues (as defined); SIPC assessments were 0.095%, 0.073% and
0.054% in 1995, 1994 and 1993, respectively, of the adjusted
combined gross revenues of Fahnestock and Freedom (and until July,
1995, Pace). In addition, Fahnestock has purchased additional
protection from Aetna Casualty and Surety Company of an additional
$9,500,000 per customer. Upon request, Fahnestock, at the
customer's expense, will obtain additional protection for a
customer whose securities account is in excess of $10,000,000.
Products
The following table sets forth the amount and percentage of the
Company's revenues from each principal source for the periods
indicated.
(Dollars in thousands,
except percentages) Year ended December 31,
1995 % 1994 % 1993 %
Commissions $ 62,543 34% $ 54,102 34% $60,016 37%
Firm trading and
investment income 63,238 34% 54,332 35% 57,323 35%
Interest 35,399 19% 23,085 15% 15,179 10%
Underwriting fees 3,960 2% 8,204 5% 12,134 8%
Advisory fees 10,934 6% 11,663 7% 11,972 7%
Other 8,359 5% 5,867 4% 5,361 3%
Total revenues $184,433 100% $157,253 100% $161,985 100%
The Company derives most of its revenues from the operations of its
principal subsidiary, Fahnestock. Although maintained as separate
entities, because Fahnestock acts as clearing broker in
transactions initiated by Freedom (and formerly by Pace), the
operations of the Company's brokerage subsidiaries are closely
related. Except as expressly otherwise stated, the discussion below
pertains to the operations of Fahnestock.
COMMISSIONS
A significant portion of Fahnestock's revenues is derived from
commissions from retail and, to a lesser extent, institutional
customers on brokerage transactions in exchange-listed and
over-the-counter corporate equity and debt securities. Brokerage
commissions are charged on both exchange and over-the-counter
transactions in accordance with a schedule which Fahnestock has
formulated. In certain cases, discounts are granted to customers,
generally on large trades or to active customers. Fahnestock also
provides a range of services in other financial products to retail
and institutional customers, including the purchase and sale of
options on the CBOE, the AMEX and other stock exchanges as well as
futures on indexes listed on various commodities exchanges.
Commission business relies heavily on the services of account
executives with good sales production records. Competition among
securities firms for such personnel is intense. Retail clients'
accounts are serviced by retail account executives (excluding the
institutional account executives referred to below) in Fahnestock's
offices. Fahnestock's institutional clients, which include mutual
funds, banks, insurance companies, and pension and profit-sharing
funds, are served by institutional brokers. (For a discussion of
the regulation of these, see "Regulation".) The institutional
department is supported by the research department which provides
coverage of a number of industrial as well as emerging growth
companies and special situation investments.
Securities Clearance Activities
Fahnestock provides a full range of securities clearance services
to four non-affiliated securities firms on a fully-disclosed basis.
In addition to commissions and service charges, Fahnestock derives
substantial interest revenue from its securities clearing
activities. See "Interest" and "Securities Borrowed And Loaned." In
most cases, Fahnestock provides margin financing for the clients of
the securities firms for which it clears, with the securities firms
often guaranteeing the accounts of their clients. Fahnestock also
extends margin credit directly to its correspondent firms to the
extent that such firms hold securities positions for their own
account. Because Fahnestock must rely on the guarantees and general
credit of its correspondent firms, Fahnestock may be exposed to
significant risks of loss if any of its correspondents or its
correspondents' customers are unable to meet their respective
financial commitments. See "Risk Management."
The correspondent clearing procedure for fully-disclosed accounts
involves a series of steps: The correspondent broker opens an
account for its customer and takes the customer's order for the
purchase and sale of securities. The order is then executed by the
correspondent firm or Fahnestock. Fahnestock completes the
transaction by taking possession of the customer's cash, if
securities are being purchased, or certificates, if securities are
being sold, lending the customer any amounts required if the
purchase is being made on margin, and making delivery to the broker
for the other party to the transaction. Fahnestock or the
correspondent sends the customer a written confirmation containing
the details of each transaction the day after it is executed, and
Fahnestock sends each customer a monthly statement for the entire
account. The execution, clearance, settlement, receipt, delivery
and record-keeping functions involved in the clearing process
require the performance of a series of complex steps, many of which
are accomplished with data processing equipment.
In addition to executing trades, Fahnestock also provides other
services to its correspondents, including performance of accounting
functions, provision of office services, custody of securities and
compliance with regulatory requirements. The responsibilities
arising out of Fahnestock's clearing relationships are allocated
pursuant to agreements with its correspondents. To the extent that
the correspondent broker has resources available, this allocation
of responsibilities protects Fahnestock against claims by customers
of correspondent brokers where the responsibility for the function
giving rise to a claim has been allocated to the correspondent
broker. If the correspondent is unable to meet its obligations to
its customers, however, dissatisfied customers may attempt to
obtain recovery from Fahnestock.
Floor Brokerage
In addition to transactions in which Fahnestock executes
transactions for itself or its own customers, Fahnestock acts as
agent for the accounts of other brokers. With its memberships on
the various exchanges, Fahnestock attempts to utilize excess
execution capacity by executing orders for other brokerage firms.
Fahnestock bills such other firms at prevailing rates which are set
on a basis competitive with rates charged by other brokerage firms
performing similar functions.
FIRM TRADING AND INVESTMENT INCOME
Market-Making
Fahnestock acts as both principal and as agent in
the execution of its customers' orders in the over-the-counter
market. Fahnestock buys, sells and maintains an inventory of a
security in order to "make a market" in that security. (To "make a
market" in a security is to maintain firm bid and offer prices by
standing ready to buy or sell round lots at publicly quoted prices.
In order to make a market it is necessary to commit capital to buy,
sell and maintain an inventory of a security.) As of December 31,
1995, Fahnestock made approximately 1,700 dealer markets in the
common stock or other equity securities of corporate issuers. In
executing customer orders for over-the-counter securities in which
it does not make a market, Fahnestock generally charges a
commission and acts as agent or will act as principal by marking
the security up or down in a riskless transaction, working with
another firm which is a market-maker acting as principal. However,
when the buy or sell order is in a security in which Fahnestock
makes a market, Fahnestock normally acts as principal and purchases
from or sells to its customers at a price which is approximately
equal to the current inter-dealer market price plus or minus a
mark-up or mark-down. The stocks in which Fahnestock makes a market
also include those of issuers which are followed by Fahnestock's
research department.
The U.S. Justice Department and the SEC are currently conducting an
investigation of industry over-the-counter trading practices. This
investigation is not complete and the ultimate impact on the
industry is unknown.
Trading profits or losses depend on (i) the skills of those
employees engaged in market-making activities, (ii) the capital
allocated to holding positions in securities and (iii) the general
trend of prices in the securities markets. Trading as principal
requires the commitment of capital and creates an opportunity for
profits or an exposure to risk of loss due to market fluctuations.
Fahnestock takes both long and short positions in those securities
in which it makes a market.
The size of its securities positions on any one day may not be
representative of Fahnestock's exposure on any other day because
securities positions vary substantially based upon economic and
market conditions, allocations of capital, underwriting commitments
and trading volume. Also, the aggregate value of inventories of
stocks which Fahnestock may carry is limited by the Net Capital
Rule. See "Net Capital Requirements" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
To a lesser extent, Fahnestock also buys and sells municipal bonds,
Ginnie Maes, Unit Investment Trusts and U.S. Treasury Securities as
well as other fixed income securities for its own account in the
secondary market and maintains an inventory of municipal bonds and
other securities and resells bonds from its inventory to dealers as
well as to institutional and retail customers.
Other Trading Activities
Fahnestock holds positions in its trading accounts in over-the-counter
securities and in exchange-listed securities in which it does not make a
market, and may engage from time to time in other types of principal
transactions in securities. Fahnestock has several trading
departments including: a convertible bond department, a risk
arbitrage department, a corporate bond dealer department, a
municipal bond department, a government/mortgage backed securities
department and a department which trades high yield securities
(commonly referred to as "junk bonds"). These departments
continually purchase and sell securities and make markets in order
to make a profit on the inter-dealer spread. Although Fahnestock
from time to time holds an inventory of securities, more typically,
it seeks to match customer buy and sell orders. Fahnestock does not
carry "bridge loans" (i.e., short-term loans made in anticipation
of intermediate-term or long-term financing). No substantial losses
relating to Fahnestock's risk arbitrage activities have been
incurred.
Investment Income
Dividends and interest earned on securities held in inventory are
treated as investment income.
Firm trading and investment income, including market-making and
other trading and investment activities, accounted for
approximately 34%, 35% and 35%, respectively, of Fahnestock's total
revenues for the fiscal years ended December 31, 1995, 1994 and
1993, respectively.
Risk Management
Fahnestock's principal transactions and brokerage activities expose
it to credit and market risks. When Fahnestock advances funds or
securities to a counterparty in a principal transaction or to a
customer in a brokered transaction, it is subject to the risk that
the counterparty or customer will not repay such advances. If the
market price of the securities purchased or loaned has declined or
increased, respectively, Fahnestock may be unable to recover some
or all of the value of the amount advanced. A similar risk is also
present where a customer is unable to respond to a margin call and
the market price of the collateral has dropped. In addition,
Fahnestock's securities positions are subject to fluctuations in
market value and liquidity.
Fahnestock monitors market risks through daily profit and loss
statements and position reports. Each trading department adheres to
internal position limits determined by senior management and
regularly reviews the age and composition of its proprietary
accounts. Positions and profits and losses of each trading
department are reported to senior management on a daily basis.
In addition to monitoring the credit worthiness of its customers,
Fahnestock imposes more conservative margin requirements than those
of the NYSE. Generally, Fahnestock limits customer loans to an
amount not greater than 65% of the value of the securities (or 50%
if the securities in the account are concentrated in a limited
number of issues). In comparison, the NYSE permits loans of up to
75% of the value of the securities in a customer's account.
INTEREST
Fahnestock derives net interest income from the financing of
customer margin loans and its securities lending activities. See
"Customer Financing" and "Securities Borrowed and Loaned."
Customer Financing
Customers' securities transactions are effected on either a cash or
margin basis. In margin transactions, Fahnestock extends credit to
the customer, collateralized by securities and/or cash in the
customer's account, for a portion of the purchase price, and
receives income from interest charged on such extensions of credit.
The customer is charged for such margin financing at interest rates
based upon the brokers call rate (the prevailing interest rate
charged by banks on collateralized loans to broker-dealers), to
which is added an additional amount of up to 2%.
In each of the last five years, financing activities conducted on
behalf of its customers has provided Fahnestock with a substantial
source of revenue. A substantial portion of these financing
activities are undertaken in connection with Fahnestock's
securities clearance business and its own retail business. See
"Commissions." The amount of Fahnestock's interest revenue is
affected by the volume of customer borrowing and by prevailing
interest rates.
