XNYS:OPY Oppenheimer Holdings, Inc. Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 1-12043

 

 

OPPENHEIMER HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   98-0080034

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

125 Broad Street

New York, New York 10004

(Address of principal executive offices) (Zip Code)

(212) 668-8000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes     ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No  x

The number of shares of the Company’s Class A non-voting common stock and Class B voting common stock (being the only classes of common stock of the Company) outstanding on April 30, 2012 was 13,489,162 and 99,680 shares, respectively.

 

 

 


Table of Contents

OPPENHEIMER HOLDINGS INC.

INDEX

 

          Page
No.
 
PART I    FINANCIAL INFORMATION   
Item 1.    Financial Statements (unaudited)   
   Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011      1   
   Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011      3   
  

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011

     4   
  

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2012 and 2011

     5   
   Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011      6   
   Notes to Condensed Consolidated Financial Statements      8   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      44   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      59   
Item 4.    Controls and Procedures      60   
PART II    OTHER INFORMATION   
Item 1.    Legal Proceedings      61   
Item 1A.    Risk Factors      68   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      69   
Item 6.    Exhibits      69   
   Signatures      70   
   Certifications   


Table of Contents

PART I

FINANCIAL INFORMATION

Item. 1 Financial Statements (unaudited)

OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

     March 31,      December 31,  

(Expressed in thousands of dollars)

   2012      2011  

ASSETS

     

Cash and cash equivalents

   $ 86,810       $ 70,329   

Cash and securities segregated for regulatory and other purposes

     32,369         30,086   

Deposits with clearing organizations

     56,137         35,816   

Receivable from brokers and clearing organizations

     341,230         288,113   

Receivable from customers, net of allowance for credit losses of $2,726 ($2,548 in 2011)

     872,020         837,822   

Income taxes receivable

     2,727         6,743   

Securities purchased under agreements to resell

     489         847,688   

Securities owned, including amounts pledged of $650,677 ($653,651 in 2011), at fair value

     946,424         924,541   

Notes receivable, net

     53,586         54,044   

Office facilities, net

     25,319         16,976   

Intangible assets, net

     32,377         35,589   

Goodwill

     137,889         137,889   

Other

     162,093         241,803   
  

 

 

    

 

 

 
   $ 2,749,470       $ 3,527,439   
  

 

 

    

 

 

 

 

(Continued on next page)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

     March 31,     December 31,  

(Expressed in thousands of dollars)

   2012     2011  

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Liabilities

    

Drafts payable

   $ 41,192      $ 51,848   

Bank call loans

     92,600        27,500   

Payable to brokers and clearing organizations

     374,068        335,610   

Payable to customers

     543,793        479,896   

Securities sold under agreements to repurchase

     647,793        1,508,493   

Securities sold, but not yet purchased, at fair value

     90,408        69,415   

Accrued compensation

     93,088        144,283   

Accounts payable and other liabilities

     153,705        184,669   

Senior secured note

     195,000        195,000   

Deferred income taxes, net

     3,636        10,302   

Excess of fair value of acquired assets over cost

     7,020        7,020   
  

 

 

   

 

 

 
     2,242,303        3,014,036   
  

 

 

   

 

 

 

Stockholders’ equity

    

Share capital

    

Class A non-voting common stock (2012 – 13,489,162 shares issued and outstanding 2011 – 13,572,265 shares issued and outstanding)

     61,266        62,593   

Class B voting common stock 99,680 shares issued and outstanding

     133        133   
  

 

 

   

 

 

 
     61,399        62,726   

Contributed capital

     37,667        36,832   

Retained earnings

     402,568        408,720   

Accumulated other comprehensive income (loss)

     (574     (208
  

 

 

   

 

 

 

Total Oppenheimer Holdings Inc. stockholders’ equity

     501,060        508,070   

Non-controlling interest

     6,107        5,333   
  

 

 

   

 

 

 
     507,167        513,403   
  

 

 

   

 

 

 
   $ 2,749,470      $ 3,527,439   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

 

(Expressed in thousands of dollars, except per share amounts)

   2012     2011  

REVENUE:

    

Commissions

   $ 125,634      $ 136,855   

Principal transactions, net

     12,555        10,991   

Interest

     13,393        14,789   

Investment banking

     20,087        28,441   

Advisory fees

     50,077        48,449   

Other

     16,468        13,892   
  

 

 

   

 

 

 
     238,214        253,417   
  

 

 

   

 

 

 

EXPENSES:

    

Compensation and related expenses

     158,651        170,415   

Clearing and exchange fees

     6,031        6,313   

Communications and technology

     16,138        15,939   

Occupancy and equipment costs

     24,344        18,546   

Interest

     8,792        7,774   

Other

     30,747        24,601   
  

 

 

   

 

 

 
     244,703        243,588   
  

 

 

   

 

 

 

Profit (loss) before income taxes

     (6,489     9,829   

Income tax provision (benefit)

     (2,606     4,068   
  

 

 

   

 

 

 

Net profit (loss) for the period

     (3,883     5,761   

Less net profit attributable to non-controlling interest, net of tax

     (774     (675
  

 

 

   

 

 

 

Net profit (loss) attributable to Oppenheimer Holdings Inc.

   $ (4,657   $ 5,086   
  

 

 

   

 

 

 

Earnings (loss) per share attributable to Oppenheimer Holdings Inc.

    

Basic

   $ (0.34   $ 0.38   

Diluted

   $ (0.34   $ 0.36   

Weighted average shares

    

Basic

     13,597,330        13,550,723   

Diluted

     13,597,330        14,203,413   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

 

(Expressed in thousands of dollars)

   2012     2011  

Net profit (loss) for period

   $ (3,883   $ 5,761   

Other comprehensive income (loss):

    

Currency translation adjustment

     (366     239   

Change in cash flow hedges, net of tax

     —          72   
  

 

 

   

 

 

 

Comprehensive income (loss) for the period

   $ (4,249   $ 6,072   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

 

(Expressed in thousands of dollars)

   2012     2011  

Share capital

    

Balance at beginning of period

   $ 62,726      $ 51,901   

Issuance of Class A non-voting common stock

     224        9,780   

Repurchase of Class A non-voting common stock for cancellation

     (1,551     —     
  

 

 

   

 

 

 

Balance at end of period

   $ 61,399      $ 61,681   
  

 

 

   

 

 

 

Contributed capital

    

Balance at beginning of period

   $ 36,832      $ 47,808   

Tax benefit (shortfall) from share-based awards

     41        (12,662

Share-based expense

     974        (1,672

Vested employee share plan awards

     (180     1,222   
  

 

 

   

 

 

 

Balance at end of period

     37,667      $ 34,696   
  

 

 

   

 

 

 

Retained earnings

    

Balance at beginning of period

   $ 408,720      $ 404,414   

Net profit (loss) attributable to Oppenheimer Holdings Inc.

     (4,657     5,086   

Dividends paid ($0.11 per share)

     (1,495     (1,500
  

 

 

   

 

 

 

Balance at end of period

   $ 402,568      $ 408,000   
  

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

    

Balance at beginning of period

   $ (208   $ 207   

Currency translation adjustment

     (366     239   

Change in cash flow hedges, net of tax

     —          72   
  

 

 

   

 

 

 

Balance at end of period

   $ (574   $ 518   
  

 

 

   

 

 

 

Stockholders’ Equity of Oppenheimer Holdings Inc.

   $ 501,060      $ 504,895   

Non-controlling interest

    

Balance at beginning of period

   $ 5,333      $ 3,032   

Net profit attributable to non-controlling interest, net of tax

     774        675   
  

 

 

   

 

 

 

Balance at end of period

   $ 6,107      $ 3,707   
  

 

 

   

 

 

 

Total Stockholders’ Equity

   $ 507,167      $ 508,602   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

 

(Expressed in thousands of dollars)

   2012     2011  

Cash flows from operating activities:

    

Net profit (loss) for period

   $ (3,883   $ 5,761   

Adjustments to reconcile net profit (loss) to net cash provided by operating activities:

    

Non-cash items included in net profit:

    

Depreciation and amortization of office facilities and leasehold improvements

     2,845        3,527   

Deferred income taxes

     (6,666     3,888   

Amortization of notes receivable

     4,870        5,087   

Amortization of debt issuance costs

     99        273   

Amortization of intangible assets

     3,212        1,082   

Provision (reversal) for credit losses

     178        —     

Share-based compensation

     1,259        4,836   

Decrease (increase) in operating assets:

    

Cash and securities segregated for regulatory and other purposes

     (2,283     (2,062

Deposits with clearing organizations

     (20,321     (3,259

Receivable from brokers and clearing organizations

     (53,117     (43,528

Receivable from customers

     (34,376     (49,841

Income taxes receivable

     4,016        1,497   

Securities purchased under agreements to resell

     847,199        145,570   

Securities owned

     (21,883     (595,317

Notes receivable

     (4,412     (2,532

Other assets

     72,769        12,686   

Increase (decrease) in operating liabilities:

    

Drafts payable

     (10,656     (18,619

Payable to brokers and clearing organizations

     38,458        158,904   

Payable to customers

     63,897        113,555   

Securities sold under agreements to repurchase

     (860,700     151,845   

Securities sold, but not yet purchased

     20,993        217,695   

Accrued compensation

     (51,436     (76,647

Accounts payable and other liabilities

     (30,965     4,260   
  

 

 

   

 

 

 

Cash provided by (used in) operating activities

     (40,903     38,661   
  

 

 

   

 

 

 

 

(Continued on next page)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

FOR THE THREE MONTHS ENDED MARCH 31,

 

(Expressed in thousands of dollars)

   2012     2011  

Cash flows from investing activities:

    

Purchase of office facilities

     (4,711     (1,549
  

 

 

   

 

 

 

Cash used in investing activities

     (4,711     (1,549
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Cash dividends paid on Class A non-voting and Class B voting common stock

     (1,495     (1,500

Issuance of Class A non-voting common stock

     —          71   

Repurchase of Class A non-voting common stock for cancellation

     (1,551     —     

Tax benefit (shortfall) from share-based awards

     41        (1,672

Senior secured credit note repayments

     —          (125

Increase (decrease) in bank call loans, net

     65,100        (33,800
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     62,095        (37,026
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     16,481        86   

Cash and cash equivalents, beginning of period

     70,329        52,854   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 86,810      $ 52,940   
  

 

 

   

 

 

 

Schedule of non-cash investing and financing activities:

    

