Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto which appear elsewhere in this annual report.
The Company engages in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, trust services and investment advisory and asset management services. Its principal subsidiaries are Oppenheimer & Co. Inc. ("Oppenheimer") and Oppenheimer Asset Management Inc. ("OAM"). As of
December 31, 2017
, the Company provided its services from
92
offices in 24 states located throughout the United States, offices in Tel Aviv, Israel, Hong Kong, China, London, England, St. Helier, Isle of Jersey and Geneva, Switzerland. Client assets administered by the Company as of
December 31, 2017
total
$86.9 billion
. The Company provides investment advisory services through OAM and Oppenheimer Investment Management LLC ("OIM") and Oppenheimer's Fahnestock Asset Management, Alpha and OMEGA Group divisions. At
December 31, 2017
, client assets under management totaled
$28.3 billion
. The Company provides trust services and products through Oppenheimer Trust Company of Delaware. The Company provides discount brokerage services through Freedom Investments, Inc. ("Freedom"). Through OPY Credit Corp., the Company offers syndication as well as trading of issued syndicated corporate loans. At
December 31, 2017
, the Company employed
2,992
employees (
2,932
full-time and
60
part-time), of whom
1,107
were financial advisers.
Critical Accounting Policies
The Company's accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements. The significant accounting policies used in the preparation of the Company's consolidated financial statements are summarized in note 2 to those statements. Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain. The following is a discussion of these policies:
Fair Value Measurements
The accounting guidance for the fair value measurement of financial assets, which defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures. Fair value, as defined by the accounting guidance, is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority):
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Level 1:
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Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
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Level 2:
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Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
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Level 3:
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Unobservable inputs that are significant to the overall fair value measurement.
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The Company's financial instruments that are recorded at fair value generally are classified within Level 1 or Level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers. Financial instruments classified within Level 1 are valued based on quoted market prices in active markets and consist of U.S. Treasury and Agency securities, corporate equities, and certain money market instruments. Level 2 financial instruments primarily consist of investment grade and high-yield corporate debt, convertible bonds, mortgage and asset-backed securities, and municipal obligations. Financial instruments classified as Level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active. Some financial instruments are classified within Level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability. Such financial instruments include investments in hedge funds and private equity funds where the Company, through its subsidiaries, is general partner, certain distressed municipal securities, and auction rate securities.
Legal and Regulatory Reserves
The Company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities. The determination of the amounts of these reserves requires significant judgment on the part of management. In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the Company can reasonably estimate the amount of that loss. When loss contingencies are not probable and cannot be reasonably estimated, the Company does not establish reserves.
When determining whether to record a reserve, management considers many factors including, but not limited to, the amount of the claim; the stage and forum of the proceeding, the sophistication of the claimant, the amount of the loss, if any, in the client's account and the possibility of wrongdoing, if any, on the part of an employee of the Company; the basis and validity of the claim; previous results in similar cases; and applicable legal precedents and case law. Each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management. Any change in the reserve amount is recorded in the results of that period. The assumptions of management in determining the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount.
Goodwill
The Company defines a reporting unit as an operating segment. The Company's goodwill resides in its Private Client Division ("PCD") reporting unit. Goodwill of a reporting unit is subject to at least an annual test for impairment to determine if the estimated fair value of a reporting unit is less than its carrying amount. Goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Due to the volatility in the financial services sector and equity markets in general, determining whether an impairment of goodwill has occurred is increasingly difficult and requires management to exercise significant judgment. The Company's annual goodwill impairment analysis performed at
December 31, 2017
applied the same valuation methodologies with consistent inputs as that performed at
December 31, 2016
, as follows:
In estimating the fair value of the PCD reporting unit, the Company uses traditional standard valuation methods, including the market comparable approach and income approach. The market comparable approach is based on comparisons of the subject company to public companies whose stocks are actively traded ("Price Multiples") or to similar companies engaged in an actual merger or acquisition ("Precedent Transactions"). As part of this process, multiples of value relative to financial variables, such as earnings or stockholders' equity, are developed and applied to the appropriate financial variables of the subject company to indicate its value. The income approach involves estimating the present value of the subject company's future cash flows by using projections of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return ("Discounted Cash Flow" or "DCF"). Each of these standard valuation methodologies requires the use of management estimates and assumptions.
In its Price Multiples valuation analysis, the Company uses various operating metrics of comparable companies, including revenues, after-tax earnings, EBITDA as well as price-to-book value ratios at a point in time. The Company analyzes prices paid in Precedent Transactions that are comparable to the business conducted in the PCD. The DCF analysis includes the Company's assumptions regarding discount rate, growth rates of the PCD's revenues, expenses, EBITDA, and capital expenditures, adjusted for current economic conditions and expectations. The Company weighs each of the three valuation methods equally in its overall valuation. Given the subjectivity involved in selecting which valuation method to use, the corresponding weightings, and the input variables for use in the analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of the PCD reporting unit.
At each annual goodwill impairment testing date, the PCD reporting unit had a fair value that was substantially in excess of its carrying value. See note 17 to the consolidated financial statements appearing in Item 8 for further discussion.
Intangible Assets
Indefinite intangible assets are comprised of trademarks and trade names. Trademarks and trade names, carried at
$31.7 million
, which are not amortized, are subject to at least an annual test for impairment to determine if the estimated fair value is less than their carrying amount. The fair value of the trademarks and trade names was substantially in excess of its carrying value at
December 31, 2017
. See note 17 to the consolidated financial statements appearing in Item 8 for further discussion.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations.
The Company records uncertain tax positions in accordance with the FASB Accounting Standards Codification ("ASC") 740, "Income Taxes" on the basis of a two-step process whereby it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and, for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively, in its consolidated statement of operations.
The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if such earnings were repatriated.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and complex changes to the U.S. tax code. On the same date, the SEC staff issued Staff Accounting Bulletin ("SAB") 118 which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
The Company has not completed its accounting for the income tax effects of certain elements of the TCJA. However, the Company was able to make reasonable estimates of the effects of certain elements and recorded a provisional estimate in the consolidated financial statements. The estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the Company's current interpretations of the TCJA, and may change as it receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time. See note 13, Income taxes.
New Accounting Pronouncements
Recently issued accounting pronouncements are described in note 2 to the consolidated financial statements appearing in Item 8.
Business Environment
The securities industry is directly affected by general economic and market conditions, including fluctuations in volume and price levels of securities and changes in interest rates, inflation, political events, investor confidence, investor participation levels, legal and regulatory, accounting, tax and compliance requirements and competition, all of which have an impact on commissions, firm trading, fees from accounts under investment management as well as fees for investment banking services, and investment and interest income as well as on liquidity. Substantial fluctuations can occur in revenue and net income due to these and other factors.
The Company is focused on growing its private client and asset management businesses through strategic additions of experienced financial advisers in its existing branch system and employment of experienced money management personnel in its asset management business. In addition, the Company is committed to the improvement of its technology capability to support client service and the expansion of its capital markets capabilities while addressing the issue of managing its expenses.
Corporate Tax Reform
On December 22, 2017, the TCJA was enacted. The TCJA will significantly impact the manner in which we determine our federal income tax and may have unforeseen consequences. The TCJA is the first major overhaul of U.S. corporate taxation in almost 20 years with both positive and negative impacts on our business. The positive impacts include reducing the federal corporate income tax rate from 35% to 21% and accelerating the recovery period of the Company’s fixed assets. These positive impacts are offset by new tax provisions intended to expand the federal tax base by disallowing certain expenses that were previously deductible (i.e. 50% of entertainment expenses, deductions for certain senior management compensation, etc.). It is difficult to determine the overall impact on our business, but it appears that the Company will have a net savings in its federal income tax liability. Changes in taxation on non-U.S earned income may impact our operation of those businesses and our employment practices may need to change in view of the new law.
Regulatory and Legal Environment
The brokerage business is subject to regulation by, among others, the SEC, CFTC, NFA, MSRB and FINRA in the United States, the FCA in the United Kingdom, the JFSC in the Isle of Jersey, the SFC in Hong Kong, and various state securities regulators in the United States. In addition, Oppenheimer Israel (OPCO) Ltd. operates under the supervision of the Israeli Securities Authority. Past events surrounding corporate accounting and other activities leading to investor losses resulted in the enactment of the Sarbanes-Oxley Act of 2002 and caused increased regulation of public companies. The financial crisis of 2008-9 accelerated this trend. New regulations and new interpretations and enforcement of existing regulations have created increased costs of compliance and increased investment in systems and procedures to comply with these more complex and onerous requirements. The SEC and FINRA have increased their enforcement activities with the intent to bring more actions against firms and individuals with increased fines and sanctions for violations of existing rules as well as for conduct that stems from violations of new interpretations of existing rules. Various states are imposing their own regulations that make compliance more difficult and more expensive to monitor.
In July 2010, Congress enacted extensive legislation entitled the Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") in which it mandated that the SEC and other regulators conduct comprehensive studies and issue new regulations based on their findings to control the activities of financial institutions in order to protect the financial system, the investing public and consumers from issues and failures that occurred in the 2008-9 financial crisis. This effort has extensively impacted the regulation and practices of financial institutions including the Company. The changes have significantly reduced leverage available to financial institutions and increased transparency to regulators and investors of risks taken by such institutions. New rules have been adopted to regulate and/or prohibit proprietary trading for certain deposit taking institutions, control the amount and timing of compensation to "highly paid" employees, create new regulations around financial transactions with retirement plans due to the adoption of a uniform fiduciary standard of care of broker-dealers and investment advisers providing personalized investment advice about securities to such plans and increased the disclosures provided to clients. Some European jurisdictions have created a tax on securities transactions. The Consumer Financial Protection Bureau has stated its intention to implement new rules affecting the interaction between financial institutions and consumers. Other rules may be enacted which may impact the Company. Recent announcements make it appear increasingly likely that the rules surrounding financial institutions may change in the U.S., including changes to the Dodd-Frank Act.
In April 2016, the U.S. Department of Labor ("DOL") finalized its definition of fiduciary under the Employee Retirement Income Security Act through the release of new rules and changes to interpretations of six prohibited transaction exemptions which together set a new standard for the treatment and effects of advice given to retirement investors. Under this new rule, investment advice given to an employee benefit plan or an individual retirement account ("IRA") is considered fiduciary advice. As a result, financial service providers and advisers who provide investment advice will be required to meet "conflict of interest" standards which is likely to limit commission-based compensation in favor of fee-based compensation plans. The rules will also in all likelihood discourage the transfer of retirement assets from 401(k) and similar plans as well as pension plans to rollover IRA plans sponsored by financial service providers.
The DOL rules provide for a Best Interest Contract ("BIC") exemption, which would, under certain circumstances, allow advisers to continue to receive commissions under a contract with a retirement investor. However, there is no exemption available for sophisticated investors and a financial institution's failure to maintain and comply with the required anti-conflict of interest rules will result in a loss of the relief afforded by the BIC exemption and potential legal and regulatory sanctions. The Company presently expects to continue to offer commission-based activity to retirement accounts.
The new fiduciary standard definitions for investment advice were effective on June 9, 2016 with an applicable date for compliance that was originally scheduled for April 10, 2017. On April 7, 2017, the DOL delayed compliance with the new rule until June 9, 2017. The rules became applicable on that date. Full compliance with the BIC and other exemptions was initially delayed until January 1, 2018 and then further delayed until July 1, 2019.
Some forms of compensation traditionally associated with the recruiting of financial advisers and the ability of financial advisers to have clients transfer their IRA and retirement accounts have been impacted by the DOL Rules. Under the new rules, fiduciaries are subject to personal liability for losses resulting from a breach of their duties. The fiduciary rule also has implications for long term incentive programs designed to reward financial advisers for increasing their business and their assets under management and administration. The Company has reviewed its business and operating models in light of these new rules as they have brought significant structural and operational changes to the Company and are likely to have an impact on revenues derived from retirement accounts and the desirability of servicing such accounts except when they are participating in fixed fee based programs. The SEC has announced its intention to adopt a fiduciary standard and accompanying rules for securities accounts. Various sections of the Dodd-Frank Act and DOL rules are currently under review by the Trump administration. These rules may be subject to proposed changes and/or elimination.
Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (the "Volcker Rule") was published by the U.S. Federal Reserve Board as required by the Dodd-Frank Act in 2011. The Volcker Rule is intended to restrict U.S. banks and other financial institutions that accept deposits from conducting proprietary trading activities, as well as investing in hedge funds and private equity funds for their own account. The intent of the Volcker Rule is to reduce risk to the capital of such institutions through reducing speculation and risk-taking with bank capital. The Volcker Rule became effective on July 21, 2015. The U.S. Treasury Department has proposed that it will announce changes to the requirements of the Volcker Rule. No details on proposed changes have been issued. The Company believes that the Volcker Rule will not directly affect its operations, but indirect effects cannot be predicted with any certainty. Additionally, the Federal Reserve in conjunction with other U.S. regulatory organizations has analyzed the U.S. financial system and the impact that might result from the failure of one or more "Strategically Important Financial Institutions" ("SIFI"). To date, less than 50 such institutions have been identified and will be made subject to special regulations including the requirement to create a plan for their orderly demise in the event of a failure. Oppenheimer has not been identified as a SIFI. There can be no assurance that this list will not grow to include more SIFI institutions. The Company has no reason to believe that it will be identified as a SIFI. But, this requirement may have broader implications for the capital markets as capital becomes less available in various markets and markets become increasingly volatile.
The adoption of rules under Basel II have resulted in a number of large international banks adopting new business models which have included the abandonment of a variety of securities related businesses deemed to present excessive risks and requiring substantial capital that was not justified by the related returns. In addition, the European Commission recently adopted several acts under the revised Markets in Financial Instruments Directive (known as "MiFID II") that would prevent broker-dealers from "bundling" the cost of research together with trading commissions. These rules became effective on January 3, 2018. The long term effects of these changes on the markets and on competition are impossible to predict. MiFID II is already having an impact on the manner in which business is being conducted in the United Kingdom and in Europe. The ability to be compensated for equity research activities has been reduced and institutional clients are required to make payments for research through cash payments rather than transaction based commissions.
In June 2016, in a referendum to consider the United Kingdom's continued participation in the European Common Market ("EC"), the United Kingdom voted in favor of withdrawing from the EC ("Brexit"). The British government instituted Rule 50 on March 30, 2017 thereby beginning a two-year period during which Great Britain will define its status effective with its departure from the EC. Brexit has created significant uncertainty in both the United Kingdom and in the other member states around its economic impact and the operating requirements for businesses located in the United Kingdom after the effective date which has led to fluctuations in the value of the British Pound based on news surrounding Brexit. The Company has a London-based business and the ability for it to passport its employees into the EU, post-Brexit is in considerable doubt. In addition, a number of its London-based employees do not hold British passports and their continued employment in London is also in doubt. Given the lack of clarity on the ultimate impact of the Brexit vote, the Company cannot determine what, if any, impact this change may make on its operations, both inside and outside the United Kingdom.
The rules and requirements that were created by the passage of the Patriot Act and the anti-money laundering regulations (AML) in the U.S. and similar laws in other countries that are related, have created significant costs of compliance and can be expected to continue to do so. FinCEN ("Financial Crimes Enforcement Network") has heightened their review of activities of broker-dealers where heretofore their focus had been on commercial banks. This increased focus is likely to lead to significantly higher levels of enforcement and higher fines and penalties on broker-dealers. Regulators have expanded their views of the requirements of the Patriot Act, as well as their views of the enforcement of the provisions of the Bank Secrecy Act and the Foreign Corrupt Practices Act with respect to the amount of diligence and on-going monitoring required by financial institutions of both their foreign and domestic clients and their activities. As a result, the Company has significantly increased its AML staffing, made additional investments in its due diligence systems, upgraded its monitoring systems and significantly revised its AML policies and procedures. In May 2016, FinCEN's proposed rule on customer due diligence was finalized with an effective date of May 11, 2018. FINRA has recently announced the expansion of the AML regulations to include the collection and analysis of other types of client activity.
The Trump Administration has announced its intention to ease the regulatory burden on businesses. There can be no assurance that such easing will in fact take place or that it will have a favorable impact on financial service providers such as the Company.
Pursuant to FINRA Rule 3130, the chief executive officers ("CEOs") of regulated broker-dealers (including the CEO of Oppenheimer) are required to certify that their companies have processes in place to establish and test supervisory policies and procedures reasonably designed to achieve compliance with federal securities laws and regulations, including applicable regulations of self-regulatory organizations. The CEO of the Company is required to make such a certification on an annual basis and did so in March 2017.
In September 2015, FINRA released Regulatory Notice 15-33 which provides guidance on effective liquidity risk management strategies. Based on the guidelines, broker-dealers are expected to rigorously evaluate their liquidity needs related to both market wide stress and idiosyncratic stresses, devote sufficient resources to measuring risks applicable to its business and report the results of measurement to senior management. This includes a review of whether those risks might be based on historical events that have affected the firm or other firms and stresses that could occur but have not yet been observed. Additionally, based on the guidelines, every broker-dealer needs to consider developing contingency plans for addressing those risks so that the firm will have sufficient liquidity to operate after the stress occurs while continuing to protect all customer assets, conduct stress tests and other reviews to evaluate the effectiveness of the contingency plans, have a training plan for its staff and have tested the processes on which it intends to rely if such stresses occur. The Company has reviewed these guidelines and has enhanced its liquidity risk management practices to better align with the guidance provided in Regulatory Notice 15-33.
On January 8, 2018, FINRA released for comment Regulatory Notice 18-02 "Liquidity Reporting and Notification" which would require member firms to notify FINRA no more than 48 hours after specified events that may signal an adverse change in liquidity risk. This notice would also require members to file a new Supplemental Liquidity Schedule ("SLS") detailing the largest customer and counterparty exposures as a supplement to the FOCUS Report. On the new SLS, member firms would report information related to specified financing transactions and other sources or uses of liquidity. The information would include among other things financing term, collateral types and large counterparties.
Other Regulatory Matters
On January 27, 2015, the SEC approved an Offer of Settlement from Oppenheimer and issued an Order Instituting Administrative and Cease and Desist Proceedings (the "SEC Order"). Pursuant to the SEC Order, Oppenheimer was ordered to (i) cease and desist from committing or causing any violations of the relevant provisions of the federal securities laws; (ii) be censured; (iii) pay to the SEC
$10.0 million
comprised of
$4.2 million
in disgorgement,
$753,500
in prejudgment interest and
$5.1 million
in civil penalties; and (iv) retain an independent consultant to review Oppenheimer's policies and procedures relating to anti-money laundering and Section 5 of the Securities Act of 1933.
Pursuant to the SEC Order, Oppenheimer made a payment of
$5.0 million
to the SEC on February 17, 2015 and made a second payment of
$5.0 million
to the SEC on January 26, 2017.
On February 19, 2015, the board of directors formed a Special Committee in order to engage an independent law firm to conduct a review of Oppenheimer and OAM's broker-dealer and investment adviser compliance processes and related internal controls and governance processes and provide recommendations to the Special Committee. On February 19, 2015, the Special Committee agreed to engage an independent law firm to conduct the aforementioned review. On April 22, 2015, the Special Committee agreed to retain Kalorama Partners, LLC ("Kalorama") to act as the independent law firm. In July 2015, the Company created a Compliance Committee made up of independent directors to oversee the Company's compliance with applicable rules and regulations. In May 2017, the Board approved the assumption of the duties of the Special Committee by the Compliance Committee and the dissolution of the Special Committee. As part of its engagement of Kalorama, the Company agreed that the recommendations of Kalorama would be shared with the SEC. Moreover, Oppenheimer and OAM agreed to adopt the recommendations made by Kalorama for the FINRA IC and Additional IC Reports discussed below, subject to a process for any recommendations found by the Company to be impractical or overly burdensome.
In August 2015, Kalorama delivered a report as a result of a settlement reached by Oppenheimer with FINRA in a matter unrelated to the SEC matter discussed above (the "FINRA IC Report"). The FINRA IC Report was critical of the Company's governance practices, its management and its compliance program at the time of the review in 2015. The Company adopted and has implemented all of the recommendations made by Kalorama except for several technology projects that the Company expects to complete in the near future. The Company believes the changes made were responsive to the criticisms and recommendations made by Kalorama.