The primary source of funds to finance customers' margin account
borrowings are collateralized and uncollateralized bank borrowings,
funds generated by lending securities on a cash collateral basis in
excess of the amount of securities borrowed and free credit
balances in customers' accounts. Free credit balances in customers'
accounts, to the extent not required to be segregated pursuant to
SEC rules, may be used in the conduct of Fahnestock's business,
including the extension of margin credit. Subject to applicable
regulations, interest is paid by Fahnestock on most, but not all,
of such free credit balances awaiting reinvestment by customers. To
the extent that the use of free credit balances reduces borrowings,
interest expense is reduced.
Margin lending by Fahnestock is subject to the margin rules of the
Board of Governors of the Federal Reserve System, NYSE margin
requirements and Fahnestock's internal policies. By permitting
customers to purchase on margin, Fahnestock takes the risk of a
market decline that would reduce the value of its collateral below
the customer's indebtedness before the collateral could be sold.
Under applicable NYSE rules, in the event of a decline in the
market value of the securities in a margin account, Fahnestock is
obligated to require the customer to deposit additional securities
or cash in the account so that at all times the loan to the
customer for the purchase of marginable securities is no greater
than 75% of the market value of such securities or cash in the
account.
Securities Borrowed and Loaned
In connection with both its trading and brokerage activities,
Fahnestock borrows securities to cover short sales and to complete
transactions in which customers have failed to deliver securities
by the required settlement date, and lends securities to other
brokers and dealers for similar purposes. When borrowing
securities, Fahnestock is required to deposit cash or other
collateral, or to post a letter of credit with the lender and
receives a rebate (based on the amount of cash deposited) or pays
a fee calculated to yield a negotiated rate of return.
When lending securities, Fahnestock receives cash or similar
collateral and generally pays a rebate (based on the amount of cash
deposited) to the other party to the transaction. Transactions in
which stocks are borrowed or loaned are generally executed pursuant
to written agreements with counterparties which require that the
securities borrowed be marked to market on a daily basis and that
excess collateral be refunded or that additional collateral be
furnished in the event of changes in the market value of the
securities. Margin adjustments are usually made on a daily basis
through the facilities of various clearing houses.
UNDERWRITING BUSINESS
Fahnestock manages the underwriting of both corporate and municipal
securities and participates as an underwriter in the syndicates of
issues managed by other securities firms. The corporate finance
department is responsible for originating and developing
transactions which include underwriting, mergers and acquisitions,
private placements, valuations, financial advisory work and other
investment banking matters.
The management of and participation in public offerings involve
significant risks. An underwriter may incur losses if it is unable
to resell at a profit the securities it has purchased. Under
federal and state securities and other laws, an underwriter is
subject to substantial liability for misstatements or omissions
that are judged to be material in prospectuses and other
communications related to underwriting.
Underwriting commitments cause a charge against net capital.
Consequently, the aggregate amount of underwriting commitments at
any one time may be limited by the amount of net capital available.
The Company derived 2% of its revenues from underwriting in 1995
compared to 5% and 8%, respectively in 1994 and 1993. See "Net
Capital Requirements" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
INVESTMENT ADVISORY BUSINESS
Hudson Capital and Fahnestock (through its divisions Fahnestock
Asset Management and Newbold Investment Advisory) and since
November, 1994, Niagara Investment Advisors Inc.("Niagara"), a
Buffalo, N.Y. firm in which Fahnestock owns a minority interest,
provide investment advisory services for a fee to their respective
clients. These equity and debt management service fees are based on
the value of the portfolio under management. In addition to the
management fee, transactions executed for such accounts may be
effected at standard rates of commission or at discounts from
Fahnestock's customary commission schedule.
At December 31, 1995 Fahnestock, Hudson Capital and Niagara
together had over $1.7 billion under management. The agreements
under which the portfolios are managed on behalf of institutions
and other investors generally provide for termination by either
party at any time. Although Fahnestock and Hudson Capital have
developed new asset management products including mutual funds,
there can be no assurance that they will be successful.
ADMINISTRATION AND OPERATIONS
Administration and operations personnel are responsible for the
processing of securities transactions; the receipt, identification
and delivery of funds and securities; the maintenance of internal
financial controls; accounting functions; custody of customers'
securities; the handling of margin accounts for Fahnestock and its
correspondents; and general office services. Fahnestock employs
approximately 178 persons in its administration and operations
departments at its head office.
There is considerable fluctuation during any year and from year to
year in the volume of transactions Fahnestock must process.
Fahnestock records transactions and posts its books on a daily
basis. Operations personnel monitor day-to-day operations to assure
compliance with applicable laws, rules and regulations. Failure to
keep current and accurate books and records can render Fahnestock
liable for disciplinary action by governmental and self-regulatory
organizations.
Fahnestock executes its own and certain of its correspondents'
securities transactions on all United States exchanges of which it
is a member and in the over-the-counter market. Fahnestock clears
all of its securities transactions (i.e., it delivers securities
that it has sold, receives securities that it has purchased and
transfers related funds) through its own facilities and through
memberships in various clearing corporations and custodian banks.
Fahnestock believes that its internal controls and safeguards are
adequate, although fraud and misconduct by customers and employees
and the possibility of theft of securities are risks inherent in
the securities industry. As required by the NYSE and certain other
authorities, Fahnestock carries a broker's blanket insurance bond
covering loss or theft of securities, forgery of cheques and
drafts, embezzlement, fraud and misplacement of securities. This
bond provides coverage of up to an aggregate of $15,000,000 with a
self-insurance retention of $100,000.
COMPETITION
Fahnestock encounters intense competition in all aspects of the
securities business and competes directly with other securities
firms, a significant number of which have substantially greater
resources and offer a wider range of financial services. In
addition, there has recently been increasing competition from other
sources, such as commercial banks, insurance companies and certain
major corporations which have entered the securities industry
through acquisition, and from other entities. Several leading
commercial banks have petitioned the Federal Reserve Board for
permission, and have been permitted, to a limited degree, to enter
into various new financial service activities, such as underwriting
certain mortgage-backed, collateralized and municipal revenue
securities, as well as commercial paper and equities issued by
industrial corporations. Additionally, foreign-based securities
firms and commercial banks regularly offer their services in
performing a variety of investment banking functions including:
merger and acquisition advice, leveraged buy-out financing,
merchant banking, and bridge financing, all in direct competition
with U.S. broker-dealers. These developments may lead to the
creation of a greater number of integrated financial services firms
that may be able to compete more effectively than Fahnestock for
investment funds by offering a greater range of financial services.
Fahnestock believes that the principal factors affecting
competition in the securities industry are the quality and ability
of professional personnel and relative prices of services and
products offered. Fahnestock and its competitors employ advertising
and direct solicitation of potential customers in order to increase
business and furnish investment research publications in an effort
to hold existing and attract potential clients. Many of
Fahnestock's competitors engage in these programs more extensively
than does Fahnestock.
There is substantial commission discounting by broker-dealers
competing for institutional and retail brokerage business. The
continuation of such discounting and an increase in the incidence
thereof could adversely affect Fahnestock. However, an increase in
the use of discount brokerages could be beneficial to Freedom.
REGULATION
The securities industry in the United States is subject to
extensive regulation under both federal and state laws. The SEC is
the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers has been
delegated to self-regulatory organizations, principally the NASD
and the national securities exchanges such as the NYSE, which has
been designated as Fahnestock's primary regulator with respect to
securities activities and the National Futures Association which
has been designated as Fahnestock's primary regulator with respect
to commodities activities. The CBOE has been designated
Fahnestock's primary regulator with respect to options trading
activities. These self-regulatory organizations adopt rules
(subject to approval by the SEC or the Commodities Futures Trading
Commission ("CFTC"), as the case may be) governing the industry and
conduct periodic examinations of Fahnestock's and Freedom's
operations. Securities firms are also subject to regulation by
state securities commissions in the states in which they do
business. Fahnestock is registered as a broker-dealer in 50 states
and Puerto Rico.
The regulations to which broker-dealers are subject cover all
aspects of the securities business, including sales methods, trade
practices among broker-dealers, the use and safekeeping of
customers' funds and securities, capital structure of securities
firms, record keeping and the conduct of directors, officers and
employees. Recently, the SEC has adopted rules requiring
underwriters to ensure that municipal securities issuers provide
current financial information and imposing limitations on political
contributions to municipal issuers by brokers, dealers and other
municipal finance professionals. Additional legislation, changes in
rules promulgated by the SEC, the CFTC and by self-regulatory
organizations, or changes in the interpretation or enforcement of
existing laws and rules may directly affect the method of operation
and profitability of broker-dealers. The SEC, self-regulatory
organizations, and state securities commissions may conduct
administrative proceedings which can result in censure, fine,
issuance of cease and desist orders or suspension or expulsion of
a broker-dealer, its officers, or employees. The principal purpose
of regulating and disciplining broker-dealers is to protect
customers and the securities markets, rather than to protect
creditors and shareholders of broker-dealers.
Fahnestock, Hudson Capital and Niagara are also subject to
regulation by the SEC and under certain state laws in connection
with their businesses as investment advisors.
Margin lending by Fahnestock is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NYSE.
Under such rules, Fahnestock is limited in the amount it may lend
in connection with certain purchases of securities and is also
required to impose certain maintenance requirements on the amount
of securities and cash held in margin accounts. In addition,
Fahnestock may (and currently does) impose more restrictive margin
requirements than required by such rules. See "Customer Financing."
NET CAPITAL REQUIREMENTS
As a registered broker-dealer and a member firm of the NYSE,
Fahnestock is subject to certain net capital requirements pursuant
to Rule 15c3-l (the "Net Capital Rule") promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Net
Capital Rule, which specifies minimum net capital requirements for
registered brokers and dealers, is designed to measure the general
financial integrity and liquidity of a broker-dealer and requires
that at least a minimum part of its assets be kept in relatively
liquid form.
Fahnestock elects to compute net capital under an alternative
method of calculation permitted by the Net Capital Rule. (Freedom
computes net capital under the basic formula as provided by the Net
Capital Rule.) Under this alternative method, Fahnestock is
required to maintain a minimum "net capital", as defined in the Net
Capital Rule, at least equal to 2% of the amount of its "aggregate
debit items" computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers
(Exhibit A to Rule l5c3-3 under the Exchange Act). "Aggregate debit
items" are assets that have as their source transactions with
customers, primarily margin loans. Failure to maintain the required
net capital may subject a firm to suspension or expulsion by the
NYSE, the SEC and other regulatory bodies and ultimately may
require its liquidation. The Net Capital Rule also prohibits
payments of dividends, redemption of stock and the prepayment of
subordinated indebtedness if net capital thereafter would be less
than 5% of aggregate debit items (or 7% of the funds required to be
segregated pursuant to the Commodity Exchange Act and the
regulations thereunder, if greater) and payments in respect of
principal of subordinated indebtedness if net capital thereafter
would be less than 5% of aggregate debit items (or 6% of the funds
required to be segregated pursuant to the Commodity Exchange Act
and the regulations thereunder, if greater). The Net Capital Rule
also provides that the total outstanding principal amounts of a
broker-dealer's indebtedness under certain subordination agreements
(the proceeds of which are includable in its net capital) may not
exceed 70% of the sum of the outstanding principal amounts of all
subordinated indebtedness included in net capital, par or stated
value of capital stock, paid in capital in excess of par, retained
earnings and other capital accounts for a period in excess of 90
days.