Employee share plan issuance

   $ 224      $ 9,709   

Supplemental disclosure of cash flow information:

    

Cash paid during the period for interest

   $ 4,038      $ 11,232   

Cash paid (refunded) during the period for income taxes

   $ (20   $ 526   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

OPPENHEIMER HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

1. Summary of significant accounting policies

Basis of Presentation

Oppenheimer Holdings Inc. (“OPY”) is incorporated under the laws of the State of Delaware. On May 11, 2009, the jurisdiction of incorporation of OPY was changed from Canada to Delaware. The condensed consolidated financial statements include the accounts of OPY and its subsidiaries (together, the “Company”). The principal subsidiaries of OPY are Oppenheimer & Co. Inc. (“Oppenheimer”), a registered broker dealer in securities, Oppenheimer Asset Management Inc. (“OAM”) and its wholly owned subsidiary, Oppenheimer Investment Management Inc. (“OIM”), both registered investment advisors under the Investment Advisors Act of 1940, Oppenheimer Trust Company, a limited purpose trust company chartered by the State of New Jersey to provide fiduciary services such as trust and estate administration and investment management, Oppenheimer Multifamily Housing and Healthcare Finance, Inc. (“OMHHF”), which is engaged in mortgage brokerage and servicing, and OPY Credit Corp., which offers syndication as well as trading of issued corporate loans. Oppenheimer Europe Ltd. (formerly Oppenheimer E.U. Ltd.), based in the United Kingdom, provides institutional equities and fixed income brokerage and corporate financial services and is regulated by the Financial Services Authority. Oppenheimer Investments Asia Limited, based in Hong Kong, China, provides assistance in accessing the U.S. equities markets and limited mergers and acquisitions advisory services to Asia-based companies. Oppenheimer operates as Fahnestock & Co. Inc. in Latin America. Oppenheimer owns Freedom Investments, Inc. (“Freedom”), a registered broker dealer in securities, which also operates as the BUYandHOLD division of Freedom, offering on-line discount brokerage and dollar-based investing services, and Oppenheimer Israel (OPCO) Ltd., which is engaged in offering investment services in the State of Israel as a local broker dealer. Oppenheimer holds a trading permit on the New York Stock Exchange and is a member of several other regional exchanges in the United States.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles are set out in the notes to the Company’s consolidated financial statements for the year ended December 31, 2011 included in its Annual Report on Form 10-K for the year then ended.

Accounting standards require the Company to present non-controlling interests (previously referred to as minority interests) as a separate component of stockholders’ equity on the Company’s consolidated balance sheet. As of March 31, 2012, the Company owned 67.34% of OMHHF and the non-controlling interest recorded in the condensed consolidated balance sheet was $6.1 million. The Company intends to purchase non-controlling interest shares of 16.33% in 2012 which will take its interest to 83.67%.

Disclosures reflected in these condensed consolidated financial statements comply in all material respects with those required pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to quarterly financial reporting.

Certain prior period amounts appearing in the notes to these condensed consolidated financial statements pertaining to the fair value measurement of derivative contracts have been reclassified to conform with current presentation.

 

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2. New Accounting Pronouncements

Recently Adopted

In December 2010, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2010-28, “Intangibles – Goodwill and Other,” which modified Step 1 of the goodwill impairment test for reporting units with a zero or negative carrying value, stating that under such circumstances an entity should perform Step 2 of the impairment analysis when it is more likely than not that goodwill is impaired. The Company adopted this requirement in the period ending March 31, 2011 with no impact on its financial statements.

In February 2010, the FASB issued ASU No. 2010-10, “Consolidation – Amendments for Certain Investment Funds”, that will indefinitely defer the effective date of the updated Variable Interest Entity (“VIE”) accounting guidance for certain investment funds. To qualify for the deferral, the investment fund needs to meet certain attributes of an investment company, does not have explicit or implicit obligations to fund losses of the entity and is not a securitization entity, an asset-backed financing entity, or an entity formerly considered a qualifying special-purpose entity (“QSPE”). The Company’s investment funds meet the conditions in ASU No. 2010-10 and qualify for the deferral adoption. Therefore, the Company is not required to consolidate any of its investment funds which are VIEs until further guidance is issued.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurement”. ASU No. 2010-06 requires new disclosures regarding transfers of assets and liabilities measured at fair value in and out of Level 1 and 2 of the fair value hierarchy. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfer. ASU No. 2010-06 also provides additional guidance on the level of disaggregation of fair value measurements and disclosures regarding inputs and valuation techniques. The Company adopted this disclosure requirement in the three months ended March 31, 2010. In addition, ASU No.2010-06 requires the reconciliation of beginning and ending balances for fair value measurements using significant unobservable inputs (i.e., Level 3) to be presented on a gross basis. The Company adopted this requirement in the period ended March 31, 2011. See note 6 for further information.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”, requiring entities to present items of net income and other comprehensive income either in one continuous statement (referred to as the statement of comprehensive income) or in two separate, but consecutive, statements of net income and other comprehensive income. In addition, in December 2011, the FASB issued ASU No. 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated other Comprehensive Income in ASU No. 2011-05”, which deferred certain provisions of ASU 2011-05. ASU No. 2011-12 indefinitely deferred the provision that requires the entity to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. The Company adopted these requirements in the period ending December 31, 2011.

In April 2011, the FASB issued ASU No. 2011-03, “Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements,” which removes the requirement to consider whether sufficient collateral is held when determining whether to account for repurchase agreements and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity as sales or as secured financings. The guidance is effective prospectively for transactions beginning on January 1, 2012. The Company adopted this guidance in the period ending March 31, 2012.

 

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In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which provides clarifying guidance on how to measure fair value and has additional disclosure requirements. The amendments prohibit the use of blockage factors at all levels of the fair value hierarchy and provide guidance on measuring financial instruments that are managed on a net portfolio basis. Additional disclosure requirements include transfers between Levels 1 and 2 and, for Level 3 fair value measurements, a description of the valuation processes and additional information about unobservable inputs impacting Level 3 measurements. The updates are effective for fiscal years beginning after December 15, 2011. The Company adopted this guidance in the period ending March 31, 2012. See note 6 for further details.

In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment”, which gives entities the option of performing a qualitative assessment before the quantitative analysis. If entities determine the fair value of a reporting unit is more likely than not less than the carrying amount based on the qualitative factors, the two-step quantitative test would be required. Otherwise, further testing would not be needed. The ASU is effective for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company evaluated this ASU and decided to continue to perform quantitative analysis for goodwill impairment.

Recently Issued

On December 31, 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities”, which requires new disclosures about balance sheet offsetting and related arrangements. For derivatives and financial assets and liabilities, the ASU requires disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. The ASU is effective for annual reporting periods beginning on or after January 1, 2013. The Company is currently evaluating the impact, if any, that these updates will have on its financial condition, results of operations and cash flows.

3. Revision to financial statements

During the year ended December 31, 2011, the Company identified historical errors relating to its tax treatment of deferred compensation obligations assumed as part of the 2003 acquisition of the Private Client Division from Canadian Imperial Bank of Commerce (“CIBC”) that affected prior periods. As a result, the Company determined the need to reestablish book basis of goodwill related to the 2003 transaction in the amount of $5.4 million. Further analysis revealed uncertain tax positions, that were inadvertently taken as a result of the errors, leading to the establishment of a reserve in the amount of $3.0 million, including accrued interest, as well as cumulative adjustments primarily related to current and deferred tax items of $2.8 million for periods prior to 2009.

 

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The Company assessed the impact of the errors, including the impact of previously disclosed out-of-period adjustments, on its prior period financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2010 and concluded that these errors were not material, individually or in the aggregate, to any of those financial statements. Although the effect of these errors was not material to any previously issued financial statements, the cumulative effect of correcting these historical errors during the fiscal year 2011 would have been material. As part of this revision process, the Company also reversed other previously disclosed out-of-period adjustments which were immaterial, and recorded them instead in the periods in which the errors originated. These revisions have no net impact on the Company’s net cash amounts provided by (used in) operating, financing or investing activities for the any of the periods previously reported, nor in the current period. The cumulative effect of the above adjustments resulted in a $9.8 million credit to opening retained earnings as of January 1, 2011.

The financial statements as of March 31, 2011, included herein, have been prepared in light of the cumulative revisions above. The financial statements for all other periods affected by the revisions can continue to be relied upon, and will be revised to reflect the revisions discussed above, the next time such financial statements are included in future reports for comparative purposes.

4. Earnings per share

Basic earnings per share was computed by dividing net profit (loss) by the weighted average number of shares of Class A and Class B Stock outstanding. Diluted earnings per share includes the weighted average number of shares of Class A and Class B Stock outstanding and the effects of the warrants using the if converted method and options to purchase the Class A Stock and restricted stock awards of Class A Stock using the treasury stock method.

Earnings per share has been calculated as follows.

Expressed in thousands of dollars, except share and per share amounts.

 

     Three months ended March 31,  
     2012     2011  

Basic weighted average number of shares outstanding

     13,597,330        13,550,723   

Net dilutive effect of warrants, treasury method (1)

     —          —     

Net dilutive effect of share-based awards, treasury method (2)

     —          652,690   
  

 

 

   

 

 

 

Diluted common shares

     13,597,330        14,203,413   
  

 

 

   

 

 

 

Net profit (loss), for the period

   $ (3,883   $ 5,761   

Net profit attributable to non-controlling interests

     774        675   
  

 

 

   

 

 

 

Net profit (loss) available to Oppenheimer Holdings Inc. stockholders and assumed conversions

   $ (4,657   $ 5,086   
  

 

 

   

 

 

 

Basic earnings (loss) per share

   $ (0.34   $ 0.38   

Diluted earnings (loss) per share

   $ (0.34   $ 0.36   

 

(1) As part of the consideration for the 2008 acquisition of certain businesses from CIBC World Markets Corp., the Company issued a warrant to CIBC to purchase 1 million shares of Class A Stock of the Company at $48.62 per share exercisable five years from the January 14, 2008 acquisition date. For the three months ended March 31, 2012 and 2011, the effect of the warrants is anti-dilutive.

 

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(2) The diluted earnings per share computations do not include the antidilutive effect of the following items:

 

     Three months ended March 31,  
     2012      2011  

Number of antidilutive warrants, options and restricted shares for the period

     1,058,048         1,142,028   

5. Receivable from and Payable to Brokers and Clearing Organizations

Expressed in thousands of dollars.