On December 15, 2016, the Company's agreement with Kalorama expired by its terms, and as of the current date has not been renewed, although Kalorama had not yet delivered the reports required by the SEC. In May and June 2017, Kalorama delivered five additional reports. Two of those reports were rendered in connection with the January 2015 SEC Order, while another report was rendered in connection with Oppenheimer's 2015 settlement with the SEC in connection with the SEC's Municipalities Continuing Disclosure Cooperation ("MCDC", collectively the "Required Reports") initiative and two additional reports not arising out of any regulatory order (the "Additional IC Reports"). Each of the reports has been reviewed by the Company, including the Compliance Committee. The Required Reports and the Additional IC Reports repeat a number of the criticisms regarding the Company's governance practices, its management and its compliance programs and include a substantial number of recommendations, a number of which appear in the FINRA IC Report. The Company believes it has already adopted and implemented a significant number of the recommendations made in the Required Reports and the Additional IC Reports and expects that it will adopt and implement most of the remaining recommendations. However, there can be no assurances that the Company will be able to implement all of the recommendations as set forth in the Required Reports and Additional IC Reports and, to the extent the Company does not implement or provide a satisfactory alternative method of implementation, the Company may be exposed to further SEC or other regulatory enforcement action. Furthermore, implementation of the remaining recommendations included in the Required Reports and Additional IC Reports or any recommendations made in any additional reports may be costly and time consuming, may divert management's attention from operating the Company's business and may have an adverse effect on the Company. The Company has incurred a significant amount of expenses in connection with the preparation of the FINRA IC Report, the Required Reports and the Additional IC Reports and may continue to incur additional expenses related thereto.
Since August 2014, Oppenheimer has been responding to information requests from the SEC regarding the supervision of one of its former financial advisers who was indicted by the United States Attorney's Office for the District of New Jersey in March 2014 on allegations of insider trading. A number of Oppenheimer employees have provided on-the-record testimony in connection with the SEC inquiry. Oppenheimer is continuing to cooperate with the SEC inquiry.
Since September 2016, Oppenheimer has been responding to information requests from FINRA regarding the supervision of Oppenheimer’s sale of unit investment trusts from 2011 to 2015. The inquiry is part of a larger targeted examination or "sweep" examination involving many other brokerage firms. Oppenheimer is continuing to cooperate with the FINRA inquiry.
For a number of years, the Company offered auction rate securities ("ARS") to its clients. A significant portion of the market in ARS 'failed' because, in the tight credit market in and subsequent to 2008, dealers were no longer willing or able to purchase the imbalance between supply and demand for ARS. These securities have auctions scheduled on either a 7, 28 or 35 day cycle. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Certain clients of the Company continue to hold ARS in their individual or corporate accounts.
Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula defined in their registration statements.
The Company has sought financing from a number of sources, with limited success, in order to try to find a means for all its clients to find liquidity from their ARS holdings. It seems likely that liquidity will ultimately come from issuer redemptions and tender offers which, to date, combined with purchases by the Company have reduced client holdings by approximately 97%. There can be no assurance that the Company will be successful in finding a liquidity solution for all its clients' ARS. See "Risk Factors — The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" appearing in Item 1A and "Factors Affecting 'Forward-Looking Statements'" herein.
In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of
December 31, 2017
, the Company purchased and holds (net of redemptions) approximately
$113.9 million
in ARS from its clients. As of
December 31, 2017
, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. In addition, the Company is committed to purchase another
$11.0 million
from clients through
2020
under legal settlements and awards.
The ARS positions that the Company owns and is committed to purchase 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.
The Company's clients held at Oppenheimer approximately
$49.7 million
of ARS at
December 31, 2017
exclusive of amounts that 1) were owned by Qualified Institutional Buyers ("QIBs"), 2) were transferred to the Company after February 2008, 3) were purchased by clients after February 2008, or 4) were transferred from the Company to other securities firms after February 2008. See "Off-Balance Sheet Arrangements" herein for additional details.
Other Matters
The Company operates in all state jurisdictions in the United States and is thus subject to regulation and enforcement under the laws and regulations of each of these jurisdictions. The Company has been and expects that it will continue to be subject to investigations and some or all of these may result in enforcement proceedings as a result of its business conducted in the various states. In particular, many states have become more aggressive and have imposed larger fines in connection with state registration violations than was heretofore the case.
As part of its ongoing business, the Company records reserves for legal expenses, judgments, fines and/or awards attributable to litigation and regulatory matters. In connection therewith, the Company has maintained its legal reserves at levels it believes will resolve outstanding matters, but may increase or decrease such reserves as matters warrant. In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, the Company does not establish reserves. See "Legal Proceedings" in Item 3 and note 15 to the consolidated financial statements appearing in Item 8.
Business Continuity
The Company is committed to an on-going investment in its technology and communications infrastructure including extensive business continuity planning and investment. These costs are on-going and the Company believes that current and future costs will exceed historic levels due to business and regulatory requirements. The Company maintains a data center which is housed in a location different from its headquarters. The move to new headquarters in 2012 required additional outlays for business continuity purposes although considerable savings have begun to be realized by the availability of independent electric generating capacity for the entire building which will support the Company's infrastructure and occupancy. The Company continues to review the adequacy of its remote data center and anticipates that, over the next few years, it may make a determination to move the center to a more remote location than where it currently resides. There is no guarantee that in the event of a significant business disruption that the Company's business continuity plans will be successful in restoring operations in a timely manner.
Cybersecurity
The Company has been focused for many years on the issues of maintaining the security of its clients' data, access to its data processing environment, and its data processing facilities. See "Risk Factors
—
The Company may be exposed to damage to its business or its reputation by cybersecurity incidents" in Item 1A. Recent examples of vulnerabilities by other companies and the government which have resulted in loss of client data and fraudulent activities by both domestic and foreign actors have caused the Company to continually review its security policies and procedures and to take additional actions to protect its network and its information.
Given the importance of protection of client data, regulators have developed increased oversight of cybersecurity planning and protections which have been put in place by broker-dealers and other financial service providers. Such planning and protection are subject to oversight and examination on a periodic or targeted basis by the SEC and FINRA. Such oversight is expected to intensify, given recent data breaches by other organizations that have been announced involving tens of millions of individuals' personally identifiable information. The Company continues to adopt procedures to address the risks posed by the current environment. The Company has significantly increased the resources dedicated to this effort and believes that further increases will be required in the future, as the sophistication and persistency of such attacks increase.
Outlook
The Company recognizes the increased focus on compliance with the regulatory requirements of our industry, and we must continue to perform a rigorous and ongoing assessment of our compliance and risk management efforts, invest in people and programs, all while continuing to provide a platform with first class investment ideas and services. The Company is committed to continuing to improve its technology capabilities to ensure compliance with industry regulations, support client service and expand its wealth management and capital markets capabilities. The Company's long-term growth plan is to continue to expand existing offices by hiring experienced professionals as well as expand through the purchase of operating branch offices from other broker-dealers or the opening of new branch offices in attractive locations, and to continue to develop the existing trading, investment banking, investment advisory and other divisions.
The Company is also reviewing its full service business model to determine the opportunities available for closely related business models in areas where competitors have shown some success. Equally important is the search for viable acquisition candidates. As opportunities are presented, it is the long-term intention of the Company to pursue growth by acquisition where a comfortable match can be found in terms of corporate goals and personnel at a price that would provide the Company's stockholders with incremental value. The Company may review potential acquisition opportunities and will continue to focus its attention on the management of its existing business and has disposed and may continue, from time to time, to dispose of businesses that are no longer strategic to its business operations or which have limited opportunities for growth. In June 2017, the Company refinanced its outstanding indebtedness and may under some circumstances utilize a portion of the money raised in excess of the pay-down of its previous bond issue for the acquisition of related businesses.
Results of Operations
The Company reported net income attributable to Oppenheimer Holdings Inc. of
$22.8 million
or
$1.72
basic net income per share for the year ended
December 31, 2017
compared with a net loss of
$1.2 million
or
$0.09
basic net loss per share for the year ended
December 31, 2016
. Income before income taxes from continuing operations for the year ended
December 31, 2017
was
$19.7 million
compared with a loss before income taxes from continuing operations of
$21.9 million
for the year ended
December 31, 2016
. Net income from discontinued operations was
$1.1 million
for the year ended
December 31, 2017
compared with net income from discontinued operations of
$10.1 million
for the year ended
December 31, 2016
. Revenue from continuing operations for the year ended
December 31, 2017
was
$920.3 million
, an increase of
7.3
% compared with revenue from continuing operations of
$857.8 million
for the year ended
December 31, 2016
. Revenue from discontinued operations for the year ended
December 31, 2017
was
$2.2 million
compared with revenue from discontinued operations of
$25.3 million
for the year ended
December 31, 2016
.
The following table sets forth the amount and percentage of the Company's revenue from each principal source for each of the following years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
Commissions
|
$
|
336,620
|
|
|
37
|
%
|
|
$
|
377,317
|
|
|
44
|
%
|
|
$
|
417,559
|
|
|
47
|
%
|
Advisory fees
|
320,746
|
|
|
35
|
%
|
|
269,119
|
|
|
31
|
%
|
|
280,247
|
|
|
31
|
%
|
Investment banking
|
78,215
|
|
|
8
|
%
|
|
81,011
|
|
|
10
|
%
|
|
102,540
|
|
|
11
|
%
|
Interest
|
48,498
|
|
|
5
|
%
|
|
47,649
|
|
|
6
|
%
|
|
49,032
|
|
|
5
|
%
|
Principal transactions, net
|
23,273
|
|
|
3
|
%
|
|
20,481
|
|
|
2
|
%
|
|
15,180
|
|
|
2
|
%
|
Other
|
112,986
|
|
|
12
|
%
|
|
62,202
|
|
|
7
|
%
|
|
33,243
|
|
|
4
|
%
|
Total revenue
|
$
|
920,338
|
|
|
100
|
%
|
|
$
|
857,779
|
|
|
100
|
%
|
|
$
|
897,801
|
|
|
100
|
%
|
The Company derives most of its revenue from the operations of its principal subsidiaries, Oppenheimer and OAM. Although maintained as separate entities, the operations of the Company's brokerage subsidiaries both in the U.S. and other countries are closely related because Oppenheimer acts as clearing broker in transactions initiated by these subsidiaries.
The following table and discussion summarizes the changes in the major revenue and expense categories for the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
2017 versus 2016
|
|
2016 versus 2015
|
|
Amount Change
|
|
% Change
|
|
Amount Change
|
|
% Change
|
Revenue
|
|
|
|
|
|
|
|
Commissions
|
$
|
(40,697
|
)
|
|
(10.8
|
)
|
|
$
|
(40,242
|
)
|
|
(9.6
|
)
|
Advisory fees
|
51,627
|
|
|
19.2
|
|
|
(11,128
|
)
|
|
(4.0
|
)
|
Investment banking
|
(2,796
|
)
|
|
(3.5
|
)
|
|
(21,529
|
)
|
|
(21.0
|
)
|
Interest
|
849
|
|
|
1.8
|
|
|
(1,383
|
)
|
|
(2.8
|
)
|
Principal transactions, net
|
2,792
|
|
|
13.6
|
|
|
5,301
|
|
|
34.9
|
|
Other
|
50,784
|
|
|
81.6
|
|
|
28,959
|
|
|
87.1
|
|
Total revenue
|
62,559
|
|
|
7.3
|
|
|
(40,022
|
)
|
|
(4.5
|
)
|
Expenses
|
|
|
|
|
|
|
|
Compensation and related expenses
|
17,428
|
|
|
3.0
|
|
|
(26,110
|
)
|
|
(4.3
|
)
|
Communications and technology
|
1,588
|
|
|
2.3
|
|
|
3,841
|
|
|
5.8
|
|
Occupancy and equipment costs
|
373
|
|
|
0.6
|
|
|
(2,051
|
)
|
|
(3.3
|
)
|
Clearing and exchange fees
|
(1,581
|
)
|
|
(6.3
|
)
|
|
(896
|
)
|
|
(3.4
|
)
|
Interest
|
8,917
|
|
|
45.9
|
|
|
3,108
|
|
|
19.0
|
|
Other
|
(5,794
|
)
|
|
(4.9
|
)
|
|
1,550
|
|
|
1.3
|
|
Total expenses
|
20,931
|
|
|
2.4
|
|
|
(20,558
|
)
|
|
(2.3
|
)
|
Income (loss) before income taxes from continuing operations
|
41,628
|
|
|
*
|
|
|
(19,464
|
)
|
|
801.6
|
|
Income taxes
|
10,128
|
|
|
(82.6
|
)
|
|
(12,668
|
)
|
|
*
|
|
Net income (loss) from continuing operations
|
31,500
|
|
|
*
|
|
|
(6,796
|
)
|
|
239.8
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
Income from discontinued operations
|
(15,268
|
)
|
|
(88.1
|
)
|
|
8,200
|
|
|
89.7
|
|
Income taxes
|
(6,277
|
)
|
|
(87.0
|
)
|
|
3,811
|
|
|
111.9
|
|
Net income from discontinued operations
|
(8,991
|
)
|
|
(88.8
|
)
|
|
4,389
|
|
|
76.6
|
|
|
|
|
|
|
|
|
|
Net income
|
22,509
|
|
|
*
|
|
|
(2,407
|
)
|
|
(83.1
|
)
|
Less net income attributable to noncontrolling interest, net of tax
|
(1,468
|
)
|
|
(88.9
|
)
|
|
716
|
|
|
76.5
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
$
|
23,977
|
|
|
*
|
|
|
$
|
(3,123
|
)
|
|
*
|
|
* Percentage not meaningful.
Fiscal
2017
compared to Fiscal
2016
Revenue
Commission revenue was
$336.6 million
for the year ended
December 31, 2017
, a decrease of
10.8%
compared with
$377.3 million
for the year ended
December 31, 2016
due to reduced transaction volumes from retail and institutional investors as well as lower financial adviser headcount during the
2017
year.
Advisory fees were
$320.7 million
for the year ended
December 31, 2017
, an increase of
19.2%
compared with
$269.1 million
for the year ended
December 31, 2016
due to increases in advisory fees on traditional managed products and incentive fees on alternative managed products.
Investment banking revenue was
$78.2 million
for the year ended
December 31, 2017
, a decrease of
3.5%
compared with
$81.0 million
for the year ended
December 31, 2016
due to lower fees from mergers and acquisition activity and debt capital market transactions partially offset by higher fees from equities underwriting transactions during the
2017
year.
Interest revenue was
$48.5 million
for the year ended
December 31, 2017
, an increase of
1.8%
compared with
$47.6 million
in
2016
.
Principal transactions revenue was
$23.3 million
for the year ended
December 31, 2017
, an increase of
13.6%
compared with
$20.5 million
for the year ended
December 31, 2016
due primarily to increases in the valuation of firm investments during the
2017
year.
Other revenue was
$113.0 million
for the year ended
December 31, 2017
, an increase of
81.6%
compared to
$62.2 million
for the year ended December 31,
2016
due to higher fees earned on client deposits in the FDIC-insured bank deposit program, positive changes in the cash surrender value of Company-owned life insurance and a favorable arbitration award during the
2017
year.
Expenses
Compensation and related expenses (including salaries, production and incentive compensation, share-based compensation, deferred compensation, and other benefit-related items) totaled
$602.1 million
during the year ended
December 31, 2017
, an increase of
3.0%
compared with the year ended
December 31, 2016
. The increase was due to higher producer, incentive, share-based, and deferred compensation expenses partially offset by lower salary and healthcare expenses during the year ended
December 31, 2017
. Compensation and related expenses as a percentage of revenue was
65.4%
during the year ended
December 31, 2017
compared with
68.2%
during the year ended
December 31, 2016
.
Non-compensation expenses were
$298.5 million
during the year ended
December 31, 2017
, an increase of
1.2%
compared with
$295.0 million
during the year ended
December 31, 2016
due primarily to higher interest costs and the charge of $6.4 million associated with the settlement with the Israeli VAT Authority in the first quarter of 2017 partially offset by lower legal and regulatory costs during the year ended
December 31, 2017
.
The effective income tax rate from continuing operations for the year ended
December 31, 2017
was
10.8%
(benefit) compared with
56.0%
(benefit) for the year ended
December 31, 2016
. The effective income tax rate for the year ended
December 31, 2017
was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of $9.0 million in the fourth quarter of 2017. The effective income tax rate for the year ended
December 31, 2016
was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance partially offset by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary.
Fiscal
2016
compared to Fiscal
2015
Revenue
Commission revenue was
$377.3 million
for the year ended December 31, 2016, a decrease of
9.6%
compared with
$417.6 million
for the year ended December 31, 2015 due to reduced transaction volumes from retail and institutional investors as well as lower financial adviser headcount during the 2016 year.
Advisory fees were
$269.1 million
for the year ended December 31, 2016, a decrease of
4.0%
compared with
$280.2 million
for the year ended December 31, 2015 due to decreases in advisory and incentive fees on traditional and alternative managed products.
Investment banking revenue was
$81.0 million
for the year ended December 31, 2016, a decrease of
21.0%
compared with
$102.5 million
for the year ended December 31, 2015 due to lower fees from equities underwriting transactions during the 2016 year.
Interest revenue was
$47.6 million
for the year ended December 31, 2016, a decrease of
2.8%
compared with
$49.0 million
in 2015.
Principal transactions revenue was
$20.5 million
for the year ended December 31, 2016, an increase of
34.9%
compared with
$15.2 million
for the year ended December 31, 2015 due primarily to higher trading profits in equities and fixed income during the 2016 year.
Other revenue was
$62.2 million
for the year ended December 31, 2016, an increase of
87.1%
compared to
$33.2 million
for the year ended December 31, 2015 due to increases in interest earned on FDIC-insured bank deposits, cash surrender value of Company-owned life insurance and nontaxable benefits received with respect to Company-owned life insurance during the 2016 year.
Expenses
Compensation and related expenses (including salaries, production and incentive compensation, share-based compensation, deferred compensation, and other benefit-related items) totaled
$584.7 million
during the year ended December 31, 2016, a decrease of
4.3%
compared with the year ended December 31, 2015. The decrease was due to lower salaries, production and incentive compensation expenses partially offset by higher share-based and deferred compensation expenses during the year ended December 31, 2016. Compensation and related expenses as a percentage of revenue was
68.2%
during the year ended December 31, 2016 compared with
68.0%
during the year ended December 31, 2015, reflecting the inelasticity of some forms of compensation spread over a lower revenue base for the year ended December 31, 2016.
Non-compensation expenses were
$295.0 million
during the year ended December 31, 2016, an increase of
1.9%
compared with
$289.4 million
during the year ended December 31, 2015 due primarily to elevated legal and compliance costs and increased communications and technology expenses during the year ended December 31, 2016.
The effective income tax rate from continuing operations for the year ended December 31, 2016 was
56.0%
(benefit) compared with
16.7%
for the year ended December 31, 2015. The effective income tax rate for the year ended December 31, 2016 was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance partially offset by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary. The effective income tax rate for the year ended December 31, 2015 was negatively impacted by increases in provisions related to positions taken on state income tax returns as well as income tax provision to tax return true-ups that were recorded during the year.