Net capital is essentially defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings minus certain
mandatory deductions that result from excluding assets that are not
readily convertible into cash and deductions for certain operating
charges. The Rule values certain other assets, such as a firm's
positions in securities, conservatively. Among these deductions are
adjustments (called "haircuts") in the market value of securities
to reflect the possibility of a market decline prior to
disposition.
Compliance with the Net Capital Rule could limit those operations
of the brokerage subsidiaries of the Company that require the
intensive use of capital, such as underwriting and trading
activities and the financing of customer account balances, and also
could restrict the Company's ability to withdraw capital from its
brokerage subsidiaries, which in turn could limit the Company's
ability to pay dividends, repay debt and redeem or purchase shares
of its outstanding capital stock. Under the Net Capital Rule
broker-dealers are required to maintain certain records and provide
the SEC with quarterly reports with respect to, among other things,
significant movements of capital, including transfers to a holding
company parent or other affiliate. The SEC may in certain
circumstances restrict the Company's brokerage subsidiaries'
ability to withdraw excess net capital and transfer it to the
Company or to other of the Operating Subsidiaries.
Item 2. PROPERTIES
The Company maintains offices at 181 University Avenue, Toronto,
Ontario, Canada for general administrative activities. Most
day-to-day management functions are conducted at the executive
offices of Fahnestock at 110 Wall Street, New York, New York. This
office also serves as the base for most of Fahnestock's research,
operations and trading, investment banking and investment advisory
services, though other offices also have employees who work in
these areas. Generally, the offices outside of 110 Wall Street, New
York serve as bases for sales representatives who process trades
and provide other brokerage services in cooperation with
Fahnestock's New York office using the data processing facilities
located there. Freedom conducts its business from its offices
located at 11422 Miracle Hills Dr., Omaha, Nebraska. Management
believes that its present facilities are adequate for the purposes
for which they are used and have adequate capacity to provide for
presently contemplated future uses.
The Company and its subsidiaries own no real property, but occupy
office space totalling approximately 244,000 square feet in 51
locations under standard commercial terms expiring between 1996 and
2004. If any leases are not renewed, the Company believes it could
obtain comparable space elsewhere on commercially reasonable rental
terms.
Item 3. 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Class B voting shares (the "Class B Shares"), the Company's
only class of voting securities, are not registered under the
Exchange Act and are not required to be registered. The Class B
Shares have fewer than 500 shareholders of record. Consequently,
the Company is not required under Section 14 of the Exchange Act to
furnish proxy soliciting material or an information statement to
holders of the Class B Shares. However, the Company is required
under applicable Canadian securities laws to provide proxy
soliciting material, including a management proxy circular, to the
holders of its Class B Shares.
Pursuant to the Company's Articles of Incorporation, holders of
Class A non-voting shares (the "Class A Shares"), although not
entitled to vote thereat, are entitled to receive notices of
shareholders' meetings and to receive all informational documents
required by law or otherwise to be provided to holders of Class B
Shares. In addition, holders of Class A Shares are entitled to
attend and speak at all meetings of shareholders, except class
meetings not including the Class A Shares.
In the event of either a "take-over bid" or an "issuer bid", (as
those terms are defined in the Securities Act,(Ontario)) being made
for the Class B Shares and no corresponding offer being made to
purchase Class A Shares, the holders of Class A Shares would have
no right under the Articles of Incorporation of the Company or
under any applicable statute to require that a similar offer be
made to them to purchase their Class A Shares.
No matters were submitted to the Company's shareholders during the
fourth quarter of the Company's fiscal year.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Class A Shares (trading symbol "FHV.A") are listed
and traded on The Toronto Stock Exchange. The Class A Shares are
listed on the NASDAQ National Market System and are traded
over-the-counter (trading symbol "FAHNF") in the United States. The
Class B Shares are not traded on any stock exchange in Canada or
the United States and, as a consequence, there is only limited
trading in the Class B shares. The Company does not presently
contemplate listing the Class B Shares in the United States on any
national or regional stock exchange or on NASDAQ.
The following tables set forth the high and low sales prices of the
Class A Shares on The Toronto Stock Exchange (the principal market
therefor) and the range of bid and asked quotations on NASDAQ for
the periods indicated. NASDAQ quotations reflect interdealer prices
without retail markup, markdown or commission and may not represent
actual transactions. Prices provided are in Canadian dollars or
U.S. dollars as indicated and are based on data provided by The
Toronto Stock Exchange and NASDAQ.
CLASS A SHARES
THE TORONTO STOCK EXCHANGE
(Canadian Dollars)
HIGH LOW
1995 1st quarter $ 9.70 $ 8.60
2nd quarter 10.20 9.50
3rd quarter 12.70 9.70
4th quarter 14.00 11.00
1994 1st quarter $12.70 $10.40
2nd quarter 10.50 8.40
3rd quarter 9.70 8.10
4th quarter 9.50 8.40
NASDAQ National Market System
(U.S. Dollars)
ASK BID
1995 1st quarter $ 6.875 $6.25
2nd quarter 7.75 6.625
3rd quarter 9.625 7.00
4th quarter 10.50 8.125
1994 1st quarter $ 9.875 $7.75
2nd quarter 7.875 6.0625
3rd quarter 6.875 5.75
4th quarter 7.25 6.125
The following table sets forth information about the Company's
shareholders as at December 31, 1995 as set forth in the records of
the Company's transfer agent and registrar:
Class A Shares
Total issued and outstanding: 11,940,410
Shareholders of record having Number of Number of
addresses in: shares shareholders
Canada 6,683,592 56.0% 271
United States 5,229,884 43.8 184
Other 26,934 0.2 4
11,940,410 100.0 459
Class B shares
Total issued and outstanding: 99,680
Shareholders of record having Number of Number of
addresses in: shares Shareholders
Canada 99,091(1) 99.4% 131
United States 581 .5 73
Other 8 0.1 2
99,680 100.0 206
____________________________
(1) The Company has been informed that 50,000 Class B shares
held by Phase II Financial Limited, an Ontario corporation, are
beneficially owned by A.G. Lowenthal, a U.S. citizen and resident.
See Item 12, "Security Ownership of Certain Beneficial Owners and
Management".
Dividends
The Company's annual dividend on the Class A Shares and Class B
Shares in the amount of U.S. $0.15 per Class A Share and Class B
Share was declared payable on February 24, 1995 to shareholders of
record on February 10, 1995. On January 25, 1996, the Board of
Directors of the Company announced a dividend of U.S. $0.20 per
Class A Share and Class B Share to be payable on February 23, 1996
to shareholders of record on February 9, 1996. Future dividend
policy will depend upon the earnings and financial condition of the
Operating Subsidiaries of the Company and the Company's need for
funds and other factors. However, it is the present intention of
the Company's management to pay a quarterly dividend in the amount
of U.S.$0.05 per Class A Share and Class B Share commencing in May,
1996 and thereafter in August and November, 1996 and February,
1997. Dividends may be paid to holders of Class A Shares and Class
B Shares (pari passu), as and when declared by the Company's Board
of Directors, from funds legally available therefor.
Certain Tax Matters
The following paragraphs summarize certain United States and
Canadian federal income tax considerations in connection with the
receipt of dividends paid on the Class A and Class B Shares of the
Company and certain Canadian federal income tax considerations in
connection with a disposition of Class A and Class B Shares by non-
residents of Canada. These tax considerations are stated in brief
and general terms and are based on United States and Canadian law
currently in effect. There are other potentially significant United
States and Canadian federal income tax considerations and state,
provincial or local income tax considerations with respect to
ownership and disposition of the Class A and Class B Shares which
are not discussed herein. The tax considerations relative to
ownership and disposition of the Class A and Class B Shares may
vary from taxpayer to taxpayer depending on the taxpayer's
particular status. Accordingly, prospective purchasers should
consult with their tax advisors regarding tax considerations which
may apply to the particular situation.
United States Federal Income Tax Considerations
Dividends on Class A and Class B Shares paid to citizens or
residents of the U.S. or to U.S. corporations (including any
Canadian federal income tax withheld) will be generally subject to
U.S. federal ordinary income taxation. Such dividends will not be
eligible for the deduction for dividends received by corporations
(unless such corporation owns by vote and value at least 10% of the
stock of the Company, in which case a portion of such dividend may
be eligible for such exclusion).
U.S. corporations, U.S. citizens and U.S. residents will generally
be entitled, subject to certain limitations, to a credit against
their U.S. federal income tax for Canadian federal income taxes
withheld from such dividends. Taxpayers may claim a deduction for
such taxes if they do not elect to claim such tax credit. No
deduction for foreign taxes may be claimed by an individual
taxpayer who does not itemize deductions. Because the application
of the foreign tax credit depends upon the particular circumstances
of each shareholder, shareholders are urged to consult their own
tax advisors in this regard. Under certain limited circumstances,
non-resident alien and foreign corporations will be subject to U.S.
federal income taxation at graduated rates upon dividends or gain
with respect to their Class A and Class B Shares, if such income or
gain is treated as effectively connected with the conduct of the
recipient's trade or business within the United States, and may be
entitled to such tax credit or such deduction.
Canadian Federal Income Tax Considerations
Dividends paid on Class A and Class B Shares held by non-residents
of Canada will generally be subject to Canadian withholding tax.
This withholding tax is levied at the basic rate of 25%, although
this rate may be reduced by the terms of any applicable tax treaty.
The Canada - U.S. tax treaty provides that the withholding rate on
dividends paid to U.S. residents on Class A and Class B Shares is
generally 15%.
Normal Course Issuer Bid
On May 16, 1995 the Company announced that it intended to purchase
up to 800,000 Class A Shares by way of a Normal Course Issuer Bid
through the facilities of The Toronto Stock Exchange. The 800,000
shares represent approximately 8.5% of the public float of Class A
Shares. As at December 31, 1995, through both the currently
outstanding Normal Course Issuer Bid and through the Normal Course
Issuer Bid which expired May 6, 1995, the Company had purchased a
total of 168,465 Class A Shares through the facilities of The
Toronto Stock Exchange at then current prices. These shares have
been cancelled as will other shares purchased by the Company
pursuant to the Normal Course Issuer Bid. Unless terminated earlier
by the Company, it may continue to purchase shares up to May 17,
1996. The Company may, at its option, apply to extend the program
for an additional year.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial information derived
from the audited consolidated financial statements of the Company
for the five years ended December 31, 1995. The selected financial
information should be read in conjunction with, and is qualified in
its entirety by reference to, the Consolidated Financial Statements
and notes thereto included elsewhere in this report. See also Item
7, "Managements' Discussion and Analysis of Financial Condition and
Results of Operations".