 

     March 31,      December 31,  
     2012      2011  

Receivable from brokers and clearing organizations consist of:

     

Deposits paid for securities borrowed

   $ 217,722       $ 217,353   

Receivable from brokers

     21,618         23,516   

Securities failed to deliver

     26,456         11,551   

Clearing organizations

     15,394         19,209   

Omnibus accounts

     16,909         15,907   

Other

     43,131         577   
  

 

 

    

 

 

 
   $ 341,230       $ 288,113   
  

 

 

    

 

 

 
     March 31,      December 31,  
     2012      2011  

Payable to brokers and clearing organizations consist of:

     

Deposits received for securities loaned

   $ 349,910       $ 318,834   

Securities failed to receive

     18,723         15,236   

Clearing organizations and other

     5,435         1,540   
  

 

 

    

 

 

 
   $ 374,068       $ 335,610   
  

 

 

    

 

 

 

6. Financial instruments

Securities owned and securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period. The Company’s other financial instruments are generally short-term in nature or have variable interest rates and as such their carrying values approximate fair value, with the exception of notes receivable from employees which are carried at cost.

 

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Securities Owned and Securities Sold, But Not Yet Purchased at Fair Value

Expressed in thousands of dollars.

 

     March 31,
2012
     December 31,
2011
 
     Owned      Sold      Owned      Sold  

U.S. Treasury, agency and sovereign obligations

   $ 677,810       $ 40,022       $ 682,805       $ 27,509   

Corporate debt and other obligations

     38,871         4,439         27,188         3,696   

Mortgage and other asset-backed securities

     3,413         7         4,610         14   

Municipal obligations

     52,435         1,209         54,963         485   

Convertible bonds

     54,601         9,143         50,157         8,533   

Corporate equities

     49,525         35,524         38,634         29,056   

Other

     69,769         64         66,185         122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 946,424       $ 90,408       $ 924,542       $ 69,415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities owned and securities sold, but not yet purchased, consist of trading and investment securities at fair values. Included in securities owned at March 31, 2012 are corporate equities with estimated fair values of approximately $13.5 million ($13.2 million at December 31, 2011), which are related to deferred compensation liabilities to certain employees included in accrued compensation on the condensed consolidated balance sheet. As of March 31, 2012, the Company did not have any exposure to European sovereign debt.

Valuation Techniques

A description of the valuation techniques applied and inputs used in measuring the fair value of the Company’s financial instruments is as follows:

U.S. Treasury Obligations

U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers and, accordingly, are categorized in Level 1 in the fair value hierarchy.

U.S. Agency Obligations

U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable To-be-announced (“TBA”) security. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities and mortgage pass-through securities are generally categorized in Level 2 of the fair value hierarchy.

Sovereign Obligations

The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs. Sovereign obligations are categorized in Level 1 or 2 of the fair value hierarchy.

 

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Corporate Debt & Other Obligations

The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy.

Mortgage and Other Asset-Backed Securities

The Company holds non-agency securities collateralized by home equity and various other types of collateral which are valued based on external pricing and spread data provided by independent pricing services and are generally categorized in Level 2 of the fair value hierarchy. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds and, consequently, the positions are categorized in Level 3 of the fair value hierarchy.

Municipal Obligations

The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information. These obligations are generally categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the hierarchy.

Convertible Bonds

The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs. Convertible bonds are generally categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the hierarchy.

Corporate Equities

Equity securities and options are generally valued based on quoted prices from the exchange or market where traded and categorized as Level 1 in the fair value hierarchy. To the extent quoted prices are not available, prices are generally derived using bid/ask spreads, and these securities are generally categorized in Level 2 of the fair value hierarchy.

Other

In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General’s office (“NYAG”) and the Massachusetts Securities Division (“MSD” and, together with the NYAG, the “Regulators”) concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer’s marketing and sale of auction rate securities (“ARS”). Pursuant to those settlements and legal settlements, as of March 31, 2012, the Company purchased and holds approximately $83.1 million in ARS from its clients pursuant to several purchase offers and legal settlements. The Company’s purchases of ARS from its clients will continue on a periodic basis pursuant to the settlements with the Regulators. In addition, the Company is committed to purchase another $41.8 million in ARS from clients through 2016. The ultimate amount of ARS to be repurchased by the Company cannot be predicted with any certainty and will be impacted by redemptions by issuers and legal and other actions by clients during the relevant period, which cannot be predicted. In addition to the ARS held pursuant to purchases from clients of $83.1 million as of March 31, 2012 referred to above, the Company also held $150,000 in ARS in its proprietary trading account as of March 31, 2012 as a result of the failed auctions in February 2008. These ARS positions primarily represent Auction Rate Preferred Securities issued by closed-end funds and, to a lesser extent, Municipal Auction Rate Securities which are municipal bonds wrapped by municipal bond insurance and Student Loan Auction Rate Securities which are asset-backed securities backed by student loans.

 

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Interest rates on ARS typically reset through periodic auctions. Due to the auction mechanism and generally liquid markets, ARS have historically been categorized as Level 1 in the fair value hierarchy. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has used less observable determinants of the fair value of ARS, including the strength in the underlying credits, announced issuer redemptions, completed issuer redemptions, and announcements from issuers regarding their intentions with respect to their outstanding ARS. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Key inputs include spreads on comparable Treasury yields to derive a discount rate, an estimate of the ARS duration, and yields based on current auctions in comparable securities that have not failed. Additional information regarding the valuation technique and inputs used is as follows:

Expressed in thousands of dollars.

Expressed in thousands of dollars

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2012

 

            Valuation             Valuation    Unobservable     

Product

   Principal      Adjustment      Fair Value     

Technique

  

Input

  

Range

Auction Rate Securities(1)

   $ 124,881       $ 8,694       $ 116,187       Discounted Cash Flow    Discount Rate    1.14% to 3.01%
               Duration    5 to 8 Years
               Current Yield(2)    0.27% to 1.37%

Total

                 

 

(1) Includes ARS owned by the Company of $83.1 million and included in the condensed consolidated balance sheet at March 31, 2012 as well as additional commitments to purchase ARS from clients of $41.8 million which is disclosed in the notes to the condensed consolidated balance sheet at March 31, 2012.
(2) Based on current auctions in comparable securities that have not failed.

The fair value of ARS is particularly sensitive to movements in interest rates. Increases in short-term interest rates would increase the discount rate input used in the ARS valuation and thus reduce the fair value of the ARS (increase the valuation adjustment). Conversely, decreases in short-term interest rates would decrease the discount rate and thus increase the fair value of ARS (decrease the valuation adjustment). However, an increase (decrease) in the discount rate input would be partially mitigated by an increase (decrease) in the current yield earned on the underlying ARS asset increasing the cash flows and thus the fair value. Furthermore, movements in short term interest rates would likely impact the ARS duration (i.e., sensitivity of the price to a change in interest rates), which would also have a mitigating affect on interest rate movements. For example, as interest rates increase, issuers of ARS have an incentive to redeem outstanding securities as servicing the interest payments gets prohibitively expensive which would lower the duration assumption thereby increasing the ARS fair value. Alternatively, ARS issuers are less likely to redeem ARS in a lower interest rate environment as it is a relatively inexpensive source of financing which would increase the duration assumption thereby decreasing the ARS fair value.

 

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Due to the less observable nature of these inputs, the Company categorizes ARS in Level 3 of the fair value hierarchy. As of March 31, 2012, the Company had a valuation adjustment (unrealized loss) of $8.7 million for ARS.

Investments

In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment. Due to the illiquid nature of these investments and difficulties in obtaining observable inputs, these investments are included in Level 3 of the fair value hierarchy.

The following table provides information about the Company’s investments in Company-sponsored funds at March 31, 2012.

Expressed in thousands of dollars.

 

     Fair Value      Unfunded
Commit-
ments
    

Redemption

Frequency

  

Redemption
Notice Period

Hedge Funds(1)

   $ 1,134       $ —         Quarterly - Annually    30 - 120 Days

Private Equity Funds(2)

     3,215         1,320       N/A    N/A

Distressed Opportunities Investment Trust(3)

     7,645         —         N/A    N/A
  

 

 

    

 

 

       

Total

   $ 11,994       $ 1,320         
  

 

 

    

 

 

       

 

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and global natural resources.
(3) Special purpose vehicle that invests in distressed debt of U.S. companies.

Derivative Contracts

From time to time, the Company transacts in exchange-traded and over-the-counter derivative transactions to manage its interest rate risk. Exchange-traded derivatives, namely U.S. Treasury futures, Federal funds futures, and Eurodollar futures, are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Over-the-counter derivatives, namely interest rate swap and interest rate cap contracts, are valued using a discounted cash flow model and the Black-Scholes model, respectively, using observable interest rate inputs and are categorized in Level 2 of the fair value hierarchy.

As described below in “Credit Concentrations”, the Company participates in loan syndications and operates as underwriting agent in leveraged financing transactions where it utilizes a warehouse facility provided by Canadian Imperial Bank of Commerce (“CIBC”) to extend financing commitments to third-party borrowers identified by the Company. The Company uses broker quotations on loans trading in the secondary market as a proxy to determine the fair value of the underlying loan commitment which is categorized in Level 3 of the fair value hierarchy. The Company also purchases and sells loans in its proprietary trading book. The Company uses broker quotations to determine the fair value of loan positions held which are categorized in Level 2 of the fair value hierarchy.

 

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The Company from time to time enters into securities financing transactions that mature on the same date as the underlying collateral (referred to as “repo-to-maturity” transactions). Such transactions are treated as a sale of financial assets and a forward repurchase commitment, or conversely as a purchase of financial assets and a forward reverse repurchase commitment. The forward repurchase and reverse repurchase commitments are valued based on the spread between the market value of the government security and the underlying collateral and are categorized in Level 2 of the fair value hierarchy.

Fair Value Measurements

The Company’s assets and liabilities, recorded at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, have been categorized based upon the above fair value hierarchy as follows:

 

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Assets and liabilities measured at fair value on a recurring basis as of March 31, 2012

Expressed in thousands of dollars.