The table below presents information about the reported revenue and income (loss) before income taxes from continuing operations of the Company's reportable business segments for the years ended December 31,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2017
|
|
2016
|
|
% Change
|
Revenue
|
|
|
|
|
|
Private Client
|
$
|
592,753
|
|
|
$
|
504,192
|
|
|
17.6
|
|
Asset Management
|
89,896
|
|
|
92,852
|
|
|
(3.2
|
)
|
Capital Markets
|
231,632
|
|
|
254,933
|
|
|
(9.1
|
)
|
Corporate/Other
|
6,057
|
|
|
5,802
|
|
|
4.4
|
|
|
920,338
|
|
|
857,779
|
|
|
7.3
|
|
Income (Loss) before income taxes
|
|
|
|
|
|
Private Client
|
128,840
|
|
|
66,072
|
|
|
95.0
|
|
Asset Management
|
26,685
|
|
|
31,412
|
|
|
(15.0
|
)
|
Capital Markets
|
(39,978
|
)
|
|
(17,713
|
)
|
|
125.7
|
|
Corporate/Other
|
(95,811
|
)
|
|
(101,663
|
)
|
|
(5.8
|
)
|
|
$
|
19,736
|
|
|
$
|
(21,892
|
)
|
|
(190.2
|
)
|
Private Client
Private Client reported revenue of
$592.8 million
for the year ended December 31,
2017
,
17.6%
higher than the year ended December 31,
2016
due to higher management and incentive fees, fees earned on the FDIC-insured bank deposit program, and margin interest as well as the increase in the cash surrender value of Company-owned life insurance partially offset by lower commissions during the year ended December 31,
2017
. Income before income taxes was
$128.8 million
for the year ended December 31,
2017
, an increase of
95.0%
compared with the year ended December 31,
2016
due to the foregoing partially offset by increases in share-based and deferred compensation expenses during the year ended December 31,
2017
.
|
|
•
|
Retail commissions were $203.2 million for the year ended December 31, 2017, a decrease of 8.0% from the year ended December 31, 2016.
|
|
|
•
|
Advisory fee revenue on traditional and alternative managed products was $232.2 million for the year ended December 31, 2017, an increase of 28.3% from the year ended December 31, 2016. The increase in advisory fees was due to the increase in the value of AUM, a change in the allocation of advisory fees between the Private Client and Asset Management segments, effective January 1, 2017, which resulted in an increase of $22.2 million in revenue, and an increase in incentive fees generated from hedge funds.
|
|
|
•
|
Fees earned on client cash deposits in the FDIC-insured bank deposit program were $76.7 million for the year ended December 31, 2017 versus $36.4 million for the year ended December 31, 2016. The increase was due primarily to higher short-term interest rates during the year ended December 31, 2017.
|
Asset Management
Asset Management reported revenue of
$89.9 million
for the year ended December 31,
2017
,
3.2%
lower than the year ended December 31,
2016
due to the change in the allocation of advisory fees between the Private Client and Asset Management segments which became effective January 1, 2017 partially offset by higher management and incentive fees. Income before income taxes was
$26.7 million
for the year ended December 31,
2017
, a decrease of
15.0%
compared with the year ended December 31,
2016
.
|
|
•
|
Advisory fee revenue on traditional and alternative managed products was $88.3 million for the year ended December 31, 2017, relatively flat compared with the year ended December 31, 2016 due to the increase in the value of AUM and incentive fees generated from the hedge funds offset by the change in the allocation of advisory fees between the Private Client and Asset Management segments, effective January 1, 2017, which resulted in a decrease of $22.2 million in revenue in the Asset Management segment.
|
|
|
•
|
AUM increased 14.1% to
$28.3 billion
at December 31, 2017, compared with
$24.8 billion
at December 31, 2016, which is the basis for advisory fee billings for the first quarter of 2018. The increase in AUM was comprised of asset appreciation of
$2.5 billion
and net contribution of assets of $1.0 billion.
|
The following table provides a breakdown of the change in assets under management for the year ended December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
|
Beginning
Balance
|
|
|
|
|
|
Appreciation
(Depreciation)
|
|
Ending
Balance
|
Fund Type
|
|
|
Contributions
|
|
Redemptions
|
|
|
Traditional
(1)
|
|
$
|
20,952
|
|
|
$
|
3,260
|
|
|
$
|
(1,882
|
)
|
|
$
|
1,960
|
|
|
$
|
24,290
|
|
Institutional Fixed Income
(2)
|
|
1,292
|
|
|
72
|
|
|
(596
|
)
|
|
(73
|
)
|
|
695
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
(3)
|
|
2,344
|
|
|
217
|
|
|
(585
|
)
|
|
614
|
|
|
2,590
|
|
Private Equity Funds
(4)
|
|
186
|
|
|
|
|
|
|
(1
|
)
|
|
185
|
|
Portfolio Enhancement Program
(5)
|
|
—
|
|
|
540
|
|
|
(19
|
)
|
|
—
|
|
|
521
|
|
|
|
$
|
24,774
|
|
|
$
|
4,089
|
|
|
$
|
(3,082
|
)
|
|
$
|
2,500
|
|
|
$
|
28,281
|
|
|
|
(1)
|
Traditional investments include third party advisory programs, Oppenheimer financial adviser managed and advisory programs, and Oppenheimer Asset Management taxable and tax-exempt portfolio management strategies.
|
|
|
(2)
|
Institutional fixed income provides solutions to institutional investors including: Taft-Hartley Funds, Public Pension Funds, Corporate Pension Funds, and Foundations and Endowments.
|
|
|
(3)
|
Hedge funds represent single manager hedge fund strategies in areas including hedged equity, technology and financial services, and multi-manager and multi-strategy fund of funds.
|
|
|
(4)
|
Private equity funds represent private equity fund of funds including portfolios focused on natural resources and related assets.
|
|
|
(5)
|
Portfolio enhancement program sells uncovered, far out-of-money puts and calls on the $&P 500 Index. The program is market neutral and uncorrelated to the index.
|
Capital Markets
Capital Markets reported revenue of
$231.6 million
for the year ended December 31,
2017
,
9.1%
lower than the year ended December 31,
2016
due to lower commissions, fees from mergers and acquisition activity and debt capital market transactions partially offset by higher fees from equities underwriting transactions during the year ended
December 31, 2017
. Loss before income taxes was
$40.0 million
for the year ended December 31,
2017
compared with a loss before income taxes of
$17.7 million
for the year ended December 31,
2016
.
|
|
•
|
Institutional equities commissions decreased 11.3% to $95.0 million for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to lower volatility and trading volumes in the equity markets.
|
|
|
•
|
Advisory fees earned from investment banking activities decreased 28.0% to $29.5 million for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to a decrease in mergers and acquisitions activity during the year ended December 31, 2017.
|
|
|
•
|
Equities underwriting fees increased 98.5% to $27.0 million for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to increased capital raising activity during the year ended December 31, 2017.
|
|
|
•
|
Revenue from Taxable Fixed Income decreased 24.9% to $53.1 million for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to low volatility and client activity leading to a reduction in commission and debt capital markets revenues.
|
|
|
•
|
Public Finance and Municipal Trading revenue increased 20.3% to $20.7 million for the year ended December 31, 2017 compared with the year ended December 31, 2016.
|
Liquidity and Capital Resources
At
December 31, 2017
, total assets increased by
9.0%
from
December 31, 2016
. The Company satisfies its need for short-term financing from internally generated funds and collateralized and uncollateralized borrowings, consisting primarily of bank call loans, stock loans, and uncommitted lines of credit. The Company finances its trading in government securities through the use of securities sold under agreements to repurchase ("repurchase agreements"). The Company's longer-term capital needs have been met through the issuance of the 6.75% Senior Secured Notes due 2022 (see "Refinancing" below). The amount of Oppenheimer's bank borrowings fluctuates in response to changes in the level of the Company's securities inventories and customer margin debt, changes in notes receivable from employees, investment in furniture, equipment and leasehold improvements, and changes in stock loan balances and financing through repurchase agreements. Oppenheimer has arrangements with banks for borrowings on a fully-collateralized basis. At
December 31, 2017
, the Company had
$118.3 million
of such borrowings outstanding compared to outstanding borrowings of
$145.8 million
at
December 31, 2016
. The Company also has some availability of short-term bank financing on an unsecured basis.
Volatility in the financial markets and ongoing concerns about the speed and degree of economic recovery has had an adverse effect on the availability of credit through traditional sources. As a result of concerns around financial markets generally and the strength of counterparties specifically, lenders have reduced and, in some cases, ceased to provide funding on both a secured and unsecured basis to financial service providers.
The Company's overseas subsidiaries, Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited, are subject to local regulatory capital requirements which restrict the Company's ability to utilize this capital for other purposes. The regulatory capital requirements for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited were $3.8 million and
$387,000
, respectively, at
December 31, 2017
. See note 16 to the consolidated financial statements appearing in Item 8 for further details. The liquid assets at Oppenheimer Europe Ltd. are primarily comprised of cash deposits in bank accounts. The liquid assets at Oppenheimer Investments Asia Limited are primarily comprised of investments in U.S. Treasuries and cash deposits in bank accounts. Any restrictions on transfer of these liquid assets from Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited to the Company or its other subsidiaries would be limited by the regulatory capital requirements.
The Company permanently reinvests eligible earnings of its foreign subsidiaries in such subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if these earnings were repatriated. The unrecognized deferred tax liability associated with earnings of foreign subsidiaries is estimated at
$3.0 million
for those subsidiaries with respect to which the Company would be subject to residual U.S. tax on cumulative earnings through
2017
were those earnings to be repatriated. See note 13 to the consolidated financial statements appearing in Item 8. The Company intends to continue to reinvest permanently the excess earnings of Oppenheimer Israel (OPCO) Ltd. in its own business and in the businesses in Europe and Asia to support business initiatives in those regions.
In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings concerning Oppenheimer's marketing and sale of ARS. Pursuant to those settlements and legal settlements and awards, the Company has purchased and will, subject to the terms and conditions of the settlements, continue to purchase ARS on a periodic basis. 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. See "Off-Balance Sheet Arrangements" herein.
Additional settlements of regulatory matters could have an adverse effect on the Company's liquidity depending on the size and composition of any such settlement.
Refinancing
On June 23, 2017, the Parent issued in a private offering $200.0 million aggregate principal amount of 6.75% Senior Secured Notes due 2022 (the "Unregistered Notes") under an indenture at an issue price of 100% of the principal amount. On September 19, 2017, the Parent completed an exchange offer in which the Parent exchanged 99.8% of its Unregistered Notes for a like principal amount of notes with identical terms except that such new notes have been registered under the Securities Act of 1933, as amended (the "Notes"). The Parent did not receive any proceeds in the exchange offer. The interest on the Notes is payable semi-annually on January 1st and July 1st, beginning January 1, 2018. The Parent used a portion of the net proceeds from the offering of the Notes to redeem in full its 8.75% Senior Secured Notes due April 15, 2018 in the principal amount of $120.0 million, and pay all related fees and expenses related thereto. See note 10 to the consolidated financial statements appearing in Item 8 for further discussion.
On June 15, 2017, S&P upgraded the Company's 'B' Corporate Family rating and 'B' rating on the Notes to 'B+' with a stable outlook. On December 18, 2017, Moody's Corporation affirmed the Company's 'B2' Corporate Family rating and 'B1' rating on the Notes and affirmed its stable outlook.
Liquidity
For the most part, the Company's assets consist of cash and cash equivalents and assets which can be readily converted into cash. Receivable from brokers, dealers and clearing organizations represents deposits for securities borrowed transactions, margin deposits or current transactions awaiting settlement. Receivable from customers represents margin balances and amounts due on transactions awaiting settlement. The Company's receivables are, for the most part, collateralized by marketable securities. The Company's collateral maintenance policies and procedures are designed to limit the Company's exposure to credit risk. Securities owned, with the exception of the ARS, are mainly comprised of actively trading, readily marketable securities. The Company advanced $23.2 million in forgivable notes to employees (which are inherently illiquid) for the year ended
December 31, 2017
($11.5 million for the year ended
December 31, 2016
) as upfront or backend inducements. The amount of funds allocated to such inducements will vary with hiring activity.
The Company satisfies its need for short-term liquidity from internally generated funds, collateralized and uncollateralized bank borrowings, stock loans and repurchase agreements. Bank borrowings are collateralized by firm and customer securities.
The Company does not repatriate the earnings of its foreign subsidiaries. Foreign earnings are permanently reinvested for the use of the foreign subsidiaries and therefore these foreign earnings are not available to satisfy the domestic liquidity requirements of the Company.
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 not exceeding the broker call rate. At
December 31, 2017
, bank call loans were
$118.3 million
(
$145.8 million
at
December 31, 2016
). The average daily bank loan outstanding for the year ended
December 31, 2017
was
$123.9 million
(
$106.5 million
for the year ended
December 31, 2016
). The largest daily bank loan outstanding for the year ended
December 31, 2017
was $247.6 million ($229.2 million for the year ended
December 31, 2016
). The average weighted interest rate on bank call loans applicable on
December 31, 2017
was
2.25%
.
At
December 31, 2017
, securities loan balances totaled
$180.3 million
(
$179.9 million
at
December 31, 2016
). The average daily securities loan balance for the year ended
December 31, 2017
was $179.4 million ($167.7 million for the year ended
December 31, 2016
). The largest daily stock loan balance for the year ended
December 31, 2017
was $279.5 million ($241.7 million for the year ended
December 31, 2016
).
The Company finances its government trading operations through the use of securities purchased under agreements to resell ("reverse repurchase agreements") and repurchase agreements. Except as described below, repurchase and reverse repurchase agreements, principally involving government and agency securities, are carried at amounts at which 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. 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
December 31, 2017
, the Company did not have any reverse repurchase agreements and repurchase agreements for which the fair value option was elected.
At
December 31, 2017
, the gross balances of reverse repurchase agreements and repurchase agreements were
$200.7 million
and
$786.5 million
, respectively. The average daily balance of reverse repurchase agreements and repurchase agreements on a gross basis for the year ended
December 31, 2017
was $267.1 million and $708.5 million, respectively ($351.9 million and $845.6 million, respectively, for the year ended
December 31, 2016
). The largest amount of reverse repurchase agreements and repurchase agreements outstanding on a gross basis during the year ended
December 31, 2017
was $661.4 million and $1.0 billion, respectively ($920.3 million and $1.5 billion, respectively, for the year ended
December 31, 2016
).
At
December 31, 2017
, the gross leverage ratio was
4.7
Liquidity Management
The Company manages its need for liquidity on a daily basis to ensure compliance with regulatory requirements. The Company's liquidity needs may be affected by market conditions, increased inventory positions, business expansion and other unanticipated occurrences. In the event that existing financial resources do not satisfy the Company's needs, the Company may have to seek additional external financing. The availability of such additional external financing may depend on market factors outside the Company's control.
The Company regularly reviews its sources of liquidity and financing and conducts internal stress analysis to determine the impact on the Company of events that could remove sources of liquidity or financing and to plan actions the Company could take in the case of such an eventuality. The Company's reviews have resulted in plans that the Company believes would result in a reduction of assets through liquidation that would significantly reduce the Company's need for external financing.
Funding Risk
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
For the Year Ended December 31,
|
|
2017
|
|
2016
|
Cash used in operating activities
|
$
|
(16,136
|
)
|
|
$
|
(66,865
|
)
|
Cash (used in) provided by investing activities
|
(3,867
|
)
|
|
39,717
|
|
Cash provided by financing activities
|
3,244
|
|
|
28,697
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(16,759
|
)
|
|
$
|
1,549
|
|
Management believes that funds from operations, combined with the Company's capital base and available credit facilities, are sufficient for the Company's liquidity needs in the foreseeable future. Changes in capital requirements under international standards that will impact the costs and relative returns on loans may cause banks including those with whom the Company relies to back away from providing funding to the securities industry. Such a development might impact the Company's ability to finance its day to day activities or increase the costs to acquire funding. The Company may or may not be able to pass such increased funding costs on to its clients. See "Factors Affecting 'Forward-Looking Statements'" herein. In June 2017, the Company refinanced its outstanding indebtedness. See "Refinancing" herein.
Other Matters
On November 24, 2017, the Company paid cash dividends of $0.11 per share of Class A and Class B Stock totaling approximately $1.4 million from available cash on hand.
On
February 26, 2018
, the Company paid cash dividends of $0.11 per share of Class A and Class B Stock totaling approximately $1.5 million from available cash on hand.
The book value of the Company's Class A and Class B Stock was
$39.55
at
December 31, 2017
compared to
$38.22
at
December 31, 2016
, based on total outstanding shares of
13,238,868
and
13,360,760
, respectively.
The diluted weighted average number of shares of Class A and Class B Stock outstanding for the year ended
December 31, 2017
was
13,673,361
compared to
13,368,768
outstanding on
December 31, 2016
.
Off-Balance Sheet Arrangements
In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of
December 31, 2017
, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of
December 31, 2017
, the Company purchased and holds (net of redemptions) approximately
$113.9 million
in ARS from its clients. In addition, the Company is committed to purchase another
$11.0 million
in ARS from clients through 2020 under legal settlements and awards.
The Company's purchases of ARS from its clients holding ARS eligible for repurchase will, subject to the terms and conditions of the settlements with the Regulators, continue on a periodic basis. Pursuant to these terms and conditions, the Company is required to conduct a financial review every six months, until the Company has extended Purchase Offers to all Eligible Investors (as defined), to determine whether it has funds available, after giving effect to the financial and regulatory capital constraints applicable to the Company, to extend additional Purchase Offers. The financial review is based on the Company's operating results, regulatory net capital, liquidity, and other ARS purchase commitments outstanding under legal settlements and awards (described below). There are no predetermined quantitative thresholds or formulas used for determining the final agreed upon amount for the Purchase Offers. Upon completion of the financial review, the Company first meets with its primary regulator, FINRA, and then with representatives of the NYAG and other regulators to present the results of the review and to finalize the amount of the next Purchase Offer. Various offer scenarios are discussed in terms of which Eligible Investors should receive a Purchase Offer. The primary criteria to date in terms of determining which Eligible Investors should receive a Purchase Offer has been the amount of household account equity each Eligible Investor had with the Company in February 2008. Once various Purchase Offer scenarios have been discussed, the Regulators, not the Company, make the final determination of which Purchase Offer scenario to implement. The terms of settlements provide that the amount of ARS to be purchased during any period shall not risk placing the Company in violation of regulatory requirements.
Outside of the settlements with the Regulators, the Company has also reached various legal settlements with clients and received unfavorable legal awards requiring it to purchase ARS. The terms and conditions including the ARS amounts committed to be purchased under legal settlements are based on the specific facts and circumstances of each legal proceeding. In most instances, the purchase commitments are in increments and extend over a period of time. At
December 31, 2017
, no ARS purchase commitments related to legal settlements extended past 2020. To the extent the Company receives an unfavorable award, the Company usually must purchase the ARS provided for by the award within 30 days of the rendering of the award. The ultimate amount of ARS to be repurchased by the Company under both the settlements with the Regulators and the legal settlements and awards cannot be predicted with any certainty and will be impacted by redemptions by issuers, the Company's financial and regulatory constraints, and legal and other actions by clients during the relevant period, which also cannot be predicted.
The ARS positions that the Company owns and are committed to purchase 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. At
December 31, 2017
, the amount of ARS held by the Company that was below investment grade was $25,000 and the amount of ARS that was unrated was $25,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
Auction Rate Securities Owned and Committed to Purchase at December 31, 2017
|
|
|
|
Valuation
Adjustment
|
|
|
Product
|
Principal
|
|
|
Fair Value
|
Auction Rate Securities ("ARS") Owned
(1)
|
$
|
113,875
|
|
|
$
|
2,022
|
|
|
$
|
111,853
|
|
ARS Commitments to Purchase Pursuant to:
(2)(3)
|
|
|
|
|
|
Settlements with the Regulators
(4)
|
—
|
|
|
—
|
|
|
—
|
|
Legal Settlements and Awards
(5)
|
10,992
|
|
|
8
|
|
|
10,984
|
|
Total
|
$
|
124,867
|
|
|
$
|
2,030
|
|
|
$
|
122,837
|
|
|
|
(1)
|
Principal amount represents the par value of the ARS and is included in securities owned on the consolidated balance sheet at
December 31, 2017
. The valuation adjustment amount is included as a reduction to securities owned on the consolidated balance sheet at
December 31, 2017
.
|
|
|
(2)
|
Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment is included in accounts payable and other liabilities on the consolidated balance sheet at
December 31, 2017
.
|
|
|
(3)
|
Specific ARS to be purchased under ARS Purchase Commitments are unknown until the beneficial owner selects the individual ARS to be purchased.
|
|
|
(4)
|
Commitments to purchase under settlements with the Regulators at
December 31, 2017
. Eligible Investors for future buybacks under the settlements with the Regulators held approximately
$25.3 million
of ARS as of
December 31, 2017
.
|
|
|
(5)
|
Commitments to purchase under various legal settlements and awards with clients through 2020.
|
Per the above table, the Company has recorded a valuation adjustment on its ARS owned and ARS purchase commitments of
$2.0 million
as of
December 31, 2017
. The valuation adjustment is comprised of
$2.0 million
which represents the difference between the principal value and the fair value of the ARS the Company owned as of
December 31, 2017
and
$8,000
which represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase under legal settlements and awards. As of
December 31, 2017
, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. Eligible Investors for future buybacks under the settlements with the Regulators held approximately
$25.3 million
of ARS as of
December 31, 2017
. Since the Company was not committed to purchase this amount as of
December 31, 2017
, there were no valuation adjustments booked to recognize the difference between the principal value and the fair value for this remaining amount.