Year ended at December 31,
1995 1994 1993 1992 1991
(U.S.dollars in thousands,except share amounts)
Revenue $184,433 $157,253 $161,985 $139,156 $116,176
Profit before
extraordinary
item for the
year $ 20,899 $ 11,780 $ 19,022 $ 13,465 $ 8,623
Net profit for
the year $ 20,899 $ 11,780 $ 19,022 $ 13,823 $ 9,401
Profit before
extraordinary
item per share (1) $ 1.70 $ 0.96 $ 1.59 $ 1.16 $ 0.76
Net profit
per share (1)
- - -basic $ 1.70 $ 0.96 $ 1.59 $ 1.19 $ 0.83
- - -fully diluted $ 1.64 $ 0.93 $ 1.51 $ 1.14 $ 0.80
Total assets $623,466 $510,636 $428,315 $318,799 $236,745
Total current
liabilities $516,031 $421,818 $349,825 $258,952 $192,410
Subordinated
indebtedness,
including
current portion $ 30 $ 30 $ 30 $ 30 $ 2,226
Cash dividends per
Class A Share and
Class B Share $ 0.15 $ 0.15 $ 0.10 - -
Shareholders'
equity $107,405 $ 88,788 $ 78,460 $ 59,817 $ 44,335
Book value per
share (1) $ 8.92 $ 7.34 $ 6.54 $ 5.06 $ 3.88
Number of shares
of capital stock
outstanding (1) 12,040,090 12,094,680 11,997,530 11,827,530 11,440,555
__________________________
(1) The Class A Shares and the Class B Shares are combined because
they are of equal rank for purposes of dividends and in the event of a
distribution of assets upon liquidation, dissolution or winding up.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Environment
Fahnestock, the Company's principal operating subsidiary, provides
brokerage and related investment services. Fahnestock is engaged in
proprietary trading and offers other related financial services to
investors in fourteen states from 49 offices in the Northeastern
United States, the Midwest, and in Florida, and from two associated
offices in Caracas, Venezuela and Buenos Aires, Argentina. Client
assets entrusted to the Company as at December 31, 1995 totalled
$7.6 billion. Fahnestock is licensed to offer brokerage and other
financial services in all 50 States. The Company provides
investment advisory services through Hudson Capital, through
Fahnestock Asset Management and Newbold Investment Advisors,
operating as divisions of Fahnestock and since November 1994,
through Niagara in which Fahnestock has a minority interest. Funds
under management by the Asset Management groups totalled $1.7
billion at December 31, 1995. The Company also operates a discount
brokerage business based in Omaha, Nebraska, through Freedom and
until July, 1995 in New York City, through Pace.
On December 13, 1993, the Company purchased 100% of Reich, a
broker-dealer operating in the U.S. North-East.
The securities industry is highly competitive and sensitive to many
factors and is directly affected by general economic and market
conditions, including the volatility and price level of securities
markets; the volume, size, and timing of securities transactions;
the demand for investment banking services and changes in interest
rates, all of which have an impact on commissions, trading and
investment income as well as on liquidity. In addition, a
significant portion of the Company's expenses are relatively fixed
and do not vary with market activity. Consequently, substantial
fluctuations can occur in the Company's revenues and net income
from period to period due to these and other factors.
The Company anticipates increasing competition from commercial
banks and thrift institutions as these institutions begin to offer
investment banking and financial services traditionally only
provided by securities firms. The Company also anticipates
increasing regulation in the securities industry, making compliance
with regulations more difficult and costly. At present, the Company
is unable to predict the extent of changes that may be enacted, or
the effect on the Company's business.
The Company's long-term plan is to continue to grow existing
offices by hiring experienced professionals, thus maximizing the
potential of currently leased space. Equally important is the
search for viable candidates for acquisition. As opportunities are
presented, it is the intention of the Company to pursue growth by
acquisition where a comfortable match can be found in terms of
corporate goals and personnel and at a price that would provide the
Company's shareholders with value.
Results of Operations
Due to the reduction in long-term U.S. interest rates early in
fiscal 1995 and strong improvement in corporate earnings in 1995
compared to 1994, financial markets began a strong recovery from
the weakness experienced in 1994. This reversal of interest rate
trends and the continuing downward drift of rates during 1995 set
the stage for increasingly strong markets in 1995, particularly in
equities and mutual funds. The lowering of rates spurred consumer
confidence and spending and created record volumes in equity
markets. In addition, improved spreads between the amount charged
customers on outstanding balances and the Company's average cost of
funds resulted in substantially higher levels of interest profit.
Higher customer participation in the markets generally led to a
significant increase in the level of customer balances in 1995
compared to 1994.
The Company's revenues in fiscal 1995 increased by 17% compared to
fiscal 1994 reflecting overall strength in the retail environment
in 1995 which produced record commission revenues for the company
as well as improved profits from principal transactions in the
firm's proprietary trading departments. Despite increased activity
in public offerings, underwriting and investment advisory fees
decreased in 1995 compared to 1994. Earnings in fiscal 1995 were
$20,899,000 or $1.70 per share, up 77% from $11,780,000 or $0.96
per share in 1994 which was down 38% from $19,022,000 or $1.59 per
share in 1993.
The following table summarizes the changes in the major revenue and
expense categories from the consolidated statement of operations
for the past three fiscal years ended December 31, 1995, 1994 and
1993.
Period to Period Change
Increase (Decrease)
1995 1994
versus versus
1994 Percen- 1993 Percen-
Amount tage Amount tage
Revenues-
Commissions $ 8,441,000 15.6% $(5,914,000) 9.8%
Trading and investment
income 8,906,000 16.4 (2,991,000 -5.2
Interest 12,314,000 53.3 7,906,000 52.1
Underwriting fees (4,244,000) -51.7 (3,930,000) -32.4
Advisory fees (729,000) -6.3 ( 309,000) -2.6
Other 2,492,000 42.5 506,000 9.4
27,180,000 17.3 (4,732,000) -2.9
Expenses-
Compensation 3,155,000 3.7 973,000 1.1
Clearing and exchange
fees 874,000 9.1 (1,731,000) -15.2
Communications 362,000 2.3 2,936,000 22.8
Occupancy costs (554,000) -6.0 1,427,000 18.4
Interest 9,741,000 82.6 4,341,000 58.3
Other (263,000) -5.5 ( 781,000) -14.0
13,315,000 9.7 7,165,000 5.5
Profit before taxes 13,865,000 66.1 (11,897,000) -36.2
Income taxes 4,746,000 51.7 (4,655,000) -33.6
Net profit $ 9,119,000 77.4% $(7,242,000) -38.1%
Fiscal 1995 compared to Fiscal 1994
In fiscal 1995, a reduction in U.S. interest rates set the stage
for record markets. Retail commission volumes reached record levels
and the Dow Jones Industrial average and other major market indexes
set new records. Total revenues for 1995 were $184,433,000, up 17%
from $157,253,000 in 1994. Commission income was $62,543,000, up
16% from $54,102,000 in 1994. Commission income (the income
realized in securities transactions for which the company acts as
agent) increased primarily due to a general increase in market
volumes in 1995 compared to 1994. Trading and investment income
(revenues from transactions in which the company acts as principal
in the secondary market trading of over-the-counter equities and
municipal, corporate and government bonds) was $63,238,000, up 16%
from $54,332,000 in 1994. This increase was due to higher activity
levels in government, corporate and municipal bond trading and
trading in the OTC market. Interest income was $35,399,000, up 53%
from $23,085,000 in 1994. This increase reflects both higher
interest rates in 1995 compared to 1994 and higher customer debit
balances in 1995. Underwriting fees (which have historically been
weighted in favor of municipal business) declined in 1995, down 52%
to $3,960,000 from $8,204,000 in 1994. Although the market for
corporate new issue business increased in 1995 compared to 1994,
the market for municipal issues continued to decline. Advisory fees
in 1995 were down 6% to $10,934,000 from $11,663,000 in 1994 due to
the timing of billings and somewhat lower activity levels from
investment banking assignments. In the ordinary course of business,
the company carries life insurance on its executives and former
executives. Other income increased to $8,359,000 from $5,867,000 in
1994 primarily due to the proceeds from such insurance.
Expenses totalled $149,602,000 in 1995, an increase of 10% from
$136,287,000 in 1994. Compensation and related expenses, which are
largely volume-related, increased 4% to $88,260,000 from
$85,105,000 in 1994. The comparative increase in compensation costs
was partially off-set by the reduction by the latter part of 1994
of certain fixed costs associated with Reich & Co. Inc., which was
acquired in December, 1993. Clearing and exchange fees which are
also primarily volume-related were $10,506,000, up 9% from
$9,632,000 in 1994. Communications costs were $16,160,000, up 2%
from $15,798,000 in 1994 due to externally-driven cost increases.
Occupancy costs were $8,616,000, down 6% from $9,170,000 in 1994
due to restructuring of certain branches and favorable lease
negotiations. Interest expense of $21,527,000 in 1995 represented
an increase of 83% from $11,786,000 in 1994 due to increased U.S.
interest rate levels during the year. Funding of higher customer
debit balances was largely accomplished through stock lending
activity. Such funding activity increased the cost of borrowing
during 1995 compared to 1994. Other expenses were $4,533,000, down
5% from $4,796,000 in 1994.
Fiscal 1994 compared to Fiscal 1993
In fiscal 1994 the Company suffered with the rest of the financial
services industry as sharply increasing interest rates sent the
market into a slump. Retail commission volume contracted as wary
investors refrained from making commitments while they attempted to
gauge market direction. Total revenues for 1994 were $157,253,000
down 3% from $161,985,000 in 1993. Commission income was
$54,102,000, down 10% from $60,016,000 in 1993. Commission income
decreased primarily due to a general decrease in market volume in
1994 compared to 1993. This income decrease was diminished by the
larger operating base provided by the December 13, 1993 acquisition
of Reich. Trading and investment income was $54,332,000 in 1994, a
decrease of 5% from $57,323,000 in 1993. Interest was $23,085,000
in 1994, an increase of 52% over $15,179,000 in 1993. This increase
was interest rate driven as well as due to the increase in customer
debit balances in 1994 compared to 1993 as a result of the
acquisition of Reich. Underwriting fees declined dramatically by
32% to $8,204,000 in 1994 from $12,134,000 in 1993 as the market
for new issues slowed down dramatically. Advisory fees in 1994
declined less than 3% to $11,663,000 from $11,972,000 in 1993,
reflecting the relatively steady nature of this business and the
stability of the client base.
Expenses totalled $136,287,000 in 1994, an increase of 6% compared
to $129,122,000 in 1993.Compensation and related expenses which are
largely volume-related, increased 1% to $85,105,000 in 1994 from
$84,132,000 in 1993. The volume-related portion of these expenses
declined with declines in commission income and trading and
investment income; however the costs of operating the larger entity
in the post-Reich environment of 1994 coupled with certain costs
associated with the acquisition contributed to the overall increase
in these expenses. Clearing and exchange fees which are also
volume-sensitive declined by 15% in 1994 to $9,632,000 from
$11,363,000 in 1993. Communications and occupancy costs increased
23% and 18%, respectively, to $15,798,000 and $9,170,000 in 1994
from $12,862,000 and $7,743,000, respectively, in 1993 due to the
increased costs of operating eight additional branches in 1994
compared to 1993. Interest expense increased 58% to $11,786,000 in
1994 from $7,445,000 in 1993 due to sharply increased interest rate
levels as well as higher levels of bank borrowings to finance the
higher level of client debit balances.