 

     Fair Value Measurement: Assets  
     As of March 31, 2012  
     Level 1      Level 2      Level 3      Total  

Cash equivalents

   $ 49,941       $ —         $ —         $ 49,941   

Cash and securities segregated for regulatory and other purposes

     11,499         —           —           11,499   

Deposits with clearing organizations

     9,094         —           —           9,094   

Securities owned:

           

U.S. Treasury securities

     633,384         —           —           633,384   

U.S. Agency securities

     9,002         35,334         —           44,336   

Sovereign obligations

     —           90         —           90   

Corporate debt and other obligations

     13,254         25,617         —           38,871   

Mortgage and other asset-backed securities

     —           3,315         98         3,413   

Municipal obligations

     —           40,646         11,789         52,435   

Convertible bonds

     —           54,601         —           54,601   

Corporate equities

     41,574         7,951         —           49,525   

Other

     2,938         —           66,831         69,769   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities owned, at fair value

     700,152         167,554         78,718         946,424   

Investments(1)

     910         37,332         13,132         51,374   

Derivative contracts

     —           1         —           1   

TBAs

     —           5,625         —           5,625   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 771,596       $ 210,512       $ 91,850       $ 1,073,958   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurement: Liabilities  
     As of March 31, 2012  
     Level 1      Level 2      Level 3      Total  

Securities sold, not yet purchased:

           

U.S. Treasury securities

   $ 39,979       $ —         $ —         $ 39,979   

U.S. Agency securities

     —           43         —           43   

Sovereign obligations

     —           —           —           —     

Corporate debt and other obligations

     —           4,439         —           4,439   

Mortgage and other asset-backed securities

     —           7         —           7   

Municipal obligations

     —           1,209         —           1,209   

Convertible bonds

     —           9,143         —           9,143   

Corporate equities

     17,119         18,405         —           35,524   

Other

     64         —           —           64   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities sold, not yet purchased at fair value

     57,162         33,246         —           90,408   

Investments

     38         —           —           38   

Derivative contracts

     278         155         3,907         4,340   

TBAs

     —           1,483         —           1,483   

Securities sold under agreements to repurchase(2)

     —           101,625         —           101,625   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57,478       $ 136,509       $ 3,907       $ 197,894   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Included in other assets on the condensed consolidated balance sheet.

(2) 

Includes securities sold under agreements to repurchase where the Company has elected fair value option treatment.

 

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Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011

Expressed in thousands of dollars.

 

     Fair Value Measurement: Assets  
     As of December 31, 2011  
     Level 1      Level 2      Level 3      Total  

Cash equivalents

   $ 30,924       $ —         $ —         $ 30,924   

Cash and securities segregated for regulatory and other purposes

     11,500         —           —           11,500   

Deposits with clearing organizations

     9,095         —           —           9,095   

Securities owned:

           

U.S. Treasury securities

     627,870         —           —           627,870   

U.S. Agency securities

     32,663         21,695         —           54,358   

Sovereign obligations

     —           577         —           577   

Corporate debt and other obligations

     12,538         14,650         —           27,188   

Mortgage and other asset-backed securities

     —           4,594         16         4,610   

Municipal obligations

     —           51,401         3,562         54,963   

Convertible bonds

     —           50,157         —           50,157   

Corporate equities

     29,150         9,484         —           38,634   

Other

     1,184         —           65,001         66,185   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities owned, at fair value

     703,405         152,558         68,579         924,542   

Investments(1)

     1,512         32,964         12,482         46,958   

Derivative contracts

     —           20         —           20   

TBAs

     —           5,791         —           5,791   

Securities purchased under agreements to resell

     —           847,610         —           847,610   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 756,436       $ 1,038,943       $ 81,061       $ 1,876,440   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurement: Liabilities  
     As of December 31, 2011  
     Level 1      Level 2      Level 3      Total  

Securities sold, not yet purchased:

           

U.S. Treasury securities

   $ 27,462       $ —         $ —         $ 27,462   

U.S. Agency securities

     —           47         —           47   

Sovereign obligations

     —           —           —           —     

Corporate debt and other obligations

     —           3,696         —           3,696   

Mortgage and other asset-backed securities

     —           14         —           14   

Municipal obligations

     —           485         —           485   

Convertible bonds

     —           8,533         —           8,533   

Corporate equities

     16,467         12,589         —           29,056   

Other

     72         —           50         122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities sold, not yet purchased at fair value

     44,001         25,364         50         69,415   

Investments

     26         —           —           26   

Derivative contracts

     66         8         2,347         2,421   

TBAs

     —           2,254         —           2,254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44,093       $ 27,626       $ 2,397       $ 74,116   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Included in other assets on the condensed consolidated balance sheet.

(2) 

Includes securities purchased under agreements to resell where the Company has elected fair value option treatment.

 

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There were no significant transfers between Level 1 and Level 2 assets and liabilities in the three months ended March 31, 2012.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2012 and 2011.

Expressed in thousands of dollars.

 

     For the Three-Month Period Ended March 31, 2012  
     Beginning
Balance
     Realized
Gains
(Losses)(4)
     Unrealized
Gains
(Losses)(4) (5)
    Purchases &
Issuances
    Sales &
Settlements
    Transfers
In / Out
     Ending
Balance
 

Assets:

                 

Mortgage and other asset-backed securities(1)

   $ 16         —           17        80        (15     —         $ 98   

Municipals

     3,562         —           (1,078     9,305        —          —           11,789   

Other(2)

     65,001         —           (1,499     10,300        (6,971     —           66,831   

Investments(3)

     12,482         —           515        124        —          11         13,132   

Liabilities:

                 

Mortgage and other asset-backed securities(1)

   $ —           —           —          —          —          —         $ —     

Other(2)

     50         —           —          (50     —          —           —     

Derivative contracts

     2,347         —           —          1,560        —          —           3,907   

 

(1)

Represents private placements of non-agency collateralized mortgage obligations.

(2)

Represents auction rate securities that failed in the auction rate market.

(3)

Primarily represents general partner ownership interests in hedge funds and private equity funds sponsored by the Company.

(4) 

Included in principal transactions on the condensed consolidated statement of operations, except for investments which are included in other income on the condensed consolidated statement of operations.

(5) 

Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

 

 

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Table of Contents

Expressed in thousands of dollars.

 

     For the Three-Month Period Ended March 31, 2011  
     Beginning
Balance
     Realized
Gains
(Losses)(4)
     Unrealized
Gains
(Losses)(4)(5)
    Purchases &
Issuances
     Sales &
Settlements
    Transfers
In / Out
    Ending
Balance
 

Assets:

                 

Mortgage and other asset-backed securities(1)

   $ 14         1         —          —           (15     —        $ —     

Municipals

     1,787         —           (147     525         —          —          2,165   

Other(2)

     35,909         —           (2,902     6,575         (3,000     —          36,582   

Investments(3)

     17,208         —           (3     127         —          (24     17,308   

Liabilities:

                 

Mortgage and other asset-backed securities(1)

   $ —           —           —          —           —          —        $ —     

Other(2)

     —           —           —          —           —          —          —     

Derivative contracts

     —           —           —          —           —          —          —     

 

(1)

Represents private placements of non-agency collateralized mortgage obligations.

(2) 

Represents auction rate securities that failed in the auction rate market.

(3) 

Primarily represents general partner ownership interests in hedge funds and private equity funds sponsored by the Company.

(4) 

Included in principal transactions on the condensed consolidated statement of operations, except for investments which are included in other income on the condensed consolidated statement of operations.

(5) 

Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

Fair Value Option

The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company may make a fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected to apply the fair value option to its loan trading portfolio which resides in OPY Credit Corp. and is included in other assets on the condensed consolidated balance sheet. Management has elected this treatment as it is consistent with the manner in which the business is managed as well as the way that financial instruments in other parts of the business are recorded. There were no loan positions held in the secondary loan trading portfolio at March 31, 2012 (none at December 31, 2011).

The Company also elected the fair value option for those securities sold under agreements to repurchase (“repurchase agreements”) and securities purchased under agreements to resell (“reverse repurchase agreements”) that do not settle overnight or have an open settlement date or that are not accounted for as purchase and sale agreements (such as repo-to-maturity transactions). The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At March 31, 2012, the fair value of the reverse repurchase agreements and repurchase agreements was $nil million and $101.6 million, respectively.

 

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Fair Value of Derivative Instruments

The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate risk and, to a lesser extent, foreign exchange risk. Interest rate swaps and interest rate caps are entered into to manage the Company’s interest rate risk associated with floating-rate borrowings. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet. The Company designates interest rate swaps and interest rate caps as cash flow hedges of floating-rate borrowings.

Cash flow hedges used for asset and liability management

For derivative instruments that were designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains or losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

On September 29, 2006, the Company entered into interest rate swap transactions to hedge the interest payments associated with its floating rate Senior Secured Credit Note, which was subject to change due to changes in 3-Month LIBOR. See note 7 for further information. These swaps were designated as cash flow hedges. Changes in the fair value of the swap hedges were expected to be highly effective in offsetting changes in the interest payments due to changes in 3-Month LIBOR. The swaps expired on March 31, 2011. For the three months ended March 31, 2011, the effective portion of the net gain on the interest rate swaps, after tax, was approximately $69,000 and was recorded as other comprehensive income on the condensed consolidated statement of comprehensive income (loss).

On January 20, 2009, the Company entered into an interest rate cap contract, incorporating a series of purchased caplets with fixed maturity dates ending December 31, 2012, to hedge the interest payments associated with its floating rate Subordinated Note, which was subject to change due to changes in 3-Month LIBOR. With the repayment of the Subordinated Note in the second quarter of 2011, this cap is no longer designated as a cash flow hedge. The Company recorded $19,200 in interest expense with respect to the interest rate cap for the three months ended March 31, 2012.

Foreign exchange hedges

From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekels. Such hedges have not been designated as accounting hedges. At March 31, 2012, the Company did not have any such hedges in place.

“To-be-announced” securities”

The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the “To-Be-Announced” or TBA market. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Unrealized gains and losses on TBAs are recorded in the condensed consolidated balance sheet in receivable from brokers and clearing organizations and payable to brokers and clearing organizations, respectively, and in the condensed consolidated statement of operations as principal transactions revenue.

 

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The TBA market for certain types of underlying collateral has recently experienced increased levels of transactions reaching their anticipated settlement dates where the government agency (Fannie Mae, Freddie Mac, or Ginnie Mae) has not issued pool allocations. Delays in the settlement of these trades increases risk of counterparty failure and resulting market exposures of having to cover the trades in the open market.

The following table summarizes the notional and fair values of the TBAs as of March 31, 2012 and December 31, 2011.

Expressed in thousands of dollars.