Additional information concerning the Company's off-balance sheet arrangements is included in note 5 to the consolidated financial statements appearing in Item 8. Such information is hereby incorporated by reference. Also, see "Risk Factors – The Company may continue to be adversely affected by the failure of the Auction Rate Securities Market" in Item 1A as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations — Business Environment — Other Regulatory Matters" in Item 7 for additional details.
Contractual Obligations
The following table sets forth the Company's contractual obligations as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
Year
|
|
|
|
|
|
More than 5
Years
|
|
Total
|
|
|
1-3 Years
|
|
3-5 Years
|
|
Operating Lease Obligations
(1)
|
$
|
250,069
|
|
|
$
|
43,727
|
|
|
$
|
69,562
|
|
|
$
|
49,051
|
|
|
$
|
87,729
|
|
Committed Capital
(1)
|
1,400
|
|
|
1,400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Senior Secured Notes
(2)(3)
|
267,838
|
|
|
19,988
|
|
|
27,000
|
|
|
220,850
|
|
|
—
|
|
ARS Purchase Commitments
(1)
|
10,992
|
|
|
4,160
|
|
|
6,832
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
530,299
|
|
|
$
|
69,275
|
|
|
$
|
103,394
|
|
|
$
|
269,901
|
|
|
$
|
87,729
|
|
|
|
(1)
|
See note 15 to the consolidated financial statements appearing in Item 8 for additional information.
|
|
|
(2)
|
See note 10 to the consolidated financial statements appearing in Item 8 for additional information.
|
|
|
(3)
|
Includes interest payable of $67.8 million through maturity.
|
Inflation
Because the assets of the Company's brokerage subsidiaries are highly liquid, and because securities inventories are carried at current market values, the impact of inflation generally is reflected in the financial statements. However, the rate of inflation affects the Company's costs relating to employee compensation, rent, communications and certain other operating costs, and such costs may not be recoverable in the level of commissions or fees charged. To the extent inflation results in rising interest rates and has other adverse effects upon the securities markets, it may adversely affect the Company's financial position and results of operations.
Factors Affecting "Forward-Looking Statements"
From time to time, the Company may publish "Forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act or make oral statements that constitute forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products, anticipated market performance, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company cautions readers that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. These risks and uncertainties, many of which are beyond the Company's control, include, but are not limited to: (i) transaction volume in the securities markets, (ii) the volatility of the securities markets, (iii) fluctuations in interest rates, (iv) changes in regulatory requirements which could affect the cost and method of doing business and reduce returns, (v) fluctuations in currency rates, (vi) general economic conditions, both domestic and international, including fluctuating oil prices, (vii) changes in the rate of inflation and the related impact on the securities markets, (viii) competition from existing financial institutions and other participants in the securities markets, (ix) legal developments affecting the litigation experience of the securities industry and the Company, including developments arising from the failure of the Auction Rate Securities markets, the trading of low-priced securities, stepped up enforcement efforts by the SEC, FinCEN, FINRA and other regulators and the results of pending litigation and regulatory proceedings involving the Company, (x) changes in foreign, federal and state tax laws which could affect the popularity of products sold by the Company or impose taxes on securities transactions, (xi) applications and enforcement of the DOL retirement rules and regulations, (xii) the effectiveness of efforts to reduce costs and eliminate overlap, (xiii) war and nuclear confrontation as well as political unrest and regime changes, health epidemics and economic crisis in foreign countries, (xiv) the Company's ability to achieve its business plan, (xv) corporate governance issues, (xvi) the impact of the credit crisis and tight credit markets on business operations, (xvii) the effect of bailout, financial reform and related legislation including, without limitation, the Wall Street Reform and the Dodd-Frank Act, the Volcker Rule and the rules and regulations thereunder and the new DOL rule (see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory and Legal Environment" herein), (xviii) the consolidation of the banking and financial services industry, (xix) the effects of the economy on the Company's ability to find and maintain financing options and liquidity, (xx) credit, operations, legal and regulatory risks, (xxi) risks related to foreign operations, including those in the United Kingdom which may be affected by Britain's June 23, 2016 referendum to exit the EU ("Brexit"), (xxii) risks related to the downgrade of U.S. long-term sovereign debt obligations and the sovereign debt of European nations, (xxiii) risks related to the manipulation of the London Interbank Offered Rate ("LIBOR") and concerns over high speed trading, (xxiv) potential cybersecurity threats, (xxv) the effect of technological innovation on our industry and business, (xxvi) risks related to changes by S&P Global Ratings ("S&P") or Moody's Investor Service, Inc. ("Moody's") of its rating on the Company and on the Company's long-term debt, and (xxvii) risks related to elections results, Congressional gridlock, government shutdowns and investigations, changes in or uncertainty surrounding regulations and threats of default by the federal government. There can be no assurance that the Company has correctly or completely identified and assessed all of the factors affecting the Company's business. The Company does not undertake any obligation to publicly update or revise any forward-looking statements. See "Risk Factors" in Item 1A.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Oppenheimer Holdings Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
As of
December 31, 2017
, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, management has concluded that the Company's internal control over financial reporting as of
December 31, 2017
was effective.
The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets and provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's financial statements.
The Company's internal control over financial reporting as of
December 31, 2017
has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of
December 31, 2017
.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of Oppenheimer Holdings Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Oppenheimer Holdings Inc. and subsidiaries (the "Company") as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017 of the Company and our report dated March 2, 2018, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, NY
March 2, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Oppenheimer Holdings Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Oppenheimer Holdings Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
New York, NY
March 2, 2018
We have served as the Company's auditor since 2013.
OPPENHEIMER HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except number of shares and per share amounts)
|
2017
|
|
2016
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
48,154
|
|
|
$
|
64,913
|
|
Deposits with clearing organizations
|
42,222
|
|
|
38,185
|
|
Receivable from brokers, dealers and clearing organizations
|
187,115
|
|
|
214,934
|
|
Receivable from customers, net of allowance for credit losses of $769 ($794 in 2016)
|
848,226
|
|
|
847,386
|
|
Income tax receivable
|
2,939
|
|
|
5,816
|
|
Securities purchased under agreements to resell
|
658
|
|
|
24,006
|
|
Securities owned, including amounts pledged of $655,683 ($438,385 in 2016), at fair value
|
926,597
|
|
|
707,108
|
|
Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,705 and $7,975, respectively ($24,826 and $6,784, respectively, in 2016)
|
40,520
|
|
|
30,099
|
|
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $82,826 ($84,073 in 2016)
|
27,187
|
|
|
27,233
|
|
Intangible assets
|
31,700
|
|
|
31,700
|
|
Goodwill
|
137,889
|
|
|
137,889
|
|
Other assets
|
145,310
|
|
|
107,661
|
|
Total assets
|
$
|
2,438,517
|
|
|
$
|
2,236,930
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Liabilities
|
|
|
|
Drafts payable
|
$
|
42,412
|
|
|
$
|
39,228
|
|
Bank call loans
|
118,300
|
|
|
145,800
|
|
Payable to brokers, dealers and clearing organizations
|
211,483
|
|
|
221,389
|
|
Payable to customers
|
385,907
|
|
|
449,946
|
|
Securities sold under agreements to repurchase
|
586,478
|
|
|
378,084
|
|
Securities sold but not yet purchased, at fair value
|
94,486
|
|
|
85,050
|
|
Accrued compensation
|
173,116
|
|
|
145,053
|
|
Accounts payable and other liabilities
|
92,495
|
|
|
96,557
|
|
Senior secured notes, net of debt issuance costs of $1,163 ($648 in 2016)
|
198,837
|
|
|
149,352
|
|
Deferred tax liabilities, net of deferred tax assets of $47,597 ($59,062 in 2016)
|
11,092
|
|
|
13,137
|
|
Total liabilities
|
1,914,606
|
|
|
1,723,596
|
|
Commitments and contingencies (note 15)
|
|
|
|
Stockholders' equity
|
|
|
|
Share capital
|
|
|
|
Class A non-voting common stock, par value $0.001 per share, 50,000,000 shares authorized, 13,139,203 and 13,261,095 shares issued and outstanding as of December 31, 2017 and 2016, respectively
|
58,359
|
|
|
59,228
|
|
Class B voting common stock, par value $0.001 per share, 99,665 shares authorized, issued and outstanding
|
133
|
|
|
133
|
|
|
58,492
|
|
|
59,361
|
|
Contributed capital
|
36,546
|
|
|
41,765
|
|
Retained earnings
|
426,930
|
|
|
410,258
|
|
Accumulated other comprehensive income (loss)
|
1,582
|
|
|
(681
|
)
|
Total Oppenheimer Holdings Inc. stockholders' equity
|
523,550
|
|
|
510,703
|
|
Noncontrolling interest
|
361
|
|
|
2,631
|
|
Total stockholders' equity
|
523,911
|
|
|
513,334
|
|
Total liabilities and stockholders' equity
|
$
|
2,438,517
|
|
|
$
|
2,236,930
|
|
The accompanying notes are an integral part of these consolidated financial statements.
OPPENHEIMER HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except number of shares and per share amounts)
|
2017
|
|
2016
|
|
2015
|
REVENUE
|
|
|
|
|
|
Commissions
|
$
|
336,620
|
|
|
$
|
377,317
|
|
|
$
|
417,559
|
|
Advisory fees
|
320,746
|
|
|
269,119
|
|
|
280,247
|
|
Investment banking
|
78,215
|
|
|
81,011
|
|
|
102,540
|
|
Interest
|
48,498
|
|
|
47,649
|
|
|
49,032
|
|
Principal transactions, net
|
23,273
|
|
|
20,481
|
|
|
15,180
|
|
Other
|
112,986
|
|
|
62,202
|
|
|
33,243
|
|
Total revenue
|
920,338
|
|
|
857,779
|
|
|
897,801
|
|
EXPENSES
|
|
|
|
|
|
Compensation and related expenses
|
602,138
|
|
|
584,710
|
|
|
610,820
|
|
Communications and technology
|
71,978
|
|
|
70,390
|
|
|
66,549
|
|
Occupancy and equipment costs
|
61,164
|
|
|
60,791
|
|
|
62,842
|
|
Clearing and exchange fees
|
23,545
|
|
|
25,126
|
|
|
26,022
|
|
Interest
|
28,354
|
|
|
19,437
|
|
|
16,329
|
|
Other
|
113,423
|
|
|
119,217
|
|
|
117,667
|
|
Total expenses
|
900,602
|
|
|
879,671
|
|
|
900,229
|
|
Income (Loss) before income taxes from continuing operations
|
19,736
|
|
|
(21,892
|
)
|
|
(2,428
|
)
|
Income taxes
|
(2,134
|
)
|
|
(12,262
|
)
|
|
406
|
|
Net income (loss) from continuing operations
|
21,870
|
|
|
(9,630
|
)
|
|
(2,834
|
)
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
Income from discontinued operations
|
2,071
|
|
|
17,339
|
|
|
9,139
|
|
Income taxes
|
941
|
|
|
7,218
|
|
|
3,407
|
|
Net income from discontinued operations
|
1,130
|
|
|
10,121
|
|
|
5,732
|
|
|
|
|
|
|
|
Net income
|
23,000
|
|
|
491
|
|
|
2,898
|
|
Less net income attributable to noncontrolling interest, net of tax
|
184
|
|
|
1,652
|
|
|
936
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
$
|
22,816
|
|
|
$
|
(1,161
|
)
|
|
$
|
1,962
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
Continuing operations
|
$
|
1.65
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.21
|
)
|
Discontinued operations
|
0.07
|
|
|
0.63
|
|
|
0.35
|
|
Net income (loss) per share
|
$
|
1.72
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
Continuing operations
|
$
|
1.60
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.21
|
)
|
Discontinued operations
|
0.07
|
|
|
0.63
|
|
|
0.35
|
|
Net income (loss) per share
|
$
|
1.67
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
|
|
|
|
|
Dividends declared per share
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
|
|
|
Basic
|
13,246,423
|
|
|
13,368,768
|
|
|
13,640,610
|
|
Diluted
|
13,673,361
|
|
|
13,368,768
|
|
|
13,640,610
|
|
The accompanying notes are an integral part of these consolidated financial statements.
OPPENHEIMER HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
2017
|
|
2016
|
|
2015
|
Net income
|
$
|
23,000
|
|
|
$
|
491
|
|
|
$
|
2,898
|
|
Other comprehensive income, net of tax
(1)
|
|
|
|
|
|
Currency translation adjustment
|
2,263
|
|
|
220
|
|
|
17
|
|
Comprehensive income
|
25,263
|
|
|
711
|
|
|
2,915
|
|
Net income attributable to noncontrolling interest, net of tax
|
184
|
|
|
1,652
|
|
|
936
|
|
Comprehensive income (loss) attributable to Oppenheimer Holdings Inc.
|
$
|
25,079
|
|
|
$
|
(941
|
)
|
|
$
|
1,979
|
|
|
|
(1)
|
No other comprehensive income is attributable to noncontrolling interests.
|
The accompanying notes are an integral part of these consolidated financial statements.
OPPENHEIMER HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
2017
|
|
2016
|
|
2015
|
Share capital
|
|
|
|
|
|
Balance at beginning of year
|
$
|
59,361
|
|
|
$
|
57,520
|
|
|
$
|
62,397
|
|
Issuance of Class A non-voting common stock
|
6,595
|
|
|
5,776
|
|
|
3,373
|
|
Repurchase of Class A non-voting common stock for cancellation
|
(7,464
|
)
|
|
(3,935
|
)
|
|
(8,250
|
)
|
Balance at end of year
|
58,492
|
|
|
59,361
|
|
|
57,520
|
|
Contributed capital
|
|
|
|
|
|
Balance at beginning of year
|
41,765
|
|
|
44,438
|
|
|
45,118
|
|
Tax deficiency from share-based awards
|
—
|
|
|
(740
|
)
|
|
(277
|
)
|
Share-based expense
|
5,583
|
|
|
5,184
|
|
|
4,653
|
|
Vested employee share plan awards
|
(11,227
|
)
|
|
(7,117
|
)
|
|
(5,056
|
)
|
Cumulative-effect adjustment from adoption of new accounting update of employee share-based accounting
|
425
|
|
|
—
|
|
|
—
|
|
Balance at end of year
|
36,546
|
|
|
41,765
|
|
|
44,438
|
|
Retained earnings
|
|
|
|
|
|
Balance at beginning of year
|
410,258
|
|
|
417,001
|
|
|
421,047
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
22,816
|
|
|
(1,161
|
)
|
|
1,962
|
|
Dividends paid ($0.44 per share)
|
(5,836
|
)
|
|
(5,887
|
)
|
|
(6,008
|
)
|
Dividends received from noncontrolling interest
|
6
|
|
|
305
|
|
|
—
|
|
Cumulative-effect adjustment from adoption of new accounting update of employee share-based accounting
|
(314
|
)
|
|
—
|
|
|
—
|
|
Balance at end of year
|
426,930
|
|
|
410,258
|
|
|
417,001
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
Balance at beginning of year
|
(681
|
)
|
|
(901
|
)
|
|
(918
|
)
|
Currency translation adjustment
|
2,263
|
|
|
220
|
|
|
17
|
|
Balance at end of year
|
1,582
|
|
|
(681
|
)
|
|
(901
|
)
|
Total Oppenheimer Holdings Inc. stockholders' equity
|
523,550
|
|
|
510,703
|
|
|
518,058
|
|
Noncontrolling interest
|
|
|
|
|
|
Balance at beginning of year
|
2,631
|
|
|
7,024
|
|
|
6,088
|
|
Net income attributable to noncontrolling interest, net of tax
|
184
|
|
|
1,652
|
|
|
936
|
|
Dividends paid to noncontrolling interest
|
(2,448
|
)
|
|
(5,740
|
)
|
|
—
|
|
Dividends paid to parent
|
(6
|
)
|
|
(305
|
)
|
|
—
|
|
Balance at end of year
|
361
|
|
|
2,631
|
|
|
7,024
|
|
Total stockholders' equity
|
$
|
523,911
|
|
|
$
|
513,334
|
|
|
$
|
525,082
|
|
The accompanying notes are an integral part of these consolidated financial statements.