Liquidity and Capital Resources
The increase in the Company's financial assets during the last
three years has been primarily the result of the expansion in its
business and the growth in earnings. Customer-related receivables
and securities inventory are highly liquid and represent a
substantial percentage of total assets. The principal sources of
financing the Company's assets are stockholders' equity, customer
free credit balances, proceeds from securities lending, bank loans
and other payables. During this period, the Company has not
utilized long-term financing. Cash generated from operations,
increased earnings, proceeds from stock purchased by employee stock
plans, and cash proceeds upon the exercise of employee stock
options supplemented bank borrowings during the past three years.
At December 31, 1995, Fahnestock had bank lines of credit and call
loan arrangements with outstanding borrowings thereunder of
$41,200,000.
The Company paid cash dividends to its shareholders totalling
$1,827,000 on February 24, 1995 from internally-generated cash.
Because of the Company's strong financial condition, size and
earnings history, management believes adequate sources of credit
would be available to finance higher trading volumes, branch
expansion, and major capital expenditures, as needed.
Inflation
Because the assets of the Company's brokerage subsidiaries are
largely liquid, and because securities inventories are carried at
current market values, the impact of inflation generally is
reflected in the financial statements. However, the rate of
inflation affects the Company's costs relating to employee
compensation, rent, communications and certain other operating
costs, and such costs may not be recoverable in the price of
commissions charged. To the extent inflation results in rising
interest rates and has other adverse effects upon the securities
markets, it may adversely affect the Company's financial position
and results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in response to this Item
is submitted hereinafter following the signature pages hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General
Directors of the Company are elected annually by the holders of the
Class B Shares to serve until the next annual meeting of
shareholders or until their successors are appointed. Executive
officers are appointed annually by the directors or until their
successors are appointed. Certain information concerning the
executive officers and directors of the Company as at December 31,
1995 is set forth below.
Name Age Positions held
John L. Bitove 67 A Director of the Company since
February 1980; Chairman of The
Bitove Corporation (a holding
company for subsidiaries engaged
in food and beverage services)
since 1987.
- Member of the Audit, Stock
Option and Compensation
Committees.
Richard Crystal 55 A Director of the Company since
1992; Partner, Whitman Breed
Abbott & Morgan (Attorneys-at-
Law), U.S. counsel to the Company
since 1985.
- Member of the Stock Option and
Compensation Committees.
Albert G. Lowenthal 50 Chairman of the Board, Chief
Executive Officer and a Director
of the Company since 1985;Chairman
of the Board and Chief Executive
Officer of Fahnestock since 1985;
between March 1985 and September
1985, Mr.Lowenthal was
self-employed; prior to March
1985, Mr. Lowenthal was President
of Cowen Securities Inc., a New
York stock brokerage firm and a
general partner of Cowen & Co., a
New York stock brokerage firm.
-Member of the Audit Committee.
A. Winn Oughtred 53 A Director of the Company since
1979; a Director of Fahnestock
since 1983; Secretary of the
Company since June, 1992 and prior
to June, 1991; Partner, Borden &
Elliot (Barristers and
Solicitors), Canadian counsel to
the Company since 1979.
Elaine K. Roberts 44 President, Treasurer and a
Director of the Company since
1977; Treasurer and a Director of
Fahnestock since 1983; Ms.Roberts
is a daughter of Kenneth Roberts.
Kenneth A. Roberts 86 Vice Chairman of the Company since
1985; Secretary of the Company
between June, 1991 and June, 1992;
a Director of the Company since
1977; Director of Fahnestock since
1983; prior to 1985, Chairman of
the Company. Dr. Roberts is the
father of Elaine Roberts.
Burton Winberg 71 A Director of the Company since
1979; President of Rockport
Holdings Limited (a real estate
development company) since 1959.
- Member of the Audit, Stock
Option and Compensation
Committees.
Compliance with Section 16(a) of the Securities Exchange Act of
1934.
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file
by specific dates with the SEC initial reports of ownership and
reports of changes in ownership of equity securities of the
Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms that they file. The Company
is required to report in this annual report on Form 10-K any
failure of its directors and executive officers and greater than
ten percent stockholders to file by the relevant due date any of
these reports during the two preceding fiscal years.
Except as described below, to the Company's knowledge, based solely
on review of copies of such reports furnished to the Company during
the two fiscal years ended December 31, 1995, all Section 16(a)
filing requirements applicable to the Company's officers, directors
and greater than ten percent stockholders were complied with. The
Company has been advised that as at December 31, 1995 Kenneth
Roberts, Vice-Chairman, had not filed a Form 4 with respect to a
change in ownership of shares of the Company. The Company has been
advised that Mr. Roberts has now complied with filing requirements.
Item 11. EXECUTIVE COMPENSATION
General
The following table sets forth total annual compensation paid or
accrued by the Company to or for the account of the Company's chief
executive officer and each of the four most highly paid executive
officers of the Company whose total cash compensation for the
fiscal year ended December 31, 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
$ Other $ Res- # Secur- $ All
Name and Annual tricted ities Under $ LTIP Other
Principal Compen- Stock Options/SARs Payouts Compen-
Position Year $ Salary $ Bonus sation Awards Granted sation
A.G. Lowenthal 1995 300,000 300,000 10,350 - - - 247,546
Chairman, CEO, 1994 300,000 187,500 11,270 - 150,000 - 3,100
and Director of 1993 200,000 250,000 11,500 - 150,000 - 4,170
the Company;
Chairman and CEO
of Fahnestock
Robert Neuhoff 1995 195,000 125,000 - - - - 9,240
Executive Vice 1994 195,000 75,000 - - 25,000 - 3,100
President of 1993 155,000 100,000 - - - - 4,170
Fahnestock
E.K. Roberts 1995 120,000 50,000 10,350 - - - -
President, 1994 120,000 30,000 11,270 - 75,000 - -
Treasurer and 1993 120,000 40,000 11,500 - - - -
Director of
the Company
Robert Maimone 1995 115,000 50,000 - - - - 9,240
Senior Vice 1994 100,000 32,000 - - - - 3,100
- - -President of 1993 86,500 40,000 - - - - 4,170
Fahnestock
Eric Shames(*) 1995 115,000 50,000 - - - - -
Secretary of
Fahnestock
(*) Mr. Shames joined the Company in January, 1995.
OTHER ANNUAL COMPENSATION - Includes Directors Fees of CDN$10,000 per year
plus CDN$600 per meeting attended and which were converted to $US at the
average rate outstanding during the year.
RESTRICTED STOCK AWARDS - The Company does not have a plan for granting
restricted stock awards.
LTIP PAYOUTS - See "All Other Compensation", in this table and discussion
under "Stock Appreciation Agreement", below.
ALL OTHER COMPENSATION - This represents Company contributions to the 401K
Plan and amounts paid pursuant to A.G.Lowenthal's Stock Appreciation
Agreement described herein.
OPTION EXERCISES AND YEAR-END VALUE TABLE
($)Year-end
(# of shares) Value of Options
Underlying Unexercised
Unexercised In-the-money
Shares Options/SARS Options
acquired ($) Value Exercisable/ Exercisable/
Name on Realized Unexercisable Unexercisable
___________________exercise___________________________________________________
A.G. Lowenthal 0 0 37,500/262,500 140,625/448,875
R. Neuhoff 0 0 37,500/37,500 297,000/4,500
E.K. Roberts 0 0 0/75,000 0/13,500
R.Maimone 6,250 21,700 6,250/6,250 37,125/37,125
E.Shames n/a n/a n/a n/a
Details of number of shares and value of unexercised options are as follows:
Options are exercisable in $CDN and have been converted at the exchange rate
as at December 31, 1995.
# of Option Price at Value Total
shares Price Dec.31/95 Per Share Value
_______________________________________________________________________
A.G. Lowenthal-
exercisable 37,500 5.41 9.16 3.75 140,625
unexercisable 112,500 5.41 9.16 3.75 421,875
unexercisable 150,000 8.98 9.16 0.18 27,000
R. Neuhoff-
exercisable 37,500 3.22 9.16 5.94 222,750
unexercisable 12,500 3.22 9.16 5.94 74,250
unexercisable 25,000 8.98 9.16 0.18 4,500
E.K. Roberts-
exercisable 0 n/a n/a n/a n/a
unexercisable 75,000 8.98 9.16 0.18 13,500
R. Maimone-
exercisable 6,250 3.22 9.16 5.94 37,125
unexercisable 6,250 3.22 9.16 5.94 37,125
OPTION/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 1995.
During the year ended December 31, 1995, no employee stock options or SARs
were granted, except for Mr.Lowenthal's Stock Appreciation Agreement,
as described herein.
Pension Plan
The Company has no pension plans for its officers and employees
other than a savings plan qualified under Section 401(k) of the
Internal Revenue Code, pursuant to which the Company may make an
annual cash contribution based on compensation for each employee.
Should participants in the plan elect to receive their employer
contribution in the form of Class A Shares, the Company may make an
additional contribution of Class A Shares equal in market value to
15% of the purchase price of the Class A Shares. On January 18,
1994, with respect to the 1993 fiscal year, the Company issued
111,000 Class A Shares from Treasury at Cdn.$10.58 (US$7.965) per
share to the Company's 401(k) plan. On January 27 , 1995, with
respect to the 1994 fiscal year, the Company issued 92,000 Class A
Shares from Treasury at Cdn.$9.00 (US$6.75). On January 10, 1996,
with respect to the 1995 fiscal year, the Company issued 113,000
Class A Shares from Treasury at Cdn.$12.24 (US$8.85) per share to
the Company's 401(k) plan.
In addition, employees of the Company and its subsidiaries are
entitled to group health benefits and group life insurance coverage
pursuant to plans which do not discriminate in scope, terms, or
operation in favour of officers or directors of the Company, and
which are generally available to all salaried employees.
Employee Stock Option Plans
In 1986, the Corporation established its 1986 Incentive Stock
Option Plan (the "ISOP") and its 1986 Employee Stock Option Plan
(the "NQSOP"). (The ISOP and the NQSOP are sometimes hereinafter
collectively referred to as the "Plans".) The Plans permit the
stock option committee of the board of directors of the Company to
grant options to purchase Class A Shares of the Company to officers
and key employees of the Company and its subsidiaries. Under an
amendment to the NQSOP in June 1992 grants of options are made to
the Company's independent directors on a formula basis. Options
generally vest at the rate of 25% of the amount granted for each
year held. Under the provisions of the Internal Revenue Code,
options granted under the ISOP qualify as "incentive stock options"
and options granted under the NQSOP do not qualify. The Plans were
amended in June 1994 to increase the authorized number of Class A
Shares that may be subject to options under both Plans to
1,225,000. The Plans each expire in April, 1996. The Company is
currently considering adoption of stock option plans providing
comparable benefits to take effect upon the expiration of the
existing Plans.