 

     March 31, 2012      December 31, 2011  
     Notional      Fair Value      Notional      Fair Value  

Sale of TBAs (1)

   $ 511,417       $ 5,625       $ 574,365       $ 5,791   

Purchase of TBAs

   $ 126,984       $ 1,483       $ 137,572       $ 2,254   

 

(1)

TBAs are used to offset exposures related to commitments to provide funding for FHA loans at OMHHF. At March 31, 2012, the loan commitments balance was $359.1 million ($326.7 million at December 31, 2011). In addition, at March 31, 2012, OMHHF had a loan receivable balance (included in other assets) of $25.4 million ($109.3 million at December 31, 2011) which relates to prior loan commitments that have been funded but have not yet been securitized. The “when issued” securitizations of these loans have been sold to market counter-parties.

Derivatives used for trading and investment purposes

Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions, and do not represent the amounts potentially subject to market risk. The futures contracts the Company used include U.S. Treasury notes, Federal Funds and Eurodollar contracts. At March 31, 2012, the Company had 200 open short contracts for 10-year U.S. Treasury notes with a fair value of $278.0 million used primarily as an economic hedge of interest rate risk associated with a portfolio of fixed income investments. At March 31, 2012, the Company had 7.3 billion open contracts for Federal Funds futures with a fair value of approximately $155.0 million used primarily as an economic hedge of interest rate risk associated with government trading activities.

From time-to-time, the Company enters into securities financing transactions that mature on the same date as the underlying collateral (referred to as “repo-to-maturity” transactions). These transactions are treated as a sale of financial assets and a forward repurchase commitment, or conversely as a purchase of financial assets and a forward reverse repurchase commitment. At March 31, 2012, the Company did not have any repo-to-maturity transactions outstanding.

 

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The notional amounts and fair values of the Company’s derivatives at March 31, 2012 and December 31, 2011 by product were as follows:

Expressed in thousands of dollars.

 

Fair Value of Derivative Instruments
As of March 31, 2012

 

     Description    Notional      Fair Value  

Assets:

  

Derivatives designated as hedging instruments (1)

  

Interest rate contracts

  

Cap (2)

   $ 100,000       $ 1   
     

 

 

    

 

 

 

Total Assets

      $ 100,000       $ 1   
     

 

 

    

 

 

 

Liabilities:

  

Derivatives not designated as hedging instruments (1)

  

Commodity contracts

  

U.S Treasury Futures (3)

   $ 20,000       $ 278   
  

Federal Funds Futures (3)

     7,255,000         155   

Other contracts

  

Auction rate securities purchase commitment (4)

     41,831         3,907   
     

 

 

    

 

 

 

Total Liabilities

      $ 7,316,831       $ 4,340   
     

 

 

    

 

 

 

 

(1) See “Fair Value of Derivative Instruments” below for description of derivative financial instruments.
(2) Included in receivable from brokers and clearing organizations on the condensed consolidated balance sheet.
(3) Included in payable from brokers and clearing organizations on the condensed consolidated balance sheet.
(4) Included in securities owned on the condensed consolidated balance sheet.

 

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Expressed in thousands of dollars.

 

Fair Value of Derivative Instruments

As of December 31, 2011

 

     Description    Notional      Fair Value  

Assets:

  

Derivatives designated as hedging instruments (1)

  

Interest rate contracts

  

Cap (2)

   $ 100,000       $ 20   
     

 

 

    

 

 

 

Total Assets

      $ 100,000       $ 20   
     

 

 

    

 

 

 

Liabilities:

  

Derivatives not designated as hedging instruments (1)

  

Commodity contracts

  

U.S Treasury Futures (3)

   $ 20,000       $ 66   
  

Federal Funds Futures (3)

     5,985,000         8   

Other contracts

  

Auction rate securities purchase commitment (4)

     57,292         2,347   
     

 

 

    

 

 

 

Total Liabilities

      $ 6,062,292       $ 2,421   
     

 

 

    

 

 

 

 

(1) See “Fair Value of Derivative Instruments” below for description of derivative financial instruments.
(2) Included in receivable from brokers and clearing organizations on the condensed consolidated balance sheet.
(3) Included in payable from brokers and clearing organizations on the condensed consolidated balance sheet.
(4) Included in securities owned on the condensed consolidated balance sheet.

 

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The following table presents the location and fair value amounts of the Company’s derivative instruments and their effect on the statement of operations for the year ended March 31, 2012.

Expressed in thousands of dollars.

 

    

Recognized in Income

on Derivatives

(pre-tax)

    Recognized in
Other
Comprehensive
Income on
Derivatives
-Effective
Portion (after–
tax)
    

Reclassified from
Accumulated Other
Comprehensive
Income into Income
-Effective Portion (2)

(after–tax)

 

Hedging Relationship

  

Description

  

Location

   Gain/
(Loss)
    Gain/
(Loss)
     Location    Gain/
(Loss)
 

Cash Flow Hedges used for asset and liability management:

          
   Caps (3)    N/A      (11     —         Interest
expense
     —     

Derivatives used for trading and investment (1):

          

Commodity contracts

   U.S Treasury Futures    Principal transaction revenue      257        —         None      —     
   Federal Funds Futures    Principal transaction revenue      188        —         None      —     

Other contracts

   Auction rate securities purchase commitment    Principal transaction revenue      (1,560     —         None      —     
        

 

 

   

 

 

       

 

 

 

Total

         $ (1,126   $ —            $ —     
        

 

 

   

 

 

       

 

 

 

 

(1) See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.
(2) There is no ineffective portion included in income for the period ended March 31, 2012.
(3) As noted above in “Cash flow hedges used for asset and liability management”, interest rate caps are used to hedge interest rate risk associated with the Subordinated Note. With the repayment of the Subordinated Note in the second quarter of 2011, this cap is no longer designated as a cash flow hedge.

 

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The following table presents the location and fair value amounts of the Company’s derivative instruments and their effect on the statement of operations for the year ended December 31, 2011.

Expressed in thousands of dollars.

 

    

Recognized in Income

on Derivatives

(pre-tax)

   

Recognized

in Other
Comprehensive
Income on
Derivatives
-Effective
Portion (after–
tax)

    

Reclassified from
Accumulated Other
Comprehensive
Income into Income
-Effective Portion (2)

(after–tax)

 

Hedging Relationship

  

Description

  

Location

   Gain/
(Loss)
    Gain/
(Loss)
     Location    Gain/
(Loss)
 

Cash Flow Hedges used for asset and liability management:

          

Interest rate contracts

   Swaps    N/A    $ —        $ —         Interest
expense
   $ (50
   Caps (3)    N/A      (1,964     —         Interest
expense
     (1,272

Derivatives used for trading and investment (1):

          

Commodity contracts

   U.S Treasury Futures    Principal transaction revenue      (3,594     —         None      —     
   Federal Funds Futures    Principal transaction revenue      (542     —         None      —     
   Euro-dollar Futures    Principal transaction revenue      (382     —         None      —     
   Euro FX    Principal transaction revenue      (131     —         None      —     

Other contracts

   Forward purchase commitment (4)    Principal transaction revenue      (1,147     —         None      —     
   Auction rate securities purchase commitment    Principal transaction revenue      406        —         None      —     
        

 

 

   

 

 

       

 

 

 

Total

         $ (7,354   $ —            $ (1,322
        

 

 

   

 

 

       

 

 

 

 

(1) See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.
(2) There is no ineffective portion included in income for the year ended December 31, 2011.
(3) As noted above in “Cash flow hedges used for asset and liability management”, interest rate caps are used to hedge interest rate risk associated with the Subordinated Note. With the repayment of the Subordinated Note in the second quarter of 2011, this cap is no longer designated as a cash flow hedge and, as a result, a loss of $1.3 million, net of tax, has been reclassified from other comprehensive income (loss) to other expenses on the condensed consolidated statement of operations.
(4) Forward commitment to repurchase government securities that received sale treatment related to “Repo-to-Maturity” transactions.

 

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Collateralized Transactions

The Company enters into collateralized borrowing and lending transactions in order to meet customers’ needs and earn residual interest rate spreads, obtain securities for settlement and finance trading inventory positions. Under these transactions, the Company either receives or provides collateral, including U.S. government and agency, asset-backed, corporate debt, equity, and non-U.S. government and agency securities.

The Company obtains short-term borrowings primarily through bank call loans. Bank call loans are generally payable on demand and bear interest at various rates but not exceeding the broker call rate. At March 31, 2012, bank call loans were $92.6 million ($27.5 million at December 31, 2011).

At March 31, 2012, the Company had collateralized loans, collateralized by firm and customer securities with market values of approximately $103.4 million and $198.1 million, respectively, primarily with two U.S. money center banks. At March 31, 2012, the Company had approximately $1.3 billion of customer securities under customer margin loans that are available to be pledged, of which the Company has repledged approximately $306.9 million under securities loan agreements.

At March 31, 2012, the Company had deposited $554.2 million of customer securities directly with the Options Clearing Corporation to secure obligations and margin requirements under option contracts written by customers.

At March 31, 2012, the Company had no outstanding letters of credit.

The Company finances its government trading operations through the use of repurchase agreements and reverse repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which the securities subsequently will be resold or reacquired as specified in the respective agreements and include accrued interest. Repurchase and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase and reverse repurchase agreements are executed with the same counterparty, have the same explicit settlement date, are executed in accordance with a master netting arrangement, the securities underlying the repurchase and reverse repurchase agreements exist in “book entry” form and certain other requirements are met.

Certain of the Company’s repurchase agreements and reverse repurchase agreements are carried at fair value as a result of the Company’s fair value option election. The Company elected the fair value option for those repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date or that are not accounted for as purchase and sale agreements (such as the repo-to-maturity transactions described above). The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential imbalance in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. At March 31, 2012, the fair value of the reverse repurchase agreements and repurchase agreements was $nil and $101.6 million, respectively.

At March 31, 2012, the gross balances of reverse repurchase agreements and repurchase agreements were $6.1 billion and $6.7 billion, respectively ($5.5 billion and $6.1 billion, respectively, at December 31, 2011).

 

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The Company receives collateral in connection with securities borrowed and reverse repurchase agreement transactions and customer margin loans. Under many agreements, the Company is permitted to sell or repledge the securities received (e.g., use the securities to enter into securities lending transactions, or deliver to counterparties to cover short positions). At March 31, 2012, the fair value of securities received as collateral under securities borrowed transactions and reverse repurchase agreements was $211.9 million ($209.9 million at December 31, 2011) and $6.1 billion ($5.5 billion at December 31, 2011), respectively, of which the Company has sold and re-pledged approximately $28.2 million ($44.0 million at December 31, 2011) under securities loaned transactions and $6.1 billion under repurchase agreements ($5.5 billion at December 31, 2011).