OPPENHEIMER HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
2017
|
|
2016
|
|
2015
|
Cash flows from operating activities
|
|
|
|
|
|
Net income for the year
|
$
|
23,000
|
|
|
$
|
491
|
|
|
$
|
2,898
|
|
Adjustments to reconcile net income to net cash used in operating activities
|
|
|
|
|
|
Non-cash items included in net income:
|
|
|
|
|
|
Depreciation and amortization of furniture, equipment and leasehold improvements
|
5,657
|
|
|
6,788
|
|
|
7,188
|
|
Deferred income taxes
|
(2,045
|
)
|
|
(2,941
|
)
|
|
4,538
|
|
Amortization of notes receivable
|
11,791
|
|
|
12,960
|
|
|
12,708
|
|
Amortization of debt issuance costs
|
353
|
|
|
484
|
|
|
485
|
|
Write-off of debt issuance costs
|
430
|
|
|
—
|
|
|
—
|
|
Amortization of mortgage servicing rights
|
—
|
|
|
1,286
|
|
|
727
|
|
(Reversal of) provision for credit losses
|
(25
|
)
|
|
(1,751
|
)
|
|
118
|
|
Share-based compensation
|
12,573
|
|
|
6,203
|
|
|
2,860
|
|
Tax deficiency from share-based awards
|
—
|
|
|
(740
|
)
|
|
(277
|
)
|
Gain on sale of assets
|
—
|
|
|
(16,475
|
)
|
|
—
|
|
Decrease (increase) in operating assets:
|
|
|
|
|
|
Cash and securities segregated for regulatory and other purposes
|
—
|
|
|
—
|
|
|
18,594
|
|
Deposits with clearing organizations
|
(4,037
|
)
|
|
11,305
|
|
|
(12,980
|
)
|
Receivable from brokers, dealers and clearing organizations
|
27,819
|
|
|
145,882
|
|
|
(46,438
|
)
|
Receivable from customers
|
(815
|
)
|
|
(5,280
|
)
|
|
23,716
|
|
Income tax receivable
|
2,877
|
|
|
5,104
|
|
|
(6,697
|
)
|
Securities purchased under agreements to resell
|
23,348
|
|
|
182,493
|
|
|
45,107
|
|
Securities owned
|
(219,489
|
)
|
|
24,725
|
|
|
107,762
|
|
Notes receivable
|
(22,212
|
)
|
|
(10,210
|
)
|
|
(10,625
|
)
|
Loans held for sale
|
—
|
|
|
60,234
|
|
|
(40,991
|
)
|
Mortgage servicing rights
|
—
|
|
|
(1,300
|
)
|
|
1,245
|
|
Other assets
|
(37,130
|
)
|
|
2,368
|
|
|
35
|
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
Drafts payable
|
3,184
|
|
|
(8,783
|
)
|
|
12,638
|
|
Payable to brokers, dealers and clearing organizations
|
(9,906
|
)
|
|
56,843
|
|
|
(92,615
|
)
|
Payable to customers
|
(64,039
|
)
|
|
(144,887
|
)
|
|
(57,423
|
)
|
Securities sold under agreements to repurchase
|
208,394
|
|
|
(273,361
|
)
|
|
(35,995
|
)
|
Securities sold but not yet purchased
|
9,436
|
|
|
(41,443
|
)
|
|
33,983
|
|
Accrued compensation
|
21,184
|
|
|
(6,864
|
)
|
|
(12,443
|
)
|
Accounts payable and other liabilities
|
(6,484
|
)
|
|
(69,996
|
)
|
|
22,469
|
|
Cash used in operating activities
|
(16,136
|
)
|
|
(66,865
|
)
|
|
(19,413
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
Purchase of furniture, equipment and leasehold improvements
|
(5,611
|
)
|
|
(5,731
|
)
|
|
(5,889
|
)
|
Proceeds from sale of assets
|
—
|
|
|
45,448
|
|
|
—
|
|
Proceeds from the settlement of Company-owned life insurance
|
1,744
|
|
|
—
|
|
|
—
|
|
Cash (used in) provided by investing activities
|
(3,867
|
)
|
|
39,717
|
|
|
(5,889
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
Cash dividends paid on Class A non-voting and Class B voting common stock
|
(5,836
|
)
|
|
(5,887
|
)
|
|
(6,008
|
)
|
Cash dividends paid to noncontrolling interest
|
(2,448
|
)
|
|
(5,740
|
)
|
|
—
|
|
Issuance of Class A non-voting common stock
|
26
|
|
|
—
|
|
|
—
|
|
Repurchase of Class A non-voting common stock for cancellation
|
(7,464
|
)
|
|
(3,935
|
)
|
|
(8,250
|
)
|
Payments for employee taxes withheld related to vested share-based awards
|
(2,237
|
)
|
|
(1,341
|
)
|
|
(1,683
|
)
|
Issuance of senior secured notes
|
200,000
|
|
|
—
|
|
|
—
|
|
Redemption of senior secured notes
|
(150,000
|
)
|
|
—
|
|
|
—
|
|
Debt issuance costs
|
(1,297
|
)
|
|
—
|
|
|
—
|
|
(Decrease) increase in bank call loans, net
|
(27,500
|
)
|
|
45,600
|
|
|
40,800
|
|
Cash provided by financing activities
|
3,244
|
|
|
28,697
|
|
|
24,859
|
|
Net (decrease) increase in cash and cash equivalents
|
(16,759
|
)
|
|
1,549
|
|
|
(443
|
)
|
Cash and cash equivalents, beginning of year
|
64,913
|
|
|
63,364
|
|
|
63,807
|
|
Cash and cash equivalents, end of year
|
$
|
48,154
|
|
|
$
|
64,913
|
|
|
$
|
63,364
|
|
Schedule of non-cash financing activities
|
|
|
|
|
|
Employee share plan issuance
|
$
|
6,569
|
|
|
$
|
5,776
|
|
|
$
|
3,373
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Cash paid during the year for interest
|
$
|
23,899
|
|
|
$
|
19,705
|
|
|
$
|
17,273
|
|
Cash (received) paid during the year for income taxes, net
|
$
|
(2,378
|
)
|
|
$
|
(5,009
|
)
|
|
$
|
6,088
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
1. Organization
Oppenheimer Holdings Inc. (the "Parent") is incorporated under the laws of the State of Delaware. The consolidated financial statements include the accounts of OPY and its subsidiaries (together, the "Company"). The Company engages in a broad range of activities in the financial services industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, trust services, and investment advisory and asset management services.
The Company provides its services from
92
offices in
24
states located throughout the United States and in
5
foreign jurisdictions. The principal subsidiaries of OPY are Oppenheimer & Co. Inc. ("Oppenheimer"), a registered broker-dealer in securities and investment adviser under the Investment Advisers Act of 1940; Oppenheimer Asset Management Inc. ("OAM") and its wholly-owned subsidiary, Oppenheimer Investment Management LLC, both registered investment advisers under the Investment Advisers Act of 1940; Oppenheimer Trust Company of Delaware ("Oppenheimer Trust"), a limited purpose trust company that provides fiduciary services such as trust and estate administration and investment management; OPY Credit Corp., which offers syndication as well as trading of issued corporate loans; Oppenheimer Europe Ltd., based in the United Kingdom, with offices in the Isle of Jersey and Switzerland, which provides institutional equities and fixed income brokerage and corporate financial services and is regulated by the Financial Conduct Authority; Oppenheimer Investments Asia Limited, based in Hong Kong, China, which provides fixed income and equities brokerage services to institutional investors and is regulated by the Securities and Futures Commission; and Oppenheimer Multifamily Housing & Healthcare Finance, Inc. ("OMHHF") was formerly engaged in Federal Housing Administration ("FHA")-insured commercial mortgage origination and servicing. During 2016, the Company sold substantially all of the assets of OMHHF and ceased its operations.
Oppenheimer owns Freedom Investments, Inc. ("Freedom"), a registered broker dealer in securities, which provides discount brokerage services, and Oppenheimer Israel (OPCO) Ltd., which is engaged in offering investment services in the State of Israel. Oppenheimer holds a trading permit on the New York Stock Exchange and is a member of several other regional exchanges in the United States.
2. Summary of significant accounting policies and estimates
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Intercompany transactions and balances have been eliminated in the preparation of the consolidated financial statements.
Accounting standards require the Company to present noncontrolling interests as a separate component of stockholders' equity on the Company's consolidated balance sheet. As of
December 31, 2017
, the Company owned
83.68%
of OMHHF and the noncontrolling interest recorded on the consolidated balance sheet was
$361,000
.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.
In presenting the consolidated financial statements, management makes estimates regarding valuations of financial instruments, loans and allowances for credit losses, the outcome of legal and regulatory matters, goodwill and other intangible assets, stock-based compensation plans, mortgage servicing rights, and income taxes. Estimates, by their nature, are based on judgment and available information. Therefore, actual results could be materially different from these estimates. A discussion of certain areas in which estimates are a significant component of the amounts reported on the consolidated financial statements follows.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Financial Instruments and Fair Value
Financial Instruments
Securities owned, 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.
Fair Value Measurements
Accounting guidance for the fair value measurement of financial assets, which defines fair value, establishes a framework for measuring fair value, establishes a fair value measurement hierarchy, and expands fair value measurement disclosures. Fair value, as defined by the accounting guidance, is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories (highest to lowest priority):
|
|
Level 1:
|
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
Level 2:
|
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
|
|
|
Level 3:
|
Unobservable inputs that are significant to the overall fair value measurement.
|
The Company's financial instruments that are recorded at fair value generally are classified within Level 1 or Level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers. Financial instruments classified within Level 1 are valued based on quoted market prices in active markets and consist of U.S. Treasury and Agency securities, corporate equities, and certain money market instruments. Level 2 financial instruments primarily consist of investment grade and high-yield corporate debt, convertible bonds, mortgage and asset-backed securities, and municipal obligations. Financial instruments classified as Level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are not active. Some financial instruments are classified within Level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability. Such financial instruments include certain distressed municipal securities, and auction rate securities ("ARS").
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.
Consolidation
The Company consolidates all subsidiaries in which it has a controlling financial interest, as well as any variable interest entities ("VIEs") where the Company is deemed to be the primary beneficiary, when it has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb significant losses or the right to receive benefits that could potentially be significant to the VIE. The Company reviews factors, including the rights of the equity holders at risk and obligations of equity holders to absorb losses or receive expected residual returns, to determine if the entity is a VIE. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly or indirectly by the Company. Under Accounting Standards Update ("ASU") 2015-02, a general partner will not consolidate a partnership or similar entity under the voting interest model. See note 7 for further details.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Financing Receivables
The Company's financing receivables include customer margin loans, securities purchased under agreements to resell ("reverse repurchase agreements"), and securities borrowed transactions. The Company uses financing receivables to extend margin loans to customers, meet trade settlement requirements, and facilitate its matched-book arrangements and inventory requirements.
The Company's financing receivables are secured by collateral received from clients and counterparties. In many cases, the Company is permitted to sell or re-pledge securities held as collateral. These securities may be used to collateralize repurchase agreements, to enter into securities lending agreements, to cover short positions or fulfill the obligation of securities fails to deliver. The Company monitors the market value of the collateral received on a daily basis and may require clients and counterparties to deposit additional collateral or return collateral pledged, when appropriate.
Customer receivables, primarily consisting of customer margin loans collateralized by customer-owned securities, are stated net of allowance for credit losses. The Company reviews large customer accounts that do not comply with the Company's margin requirements on a case-by-case basis to determine the likelihood of collection and records an allowance for credit loss following that process. For small customer accounts that do not comply with the Company's margin requirements, the allowance for credit loss is generally recorded as the amount of unsecured or partially secured receivables.
The Company also makes loans to financial advisers as part of its hiring process. These loans are recorded as notes receivable on its consolidated balance sheet. Allowances are established on these loans if the financial adviser is no longer associated with the Company and the loan has not been promptly repaid.
Legal and Regulatory Reserves
The Company records reserves related to legal and regulatory proceedings in accounts payable and other liabilities. The determination of the amounts of these reserves requires significant judgment on the part of management. In accordance with applicable accounting guidance, the Company establishes reserves for litigation and regulatory matters where available information indicates that it is probable a liability had been incurred and the Company can reasonably estimate the amount of that loss. When loss contingencies are not probable or cannot be reasonably estimated, the Company does not establish reserves.
When determining whether to record a reserve, management considers many factors including, but not limited to, the amount of the claim; the stage and forum of the proceeding, the sophistication of the claimant, the amount of the loss, if any, in the client's account and the possibility of wrongdoing, if any, on the part of an employee of the Company; the basis and validity of the claim; previous results in similar cases; and applicable legal precedents and case law. Each legal and regulatory proceeding is reviewed with counsel in each accounting period and the reserve is adjusted as deemed appropriate by management. Any change in the reserve amount is recorded in the results of that period. The assumptions of management in determining the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount.
Goodwill
The Company defines a reporting unit as an operating segment. The Company's goodwill resides in its Private Client Division ("PCD") reporting unit. Goodwill of a reporting unit is subject to at least an annual test for impairment to determine if the estimated fair value of a reporting unit is less than its carrying amount. Goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Due to the volatility in the financial services sector and equity markets in general, determining whether an impairment of goodwill has occurred is increasingly difficult and requires management to exercise significant judgment. The Company's annual goodwill impairment analysis performed as of
December 31, 2017
applied the same valuation methodologies with consistent inputs as that performed as of
December 31, 2016
, as follows:
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
In estimating the fair value of the PCD, the Company uses traditional standard valuation methods, including the market comparable approach and income approach. The market comparable approach is based on comparisons of the subject company to public companies whose stocks are actively traded ("Price Multiples") or to similar companies engaged in an actual merger or acquisition ("Precedent Transactions"). As part of this process, multiples of value relative to financial variables, such as earnings or stockholders' equity, are developed and applied to the appropriate financial variables of the subject company to indicate its value. The income approach involves estimating the present value of the subject company's future cash flows by using projections of the cash flows that the business is expected to generate, and discounting these cash flows at a given rate of return ("Discounted Cash Flow" or "DCF"). Each of these standard valuation methodologies requires the use of management estimates and assumptions.
In its Price Multiples valuation analysis, the Company uses various operating metrics of comparable companies, including revenues, after-tax earnings, and EBITDA as well as price-to-book value ratios at a point in time. The Company analyzes prices paid in Precedent Transactions that are comparable to the business conducted in the PCD. The DCF analysis includes the Company's assumptions regarding discount rate, growth rates of the PCD's revenues, expenses, EBITDA, and capital expenditures, adjusted for current economic conditions and expectations. The Company weighs each of the three valuation methods equally in its overall valuation. Given the subjectivity involved in selecting which valuation method to use, the corresponding weightings, and the input variables for use in the analyses, it is possible that a different valuation model and the selection of different input variables could produce a materially different estimate of the fair value of the PCD reporting unit.
Intangible Assets
Indefinite intangible assets are comprised of trademarks and trade names. Trademarks and trade names, carried at
$31.7 million
, which are not amortized, are subject to at least an annual test for impairment to determine if the estimated fair value is less than their carrying amount. The fair value of the trademarks and trade names was substantially in excess of its carrying value as of
December 31, 2017
.
Share-Based Compensation Plans
As part of the compensation to employees and directors, the Company uses stock-based compensation, consisting of restricted stock, stock options and stock appreciation rights. In accordance with ASC Topic 718, "Compensation - Stock Compensation," the Company classifies the stock options and restricted stock awards as equity awards, which requires the compensation cost to be recognized in the consolidated statement of operations over the requisite service period of the award at grant date fair value and adjust for actual forfeitures. The fair value of restricted stock awards is determined based on the grant date closing price of the Company's Class A non-voting common stock ("Class A Stock") adjusted for the present value of the dividend to be received upon vesting. The fair value of stock options is determined using the Black-Scholes model. Key assumptions used to estimate the fair value include the expected term and the expected volatility of the Company's Class A Stock over the term of the award, the risk-free interest rate over the expected term, and the Company's expected annual dividend yield. The Company classifies stock appreciation rights ("OARs") as liability awards, which requires the fair value to be remeasured at each reporting period until the award vests. The fair value of OARs is also determined using the Black-Scholes model at the end of each reporting period. The compensation cost is adjusted each reporting period for changes in fair value prorated for the portion of the requisite service period rendered.
Revenue Recognition
Brokerage
Customers' securities and commodities transactions are reported on a settlement date basis, which is generally
two
business days after trade date for securities transactions and
one
day for commodities transactions. Related commission income and expense is recorded on a trade date basis.
Principal Transactions
Transactions in proprietary securities and related revenue and expenses are recorded on a trade date basis. Securities owned and securities sold but not yet purchased, are reported at fair value generally based upon quoted prices. Realized and unrealized changes in fair value are recognized in principal transactions, net in the period in which the change occurs.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Investment Banking Fees
Advisory fees from mergers, acquisitions and restructuring transactions are recorded when services for the transactions are completed and income is reasonably determinable, generally as set forth under the terms of the engagement. Retainer fees and engagement fees are recognized ratably over the service period.
Underwriting fees are recorded when the transactions are completed. Transaction-related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction, are deferred and recognized in the same period as the related investment banking transaction revenue. Underwriting revenues are presented net of related expenses.
Interest
Interest revenue represents interest earned on margin debit balances, securities borrowed transactions, reverse repurchase agreements, fixed income securities, firm investments, and cash and cash equivalents. Interest revenue is recognized in the period earned based upon average or daily asset balances, contractual cash flows, and interest rates.
Asset Management
Asset management fees are generally recognized over the period the related service is provided based on the account value at the valuation date per the respective asset management agreements. In certain circumstances, OAM is entitled to receive performance (or incentive) fees when the return on assets under management ("AUM") exceeds certain benchmark returns or other performance targets. Performance fees are generally based on investment performance over a 12-month period and are not subject to adjustment once the measurement period ends. Such fees are computed as of the fund's year-end when the measurement period ends and generally are recorded as earned in the fourth quarter of the Company's fiscal year. Asset management fees and performance fees are included in advisory fees in the consolidated statement of operations. Assets under management are not included as assets of the Company.
Cash Sweep Income
Cash sweep income consists of revenues earned from the Advantage Bank Deposit Program. Under this program, client funds are swept into deposit accounts at participating banks and are eligible for FDIC deposit insurance up to FDIC standard maximum deposit insurance amounts. The Company earns the fee paid on these deposits after administrative fees are paid to the administrator of the program. The fee earned in the period is recorded in other revenue and the portion of interest credit to clients is recorded in interest expense in the consolidated statement of operations.
Balance Sheet
Cash and Cash Equivalents
The Company defines cash equivalents as highly liquid investments with original maturities of less than
90
days that are not held for sale in the ordinary course of business.
Receivables from / Payables to Brokers, Dealers and Clearing Organizations
Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. The Company receives cash or collateral in an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis and may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.
Securities failed to deliver and receive represent the contract value of securities which have not been delivered or received, respectively, by settlement date.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
Reverse repurchase agreements and securities sold under agreements to repurchase ("repurchase agreements") are treated as collateralized financing transactions and are recorded at their contractual amounts plus accrued interest. The resulting interest income and expense for these arrangements are included in interest income and interest expense in the consolidated statement of operations. Additionally, the Company elected the fair value option for repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. The Company can present the reverse repurchase and repurchase transactions on a net-by-counterparty basis when the specific offsetting requirements are satisfied.
Notes Receivable
Notes receivable represent recruiting and retention payments generally in the form of upfront loans to financial advisers and key revenue producers as part of the Company's overall growth strategy. These notes amortize over a service period of
3
to
5
years from the initial date of the note or based on productivity levels of employees. All such notes are contingent on the employees' continued employment with the Company. The unforgiven portion of the notes becomes due on demand in the event the employee departs during the service period. Amortization of notes receivable is included in the consolidated statement of operations in compensation and related expenses.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation of furniture, fixtures, and equipment is provided on a straight-line basis generally over
3
-
7
years. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the improvement or the remaining term of the lease. Leases with escalating rents are expensed on a straight-line basis over the life of the lease. Landlord incentives are recorded as deferred rent and amortized, as reductions to lease expense, on a straight-line basis over the life of the applicable lease. Deferred rent is included in accounts payable and other liabilities on the consolidated balance sheet.
Drafts Payable
Drafts payable represent amounts drawn by the Company against a bank.
Foreign Currency Translations
Foreign currency balances have been translated into U.S. dollars as follows: monetary assets and liabilities at exchange rates prevailing at period end; revenue and expenses at average rates for the period; and non-monetary assets and stockholders' equity at historical rates. The functional currency of the overseas operations is the local currency in each location except for Oppenheimer Europe Ltd. and Oppenheimer Investments Asia Limited which have the U.S. dollar as their functional currency.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and the results of recent operations.
The Company records uncertain tax positions in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740, "Income Taxes" on the basis of a two-step process whereby it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively, in its consolidated statement of operations.
The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if such earnings were repatriated.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and complex changes to the U.S. tax code. On the same date, the SEC staff issued Staff Accounting Bulletin ("SAB") 118 which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
The Company has not completed its accounting for the income tax effects of certain elements of the TCJA. However, the Company was able to make reasonable estimates of the effects of certain elements and recorded a provisional estimate in the consolidated financial statements. The estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the Company's current interpretations of the TCJA, and may change as it receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time. The Company is expected to complete its analysis within the measurement period in accordance with SAB 118. See note 13, Income taxes.
New Accounting Pronouncements
Recently Issued
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Additionally, the ASU expands the disclosure requirements for revenue recognition. In 2016, the FASB additionally issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. All of these standards are effective either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption, during interim and annual periods beginning after December 15, 2017. The Company has elected the modified retrospective method and will include any cumulative-effect adjustment as of the date of the adoption. The Company's implementation team performed an in-depth review of the Company's revenue streams and evaluated the impact of the adoption of these updates on the Company's financial condition, results of operations, cash flows, and disclosures. The Company completed the assessment and determined that the adoption of the new guidance will not have a material impact on the Company's consolidated financial statements. The Company concluded that it will continue to recognize the upfront banking advisory fees (e.g., retainer and engagement fees) ratably over the service period. The new guidance will require underwriting expenses to be recorded on a gross basis while the current guidance requires recognizing underwriting revenues net of related underwriting expenses. In addition, the new guidance will require enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition.
In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities," which revises an entity's accounting related to the classification and measurement of investments in equity securities, changes the presentation of certain fair value changes relating to instrument specific credit risk for financial liabilities and amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for fiscal years beginning after December 15, 2017. The adoption of the ASU will not have a material impact on the Company's consolidated financial statements.