The stock option committee of the board of directors of the Company
administers and interprets the provisions of the Plans, except as
the Plan related to grants to independent directors which are made
pursuant to a formula. The committee's responsibilities include
determining (i) which employees are eligible for participation in
the Plans, (ii) when to grant options under the Plans, (iii) the
number of shares that may be subject to options, and (iv) the times
at which options may be exercised.
Stock Appreciation Agreement
In February, 1995 Fahnestock entered into a Stock Appreciation
Agreement (the "Stock Appreciation Agreement") with Albert G.
Lowenthal, the Chairman and Chief Executive Officer of the Company
and of Fahnestock, pursuant to the recommendation of the Company's
Compensation Committee and the approval of the Board of Directors.
The purpose of the Stock Appreciation Agreement is to provide
additional compensation to Mr. Lowenthal for his past services (so
as to bring Mr. Lowenthal's compensation more into line with the
compensation paid to chief executive officers of comparable
companies in the financial services industry) linked to the future
market price of the Company's stock.
Under the terms of the Stock Appreciation Agreement, Mr. Lowenthal
is entitled to receive a cash award in January 1996 of
U.S.$238,306, being the greater of (x) U.S.$150,000 or (y) the
difference between Cdn.$9.00 and the Market Value (as defined in
the Stock Appreciation Agreement) for the Company's Class A Shares
on The Toronto Stock Exchange as of December 31, 1995, multiplied
by 100,000. Mr. Lowenthal is entitled to additional payment after
the end of 1996 based upon this formula, up to a maximum aggregate
payment for both years of U.S.$625,000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth information as of December 31,
1995 as to the only persons known to the Company which own
beneficially more than 5% of the Class B Shares (the only class of
voting stock of the Company). There are no outstanding rights to
acquire beneficial ownership of any Class B Shares.
Title of Identity of Person Mailing Amount Percent
Class or Group Address Owned of Class
Class B
A.G.Lowenthal c/o Fahnestock 50,000(1) 50.2%
& Co. Inc.
110 Wall Street
NY, NY
O.Roberts c/o Fahnestock 44,309(2) 44.4%
Viner Holdings Inc.
181 University Ave.
Toronto, Ontario
___________________________________
1. All shares are held of record by Phase II Financial Limited,
an Ontario corporation ("Phase II") wholly-owned by Mr.
Lowenthal who is Chairman of the Company.
2. Mrs. Roberts, who is the mother of Elaine Roberts, President
of the Company and the wife of Kenneth Roberts, Vice
Chairman of the Company, owns 100 shares directly and 44,209
shares indirectly through Elka Estates Limited, an Ontario
corporation ("Elka") is wholly-owned by Mrs. Roberts.
(b) The following table sets forth information as of December 31,
1995 as to the ownership of Class A Shares and Class B Shares, the
only classes of equity securities of the Company, by persons who
are directors of the Company, naming them, and as to directors and
officers of the Company as a group, without naming them.
Title of Identity of Person Percentage
Class or Group Amount Owned of Class
Class A Shares Albert G Lowenthal 2,225,522(1),(5) 20.8%
Kenneth A. Roberts 349,955(2),(6) 2.8%
Elaine K. Roberts 74,494 1.3%
John Bitove 25,580(6) *%
Burton Winberg 25,700(6) *%
A.Winn Oughtred 25,500(6) *%
Richard Crystal 500 *%
Officers and Directors
as a group (7 members;
2,727,251 shares or 22.8%
in aggregate) (1), (2),
(5)and (6)
Title of Identity of Person Percentage
Class or Group Amount Owned of Class
Class B Share A.G.Lowenthal 50,000(3) 50.1%
K.A. Roberts 44,409(4) 44.4%
E.K. Roberts 100 *%
Officers and Directors
as a group (6 members;
94,409 shares or 94.7%
in aggregate)(3)and(4)
__________________________
*Less than 1%
(1) Mr. Lowenthal is the sole general partner of Phase II
Financial L. P., a New York limited partnership, ("Phase II
L.P.") which is the record holder of 2,182,150 Class A
Shares. Mr. Lowenthal holds 5,872 Class A Shares through the
Company's 401(k) plan.
(2) This amount includes shares held, directly or indirectly, by
Olga Roberts, who is the wife of Kenneth A. Roberts and the
mother of Elaine K. Roberts, and who holds 26,900 Class A
Shares directly and 288,055 Class A Shares indirectly through
Elka.
(3) Phase II, an Ontario corporation wholly-owned by Mr.
Lowenthal, is the holder of record of all such shares.
(4) This amount includes shares held, directly or indirectly, by
Olga Roberts, who is the wife of K.A. Roberts and mother of
E.K. Roberts, and who holds 100 Class B Shares directly and
44,209 Class B Shares indirectly through Elka.
(5) 37,500 Class A Shares are beneficially owned in respect of
Class A Shares currently issuable upon exercise of options
issued under the Company's ISOP and NQSO
(6) 25,000 Class A Shares are beneficially owned in respect of
Class A Shares currently issuable upon exercise of options
issued to certain of the Company's directors under the
Company's NQSOP.
(c) There are no arrangements, known to the Company, the operation
of which may at a subsequent date result in a change of control of
the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None of the directors or officers of the Company or any associate
of any such director or officer was indebted to the Company or its
subsidiaries at any time during the last three years except as
follows:
During the last three years Albert G. Lowenthal and Phase II L.P.
have maintained margin accounts with Fahnestock. Such margin
accounts are substantially on the same terms, including interest
rates and collateral, as those prevailing from time to time for
comparable transactions with non-affiliated persons and do not
involve more than the normal risk of collectibility. No borrowings
were outstanding under such accounts during 1995 or 1994. The
largest aggregate amount of indebtedness outstanding on such
accounts in 1993 was $260,800 and the average interest rate on such
indebtedness was 5%.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (i)Financial Statements
The response to this portion of Item 14 is
submitted as a separate section of this report.
See pages F-1 to F-15
(ii)Financial Statement Schedules
Not Applicable
(iii)Listing of Exhibits
The exhibits which are filed with this Form
10-K or are incorporated herein by reference
are set forth in the Exhibit Index which
immediately precedes the exhibits to this
report.
(b) Reports on Form 8-K
The Company was not required to file any
reports on Form 8-K during the last quarter of
1995 or thereafter to date.
(c) Exhibits
See the Exhibit Index included hereinafter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Toronto, Ontario, Canada,
on the 8th day of March, 1996.
FAHNESTOCK VINER HOLDINGS INC.
By:______/S/E.K.ROBERTS__
E.K. Roberts
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
/S/J.L.BITOVE_______ Director 08/03/96
J.L. Bitove
/S/A.G.LOWENTHAL____ Chairman, Chief Executive 08/03/96
A.G. Lowenthal Officer, Chief Financial
Officer, Director
/S/A.W.OUGHTRED_____ Director, 08/03/96
A.W. Oughtred Secretary
/S/E.K.ROBERTS______ President, Treasurer, 08/03/96
E.K. Roberts Director
/S/K.A.ROBERTS______ Vice-Chairman, Director 08/03/96
K.A. Roberts
/S/B.WINBERG________ Director 08/03/96
B. Winberg
/S/R.CRYSTAL________ Director 08/03/96
R. Crystal
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FAHNESTOCK VINER HOLDINGS INC.
Managements's Responsibility
for Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheet
as of December 31, 1995 and 1994 F-3
Consolidated Statement of Retained Earnings
for the three years ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statement of Operations
for the three years ended
December 31, 1995, 1994 and 1993 F-6
Consolidated Statement of Cash Flows
for the three years ended
December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8
MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Fahnestock Viner
Holdings Inc. were prepared by management in accordance with generally
accepted accounting principles in the United States, which conform in all
material respects with accounting principles generally accepted in Canada.
The significant accounting policies of the Company are described in Note 1
to the consolidated financial statements.
Management is responsible for the integrity and objectivity of the
information contained in the consolidated financial statements. In order to
present fairly the financial position of the Company and the results of its
operations and the changes in its financial position, estimates which are
necessary are based on careful judgements and have been properly reflected
in the consolidated financial statements. Management has established systems
of internal control which are designed to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use and to produce reliable
accounting records for the preparation of financial information.
Coopers & Lybrand, the Company's independent auditors, conduct an audit of
the consolidated financial statements in accordance with generally accepted
auditing standards in the United States. Their audit includes a review and
evaluation of the Company's systems of internal control, and such tests and
procedures as they consider necessary in order to form an opinion as to
whether the consolidated financial statements are presented fairly in
accordance with accounting principles generally accepted in the United States.
The Board of Directors is responsible for ensuring that management fulfills
its responsibilities for financial reporting and internal control. The Board
of Directors is assisted in this responsibility by its Audit Committee, a
majority of whose members are not officers of the Company. The Audit
Committee meets with management as well as with the independent auditors to
review the internal controls, consolidated financial statements, and the
auditor's report. The Audit Committee reports its findings to the Board of
Directors for its consideration in approving the consolidated financial
statements for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company's affairs
in compliance with established financial standards, and applicable laws and
regulations, and for maintaining proper standards of conduct for its
activities.
/S/A.G.LOWENTHAL /S/E.K.ROBERTS
A.G. Lowenthal, E.K. Roberts.
Chairman of the Board President and
and Chief Executive Officer Treasurer
March 1, 1996 F-1
REPORT OF INDEPENDENT AUDITORS
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors,
Fahnestock Viner Holdings Inc.
We have audited the consolidated financial statements of Fahnestock Viner
Holdings Inc. as at December 31, 1995 and 1994 and the consolidated
statements of operations, cash flows and retained earnings for each of the
years in the three year period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as at December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for the each of the years in the three year
period ended December 31, 1995 in accordance with accounting principles
generally accepted in the United States.