The Company pledges certain of its securities owned for securities lending and repurchase agreements and to collateralize bank call loan transactions. The carrying value of pledged securities owned that can be sold or re-pledged by the counterparty was $650.7 million, as presented on the face of the condensed consolidated balance sheet at March 31, 2012 ($653.7 million at December 31, 2011). The carrying value of securities owned by the Company that have been loaned or pledged to counterparties where those counterparties do not have the right to sell or re-pledge the collateral was $139.2 million as at March 31, 2012 ($119.8 million at December 31, 2011).

The Company manages credit exposure arising from repurchase and reverse repurchase agreements by, in appropriate circumstances, entering into master netting agreements and collateral arrangements with counterparties that provide the Company, in the event of a customer default, the right to liquidate and the right to offset a counterparty’s rights and obligations. The Company also 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.

As of December 31, 2011, the interest in securities formerly held by one of the Company’s funds which utilized Lehman Brothers International (Europe) as a prime broker was transferred to an investment trust. As of March 31, 2012, the fair value of the Company’s investment in the securities held by Lehman Brothers International (Europe) that were segregated and not re-hypothecated was $7.6 million. This investment has been included in the condensed consolidated financial statements of the Company.

Credit Concentrations

Credit concentrations may arise from trading, investing, underwriting and financing activities and may be impacted by changes in economic, industry or political factors. In the normal course of business, the Company may be exposed to risk in the event customers, counterparties including other brokers and dealers, issuers, banks, depositories or clearing organizations are unable to fulfill their contractual obligations. The Company seeks to mitigate these risks by actively monitoring exposures and obtaining collateral as deemed appropriate. Included in receivable from brokers and clearing organizations as of March 31, 2012 are receivables from two major U.S. broker-dealers totaling approximately $78.0 million.

 

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The Company participates in loan syndications through its debt capital markets business. Through OPY Credit Corp., the Company operates as underwriting agent in leveraged financing transactions where it utilizes a warehouse facility provided by CIBC to extend financing commitments to third-party borrowers identified by the Company. The Company has exposure, up to a maximum of 10%, of the excess underwriting commitment provided by CIBC over CIBC’s targeted loan retention (defined as “Excess Retention”). The Company quantifies its Excess Retention exposure by assigning a fair value to the underlying loan commitment provided by CIBC (in excess of what CIBC has agreed to retain) which is based on the fair value of the loans trading in the secondary market. To the extent that the fair value of the loans has decreased, the Company records an unrealized loss on the Excess Retention. Underwriting of loans pursuant to the warehouse facility is subject to joint credit approval by the Company and CIBC. As of March 31, 2012, the maximum aggregate principal amount of the warehouse facility was $1.5 billion, of which the Company utilized $65.4 million ($65.9 million as of December 31, 2011) and had $nil in Excess Retention ($nil as of December 31, 2011).

The Company is obligated to settle transactions with brokers and other financial institutions even if its clients fail to meet their obligations to the Company. Clients are required to complete their transactions on settlement date, generally one to three business days after trade date. If clients do not fulfill their contractual obligations, the Company may incur losses. The Company has clearing/participating arrangements with the National Securities Clearing Corporation (“NSCC”), the Fixed Income Clearing Corporation (“FICC”), R.J. O’Brien & Associates (commodities transactions) and others. With respect to its business in reverse repurchase and repurchase agreements, substantially all open contracts at March 31, 2012 are with the FICC. In addition, the Company recently began clearing its non-U.S. international equities business carried on by Oppenheimer Europe Ltd. through BNP Paribas Securities Services. The clearing corporations have the right to charge the Company for losses that result from a client’s failure to fulfill its contractual obligations. Accordingly, the Company has credit exposures with these clearing brokers. The clearing brokers can re-hypothecate the securities held on behalf of the Company. As the right to charge the Company has no maximum amount and applies to all trades executed through the clearing brokers, the Company believes there is no maximum amount assignable to this right. At March 31, 2012, the Company had recorded no liabilities with regard to this right. The Company’s policy is to monitor the credit standing of the clearing brokers and banks with which it conducts business.

Through its Debt Capital Markets business, the Company also participates, with other members of loan syndications, in providing financing commitments under revolving credit facilities in leveraged financing transactions. As of March 31, 2012, the Company had $4.7 million committed under such financing arrangements.

OMHHF, which is engaged in mortgage brokerage and servicing, has obtained an uncommitted warehouse facility line through PNC Bank (“PNC”) under which OMHHF pledges Federal Housing Administration (“FHA”) guaranteed mortgages for a period of up to 10 business days and PNC table funds the principal payment to the mortgagee. OMHHF repays PNC upon the securitization of the mortgage by the Government National Mortgage Association (“GNMA”) and the delivery of the security to the counter party for payment pursuant to a contemporaneous sale on the date the mortgage is funded. At March 31, 2012, OMHHF had $11.4 million outstanding under the warehouse facility line at a variable interest rate of 1 month LIBOR plus 2.75%. Interest expense for the three months ended March 31, 2012 was $347,700 ($372,100 for the three months ended March 31, 2011).

Variable Interest Entities (VIEs)

VIEs are entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests. The enterprise that is considered the primary beneficiary of a VIE consolidates the VIE.

 

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A subsidiary of the Company serves as general partner of hedge funds and private equity funds that were established for the purpose of providing investment alternatives to both its institutional and qualified retail clients. The Company holds variable interests in these funds as a result of its right to receive management and incentive fees. The Company’s investment in and additional capital commitments to these hedge funds and private equity funds are also considered variable interests. The Company’s additional capital commitments are subject to call at a later date and are limited in amount.

The Company assesses whether it is the primary beneficiary of the hedge funds and private equity funds in which it holds a variable interest in the context of the total general and limited partner interests held in these funds by all parties. In each instance, the Company has determined that it is not the primary beneficiary and therefore need not consolidate the hedge funds or private equity funds. The subsidiaries’ general partnership interests, additional capital commitments, and management fees receivable represent its maximum exposure to loss. The subsidiaries’ general partnership interests and management fees receivable are included in other assets on the condensed consolidated balance sheet.

The following tables set forth the total VIE assets, the carrying value of the subsidiaries’ variable interests, and the Company’s maximum exposure to loss in Company-sponsored non-consolidated VIEs in which the Company holds variable interests and other non-consolidated VIEs in which the Company holds variable interests at March 31, 2012 and December 31, 2011:

As of March 31, 2012

Expressed in thousands of dollars.

 

     Total
VIE Assets  (1)
     Carrying Value of the
Company’s Variable
Interest
     Capital
Commitments
     Maximum
Exposure

to  Loss in Non-
consolidated VIEs
 
      Assets (2)      Liabilities        

Hedge Funds

   $ 1,903,729       $ 328       $ —         $ —         $ 328   

Private Equity Funds

     140,707         27         —           13         40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,044,436       $ 355       $ —         $ 13       $ 368   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

As of December 31, 2011

Expressed in thousands of dollars.

 

     Total
VIE Assets  (1)
     Carrying Value of the
Company’s Variable
Interest
     Capital
Commitments
     Maximum
Exposure

to  Loss in Non-
consolidated VIEs
 
      Assets (2)      Liabilities        

Hedge Funds

   $ 1,668,508       $ 393       $ —         $ —         $ 393   

Private Equity Funds

     142,275         27         —           13         40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,810,783       $ 420       $ —         $ 13       $ 433   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents the total assets of the VIEs and does not represent the Company’s interests in the VIEs.
(2) Represents the Company’s interests in the VIEs and is included in other assets on the condensed consolidated balance sheet.

7. Long-term debt

Expressed in thousands of dollars.

 

Issued

   Maturity Date     March 31,
2012
     December 31,
2011
 

Senior Secured Notes (a)

     4/15/2018      $ 195,000       $ 195,000   

Senior Secured Credit Note (b)

     7/31/2013   $ —         $ —     

Subordinated Note (c)

     1/31/2014   $ —         $ —     

 

* Retired on April 12, 2011
(a)

On April 12, 2011, the Company completed the private placement of $200 million in aggregate principal amount of 8.75 percent Senior Secured Notes due April 15, 2018 at par (the “Notes”). The interest on the Notes is payable semi-annually on April 15th and October 15th. Proceeds from the private placement were used to retire the Senior Secured Credit Note due 2013 ($22.4 million) and the Subordinated Note due 2014 ($100 million) and for other general corporate purposes. The private placement resulted in the fixing of the interest rate over the term of the Notes compared to the variable rate debt that was retired and an extension of the debt maturity dates as described above. The cost to issue the Notes was approximately $4.6 million which was capitalized in the second quarter of 2011 and will be amortized over the period of the Notes. The Company wrote off $344,000 in unamortized debt issuance costs related to the Senior Secured Credit Note during the second quarter of 2011. Additionally, as a result of the retirement of the Subordinated Note, the effective portion of the net loss of $1.3 million related to the interest rate cap cash flow hedge was reclassified from accumulated other comprehensive income (loss) on the condensed consolidated balance sheet to interest expense in the condensed consolidated statement of operations during the second quarter of 2011.

 

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The indenture for the Notes contains covenants which place restrictions on the incurrence of indebtedness, the payment of dividends, sale of assets, mergers and acquisitions and the granting of liens. The Notes provide for events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. The Company’s obligations under the Notes are guaranteed, subject to certain limitations, by the same subsidiaries that guaranteed the obligations under the Senior Secured Credit Note and the Subordinated Note which were retired. These guarantees may be shared, on a senior basis, under certain circumstances, with newly incurred debt outstanding in the future. At March 31, 2012, the Company was in compliance with all of its covenants.

On July 12, 2011, the Company’s Registration Statement on Form S-4 filed to register the exchange of the Notes for fully registered Notes was declared effective by the SEC. The Exchange Offer was completed in its entirety on August 9, 2011.

In November, 2011, the Company repurchased $5.0 million of its Notes at a cost of $4.7 million resulting in the recording of a gain during the period of $300,000.

On April 4, 2012, the Company’s Registration Statement on Form S-3 filed to enable the Company to act as a market maker in connection with the Notes was declared effective by the SEC.

Interest expense on the Notes for the three months ended March 31, 2012 was $4.2 million. Interest is due on the Notes semi-annually on April 15 and October 15.