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OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
In February 2016, the FASB issued ASU 2016-02, "Leases." The ASU requires the recognition of a right-of use asset and lease liability on the balance sheet by lessees for those leases classified as operating leases under previous guidance. The ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this ASU which it expects will have a material impact on its consolidated financial statements. Since the Company has operating leases in over 100 locations, the Company expects to recognize a significant right-of use asset and lease liability on its consolidated balance sheet upon adoption of this ASU.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to U.S. GAAP an impairment model ("current expected credit loss model"). Under this new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is effective for the fiscal year beginning after December 15, 2019. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flow. The ASU is effective for the fiscal year beginning after December 15, 2017 and early adoption is permitted. The Company did not early adopt this ASU. The Company has evaluated the impact of the ASU and the adoption of the ASU is not expected to have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flow - Restricted Cash," which adds or clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. The ASU is effective for the fiscal year beginning after December 15, 2017 and early adoption is permitted. The Company did not early adopt this ASU. The Company has evaluated the impact of the ASU and the adoption of the ASU is not expected to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other, Simplifying the Test for Goodwill Impairment," which simplifies the subsequent measurement of goodwill. Under this ASU, the Company will no longer be required to perform its Step 2 goodwill impairment test; instead, the Company should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The ASU is effective for the fiscal year beginning after December 15, 2019 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities," which amends the hedge accounting recognition and presentation requirements. The ASU improves the transparency and understandability of information conveyed to financial statement users by better aligning companies' hedging relationship to their existing risk management strategies, simplifies the application of hedge accounting and increases transparency regarding the scope and results of the hedging program. The ASU is effective for the fiscal year beginning after December 15, 2019 and early adoption is permitted. The Company will not early adopt this ASU. The Company is currently evaluating the impact of the ASU, but the adoption of the ASU is not expected to have a material impact on its consolidated financial statements.
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OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
3. Discontinued operations
OMHHF historically was engaged in the business of originating and servicing FHA-insured multifamily and healthcare facility loans and securitizing these loans into GNMA mortgage backed securities. OMHHF offered mortgage services to developers of commercial properties including apartments, elderly housing and nursing homes that satisfy FHA criteria. OMHHF maintained a mortgage servicing portfolio for which it provided a full array of services, including the collection of mortgage payments from mortgagors which were passed on to the mortgage holders, construction loan management and asset management.
The Company owns an
83.68%
controlling interest in OMHHF. The
16.32%
noncontrolling interest belongs to one related party who was the President and Chief Executive Officer of OMHHF.
On June 2, 2016, OMHHF entered into a definitive agreement to sell OMHHF's entire portfolio of permanent mortgage loans (consisting of over
480
permanent loans insured by the U.S. Department of Housing and Urban Development), including the associated mortgage servicing rights. On June 20, 2016, OMHHF completed the transaction for cash consideration of approximately
$45.0 million
. An amount equal to
$1.4 million
was withheld from the purchase price until such time as one loan in the mortgage loan portfolio became current or was modified. The Company recorded a net gain of
$14.9 million
related to this transaction which was included in discontinued operations in the consolidated statement of operations during the second quarter of 2016. During the second quarter of 2016, OMHHF also sold its business pipeline of mortgage loans for approximately
$1.5 million
. During the third quarter of 2016,
th
e Company recognized the
$1.4 million
that was withheld from the purchase price of the permanent mortgage loans as a result of the loan being modified as a gain. Also, OMHHF sold its construction loan portfolio and the associated mortgage servicing rights for approximately
$3.8 million
.
OMHHF made dividend distributions to the noncontrolling interest in the amounts of
$2.4 million
and
$5.7 million
in the years ended
December 31, 2017
and
2016
, respectively.
The Company determined that the sale of the assets of OMHHF met the criteria to be classified within discontinued operations, and the results of OMHHF are reported as discontinued operations in the consolidated statements of operations.
The following is a summary of revenue and expenses of OMHHF for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
REVENUE
|
|
|
|
|
|
Interest
|
$
|
8
|
|
|
$
|
943
|
|
|
$
|
1,999
|
|
Principal transactions, net
|
—
|
|
|
(9,022
|
)
|
|
5,323
|
|
Gain on sale of assets
|
—
|
|
|
16,475
|
|
|
—
|
|
Other
(1)
|
2,165
|
|
|
16,917
|
|
|
23,262
|
|
Total revenue
|
2,173
|
|
|
25,313
|
|
|
30,584
|
|
EXPENSES
|
|
|
|
|
|
Compensation and related expenses
|
18
|
|
|
4,311
|
|
|
12,406
|
|
Communications and technology
|
27
|
|
|
221
|
|
|
361
|
|
Occupancy and equipment costs
|
—
|
|
|
415
|
|
|
302
|
|
Interest
|
12
|
|
|
408
|
|
|
994
|
|
Other
|
45
|
|
|
2,619
|
|
|
7,382
|
|
Total expenses
|
102
|
|
|
7,974
|
|
|
21,445
|
|
Income before income taxes
|
$
|
2,071
|
|
|
$
|
17,339
|
|
|
$
|
9,139
|
|
Income attributable to noncontrolling interest before income taxes
|
$
|
338
|
|
|
$
|
2,830
|
|
|
$
|
1,491
|
|
|
|
(1)
|
Other revenue for the year ended
December 31, 2017
was primarily due to an earn-out from the sale of OMHHF's pipeline business in 2016.
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OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The following is a summary of cash flows of OMHHF for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cash provided by (used in) operating activities
|
$
|
5,721
|
|
|
$
|
(14,097
|
)
|
|
$
|
3,322
|
|
Cash provided by investing activities
|
—
|
|
|
45,448
|
|
|
—
|
|
Cash used in financing activities
(1) (2)
|
(20,035
|
)
|
|
(35,421
|
)
|
|
(249
|
)
|
Net (decrease) increase in cash and cash equivalents
|
$
|
(14,314
|
)
|
|
$
|
(4,070
|
)
|
|
$
|
3,073
|
|
|
|
(1)
|
Includes cash dividends paid to OMHHF's parent (E.A. Viner International Co.) and noncontrolling interest of
$12.6 million
and
$2.4 million
, respectively, for the year ended
December 31, 2017
(
$29.4 million
and
$5.7 million
, respectively, for the year ended
December 31, 2016
.)
|
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|
(2)
|
Includes
$5.0 million
paid to OMHHF's parent due to redemption of the parent's outstanding preferred stock for the year ended December 31, 2017.
|
4. Receivable from and payable to brokers, dealers and clearing organizations
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Receivable from brokers, dealers and clearing organizations consists of:
|
|
|
|
Securities borrowed
|
$
|
132,368
|
|
|
$
|
154,090
|
|
Receivable from brokers
|
19,298
|
|
|
25,768
|
|
Securities failed to deliver
|
9,442
|
|
|
6,172
|
|
Clearing organizations
|
24,361
|
|
|
26,081
|
|
Other
|
1,646
|
|
|
2,823
|
|
Total
|
$
|
187,115
|
|
|
$
|
214,934
|
|
Payable to brokers, dealers and clearing organizations consists of:
|
|
|
|
Securities loaned
|
$
|
180,270
|
|
|
$
|
179,875
|
|
Payable to brokers
|
1,567
|
|
|
610
|
|
Securities failed to receive
|
17,559
|
|
|
11,523
|
|
Other
|
12,087
|
|
|
29,381
|
|
Total
|
$
|
211,483
|
|
|
$
|
221,389
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
5. Fair value measurements
Securities owned, 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.
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. Government Obligations
U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.
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.
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.
Corporate Debt and Other Obligations
The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information.
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. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds.
Municipal Obligations
The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information.
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.
Corporate Equities
Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads.
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OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Auction Rate Securities ("ARS")
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 ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of
December 31, 2017
, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client-related legal settlements and awards to purchase ARS, as of
December 31, 2017
, the Company purchased and holds (net of redemptions) approximately
$113.9 million
in ARS from its clients. In addition, the Company is committed to purchase another
$11.0 million
in ARS from clients through
2020
under legal settlements and awards.
The ARS positions that the Company owns and is committed to purchase 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.
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 of 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. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula. For example, an auction rate preferred security maximum rate may be set at 200% of a short-term index such as LIBOR or U.S. Treasury yield. For fair value purposes, the Company has determined that the maximum spread would be an adequate risk premium to account for illiquidity in the market. Accordingly, the Company applies a spread to the short-term index for each asset class to derive the discount rate. The Company uses short-term U.S. Treasury yields as its benchmark short-term index. The risk of non-performance is typically reflected in the prices of ARS positions where the fair value is derived from recent trades in the secondary market.
The ARS purchase commitment, or derivative asset or liability, arises from both the settlements with the Regulators and legal settlements and awards. The ARS purchase commitment represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase. The Company utilizes the same valuation methodology for the ARS purchase commitment as it does for the ARS it owns. Additionally, the present value of the future principal value of ARS purchase commitments under legal settlements and awards is used in the discounted valuation model to reflect the time value of money over the period of time that the commitments are outstanding. The amount of the ARS purchase commitment only becomes determinable once the Company has met with its primary regulator and the NYAG and agreed upon a buyback amount, commenced the ARS buyback offer to clients, and received notice from its clients which ARS they are tendering. As a result, it is not possible to observe the current yields actually paid on the ARS until all of these events have happened which is typically very close to the time that the Company actually purchases the ARS. For ARS purchase commitments pursuant to legal settlements and awards, the criteria for purchasing ARS from clients is based on the nature of the settlement or award which will stipulate a time period and amount for each repurchase. The Company will not know which ARS will be tendered by the client until the stipulated time for repurchase is reached. Therefore, the Company uses the current yields of ARS owned in its discounted valuation model to determine a fair value of ARS purchase commitments. The Company also uses these current yields by asset class (i.e., auction rate preferred securities, municipal auction rate securities, and student loan auction rate securities) in its discounted valuation model to determine the fair value of ARS purchase commitments. In addition, the Company uses the discount rate and duration of ARS owned, by asset class, as a proxy for the duration of ARS purchase commitments.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Additional information regarding the valuation technique and inputs for ARS used is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Quantitative Information about ARS Level 3 Fair Value Measurements as of December 31, 2017
|
Product
|
|
Principal
|
|
Valuation
Adjustment
|
|
Fair
Value
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
Weighted
Average
|
Auction Rate Securities Owned
(1)
|
Auction Rate Preferred Securities
|
|
$
|
88,025
|
|
|
$
|
1,318
|
|
|
$
|
86,707
|
|
|
Discounted Cash Flow
|
|
Discount Rate
(2)
|
|
2.30% to 3.13%
|
|
2.74%
|
|
|
|
|
|
|
|
|
|
|
Duration
|
|
4.0 Years
|
|
4.0 Years
|
|
|
|
|
|
|
|
|
|
|
Current Yield
(3)
|
|
2.37% to 2.47%
|
|
2.41%
|
|
|
11,725
|
|
|
—
|
|
|
11,725
|
|
|
Par
(7)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
13,400
|
|
|
670
|
|
|
12,730
|
|
|
Tender Offer
(8)
|
|
N/A
|
|
N/A
|
|
N/A
|
Municipal Auction Rate Securities
|
|
425
|
|
|
23
|
|
|
402
|
|
|
Discounted Cash Flow
|
|
Discount Rate
(4)
|
|
3.76%
|
|
3.76%
|
|
|
|
|
|
|
|
|
|
|
Duration
|
|
4.5 Years
|
|
4.5 Years
|
|
|
|
|
|
|
|
|
|
|
Current Yield
(3)
|
|
2.41%
|
|
2.41%
|
Student Loan Auction Rate Securities
|
|
300
|
|
|
11
|
|
|
289
|
|
|
Discounted Cash Flow
|
|
Discount Rate
(5)
|
|
3.53%
|
|
3.53%
|
|
|
|
|
|
|
|
|
|
|
Duration
|
|
7.0 Years
|
|
7.0 Years
|
|
|
|
|
|
|
|
|
|
|
Current Yield
(3)
|
|
2.93%
|
|
2.93%
|
|
|
$
|
113,875
|
|
|
$
|
2,022
|
|
|
$
|
111,853
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities Commitments to Purchase
(6)
|
|
|
|
|
|
|
|
|
Auction Rate Preferred Securities
|
|
$
|
10,992
|
|
|
$
|
8
|
|
|
$
|
10,984
|
|
|
Discounted Cash Flow
|
|
Discount Rate
(2)
|
|
2.30% to 3.13%
|
|
2.74%
|
|
|
|
|
|
|
|
|
|
|
Duration
|
|
4.0 Years
|
|
4.0 Years
|
|
|
|
|
|
|
|
|
|
|
Current Yield
(3)
|
|
2.37% to 2.47%
|
|
2.41%
|
|
|
$
|
10,992
|
|
|
$
|
8
|
|
|
$
|
10,984
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,867
|
|
|
$
|
2,030
|
|
|
$
|
122,837
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Principal amount represents the par value of the ARS and is included in securities owned on the consolidated balance sheet as of
December 31, 2017
. The valuation adjustment amount is included as a reduction to securities owned on the consolidated balance sheet as of
December 31, 2017
.
|
|
|
(2)
|
Derived by applying a multiple to the spread between
110%
to
150%
to the U.S. Treasury rate of
2.09%
.
|
|
|
(3)
|
Based on current yields for ARS positions owned.
|
|
|
(4)
|
Derived by applying a multiple to the spread of
175%
to the U.S. Treasury rate of
2.15%
.
|
|
|
(5)
|
Derived by applying the sum of the spread of
1.20%
to the U.S. Treasury rate of
2.33%
.
|
|
|
(6)
|
Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment amount is included in accounts payable and other liabilities on the consolidated balance sheet as of
December 31, 2017
.
|
|
|
(7)
|
ARS issuer announced redemption at par to take place during the first quarter of 2018. Included in Level 2 of the fair value hierarchy.
|
|
|
(8)
|
ARS issuer announced tender offer at
95%
of par. Included in Level 2 of the fair value hierarchy.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The fair value of ARS and ARS purchase commitments 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 effect 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. For example, see the following sensitivities:
|
|
•
|
The impact of a
25
basis point increase in the discount rate at
December 31, 2017
would result in a decrease in the fair value of
$430,000
(does not consider a corresponding reduction in duration as discussed above).
|
|
|
•
|
The impact of a
50
basis point increase in the discount rate at
December 31, 2017
would result in a decrease in the fair value of
$856,000
(does not consider a corresponding reduction in duration as discussed above).
|
These sensitivities are hypothetical and are based on scenarios where they are "stressed" and should be used with caution. These estimates do not include all of the interplay among assumptions and are estimated as a portfolio rather than as individual assets.
Due to the less observable nature of these inputs, ARS are primarily categorized in Level 3 of the fair value hierarchy. As of
December 31, 2017
, the Company had a valuation adjustment (unrealized loss) of
$2.0 million
for ARS owned which is included as a reduction to securities owned on the consolidated balance sheet. As of
December 31, 2017
, the Company also had a valuation adjustment of
$8,000
on ARS purchase commitments from legal settlements and awards which is included in accounts payable and other liabilities on the consolidated balance sheet. The total valuation adjustment was
$2.0 million
as of
December 31, 2017
. The valuation adjustment represents the difference between the principal value and the fair value of the ARS owned and ARS purchase commitments.
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.
The following table provides information about the Company's investments in Company-sponsored funds as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Unfunded
Commitments
|
|
Redemption
Frequency
|
|
Redemption
Notice Period
|
Hedge funds
(1)
|
$
|
2,618
|
|
|
$
|
—
|
|
|
Quarterly - Annually
|
|
30 - 120 Days
|
Private equity funds
(2)
|
4,999
|
|
|
1,400
|
|
|
N/A
|
|
N/A
|
|
$
|
7,617
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
(1)
|
Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies. Each hedge fund has various restrictions regarding redemption; no investment is locked-up for a period greater than one year.
|
|
|
(2)
|
Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and global natural resources. Due to the illiquid nature of these funds, investors are not permitted to make withdrawals without the consent of the general partner. The lock-up period of the private equity funds can extend to
10
years.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Valuation Process
The Company's Finance & Accounting ("F&A") group is responsible for the Company's fair value policies, processes and procedures. F&A is independent from the business units and trading desks and is headed by the Company's Chief Financial Officer ("CFO"), who has final authority over the valuation of the Company's financial instruments. The Finance Control Group ("FCG") within F&A is responsible for daily profit and loss reporting, front-end trading system position reconciliations, monthly profit and loss reporting, and independent price verification procedures.
For financial instruments categorized in Levels 1 and 2 of the fair value hierarchy, the FCG performs a monthly independent price verification to determine the reasonableness of the prices provided by the Company's independent pricing vendor. The FCG uses its third-party pricing vendor, executed transactions, and broker-dealer quotes for validating the fair values of financial instruments.
For financial instruments categorized in Level 3 of the fair value hierarchy measured on a recurring basis, primarily for ARS, a group comprised of the CFO, the Controller, and an Operations Director are responsible for the ARS valuation model and resulting fair valuations. Procedures performed include aggregating all ARS owned by type from firm inventory accounts and ARS purchase commitments from regulatory and legal settlements and awards provided by the Legal Department. Observable and unobservable inputs are aggregated from various sources and entered into the ARS valuation model. For unobservable inputs, the group reviews the appropriateness of the inputs to ensure consistency with how a market participant would arrive at the unobservable input. For example, for the duration assumption, the group would consider recent policy statements regarding short-term interest rates by the Federal Reserve and recent ARS issuer redemptions and announcements for future redemptions. The model output is reviewed for reasonableness and consistency. Where available, comparisons are performed between ARS owned or committed to purchase to ARS that are trading in the secondary market.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Assets and Liabilities Measured at Fair Value
The Company's assets and liabilities, recorded at fair value on a recurring basis as of
December 31, 2017
and
2016
, have been categorized based upon the above fair value hierarchy as follows:
Assets and liabilities measured at fair value on a recurring basis as of
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
10,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,490
|
|
Deposits with clearing organizations
|
34,293
|
|
|
—
|
|
|
—
|
|
|
34,293
|
|
Securities owned:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
640,337
|
|
|
—
|
|
|
—
|
|
|
640,337
|
|
U.S. Agency securities
|
3,011
|
|
|
6,894
|
|
|
—
|
|
|
9,905
|
|
Sovereign obligations
|
—
|
|
|
608
|
|
|
—
|
|
|
608
|
|
Corporate debt and other obligations
|
—
|
|
|
12,538
|
|
|
—
|
|
|
12,538
|
|
Mortgage and other asset-backed securities
|
—
|
|
|
4,037
|
|
|
—
|
|
|
4,037
|
|
Municipal obligations
|
—
|
|
|
89,618
|
|
|
35
|
|
|
89,653
|
|
Convertible bonds
|
—
|
|
|
23,216
|
|
|
—
|
|
|
23,216
|
|
Corporate equities
|
34,067
|
|
|
—
|
|
|
—
|
|
|
34,067
|
|
Money markets
|
383
|
|
|
—
|
|
|
—
|
|
|
383
|
|
Auction rate securities
|
—
|
|
|
24,455
|
|
|
87,398
|
|
|
111,853
|
|
Securities owned, at fair value
|
677,798
|
|
|
161,366
|
|
|
87,433
|
|
|
926,597
|
|
Investments
(1)
|
—
|
|
|
—
|
|
|
169
|
|
|
169
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
TBAs
|
—
|
|
|
716
|
|
|
—
|
|
|
716
|
|
Total
|
$
|
722,581
|
|
|
$
|
162,082
|
|
|
$
|
87,602
|
|
|
$
|
972,265
|
|
Liabilities
|
|
|
|
|
|
|
|
Securities sold but not yet purchased:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
53,425
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,425
|
|
U.S. Agency securities
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Sovereign obligations
|
—
|
|
|
1,179
|
|
|
—
|
|
|
1,179
|
|
Corporate debt and other obligations
|
—
|
|
|
4,357
|
|
|
—
|
|
|
4,357
|
|
Mortgage and other asset-backed securities
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Convertible bonds
|
—
|
|
|
10,109
|
|
|
—
|
|
|
10,109
|
|
Corporate equities
|
25,393
|
|
|
—
|
|
|
—
|
|
|
25,393
|
|
Securities sold but not yet purchased, at fair value
|
78,818
|
|
|
15,668
|
|
|
—
|
|
|
94,486
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
Futures
|
766
|
|
|
—
|
|
|
—
|
|
|
766
|
|
TBAs
|
—
|
|
|
614
|
|
|
—
|
|
|
614
|
|
ARS purchase commitments
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
Derivative contracts, total
|
766
|
|
|
614
|
|
|
8
|
|
|
1,388
|
|
Total
|
$
|
79,584
|
|
|
$
|
16,282
|
|
|
$
|
8
|
|
|
$
|
95,874
|
|
(1)
Included in other assets on the consolidated balance sheet.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
16,242
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,242
|
|
Deposits with clearing organizations
|
26,437
|
|
|
—
|
|
|
—
|
|
|
26,437
|
|
Securities owned:
|
|
|
|
|
|
|
|
U.S. Treasury securities
(1)
|
418,888
|
|
|
—
|
|
|
—
|
|
|
418,888
|
|
U.S. Agency securities
|
5,878
|
|
|
32,391
|
|
|
—
|
|
|
38,269
|
|
Sovereign obligations
|
—
|
|
|
1,894
|
|
|
—
|
|
|
1,894
|
|
Corporate debt and other obligations
|
—
|
|
|
17,074
|
|
|
—
|
|
|
17,074
|
|
Mortgage and other asset-backed securities
|
—
|
|
|
5,024
|
|
|
—
|
|
|
5,024
|
|
Municipal obligations
|
—
|
|
|
56,706
|
|
|
44
|
|
|
56,750
|
|
Convertible bonds
|
—
|
|
|
56,480
|
|
|
—
|
|
|
56,480
|
|
Corporate equities
|
31,174
|
|
|
—
|
|
|
—
|
|
|
31,174
|
|
Money markets
|
189
|
|
|
—
|
|
|
—
|
|
|
189
|
|
Auction rate securities
|
—
|
|
|
—
|
|
|
84,926
|
|
|
84,926
|
|
Securities owned, at fair value
|
456,129
|
|
|
169,569
|
|
|
84,970
|
|
|
710,668
|
|
Investments
(2)
|
—
|
|
|
—
|
|
|
158
|
|
|
158
|
|
Securities purchased under agreements to resell
(3)
|
—
|
|
|
24,006
|
|
|
—
|
|
|
24,006
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
TBAs
|
—
|
|
|
814
|
|
|
—
|
|
|
814
|
|
ARS purchase commitments
|
—
|
|
|
—
|
|
|
849
|
|
|
849
|
|
Derivative contracts, total
|
—
|
|
|
814
|
|
|
849
|
|
|
1,663
|
|
Total
|
$
|
498,808
|
|
|
$
|
194,389
|
|
|
$
|
85,977
|
|
|
$
|
779,174
|
|
Liabilities
|
|
|
|
|
|
|
|
Securities sold but not yet purchased:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
28,662
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,662
|
|
U.S. Agency securities
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Corporate debt and other obligations
|
—
|
|
|
2,536
|
|
|
—
|
|
|
2,536
|
|
Mortgage and other asset-backed securities
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
Municipal obligations
|
—
|
|
|
516
|
|
|
—
|
|
|
516
|
|
Convertible bonds
|
—
|
|
|
11,604
|
|
|
—
|
|
|
11,604
|
|
Corporate equities
|
41,689
|
|
|
—
|
|
|
—
|
|
|
41,689
|
|
Securities sold but not yet purchased, at fair value
|
70,351
|
|
|
14,699
|
|
|
—
|
|
|
85,050
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
Futures
|
166
|
|
|
—
|
|
|
—
|
|
|
166
|
|
Foreign exchange forward contracts
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
TBAs
|
—
|
|
|
1,212
|
|
|
—
|
|
|
1,212
|
|
ARS purchase commitments
|
—
|
|
|
—
|
|
|
645
|
|
|
645
|
|
Derivative contracts, total
|
167
|
|
|
1,212
|
|
|
645
|
|
|
2,024
|
|
Total
|
$
|
70,518
|
|
|
$
|
15,911
|
|
|
$
|
645
|
|
|
$
|
87,074
|
|
|
|
(1)
|
$3.6 million
is included in other assets on the consolidated balance sheet.