/s/Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 15, 1996
F-2
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
As at December 31
1995 1994
(Expressed in U.S. dollars)
ASSETS
Current assets
Cash $ 9,707,000 $ 11,043,000
Restricted deposits (note 2) 1,242,000 1,194,000
Receivable from brokers and
clearing organizations 303,610,000 218,198,000
Receivable from customers 253,184,000 236,756,000
Securities owned, at market value
(notes 3 and 5) 36,850,000 30,167,000
Demand notes receivable 30,000 30,000
Other 14,686,000 8,952,000
619,309,000 506,340,000
Other assets
Stock exchange seats (approximate market
value $2,911,000; 1994-$2,496,000) 1,446,000 1,638,000
Fixed assets, net of accumulated
depreciation of $3,118,000;1994-
$2,761,000 1,595,000 1,355,000
Goodwill, at amortized cost 1,116,000 1,303,000
4,157,000 4,296,000
$ 623,466,000 $ 510,636,000
(See accompanying notes to consolidated financial statements)
F-3
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Balance Sheet
As at December 31
1995 1994
(Expressed in U.S. dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Drafts payable $ 16,821,000 $ 12,919,000
Bank call loans (note 5) 41,200,000 35,825,000
Payable to brokers and clearin
organizations 319,843,000 260,512,000
Payable to customers 79,494,000 77,967,000
Securities sold, not yet purchased,
at market value (note 3) 25,940,000 12,041,000
Accounts payable and other liabilities 23,627,000 20,558,000
Income taxes payable (note 8) 9,106,000 1,996,000
516,031,000 421,818,000
Subordinated loans payable (note 4) 30,000 30,000
Commitments and contingencies (notes 10 and 12)
Shareholders' equity
Share capital (note 6)
11,940,410 Class A non-voting shares 37,513,000 37,968,000
(1994-11,995,000 shares)
99,680 Class B voting shares 133,000 133,000
37,646,000 38,101,000
Contributed capital (note 7) 785,000 785,000
Retained earnings 68,974,000 49,902,000
107,405,000 88,788,000
$ 623,466,000 $ 510,636,000
(See accompanying notes to consolidated financial statements)
F-4
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Retained Earnings
For the Year Ended December 31
1995 1994 1993
(Expressed in U.S. dollars)
Retained earnings,
beginning of year $ 49,902,000 $ 39,974,000 $22,146,000
Net profit for the year 20,899,000 11,780,000 19,022,000
Dividends paid (1,827,000) (1,852,000 (1,194,000)
Retained earnings,
end of year $ 68,974,000 $ 49,902,000 $39,974,000
(See accompanying notes to consolidated financial statements)
F-5
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Operations
For the Year Ended December 31
1995 1994 1993
(Expressed in U.S. dollars)
Revenue
Commissions $ 62,543,000 $ 54,102,000 $ 60,016,000
Trading and
investment income 63,238,000 54,332,000 57,323,000
Interest 35,399,000 23,085,000 15,179,000
Underwriting fees 3,960,000 8,204,000 12,134,000
Advisory fees 10,934,000 11,663,000 11,972,000
Other 8,359,000 5,867,000 5,361,000
184,433,000 157,253,000 161,985,000
Expenses
Compensation and related
expense 88,260,000 85,105,000 84,132,000
Clearing and exchange fees 10,506,000 9,632,000 11,363,000
Communications 16,160,000 15,798,000 12,862,000
Occupancy costs 8,616,000 9,170,000 7,743,000
Interest 21,527,000 11,786,000 7,445,000
Other 4,533,000 4,796,000 5,577,000
149,602,000 136,287,000 129,122,000
Profit before income taxes 34,831,000 20,966,000 32,863,000
Income taxes
(notes 8 and 13) 13,932,000 9,186,000 13,841,000
Net profit for the year $ 20,899,000 $11,780,000 $19,022,000
Profit per share (note 9)
- - -basic $1.70 $0.96 $1.59
- - -fully diluted $1.64 $0.93 $1.51
(See accompanying notes to consolidated financial statements)
F-6
FAHNESTOCK VINER HOLDINGS INC.
Consolidated Statement of Cash Flows
For the Year Ended December 31
1995 1994 1993
(Expressed in U.S. dollars)
Cash provided by (used in)
Operating activities
Net profit for the year $ 20,899,000 $11,780,000 $19,022,000
Charges not affecting cash
Depreciation and amortization 579,000 590,000 635,000
Decrease (increase) in non-cash
operating capital:
Restricted deposits ( 48,000) 92,000 57,000
Receivable from brokers,
and clearing organizations (85,412,000) (47,930,000) (54,819,000)
Receivable from customers (16,428,000) (36,938,000) (46,272,000)
Securities owned ( 6,683,000) 7,515,000 ( 6,367,000)
Other ( 5,734,000) ( 1,423,000) ( 2,172,000)
Drafts payable 3,902,000 475,000 ( 3,388,000)
Payable to brokers and
clearing organizations 59,331,000 69,089,000 73,415,000
Payable to customers 1,527,000 6,566,000 ( 5,807,000)
Securities sold, not yet
purchased 13,899,000 ( 1,859,000) 6,084,000
Accounts payable and
other liabilities 3,069,000 ( 1,050,000) 8,408,000
Income taxes payable 7,110,000 ( 4,442,000) 2,772,000
(3,989,000) 2,465,000 ( 8,432,000)
Investing and other activities
Proceeds from sale
of exchange seat 164,000 32,000 750,000
Purchase of fixed assets (597,000) (653,000) (530,000)
Purchase of exchange seat ( 7,000) - -
Purchase of Reich & Co. Inc., net of
cash acquired (note 11) - - 1,411,000
(440,000) ( 621,000) 1,631,000
Financing activities
Cash dividends paid on Class A non-
voting and Class B shares ( 1,827,000) (1,852,000) (1,194,000)
Issuance of Class A
non-voting shares 691,000 1,493,000 815,000
Tax benefit from employee options
exercised - 580,000 -
Repurchase of Class A non-voting
shares ( 1,146,000) (1,673,000) -
Increase in bank call loans 5,375,000 3,214,000 8,989,000
3,093,000 1,762,000 8,610,000
Increase (decrease) in cash ( 1,336,000) 3,606,000 1,809,000
Cash, beginning of year 11,043,000 7,437,000 5,628,000
Cash, end of year $ 9,707,000 $ 11,043,000 $ 7,437,000
(See accompanying notes to consolidated financial statements)
>/TABLE> F-7
FAHNESTOCK VINER HOLDINGS INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
December 31, 1995
GENERAL
Fahnestock Viner Holdings Inc. (the "Company") is incorporated under the laws of
Ontario. The Company's principal subsidiary, Fahnestock & Co. Inc.
("Fahnestock") , is a member of the New York Stock Exchange , the American
Stock Exchange and several other regional exchanges.
1. Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for the purpose of
inclusion in the annual report on Form 10-K. In all material respects, they
conform with accounting principles generally accepted in Canada which have
been used to prepare the consolidated financial statements for purposes of
inclusion in the annual report to shareholders.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts.
Since operations are predominantly based in the United States, these
consolidated financial statements are presented in U.S. dollars.
The following is a summary of significant accounting policies followed in the
preparation of these consolidated financial statements:
(a) Basis of consolidation
The consolidated financial statements include the accounts of the Company and
all subsidiaries. The major subsidiaries, wholly-owned and operated in the
U.S. are as follows:
Fahnestock & Co. Inc. broker/dealer in securities
Hudson Capital Advisors Inc. investment advisory services
Freedom Investments, Inc. discount broker in securities
Significant intercompany balances and transactions have been eliminated upon
consolidation.
(b) Brokerage operations
Transactions in proprietary securities and related revenues and expenses are
recorded on a trade date basis. Customer securities and commodities
transactions are reported on a settlement date basis which is generally three
business days. Related commission income and expense is recorded on a trade
date basis. Securities owned are recorded at market value based upon quoted
prices. Securities owned and securities sold not yet purchased used for
trading purposes are reported at market value. Realized and unrealized
changes in market value are recognized in net trading revenues in the period
in which the change occurs. Other financial instruments are carried at fair
value or amounts that approximate fair value.
(c) Goodwill
Goodwill, acquired upon the acquisition of Fahnestock and Fahnestock
International Inc., is being amortized to operations on a straight-line basis
over twenty years. Negative goodwill arising as a result of the acquisition
of Hopper Soliday Corporation and subsidiaries and Reich & Co.,Inc. is being
amortized to operations on a straight- line basis over twenty years.
(d) Fixed assets
Fixed assets and stock exchange seats are stated at cost. Depreciation and
amortization are provided based on the straight-line method over the useful
life of these assets.
(e) Foreign currency translations
Canadian currency balances have been translated into U.S. dollars as follows:
monetary assets and liabilities at exchange rates prevailing at year end;
revenue and expenses at average rates for the year; and non-monetary assets
and share capital at historic rates.
(f) Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes".
Deferred income tax assets and liabilities arise from "temporary differences"
between the tax basis of an asset or liability and its reported amount in the
consolidated financial statements. Deferred tax balances are determined by
applying the enacted tax rates.
2. Restricted deposits
Deposits of $1,242,000 (1994-$1,194,000) were held at year end in a special
reserve bank account for the exclusive benefit of customers in accordance
with regulatory requirements. To the extent permitted, these deposits are
invested in interest bearing accounts collateralized by qualified securities.
3. Securities owned and sold short
1995 1994
Securities owned consist of:
Corporate equities $20,756,000 $15,311,000
Corporate debt 8,311,000 5,290,000
Municipal and other government
obligations 6,746,000 9,466,000
Securities purchased to resell 1,016,000 -
Certificate of deposit 10,000 100,000
$36,850,000 $30,167,000
Securities sold short consist of:
Corporate equities $24,146,000 $10,503,000
Corporate debt 671,000 217,000
Municipal and other government
obligations 1,123,000 1,321,000
$25,940,000 12,041,000
4. Subordinated loans payable
1995 1994
Due in 1999 at 5.5% $ 30,000 $ 30,000
5. Bank call loans
Bank call loans bear interest at various rates but not exceeding the broker
call rate, which was 7.25% at December 31, 1995. These loans are
collateralized by firm and customer securities with a market value of
approximately $14,533,000 and $69,526,000, respectively. Details of the
bank call loans are as follows:
December 31 1995 1994 1993
Year-end balance $41,200,000 $35,825,000 $32,611,000
Weighted interest rate 7.250% 7.250% 3.866%
(at end of year)
Maximum balance $41,200,000 $69,050,000 $38,262,000
(at any month end)
Average amount outstanding $17,446,000 $29,634,000 $14,814,000
(during the year) (2)
Weighted average interest rate 5.093% 2.116% 2.211%
(during the year) (1)
(1) The weighted average interest rate during the year was computed by
dividing the actual interest expense by the average bank call loans
outstanding.
(2) The average amount outstanding during the year was computed by adding
amounts outstanding at the end of each month and dividing by twelve.
Aggregate interest paid by the Company on a cash basis during the years ended
December 31, 1995, 1994, and 1993 was $22,900,000, $11,546,000 and
$7,317,000, respectively.
6. Share capital
The Company's authorized share capital consists of (a) an unlimited number of
first preference shares issuable in series; (b) an unlimited number of Class
A non-voting shares; and (c) 99,680 Class B voting shares.
The Class A non-voting and the Class B voting shares are equal in all
respects except that the Class A non-voting shares are non-voting.
All of the above-referenced classes of shares are without par value.
The Company's issued and outstanding share capital is as follows:
1995 1994 1993
11,940,410 (11,995,000 in 1994 and
11,897,850 in 1993) Class A
non-voting shares $37,513,000 $37,968,000 $38,148,000
99,680 Class B voting shares 133,000 133,000 133,000
$37,646,000 $38,101,000 $38,281,000
The Company has outstanding options with certain employees to purchase a
total of 912,375 Class A non-voting shares as follows:
Number Date
of shares of Issue Option price Expiry date
(Cdn. dollars)
87,375 June 10, 1991 $ 4.40 June 9, 1996
100,000 February 27, 1992 $10.01 February 26, 1997
100,000 June 1, 1992 $ 7.88 May 31, 1997
150,000 January 27, 1993 $ 7.38 January 26,1998
100,000 January 28, 1994 $12.50 February 28, 1999
250,000 March 1, 1994 $12.25 February 28, 1999
125,000 June 6, 1994 $ 9.00 June 5, 1999
During 1995, options to purchase 21,875 Class A non-voting shares (246,250
in 1994 and 62,000 in 1993) were exercised for cash totalling $70,000
($609,000 in 1994 and $147,000 in 1993). The number of options vested at
December 31, 1995 was 263,625 (169,000 in 1994 and 357,625 in 1993). The
authorized number of Class A non-voting shares that may be made subject to
options under the Company's employee stock option plans is 1,225,000.