(b) In 2006, the Company issued a Senior Secured Credit Note in the amount of $125.0 million at a variable interest rate based on LIBOR with a seven-year term to a syndicate led by Morgan Stanley Senior Funding Inc., as agent. In accordance with the Senior Secured Credit Note, the Company provided certain covenants to the lenders with respect to the maintenance of a minimum fixed charge ratio and maximum leverage ratio and minimum net capital requirements with respect to Oppenheimer.

The remaining principal balance of the Senior Secured Credit Note in the amount of $22.4 million was repaid in full on April 12, 2011 in connection with the issuance of the Notes described in (a) above.

Interest expense, as well as interest paid, for the three months ended March 31, 2011 on the Senior Secured Credit Note was $270,600.

(c) On January 14, 2008, in connection with the acquisition of certain businesses from CIBC World Markets Corp., CIBC made a loan in the amount of $100 million and the Company issued a Subordinated Note to CIBC in the amount of $100 million at a variable interest rate based on LIBOR. The purpose of this Subordinated Note was to support the capital requirements of the acquired business. In accordance with the Subordinated Note, the Company provided certain covenants to CIBC with respect to the maintenance of a minimum fixed charge ratio and maximum leverage ratio and minimum net capital requirements with respect to Oppenheimer.

The principal balance of the Subordinated Note in the amount of $100 million was repaid in full on April 12, 2011 in connection with the issuance of the Notes described in (a) above.

Interest expense, as well as interest paid, for the three months ended March 31, 2011 on the Subordinated Note was $1.4 million.

 

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8. Share capital

The Company’s authorized share capital consists of (a) 50,000,000 shares of Preferred Stock, par value $0.001 per share; (b) 50,000,000 shares of Class A non-voting common stock, par value $0.001 per share (“Class A Stock”); and (c) 99,680 shares of Class B voting common stock, par value $0.001 per share (“Class B Stock”). No Preferred Stock has been issued. 99,680 shares of Class B Stock have been issued and are outstanding.

The Class A and the Class B Stock are equal in all respects except that the Class A Stock is non-voting.

The following table reflects changes in the number of shares of Class A Stock outstanding for the periods indicated:

 

     Three months ended March 31,  
     2012     2011  

Class A Stock outstanding, beginning of year

     13,572,265        13,268,522   

Issued pursuant to share-based compensation plans

     16,797        266,541   

Repurchased and cancelled pursuant to the stock buy-back

     (99,900     —     
  

 

 

   

 

 

 

Class A Stock outstanding, end of year

     13,489,162        13,535,063   
  

 

 

   

 

 

 

Stock buy-back

On October 7, 2011, the Company announced its intention to purchase up to 675,000 shares of its Class A Stock in compliance with the rules and regulations of the New York Stock Exchange and the Securities and Exchange Commission and the terms of its senior secured debt. The 675,000 shares represented approximately 5% of its then 13,572,265 issued and outstanding shares of Class A Stock. Any such purchases are being made by the Company in the open market at the prevailing open market price using cash on hand. All shares purchased will be cancelled. The repurchase program is expected to continue indefinitely. The repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of Class A Stock. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.

In the three months ended March 31, 2012, the Company purchased and cancelled 99,900 shares of Class A Stock for total consideration of $1.6 million ($15.52 per share).

 

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9. Regulatory requirements

The Company’s U.S. broker dealer subsidiaries, Oppenheimer and Freedom, are subject to the uniform net capital requirements of the SEC under Rule 15c3-1 (the “Rule”) promulgated under Securities Exchange Act of 1934, as amended (the “Exchange Act”). Oppenheimer computes its net capital requirements under the alternative method provided for in the Rule which requires that Oppenheimer maintain net capital equal to two percent of aggregate customer-related debit items, as defined in SEC Rule 15c3-3. At March 31, 2012, the net capital of Oppenheimer as calculated under the Rule was $159 million or 13% of Oppenheimer’s aggregate debit items. This was $134.7 million in excess of the minimum required net capital at that date. Freedom computes its net capital requirement under the basic method provided for in the Rule, which requires that Freedom maintain net capital equal to the greater of $250,000 or 6-2/3% of aggregate indebtedness, as defined. At March 31, 2012, Freedom had net capital of $4.9 million, which was $4.6 million in excess of the $250,000 required to be maintained at that date.

At March 31, 2012, Oppenheimer and Freedom had $16.8 million and $15.3 million, respectively, in cash and U.S. Treasury securities segregated under Federal and other regulations.

At March 31, 2012, the regulatory capital of Oppenheimer Europe Ltd. was $5.4 million which was $1.7 million in excess of the $3.7 million required to be maintained at that date. Oppenheimer Europe Ltd. computes its regulatory capital pursuant to the Fixed Overhead Method prescribed by the Financial Services Authority of the United Kingdom.

At March 31, 2012, the regulatory capital of Oppenheimer Investments Asia Ltd. was $1.1 million, which was $691,000 in excess of the $386,000 required to be maintained on that date. Oppenheimer Investments Asia Ltd. computes its regulatory capital pursuant to the requirements of the Securities and Futures Commission in Hong Kong.

In accordance with the SEC’s No-Action Letter dated November 3, 1998, the Company has computed a reserve requirement for the proprietary accounts of introducing firms as of March 31, 2012. The Company had no deposit requirements as of March 31, 2012.

10. Related party transactions

The Company does not make loans to its officers and directors except under normal commercial terms pursuant to client margin account agreements. These loans are fully collateralized by employee-owned securities.

11. Segment Information

The Company has determined its reportable segments based on the Company’s method of internal reporting, which disaggregates its retail business by branch and its proprietary and investment banking businesses by product. The Company’s segments are: Private Client which includes commission and fee income earned on client transactions, net interest earnings on client margin loans and cash balances, stock loan activities and financing activities; Capital Markets which includes investment banking, market-making activities in over-the-counter equities, institutional trading in both fixed income and equities, structured assets transactions, bond trading, trading in mortgage-backed securities, corporate underwriting activities, public finance activities, syndicate participation as well as the Company’s operations in the United Kingdom, Hong Kong, and Israel; and Asset Management which includes fees from money market funds and the investment management services of Oppenheimer Asset Management Inc. and Oppenheimer’s asset management divisions employing various programs to professionally manage client assets either in individual accounts or in funds. The Company evaluates the performance of its segments and allocates resources to them based upon profitability. The Company has allocated all revenue and expenses to its segments and has eliminated the “Other” category as these are now allocated by the Chief Executive Officer and Chief Financial Officer in their analysis. Previously reported segment information has been revised to reflect this change.

 

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The table below presents information about the reported revenue and profit (loss) before income taxes of the Company for the three months ended March 31, 2012 and 2011. Asset information by reportable segment is not reported, since the Company does not produce such information for internal use.

Expressed in thousands of dollars.

 

     Three months ended March 31,  
     2012     2011  

Revenue:

    

Private Client (1)

   $ 137,306      $ 147,065   

Capital Markets

     78,950        88,087   

Asset Management (1)

     21,958        18,265   
  

 

 

   

 

 

 

Total

   $ 238,214      $ 253,417   
  

 

 

   

 

 

 

Profit (loss) before income taxes:

    

Private Client (1)

   $ 1,371      $ 3,398   

Capital Markets

     (14,279     1,365   

Asset Management (1)

     6,419        5,066   
  

 

 

   

 

 

 

Total

   $ (6,489   $ 9,829   
  

 

 

   

 

 

 

 

(1) Asset management revenue is allocated 22.5% to the Asset Management segment and 77.5% to the Private Client segment.

Revenue, classified by the major geographic areas in which it was earned for the three months ended March 31, 2012 and 2011, was as follows:

Expressed in thousands of dollars.

 

     Three months ended March 31,  
     2012      2011  

United States

   $ 225,635       $ 239,290   

Europe / Middle East

     8,277         8,234   

Asia

     1,826         3,139   

South America

     2,476         2,754   
  

 

 

    

 

 

 

Total

   $ 238,214       $ 253,417   
  

 

 

    

 

 

 

 

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12. Subsequent events

On April 25, 2012, the Company announced a cash dividend of $0.11 per share (totaling $1.5 million) payable on May 25, 2012 to Class A and Class B Stockholders of record on May 11, 2012.

13. Supplemental Guarantor Consolidated Financial Statements (unaudited)

The Company’s Notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by E.A. Viner International Co. and Viner Finance Inc. (together, the “Guarantors”), unless released as described below. Each of the Guarantors is 100% owned by the Company. The following consolidating financial statements present the financial position, results of operations and cash flows of the Company (referred to as “Parent” for purposes of this note only), the Guarantor subsidiaries, the Non-Guarantor subsidiaries and elimination entries necessary to consolidate the Company. Investments in subsidiaries are accounted for using the equity method for purposes of the consolidated presentation.

Each Guarantor will be automatically and unconditionally released and discharged upon: the sale, exchange or transfer of the capital stock of a Guarantor and the Guarantor ceases to be a direct or indirect subsidiary of the Company if such sale does not constitute an asset sale under the indenture for the Notes or does not constitute an asset sale effected in compliance with the asset sale and merger covenants of the debenture for the Notes; a Guarantor being dissolved or liquidated; a Guarantor being designated unrestricted in compliance with the applicable provisions of the Notes; or the exercise by the Company of its legal defeasance option or covenant defeasance option or the discharge of the Company’s obligations under the indenture for the Notes in accordance with the terms of such indenture.

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATING BALANCE SHEET (unaudited)

AS OF MARCH 31, 2012

 

Expressed in thousands of dollars.