|
|
|
(2)
|
Included in other assets on the consolidated balance sheet.
|
|
|
(3)
|
Included in securities purchased under agreements to resell on the consolidated balance sheet where the Company has elected fair value option treatment.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
During the year ended December 31, 2017, the Company transferred
$24.5 million
in ARS from Level 3 to Level 2 of the fair value hierarchy due to redemption and tender offer announcements by issuers of auction rate preferred securities. There were no transfers between any of the levels during the year ended December 31,
2016
.
The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
Level 3 Assets and Liabilities
|
|
For the Year Ended December 31, 2017
|
|
Beginning
Balance
|
|
Total Realized
and Unrealized
Gains
(Losses)
(3)(4)
|
|
Purchases
and Issuances
|
|
Sales and Settlements
|
|
Transfers
In (Out)
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
$
|
44
|
|
|
$
|
(9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35
|
|
Auction rate securities
(1)
|
84,926
|
|
|
1,177
|
|
|
27,225
|
|
|
(1,475
|
)
|
|
(24,455
|
)
|
|
87,398
|
|
Investments
|
158
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
169
|
|
ARS purchase commitments
(2)
|
849
|
|
|
(849
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
ARS purchase commitments
(2)
|
645
|
|
|
637
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
|
(1)
|
Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.
|
|
|
(2)
|
Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
|
|
|
(3)
|
Included in principal transactions in the consolidated statement of operations, except for gains from investments which are included in other income in the consolidated statement of operations.
|
|
|
(4)
|
Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
Level 3 Assets and Liabilities
|
|
For the Year Ended December 31, 2016
|
|
Beginning
Balance
|
|
Total Realized
and Unrealized
Gains
(4)(5)
|
|
Purchases
and Issuances
|
|
Sales and Settlements
|
|
Transfers
In (Out)
|
|
Ending
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations
|
$
|
81
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
|
$
|
—
|
|
|
$
|
44
|
|
Auction rate securities
(1)(6)(7)
|
86,802
|
|
|
1,974
|
|
|
13,775
|
|
|
(17,625
|
)
|
|
—
|
|
|
84,926
|
|
Interest rate lock commitments
(2)
|
9,161
|
|
|
4,345
|
|
|
—
|
|
|
(13,506
|
)
|
|
—
|
|
|
—
|
|
Investments
|
157
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
158
|
|
ARS purchase commitments
(3)
|
—
|
|
|
849
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
849
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments
(2)
|
923
|
|
|
923
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
ARS purchase commitments
(3)
|
1,369
|
|
|
724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
645
|
|
|
|
(1)
|
Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.
|
|
|
(2)
|
Interest rate lock commitment assets and liabilities are recorded upon the commitment to originate a loan with a borrower and sell the loan to an investor. The commitment assets and liabilities are recognized at fair value, which reflects the fair value of the contractual loan origination-related fees and sale premiums, net of co-broker fees, and the estimated fair value of the expected net future cash flows associated with the servicing of the loan.
|
|
|
(3)
|
Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
|
|
|
(4)
|
Included in principal transactions in the consolidated statement of operations, except for gains from investments which are included in other income in the consolidated statement of operations.
|
|
|
(5)
|
Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.
|
|
|
(6)
|
Purchases and issuances in connection with ARS purchase commitments represent instances in which the Company purchased ARS securities from clients during the period pursuant to regulatory and legal settlements and awards that satisfy the outstanding commitment to purchase obligation. This also includes instances where the ARS issuer has redeemed ARS where the Company had an outstanding purchase commitment prior to the Company purchasing those ARS.
|
|
|
(7)
|
Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the period for regulatory and legal ARS settlements and awards.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Financial Instruments Not Measured at Fair Value
The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., furniture, equipment and leasehold improvements and accrued compensation).
The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 (e.g., cash and receivables from customers) approximates fair value because of the relatively short term nature of the underlying assets. The fair value of the Company's Senior Secured Notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the Notes trade.
Assets and liabilities not measured at fair value as of
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
Fair Value Measurement: Assets
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash
|
$
|
37,664
|
|
|
$
|
37,664
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,664
|
|
Cash segregated for regulatory and other purposes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deposits with clearing organization
|
7,929
|
|
|
7,929
|
|
|
—
|
|
|
—
|
|
|
7,929
|
|
Receivable from brokers, dealers and clearing organizations:
|
|
|
|
|
|
|
|
|
|
Securities borrowed
|
132,368
|
|
|
—
|
|
|
132,368
|
|
|
—
|
|
|
132,368
|
|
Receivables from brokers
|
19,298
|
|
|
—
|
|
|
19,298
|
|
|
—
|
|
|
19,298
|
|
Securities failed to deliver
|
9,442
|
|
|
—
|
|
|
9,442
|
|
|
—
|
|
|
9,442
|
|
Clearing organizations
|
24,361
|
|
|
—
|
|
|
24,361
|
|
|
—
|
|
|
24,361
|
|
Other
|
930
|
|
|
—
|
|
|
930
|
|
|
—
|
|
|
930
|
|
|
186,399
|
|
|
—
|
|
|
186,399
|
|
|
—
|
|
|
186,399
|
|
Receivable from customers
|
848,226
|
|
|
—
|
|
|
848,226
|
|
|
—
|
|
|
848,226
|
|
Securities purchased under agreements to resell
|
658
|
|
|
|
|
|
658
|
|
|
—
|
|
|
658
|
|
Notes receivable, net
|
40,520
|
|
|
|
|
|
40,520
|
|
|
—
|
|
|
40,520
|
|
Investments
(1)
|
65,404
|
|
|
—
|
|
|
65,404
|
|
|
—
|
|
|
65,404
|
|
|
|
(1)
|
Included in other assets on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
Fair Value Measurement: Liabilities
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Drafts payable
|
$
|
42,412
|
|
|
$
|
42,412
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,412
|
|
Bank call loans
|
118,300
|
|
|
—
|
|
|
118,300
|
|
|
—
|
|
|
118,300
|
|
Payables to brokers, dealers and clearing organizations:
|
|
|
|
|
|
|
|
|
|
Securities loaned
|
180,270
|
|
|
—
|
|
|
180,270
|
|
|
—
|
|
|
180,270
|
|
Payable to brokers
|
1,567
|
|
|
—
|
|
|
1,567
|
|
|
—
|
|
|
1,567
|
|
Securities failed to receive
|
17,559
|
|
|
—
|
|
|
17,559
|
|
|
—
|
|
|
17,559
|
|
Other
|
10,707
|
|
|
—
|
|
|
10,707
|
|
|
—
|
|
|
10,707
|
|
|
210,103
|
|
|
—
|
|
|
210,103
|
|
|
—
|
|
|
210,103
|
|
Payables to customers
|
385,907
|
|
|
—
|
|
|
385,907
|
|
|
—
|
|
|
385,907
|
|
Securities sold under agreements to repurchase
|
586,478
|
|
|
—
|
|
|
586,478
|
|
|
—
|
|
|
586,478
|
|
Senior secured notes
|
200,000
|
|
|
—
|
|
|
206,380
|
|
|
—
|
|
|
206,380
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Assets and liabilities not measured at fair value as of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
Fair Value Measurement: Assets
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash
|
$
|
48,671
|
|
|
$
|
48,671
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,671
|
|
Deposits with clearing organization
|
11,748
|
|
|
11,748
|
|
|
—
|
|
|
—
|
|
|
11,748
|
|
Receivable from brokers, dealers and clearing organizations:
|
|
|
|
|
|
|
|
|
|
Securities borrowed
|
154,090
|
|
|
—
|
|
|
154,090
|
|
|
—
|
|
|
154,090
|
|
Receivables from brokers
|
25,768
|
|
|
—
|
|
|
25,768
|
|
|
—
|
|
|
25,768
|
|
Securities failed to deliver
|
6,172
|
|
|
—
|
|
|
6,172
|
|
|
—
|
|
|
6,172
|
|
Clearing organizations
|
26,081
|
|
|
—
|
|
|
26,081
|
|
|
—
|
|
|
26,081
|
|
Other
|
2,823
|
|
|
—
|
|
|
2,823
|
|
|
—
|
|
|
2,823
|
|
|
214,934
|
|
|
—
|
|
|
214,934
|
|
|
—
|
|
|
214,934
|
|
Receivable from customers
|
847,386
|
|
|
—
|
|
|
847,386
|
|
|
—
|
|
|
847,386
|
|
Notes receivable, net
|
30,099
|
|
|
|
|
30,099
|
|
|
|
|
30,099
|
|
Investments
(1)
|
56,300
|
|
|
—
|
|
|
56,300
|
|
|
—
|
|
|
56,300
|
|
|
|
(1)
|
Included in other assets on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
Fair Value Measurement: Liabilities
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Drafts payable
|
$
|
39,228
|
|
|
$
|
39,228
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,228
|
|
Bank call loans
|
145,800
|
|
|
—
|
|
|
145,800
|
|
|
—
|
|
|
145,800
|
|
Payables to brokers, dealers and clearing organizations:
|
|
|
|
|
|
|
|
|
|
Securities loaned
|
179,875
|
|
|
—
|
|
|
179,875
|
|
|
—
|
|
|
179,875
|
|
Payable to brokers
|
610
|
|
|
—
|
|
|
610
|
|
|
—
|
|
|
610
|
|
Securities failed to receive
|
11,523
|
|
|
—
|
|
|
11,523
|
|
|
—
|
|
|
11,523
|
|
Other
|
29,381
|
|
|
—
|
|
|
29,381
|
|
|
—
|
|
|
29,381
|
|
|
221,389
|
|
|
—
|
|
|
221,389
|
|
|
—
|
|
|
221,389
|
|
Payables to customers
|
449,946
|
|
|
—
|
|
|
449,946
|
|
|
—
|
|
|
449,946
|
|
Securities sold under agreements to repurchase
|
378,084
|
|
|
—
|
|
|
378,084
|
|
|
—
|
|
|
378,084
|
|
Senior secured notes
|
150,000
|
|
|
—
|
|
|
151,782
|
|
|
—
|
|
|
151,782
|
|
Fair Value Option
The Company elected the fair value option for repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. 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 mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of
December 31, 2017
, the Company did not have any reverse repurchase agreements and repurchase agreements for which the fair value option was elected.
Derivative Instruments and Hedging Activities
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. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the consolidated balance sheet.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
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 Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets on the consolidated balance sheet and other income in the consolidated statement of operations.
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, General Collateral futures and Eurodollar contracts which are used primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the consolidated statement of operations as principal transactions revenue, net.
To-be-announced securities
The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. 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 on the consolidated balance sheet in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations, respectively, and in the consolidated statement of operations as principal transactions revenue, net.
The notional amounts and fair values of the Company's derivatives as of
December 31, 2017
and
2016
by product were as follows:
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
Fair Value of Derivative Instruments as of December 31, 2017
|
|
Description
|
|
Notional
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(1)
|
|
|
|
|
|
Other contracts
|
TBAs
|
|
$
|
26,000
|
|
|
$
|
22
|
|
|
Other TBAs
(2)
|
|
39,576
|
|
|
694
|
|
|
|
|
$
|
65,576
|
|
|
$
|
716
|
|
Liabilities:
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(1)
|
|
|
|
|
|
Commodity contracts
|
Futures
|
|
$
|
5,844,000
|
|
|
$
|
766
|
|
Other contracts
|
TBAs
|
|
26,000
|
|
|
22
|
|
|
Other TBAs
(2)
|
|
39,576
|
|
|
592
|
|
|
ARS purchase commitments
|
|
10,992
|
|
|
8
|
|
|
|
|
$
|
5,920,568
|
|
|
$
|
1,388
|
|
|
|
(1)
|
See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments.
|
|
|
(2)
|
Represents TBA purchase and sale contracts related to the legacy OMHHF business.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
Fair Value of Derivative Instruments as of December 31, 2016
|
|
Description
|
|
Notional
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(1)
|
|
|
|
|
|
Other contracts
|
TBAs
|
|
$
|
169,500
|
|
|
$
|
332
|
|
|
Other TBAs
(2)
|
|
121,573
|
|
|
482
|
|
|
ARS purchase commitments
|
|
6,654
|
|
|
849
|
|
|
|
|
$
|
297,727
|
|
|
$
|
1,663
|
|
Liabilities:
|
|
|
|
|
|
Derivatives not designated as hedging instruments
(1)
|
|
|
|
|
|
Commodity contracts
|
Futures
|
|
$
|
4,059,000
|
|
|
$
|
166
|
|
Other contracts
|
Foreign exchange forward contracts
|
|
200
|
|
|
1
|
|
|
TBAs
|
|
169,500
|
|
|
289
|
|
|
Other TBAs
(2)
|
|
121,573
|
|
|
923
|
|
|
Forward start repurchase agreements
|
|
382,000
|
|
|
—
|
|
|
ARS purchase commitments
|
|
24,358
|
|
|
645
|
|
|
|
|
$
|
4,756,631
|
|
|
$
|
2,024
|
|
|
|
(1)
|
See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments.
|
|
|
(2)
|
Represents TBA purchase and sale contracts related to the legacy OMHHF business.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the consolidated statements of operations for the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
The Effect of Derivative Instruments in the Statement of Operations
|
|
For the Year Ended December 31, 2017
|
|
|
|
Recognized in Income on Derivatives
(pre-tax)
|
Types
|
Description
|
|
Location
|
|
Net Gain (Loss)
|
Commodity contracts
|
Futures
|
|
Principal transactions revenue
|
|
$
|
987
|
|
Other contracts
|
Foreign exchange forward contracts
|
|
Other revenue
|
|
12
|
|
|
TBAs
|
|
Principal transactions revenue
|
|
(167
|
)
|
|
Other TBAs
|
|
Other revenue
|
|
(338
|
)
|
|
ARS purchase commitments
|
|
Principal transactions revenue
|
|
(212
|
)
|
|
|
|
|
|
$
|
282
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
The Effect of Derivative Instruments in the Statement of Operations
|
|
For the Year Ended December 31, 2016
|
|
|
|
Recognized in Income on Derivatives
(pre-tax)
|
Types
|
Description
|
|
Location
|
|
Net Gain (Loss)
|
Commodity contracts
|
Futures
|
|
Principal transactions revenue
|
|
$
|
(702
|
)
|
Other contracts
|
Foreign exchange forward contracts
|
|
Other revenue
|
|
13
|
|
|
TBAs
|
|
Principal transactions revenue
|
|
43
|
|
|
Other TBAs
|
|
Other revenue
|
|
(7,726
|
)
|
|
Interest rate lock commitments
|
|
Other revenue
|
|
5,268
|
|
|
ARS purchase commitments
|
|
Principal transactions revenue
|
|
1,573
|
|
|
|
|
|
|
$
|
(1,531
|
)
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
6. 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. As of
December 31, 2017
, bank call loans were
$118.3 million
(
$145.8 million
as of
December 31, 2016
). As of
December 31, 2017
, such loans were collateralized by firm and customer securities with market values of approximately
$97.8 million
and
$198.3 million
, respectively, with commercial banks.
As of
December 31, 2017
, the Company had approximately
$1.2 billion
of customer securities under customer margin loans that are available to be pledged, of which the Company has re-pledged approximately
$139.2 million
under securities loan agreements.
As of
December 31, 2017
, the Company had pledged
$237.0 million
of customer securities directly with the Options Clearing Corporation to secure obligations and margin requirements under option contracts written by customers.
As of
December 31, 2017
, the Company had
no
outstanding letters of credit.
The Company enters into reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions to, among other things, acquire securities to cover short positions and settle other securities obligations, to accommodate customers' needs and to finance the Company's inventory positions. Except as described below, repurchase agreements and reverse repurchase agreements, principally involving U.S. 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 agreements and reverse repurchase agreements are presented on a net-by-counterparty basis, when the repurchase agreements 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 agreements and reverse repurchase agreements exist in "book entry" form and certain other requirements are met.