The Company issued Class A non-voting shares from Treasury to the Company's
401(k) plan as follows:
Number Date Issue
Year of shares of issue Price per share
(Cdn.)
1993 111,000 January 18, 1994 $10.58
1994 92,000 January 27, 1995 $ 9.00
1995 113,000 January 10, 1996 $12.24
On February 25, 1995, the Company paid a cash dividend of US$0.15 per Class A
non- voting and Class B share to shareholders of record February 10, 1995
(US$0.15 in 1994 and US$0.10 in 1993).
The Company may purchase up to 800,000 Class A non-voting shares
( approximately 8.3%of the public float) by way of a Normal Course Issuer
Bid through the facilities of The Toronto Stock Exchange. During the year
ended December 31, 1995, the Company purchased 168,465 Class A non-voting
shares at current market prices. These shares have been cancelled as will
all other shares purchased by the Company. Unless terminated earlier by the
Company, it may continue to purchase shares up to May 17, 1996.
7. Contributed capital
Contributed capital represents the tax benefit on the difference between
market price and exercise price on employee stock options exercised in 1992
and 1994.
8. Income taxes
The income tax provision shown in the consolidated statement of operations is
reconciled to amounts of tax that would have been payable (recoverable) from
the application of combined federal, state, provincial and local tax rates to
pre-tax profit as follows:
1995 1994 1993
Profit before income tax $34,831,000 $20,966,000 $32,863,000
U.S. federal tax at 35% $12,268,000 $ 7,533,000 $11,297,000
Canadian tax at 44% (97,000) (245,000) 257,000
Combined state and local tax 4,564,000 2,870,000 3,731,000
Income taxes before
undernoted 16,735,000 10,158,000 15,285,000
Tax effect of non-taxable
interest and dividends (269,000) ( 201,000) (307,000)
Tax effect on other
differences between
accounting and taxable
income (2,534,000) (771,000) (1,137,000)
Income taxes $13,932,000 $ 9,186,000 $13,841,000
Profit before income
tax provision
Canadian operations $ (220,000) $ (557,000) $ 585,000
U.S. operations $35,051,000 $21,523,000 $32,278,000
The current U.S. income tax provision in 1995 is $13,932,000 (9,186,000
in 1994 and $13,666,000 in 1993). The current Canadian income tax provision
in 1995 is nil (nil in 1994 and $175,000 in 1993).
Aggregate deferred tax assets, which relate to fixed assets and acquired net
operating losses, are included in other assets and amounted to $290,000 net
of a valuation allowance of $500,000.
On a cash basis, the Company paid income taxes for the years ended December 31,
1995, 1994 and 1993 in the amounts of $6,731,000, $7,337,000 and $10,745,000,
respectively.
9. Profit per share
1995 1994 1993
Basic weighted average number
of shares outstanding 12,330,552 12,221,985 11,964,692
Additional shares issuable on
exercise of options and
warrants 648,750 509,500 705,000
Fully diluted common shares 12,979,302 12,731,235 12,670,192
Net profit $20,899,000 $11,780,000 $19,022,000
Imputed earnings, net of
income taxes, on cash
which would be received
on the exercise of
options and warrants 327,000 110,000 117,000
Fully diluted net income $21,226,000 $11,890,000 $19,139,000
Basic profit per share $1.70 $0.96 $1.59
Fully diluted profit per share $1.64 $0.93 $1.51
10. Commitments and contingencies
(a) The Company and its subsidiaries are obligated under lease agreements to
pay the following future minimum rentals:
1996 $4,869,000
1997 4,584,000
1998 2,986,000
1999 551,000
2000 and thereafter 60,000
$13,050,000
Certain of the leases contain provisions for rent escalation based on
increases in costs incurred by the lessor.
(b) The Company's rent expense for the years ended December 31, 1995, 1994
and 1993 was $5,411,000, $6,063,000 and $6,539,000, respectively.
(c) The Company maintains a contribution based retirement plan covering
substantially all full-time U.S. employees. The plan provides that the
Company may make discretionary contributions. The Company made contributions
to the plan of $1,600,000, $1,110,000 and $1,266,000 in 1995, 1994 and 1993,
respectively.
(d) The Company's bankers have issued letters of credit for $16,000,000
deposited with two clearing organizations of which $8,000,000 is
collateralized by securities owned.
(e) The Company is involved in certain litigation arising in the ordinary
course of business. Management believes, based upon discussion with counsel,
that the outcome of this litigation will not have a material effect on the
Company's financial position. 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.
(f) The Company's subsidiary, Fahnestock, is subject to the uniform net
capital requirements of the Securities and Exchange Commission ("SEC") under
Rule 15c3.1. Fahnestock computes its net capital requirements under the
alternative method provided for in the Rule which requires that Fahnestock
maintain net capital equal to two percent of aggregate customer related debit
items, as defined in SEC Rule 15c3-3. At December 31, 1995, Fahnestock had
net capital of $87,768,000 which was $81,681,000 in excess of the $6,087,000
required to be maintained at that date.
11.Acquisitions
On December 13, 1993, a subsidiary of the Company acquired all of the
outstanding common stock of Reich & Co. Inc., a broker-dealer headquartered
in New York City with branch offices in New York, New Jersey and Florida for
cash consideration. The 1993 financial statements of the Company include the
operating results of Reich for the period December 14 to December 31, 1993.
The transaction has been accounted for as a purchase. Excess of assets
acquired over cost recorded as a result of the acquisition aggregated
approximately $1,411,000.
The following proforma information is presented for comparative purposes only
and management does not believe that it would have been indicative of actual
results had the acquisition of Reich occurred on January 1, 1993. The
unaudited proforma consolidated results of operations had the acquisition
occurred on January 1, 1993 would show the following results on a comparative
basis for the year ended December 31, 1993: Revenues $198,037,000; Profit
before income taxes $28,095,000; Net profit $14,254,000; Profit per share
$1.19.
12.Financial instruments with off-balance sheet risk and concentration
of credit risk
In the normal course of business, the Company's securities activities involve
execution, settlement and financing of various securities transactions for
customers. These activities may expose the Company to risk in the event
customers, other brokers and dealers, banks, depositories or clearing
organizations are unable to fulfill their contractual obligations.
The Company is exposed to off-balance sheet risk of loss on unsettled
transactions in the event customers and other counterparties are unable to
fulfill their contractual obligations. It is the Company's policy to review,
as necessary, the credit standing of each counterparty with which it conducts
business.
Securities sold, but not yet purchased represent obligations of the Company
to deliver the specified security at the contracted price and thereby create
a liability to repurchase the security in the market at prevailing prices.
Accordingly, these transactions result in off-balance-sheet risk, as the
Company's ultimate obligation to satisfy the sale of securities sold, but not
yet purchased may exceed the amount recognized on the balance sheet.
Inventory positions are monitored on a daily basis to minimize the risk of
loss.
The Company's customer financing and securities lending activities require
the Company to pledge customer securities as collateral for various secured
financing sources such as bank loans and securities loaned. At December 31,
1995, approximately $64,000,000 of securities loaned are collateralized by
customer securities. Included in receivable from brokers and clearing
organizations are receivables from four major broker-dealers totalling
$195,560,000. The Company monitors the market value of collateral held and
the market value of securities receivable from others. It is the Company's
policy to request and obtain additional collateral when exposure to loss
exists. In the event the counterparty is unable to meet its contractual
obligation to return the securities, the Company may be exposed to
off-balance sheet risk of acquiring securities at prevailing market prices.
13.Differences between Canadian and United States generally accepted
accounting principles
There are no significant differences between Canadian and U.S. accounting
principles. Recently enacted, but unadopted accounting pronouncements include
the United States Financial Accounting Standards Board issued Statement of
Financial Standards No.123, Accounting for Stock-Based Compensation, which
will become effective for the Company's 1996 fiscal year. This and other new
accounting standards issued but not yet effective would not have a material
impact on the Company's financial statements.
14.Subsequent event
On January 25, 1996, a cash dividend of U.S.$0.20 per share (totalling
$2,448,000) was declared payable on February 23, 1996 to holders of Class A
non-voting and Class B shares of record February 9, 1996.
EXHIBIT INDEX
Unless designated by an asterisk indicating that such document has been filed
herewith, the Exhibits listed below have been heretofore filed by the Company
pursuant to Section 13 or 15(d) of the Exchange Act and are hereby
incorporated herein by reference to the pertinent prior filing.
Number Description Page
3(a) Articles of Incorporation, as amended, of
Fahnestock Viner Holdings Inc. (previously
filed as exhibits to Form 20-F for the
fiscal years ended December 31, 1986 and
1988).
3(b) By-Laws, as amended, of Fahnestock Viner
Holdings Inc. (previously filed as an
exhibit to Form 20-F for the fiscal year
ended December 31, 1987).
10(a) Lease documentation for the premises at 110
Wall Street, New York, New York, including
the Lease Modification Agreement dated
January 25, 1991 between The 110 Wall Company
and Fahnestock & Co.Inc.(previously filed as an
exhibit to Form 10-K for the fiscal year ended
December 31, 1990 and the Lease Agreement
dated January 5, 1987 between The 110 Wall
Company and Fahnestock & Co.Inc. and the Lease
dated November 18, 1980 between The 110 Wall
Company and Fahnestock & Co.Inc. (previously
filed as exhibits to Form 20-F for the fiscal
year ended December 31,1988).
10(b) Supplemental Legend to 1986 Incentive Stock
Option Plan (previously filed as an exhibit
to the registrant's registration statement on
Form S-8 (file no. 33-38134)).
10(c) Supplemental Legend to 1986 Employee Stock
Option Plan (previously filed as an exhibit
to the registrant's registration statement on
Form S-8 (file no. 33-38134)).
10(d) Fahnestock Viner Holdings Inc. 1986 Incentive
Stock Option Plan (Amended and Restated as at
April 26, 1991) (previously filed as an exhibit
to Form 10-K for the year ended December 31,
1992)
10(e) Fahnestock Viner Holdings Inc. 1986 Employee
Stock Option Plan (Amended and Restated as at
April 26, 1991) (previously filed as an exhibit
to Form 10-K for the year ended December 31, 1992)
16(a) Letter of Ernst & Young dated April 1, 1993
to the Securities and Exchange Commission
regarding change in certifying accountant
(previously filed as an exhibit to Form 8-K
dated March 29, 1993)
21 Subsidiaries of the Registrant (filed herewith).*
23(a) Consent of Coopers & Lybrand (filed herewith).*