   Parent     Guarantor
subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

          

Cash and cash equivalents

   $ 667      $ 32,200      $ 53,943      $ —        $ 86,810   

Cash and securities segregated for regulatory and other purposes

     —          —          32,369        —          32,369   

Deposits with clearing organizations

     —          —          56,137        —          56,137   

Receivable from brokers and clearing organizations

     —          —          341,230        —          341,230   

Receivable from customers, net of allowance for credit losses of $2,716

     —          —          872,020        —          872,020   

Income taxes receivable

     8,661        28,821        (702     (34,053     2,727   

Securities purchased under agreements to resell

     —          —          489        —          489   

Securities owned, including amounts pledged of $102,501, at fair value

     —          18,554        927,870        —          946,424   

Subordinated loan receivable

     —          112,558        —          (112,558     —     

Notes receivable, net

     —          —          53,586        —          53,586   

Office facilities, net

     —          —          25,319        —          25,319   

Deferred tax asset

     (96     309        26,955        (27,168     —     

Intangible assets, net

     —          —          32,377        —          32,377   

Goodwill

     —          —          137,889        —          137,889   

Other

     3,992        1,090        157,011          162,093   

Investment in subsidiaries

     494,497        885,173        (196,929     (1,182,741     —     

Intercompany receivables

     198,951        (145,881     (16,455     (36,615     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 706,672      $ 932,824      $ 2,503,109      $ (1,393,135   $ 2,749,470   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Liabilities

          

Drafts payable

   $ —        $ —        $ 41,192      $ —        $ 41,192   

Bank call loans

     —          —          92,600        —          92,600   

Payable to brokers and clearing organizations

     —          —          374,068        —          374,068   

Payable to customers

     —          —          543,793        —          543,793   

Securities sold under agreements to repurchase

     —          —          647,793        —          647,793   

Securities sold, but not yet purchased, at fair value

     —          —          90,408        —          90,408   

Accrued compensation

     —          —          93,088        —          93,088   

Accounts payable and other liabilities

     8,172        6,919        138,462        152        153,705   

Income taxes payable

     2,440        22,189        9,424        (34,053     —     

Senior secured note

     195,000        —          —          —          195,000   

Subordinated indebtedness

     —          —          112,558        (112,558     —     

Deferred income tax, net

     —          (2,741     33,545        (27,168     3,636   

Excess of fair value of acquired assets over cost

     —          —          7,020        —          7,020   

Intercompany payables

     —          36,606        —          (36,606     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     205,612        62,973        2,183,951        (210,233     2,242,303   

Stockholders’ equity attributable to

          

Oppenheimer Holdings Inc.

     501,060        869,851        313,051        (1,182,902     501,060   

Noncontrolling interest

     —          —          6,107        —          6,107   

Stockholders’ equity

     501,060        869,851        319,158        (1,182,902     507,167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 706,672      $ 932,824      $ 2,503,109      $ (1,393,135   $ 2,749,470   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATING BALANCE SHEET (unaudited)

AS OF DECEMBER 31, 2011

 

           Guarantor     Non-Guarantor              

Expressed in thousands of dollars.

   Parent     subsidiaries     Subsidiaries     Eliminations     Consolidated  

ASSETS

          

Cash and cash equivalents

   $ 2,555      $ 11,882      $ 55,892      $ —        $ 70,329   

Cash and securities segregated for regulatory and other purposes

     —          —          30,086        —          30,086   

Deposits with clearing organizations

     —          —          35,816        —          35,816   

Receivable from brokers and clearing organizations

     —          20        288,093          288,113   

Receivable from customers, net of allowance for credit losses of $2,716

     —          —          837,822        —          837,822   

Income taxes receivable

     6,785        30,942        (702     (30,282     6,743   

Securities purchased under agreements to resell

     —          —          847,688        —          847,688   

Securities owned, including amounts pledged of $102,501, at fair value

     —          17,811        906,730        —          924,541   

Subordinated loan receivable

     —          112,558        —          (112,558     —     

Notes receivable, net

     —          —          54,044        —          54,044   

Office facilities, net

     —          —          16,976        —          16,976   

Deferred tax asset

     (50     309        21,130        (21,389     —     

Intangible assets, net

     —          —          35,589        —          35,589   

Goodwill

     —          —          137,889        —          137,889   

Other

     4,055        1,533        236,215          241,803   

Investment in subsidiaries

     496,512        896,819        (199,063     (1,194,268     —     

Intercompany receivables

     199,387        (128,746     (33,506     (37,135     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 709,244      $ 943,128      $ 3,270,699      $ (1,395,632   $ 3,527,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Liabilities

          

Drafts payable

   $ —        $ —        $ 51,848      $ —        $ 51,848   

Bank call loans

     —          —          27,500        —          27,500   

Payable to brokers and clearing organizations

     —          —          335,610        —          335,610   

Payable to customers

     —          —          479,896        —          479,896   

Securities sold under agreements to repurchase

     —          —          1,508,493        —          1,508,493   

Securities sold, but not yet purchased, at fair value

     —          —          69,415        —          69,415   

Accrued compensation

     —          —          144,283        —          144,283   

Accounts payable and other liabilities

     3,734        6,915        174,318        (298     184,669   

Income taxes payable

     2,440        22,189        5,653        (30,282     —     

Senior secured note

     195,000        —          —          —          195,000   

Subordinated indebtedness

     —          —          112,558        (112,558     —     

Deferred income tax, net

     —          (1,855     33,546        (21,389     10,302   

Excess of fair value of acquired assets over cost

     —          —          7,020        —          7,020   

Intercompany payables

     —          37,126        —          (37,126     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     201,174        64,375        2,950,140        (201,653     3,014,036   

Stockholders’ equity attributable to

          

Oppenheimer Holdings Inc.

     508,070        878,753        315,226        (1,193,979     508,070   

Noncontrolling interest

     —          —          5,333        —          5,333   

Stockholders’ equity

     508,070        878,753        320,559        (1,193,979     513,403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 709,244      $ 943,128      $ 3,270,699      $ (1,395,632   $ 3,527,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited)

FOR THE TWELVE MONTHS ENDED MARCH 31, 2012

 

Expressed in thousands of dollars.

   Parent     Guarantor
subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

REVENUE

          

Commissions

   $ —        $ —        $ 125,634      $ —        $ 125,634   

Principal transactions, net

     —          488        12,067        —          12,555   

Interest

     —          3,097        12,996        (2,700     13,393   

Investment banking

     —          —          20,087        —          20,087   

Advisory fees

     —          —          50,714        (637     50,077   

Other

     —          —          16,468        —          16,468   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          3,585        237,966        (3,337     238,214   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

          

Compensation and related expenses

     128        —          158,523        —          158,651   

Clearing and exchange fees

     —          —          6,031        —          6,031   

Communications and technology

     —          —          16,138        —          16,138   

Occupancy and equipment costs

     —          (42     24,386        —          24,344   

Interest

     4,374        66        7,052        (2,700     8,792   

Other

     343        18        31,023        (637     30,747   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     4,845        42        243,153        (3,337     244,703   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income taxes

     (4,845     3,543        (5,187     —          (6,489

Income tax provision (benefit)

     (1,832     1,233        (2,007     —          (2,606

Net profit (loss) for the period

     (3,013     2,310        (3,180     —          (3,883

Less net profit attributable to non-controlling interest, net of tax

     —          —          (774     —          (774

Equity in subsidiaries

     (1,644     —          —          1,644        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss) attributable to Oppenheimer Holdings Inc.

   $ (4,657   $ 2,310      $ (3,954   $ 1,644      $ (4,657
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 2      $ —        $ (368   $ —        $ (366
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

OPPENHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2011

 

Expressed in thousands of dollars.

   Parent     Guarantor
subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

REVENUE

           

Commissions

   $ —        $ —         $ 136,855      $ —        $ 136,855   

Principal transactions, net

     —          —           10,991        —          10,991   

Interest

     —          1,748         14,789        (1,748     14,789   

Investment banking

     —          —           28,441        —          28,441   

Advisory fees

     —          —           49,032        (583     48,449   

Other

     —          —           13,892        —          13,892   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     —          1,748         254,000        (2,331     253,417   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

EXPENSES

           

Compensation and related expenses

     104        —           170,311        —          170,415   

Clearing and exchange fees

     —          —           6,313        —          6,313   

Communications and technology

     14        —           15,925        —          15,939   

Occupancy and equipment costs

     —          —           18,546        —          18,546   

Interest

     —          1,503         8,019        (1,748     7,774   

Other

     214        181         24,789        (583     24,601   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     332        1,684         243,903        (2,331     243,588   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Profit (loss) before income taxes

     (332     64         10,097        —          9,829   

Income tax provision (benefit)

     (134     54         4,148        —          4,068   

Net profit (loss) for the period

     (198     10         5,949        —          5,761   

Less net profit attributable to non-controlling interest, net of tax

     —          —           (675     —          (675

Equity in subsidiaries

     5,284        —           —          (5,284     —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net profit (loss) attributable to Oppenheimer Holdings Inc.

   $ 5,086      $ 10       $ 5,274      $ (5,284   $ 5,086   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (1   $ 72       $ 240      $ —        $ 311   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

41


Table of Contents

OPPNEHEIMER HOLDINGS INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012

 

Expressed in thousands of dollars

   Parent     Guarantor
subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Cash flows from operations:

            

Net income (loss) for the period

   $ (3,013   $ 2,310       $ (3,180   $ —         $ (3,883

Adjustments to reconcile net profit (loss) to net cash used in operating activities:

            

Depreciation and amortization

     —          —           2,845        —           2,845   

Deferred income tax

     —          —           (6,666     —           (6,666

Amortization of notes receivable

     —          —           4,870        —           4,870   

Amortization of debt issuance costs

     —          —           99        —           99   

Amortization of intangible assets

     —          —           3,212        —           3,212   

Provision for credit losses

     —          —           178        —           178   

Share-based compensation expense

     —          —           1,259        —           1,259   

Changes in operating assets and liabilities

     4,130        18,008         (64,955     —           (42,817
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow provided by (used in) continuing operations

     1,117        20,318         (62,338     —           (40,903
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flows from Investment activities

            

Purchase of office facilities

     —          —           (4,711     —           (4,711
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash used in investing activities

     —          —           (4,711     —           (4,711
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flows from financing activities

            

Cash dividends paid on Class A non-voting and Class B voting common stock

     (1,495     —           —          —           (1,495

Issuance of Class A non-voting common stock

     —          —           —          —           —     

Repurchase of Class A non-voting common stock

     (1,551     —           —          —           (1,551

Debt Issuance Cost

     —          —           —          —           —     

Issuance of senior secured note

     —          —           —          —           —     

Buy back of senior secured note

     —          —           —          —           —     

Repayments of senior secured credit note

     —          —           —          —           —     

Repayments of senior secured credit note

     —          —           —          —           —     

Other financing activities

     41        —           65,100        —           65,141   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow provided by (used in) financing activities

     (3,005     —           65,100        —           62,095   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (1,888     20,318         (1,949     —           16,481   

Cash and cash equivalents, beginning of the period

     2,555        11,882         55,892        —           70,329   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of the period

   $ 667      $ 32,200       $ 53,943      $ —         $ 86,810