The following table presents a disaggregation of the gross obligation by the class of collateral pledged and the remaining contractual maturity of the repurchase agreements and securities loaned transactions as of
December 31, 2017
:
|
|
|
|
|
(Expressed in thousands)
|
|
|
Overnight and Open
|
Repurchase agreements:
|
|
U.S. Government and Agency securities
|
$
|
786,532
|
|
Securities loaned:
|
|
Equity securities
|
180,270
|
|
Gross amount of recognized liabilities for repurchase agreements and securities loaned
|
$
|
966,802
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The following tables present the gross amounts and the offsetting amounts of reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned transactions as of
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
on the Balance Sheet
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
Gross
Amounts
Offset on the
Balance Sheet
|
|
Net Amounts
of Assets
Presented on
the Balance
Sheet
|
|
Financial
Instruments
|
|
Cash
Collateral
Received
|
|
Net Amount
|
Reverse repurchase agreements
|
$
|
200,712
|
|
|
$
|
(200,054
|
)
|
|
$
|
658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
658
|
|
Securities borrowed
(1)
|
132,368
|
|
|
—
|
|
|
132,368
|
|
|
(128,575
|
)
|
|
—
|
|
|
3,793
|
|
Total
|
$
|
333,080
|
|
|
$
|
(200,054
|
)
|
|
$
|
133,026
|
|
|
$
|
(128,575
|
)
|
|
$
|
—
|
|
|
$
|
4,451
|
|
|
|
(1)
|
Included in receivable from brokers, dealers and clearing organizations on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
on the Balance Sheet
|
|
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
Gross
Amounts
Offset on the Balance Sheet
|
|
Net Amounts
of Liabilities
Presented on
the Balance
Sheet
|
|
Financial
Instruments
|
|
Cash
Collateral
Pledged
|
|
Net Amount
|
Repurchase agreements
|
$
|
786,532
|
|
|
$
|
(200,054
|
)
|
|
$
|
586,478
|
|
|
$
|
(585,289
|
)
|
|
$
|
—
|
|
|
$
|
1,189
|
|
Securities loaned
(2)
|
180,270
|
|
|
—
|
|
|
180,270
|
|
|
(170,176
|
)
|
|
—
|
|
|
10,094
|
|
Total
|
$
|
966,802
|
|
|
$
|
(200,054
|
)
|
|
$
|
766,748
|
|
|
$
|
(755,465
|
)
|
|
$
|
—
|
|
|
$
|
11,283
|
|
|
|
(2)
|
Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
on the Balance Sheet
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
Gross
Amounts
Offset on the Balance Sheet
|
|
Net Amounts
of Assets
Presented on
the Balance
Sheet
|
|
Financial
Instruments
|
|
Cash
Collateral
Received
|
|
Net Amount
|
Reverse repurchase agreements
|
$
|
24,006
|
|
|
$
|
—
|
|
|
$
|
24,006
|
|
|
$
|
(23,972
|
)
|
|
$
|
—
|
|
|
$
|
34
|
|
Securities borrowed
(1)
|
154,090
|
|
|
—
|
|
|
154,090
|
|
|
(150,510
|
)
|
|
—
|
|
|
3,580
|
|
Total
|
$
|
178,096
|
|
|
$
|
—
|
|
|
$
|
178,096
|
|
|
$
|
(174,482
|
)
|
|
$
|
—
|
|
|
$
|
3,614
|
|
|
|
(1)
|
Included in receivable from brokers, dealers and clearing organizations on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
on the Balance Sheet
|
|
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
Gross
Amounts
Offset on the Balance Sheet
|
|
Net Amounts
of Liabilities
Presented on
the Balance
Sheet
|
|
Financial
Instruments
|
|
Cash
Collateral
Pledged
|
|
Net Amount
|
Repurchase agreements
|
$
|
378,084
|
|
|
$
|
—
|
|
|
$
|
378,084
|
|
|
$
|
(376,273
|
)
|
|
$
|
—
|
|
|
$
|
1,811
|
|
Securities loaned
(2)
|
179,875
|
|
|
—
|
|
|
179,875
|
|
|
(171,991
|
)
|
|
—
|
|
|
7,884
|
|
Total
|
$
|
557,959
|
|
|
$
|
—
|
|
|
$
|
557,959
|
|
|
$
|
(548,264
|
)
|
|
$
|
—
|
|
|
$
|
9,695
|
|
|
|
(2)
|
Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
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. As of
December 31, 2017
, the Company did not have any reverse repurchase agreements and repurchase agreements for which the fair value option was elected.
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 re-pledge the securities received (e.g., use the securities to enter into securities lending transactions, or deliver to counterparties to cover short positions). As of
December 31, 2017
, the fair value of securities received as collateral under securities borrowed transactions and reverse repurchase agreements was
$127.2 million
(
$148.7 million
as of
December 31, 2016
) and
$221.6 million
(
$24.0 million
as of
December 31, 2016
), respectively, of which the Company has sold and re-pledged approximately
$30.9 million
(
$37.4 million
as of
December 31, 2016
) under securities loaned transactions and
$221.6 million
under repurchase agreements (
$24.0 million
as of
December 31, 2016
).
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
$655.7 million
, as presented on the face of the consolidated balance sheet as of
December 31, 2017
(
$438.4 million
as of
December 31, 2016
). 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
$97.2 million
as of
December 31, 2017
(
$138.6 million
as of
December 31, 2016
).
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 securities and the right to offset a counterparty's rights and obligations. The Company manages market risk of repurchase agreements and securities loaned by monitoring 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.
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, dealers and clearing organizations as of
December 31, 2017
are receivables from
four
major U.S. broker-dealers totaling approximately
$94.0 million
.
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 the settlement date, generally
one
to
two
business days after the 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, the Fixed Income Clearing Corporation ("FICC"), R.J. O'Brien & Associates (commodities transactions), Mortgage-Backed Securities Division (a division of FICC) and others. With respect to its business in reverse repurchase agreements and repurchase agreements, substantially all open contracts as of
December 31, 2017
are with the FICC
.
In addition, the Company clears its non-U.S. international equities business carried on by Oppenheimer Europe Ltd. through BNP Paribas Securities Services. The clearing organizations 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. As of
December 31, 2017
, 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.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
7. Variable interest entities
The Company's policy is to consolidate all subsidiaries in which it has a controlling financial interest, as well as any VIEs where the Company is deemed to be the primary beneficiary, when it has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb significant losses or the right to receive benefits that could potentially be significant to the VIE.
For funds that the Company has concluded are not VIEs, the Company then evaluates whether the fund is a partnership or similar entity. If the fund is a partnership or similar entity, the Company evaluates the fund under the partnership consolidation guidance. Pursuant to that guidance, the Company consolidates funds in which it is the general partner, unless presumption of control by the Company can be overcome. This presumption is overcome only when unrelated investors in the fund have the substantive ability to liquidate the fund or otherwise remove the Company as the general partner without cause, based on a simple majority vote of unaffiliated investors, or have other substantive participating rights. If the presumption of control can be overcome, the Company accounts for its interest in the fund pursuant to the equity method of accounting.
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 form of general and limited partner interests. 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 and limited partnership interests, additional capital commitments, and management fees receivable represent its maximum exposure to loss. The subsidiaries' general partnership and limited partnership interests and management fees receivable are included in other assets on the 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 as of
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
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
|
$
|
328,172
|
|
|
$
|
713
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
713
|
|
Private equity funds
|
15,668
|
|
|
12
|
|
|
—
|
|
|
2
|
|
|
14
|
|
Total
|
$
|
343,840
|
|
|
$
|
725
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
727
|
|
|
|
(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 consolidated balance sheet.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
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
|
$
|
296,807
|
|
|
$
|
706
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
706
|
|
Private equity funds
|
26,300
|
|
|
15
|
|
|
—
|
|
|
2
|
|
|
17
|
|
Total
|
$
|
323,107
|
|
|
$
|
721
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
723
|
|
|
|
(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 consolidated balance sheet.
|
8. Furniture, equipment and leasehold improvements
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
Furniture, fixtures and equipment
|
$
|
53,260
|
|
|
$
|
55,210
|
|
Leasehold improvements
|
56,753
|
|
|
56,096
|
|
Total
|
110,013
|
|
|
111,306
|
|
Less accumulated depreciation
|
(82,826
|
)
|
|
(84,073
|
)
|
Total
|
$
|
27,187
|
|
|
$
|
27,233
|
|
Depreciation and amortization expense, included in occupancy and equipment costs in the consolidated statements of operations, was
$5.7 million
,
$6.8 million
and
$7.2 million
in the years ended
December 31, 2017
,
2016
and
2015
, respectively.
9. Bank call loans
Bank call loans, primarily payable on demand, bear interest at various rates but not exceeding the broker call rate, which was
3.25%
at
December 31, 2017
(
2.50%
at
December 31, 2016
). Details of the bank call loans are as follows:
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except percentages)
|
|
|
|
|
2017
|
|
2016
|
Year-end balance
|
$
|
118,300
|
|
|
$
|
145,800
|
|
Weighted interest rate (at end of year)
|
2.25
|
%
|
|
1.77
|
%
|
Maximum balance (at any month-end)
|
230,400
|
|
|
151,900
|
|
Average amount outstanding (during the year)
|
123,918
|
|
|
106,455
|
|
Average interest rate (during the year)
|
2.08
|
%
|
|
1.52
|
%
|
Interest expense for the year ended
December 31, 2017
on bank call loans was
$2.6 million
(
$1.7 million
in
2016
and
$1.5 million
in
2015
).
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
10. Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
Issued
|
|
Maturity Date
|
|
December 31, 2017
|
|
December 31, 2016
|
6.75% Senior Secured Notes
|
|
7/1/2022
|
|
$
|
200,000
|
|
|
$
|
—
|
|
8.75% Senior Secured Notes
|
|
4/15/2018
|
|
—
|
|
|
150,000
|
|
Unamortized Debt Issuance Cost
|
|
|
|
(1,163
|
)
|
|
(648
|
)
|
|
|
|
|
$
|
198,837
|
|
|
$
|
149,352
|
|
6.75% Senior Secured Notes
On
June 23, 2017
, the Parent issued in a private offering
$200.0 million
aggregate principal amount of
6.75%
Senior Secured Notes due 2022 (the "Unregistered Notes") under an indenture at an issue price of
100%
of the principal amount. On September 19, 2017, the Parent completed an exchange offer in which the Parent exchanged
99.8%
of its Unregistered Notes for a like principal amount of notes with identical terms except that such new notes have been registered under the Securities Act of 1933, as amended (the "Notes"). The Parent did not receive any proceeds in the exchange offer. The interest on the Notes is payable
semi-annually
on January 1st and July 1st, beginning January 1, 2018. The Parent used a portion of the net proceeds from the offering of the Notes to redeem in full its
8.75%
Senior Secured Notes due April 15, 2018 (the "
8.75%
Notes") in the principal amount of
$120.0 million
, and pay all related fees and expenses related thereto. The cost to issue the Notes was
$4.3 million
, of which
$3.0 million
was paid to its subsidiary, Oppenheimer, who served as the initial purchaser of the offering, and was eliminated in consolidation. The remaining
$1.3 million
has been capitalized and is amortized over the term of the Notes.
The indenture governing the Notes contains covenants which place restrictions on the incurrence of indebtedness, the payment of dividends, the repurchase of equity, the sale of assets, mergers and acquisitions and the granting of liens. Pursuant to the indenture governing the Notes, the Parent is restricted from paying any dividend or making any payment or distribution on account of its equity interests unless, among other things, (i) the dividend, payment or distribution (together with all other such dividends, payments or distributions made since July 1, 2017) is less than an amount calculated based in part on the Consolidated Adjusted Net Income (as defined in the indenture governing the Notes) of the Parent and its restricted and regulated subsidiaries since July 1, 2017, or (ii) the dividend, payment or distribution fits within one or more exceptions, including if:
|
|
•
|
it is less than
$20 million
in any fiscal year; or
|
|
|
•
|
it, when combined with all other Restricted Payments (as defined in the indenture governing the Notes) that rely upon this exception, does not exceed
$10 million
.
|
The Notes provide for events of default including, among other things, nonpayment, breach of covenants and bankruptcy. The Parent's obligations under the Notes are guaranteed by certain of the Parent's subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Parent and the subsidiary's guarantors. These guarantees and the collateral may be shared, on a pari passu basis, under certain circumstances, with debt incurred. As of
December 31, 2017
, the Parent was in compliance with all of its covenants.
Interest expense for the year ended
December 31, 2017
on the Notes was
$7.0 million
.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
8.75% Senior Secured Notes
On April 12, 2011, the Parent issued in a private offering
$200.0 million
in aggregate principal amount of
8.75%
Notes at an issue price of
100%
of the principal amount. The interest on the
8.75%
Notes was payable
semi-annually
on April 15th and October 15th. On April 15, 2014, the Parent retired early a total of
$50.0 million
of the
8.75%
Notes.
The indenture for the
8.75%
Notes contained covenants which placed restrictions on the incurrence of indebtedness, the payment of dividends, sale of assets, mergers and acquisitions and the granting of liens. The
8.75%
Notes provided for events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. The Parent's obligations under the
8.75%
Notes were guaranteed, subject to certain limitations. These guarantees were able to be shared, on a senior basis, under certain circumstances, with newly incurred debt outstanding in the future.
On April 15, 2017, the Parent redeemed
$30.0 million
aggregate principal amount of the
8.75%
Notes at a redemption price equal to
100%
of the principal, plus accrued and unpaid interest. The Parent used the net proceeds from the asset sales of OMHHF to finance this redemption.
On June 23, 2017, the Parent issued a notice of redemption to redeem all of the
$120.0 million
aggregate principal amount of the outstanding
8.75%
Notes and to satisfy and discharge all of its obligations under the indenture governing the
8.75%
Notes (the "
8.75%
Notes Indenture"). In connection therewith, on June 23, 2017, the Parent caused to be deposited with The Bank of New York Mellon Trust Company, N.A., the trustee for the
8.75%
Notes, funds sufficient to redeem all outstanding
8.75%
Notes on July 23, 2017 (the "Redemption Date") and instructed the trustee to apply such funds to redeem the
8.75%
Notes on the Redemption Date. The redemption payment deposit was an amount equal to the redemption price of
100%
of the aggregate principal amount of the
8.75%
Notes, plus accrued and unpaid interest thereon to, but not including, the Redemption Date. On July 23, 2017, the
8.75%
Notes were fully redeemed.
In connection with the satisfaction and discharge of the
8.75%
Notes Indenture, all of the obligations of the Parent and the subsidiary guarantors (other than certain customary provisions of the Indenture, including those relating to the compensation and indemnification of the trustee, that expressly survive pursuant to the terms of the
8.75%
Notes Indenture) were discharged and the guarantees of the subsidiary guarantors and the liens on the collateral securing the
8.75%
Notes were released on June 23, 2017.
Interest expense for the year ended
December 31, 2017
on the
8.75%
Notes was
$6.7 million
(
$13.1 million
in both
2016
and
2015
). Interest paid on the
8.75%
Notes for the year ended
December 31, 2017
was
$9.4 million
(
$13.1 million
in
2016
).
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
11. 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 Stock, par value
$0.001
per share; and (c)
99,665
shares of Class B voting common stock ("Class B Stock"), par value
$0.001
per share.
No
Preferred Stock has been issued.
99,665
shares of Class B Stock have been issued and are outstanding.
The Class A Stock 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:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Class A Stock outstanding, beginning of year
|
13,261,095
|
|
|
13,238,486
|
|
Issued pursuant to shared-based compensation plans (note 14)
|
328,458
|
|
|
283,471
|
|
Repurchased and canceled pursuant to the stock buy-back
|
(450,350
|
)
|
|
(260,862
|
)
|
Class A Stock outstanding, end of year
|
13,139,203
|
|
|
13,261,095
|
|
Stock buy-back
On May 5, 2017, the Company announced that its board of directors approved a share repurchase program that authorizes the Company to purchase up to
650,000
shares of the Company's Class A Stock, representing approximately
5%
of its
13,178,571
then issued and outstanding shares of Class A Stock. This authorization supplemented the
40,734
shares that remained authorized and available under the Company's previous share repurchase program covering up to
665,000
shares of the Company's Class A Stock, which was announced on September 15, 2015, for a total of
690,734
shares authorized and available for repurchase.
During the year ended
December 31, 2017
, the Company purchased and canceled an aggregate of
450,350
shares of Class A Stock for a total consideration of
$7.5 million
(
$16.57
per share). As of
December 31, 2017
,
508,906
shares were available to be purchased under this program.
Any such share purchases will be made by the Company from time to time in the open market at the prevailing open market price using cash on hand, in compliance with the applicable rules and regulations of the New York Stock Exchange and federal and state securities laws and the terms of the Company's senior secured debt. All shares purchased will be canceled. The share repurchase program is expected to continue indefinitely. The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The share 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.
Dividends
The Company paid cash dividends of
$0.44
per share to holders of Class A and Class B Stock in
2017
,
2016
and
2015
.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
12. Earnings per share
Basic earnings per share is computed by dividing net income attributable to Oppenheimer Holdings Inc. by the weighted average number of shares of Class A Stock and Class B Stock outstanding. Diluted earnings per share includes the weighted average number of shares of Class A Stock and Class B Stock outstanding and options to purchase the Class A Stock and unvested restricted stock awards of Class A Stock using the treasury stock method.
Earnings per share have been calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except number of shares and per share amounts)
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Basic weighted average number of shares outstanding
|
13,246,423
|
|
|
13,368,768
|
|
|
13,640,610
|
|
Net dilutive effect of share-based awards, treasury method
(1)
|
426,938
|
|
|
—
|
|
|
—
|
|
Diluted weighted average number of shares outstanding
|
13,673,361
|
|
|
13,368,768
|
|
|
13,640,610
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
21,870
|
|
|
$
|
(9,630
|
)
|
|
$
|
(2,834
|
)
|
Net income from discontinued operations
|
1,130
|
|
|
10,121
|
|
|
5,732
|
|
Net income
|
23,000
|
|
|
491
|
|
|
2,898
|
|
Net income attributable to noncontrolling interest, net of tax
|
184
|
|
|
1,652
|
|
|
936
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
$
|
22,816
|
|
|
$
|
(1,161
|
)
|
|
$
|
1,962
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
Continuing operations
|
$
|
1.65
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.21
|
)
|
Discontinued operations
(2)
|
0.07
|
|
|
0.63
|
|
|
0.35
|
|
Net income (loss) per share
|
$
|
1.72
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
Continuing operations
|
$
|
1.60
|
|
|
$
|
(0.72
|
)
|
|
$
|
(0.21
|
)
|
Discontinued operations
(2)
|
0.07
|
|
|
0.63
|
|
|
0.35
|
|
Net income (loss) per share
|
$
|
1.67
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
|
(1)
|
For the year ended
December 31, 2017
, the diluted earnings per share computation does not include the anti-dilutive effect of
10,592
shares of Class A Stock granted under share-based compensation arrangements (
1,237,134
and
1,269,585
shares for the years ended December 31,
2016
and
2015
, respectively).
|
|
|
(2)
|
Represents net income from discontinued operations less net income attributable to noncontrolling interest, net of tax divided by weighted average number of shares outstanding.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
13. Income taxes
Income taxes from continuing operations shown in the consolidated statements of operations are reconciled to amounts of tax that would have been payable (recoverable) from the application of the federal tax rate to pre-tax profit, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
U.S. federal statutory income tax rate
|
$
|
6,907
|
|
|
35.0
|
%
|
|
$
|
(7,662
|
)
|
|
35.0
|
%
|
|
$
|
(851
|
)
|
|
35.0
|
%
|
U.S. state and local income taxes, net of U.S. federal income tax benefits
|
1,430
|
|
|
7.2
|
%
|
|
(1,075
|
)
|
|
4.9
|
%
|
|
(69
|
)
|
|
2.8
|
%
|
Unrecognized tax benefit
|
(9
|
)
|
|
—
|
%
|
|
(603
|
)
|
|
2.8
|
%
|
|
589
|
|
|
-24.3
|
%
|
Valuation allowance
|
89
|
|
|
0.5
|
%
|
|
1,208
|
|
|
-5.5
|
%
|
|
—
|
|
|
—
|
%
|
Non-taxable income
|
(1,055
|
)
|
|
-5.3
|
%
|
|
(1,267
|
)
|
|
5.8
|
%
|
|
(696
|
)
|
|
28.7
|
%
|
Provision to return adjustments
|
(1,277
|
)
|
|
-6.5
|
%
|
|
(4,167
|
)
|
|
19.0
|
%
|
|
442
|
|
|
-18.2
|
%
|
Impact of the TCJA
|
(9,013
|
)
|
|
-45.7
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Change in state and foreign tax rates
|
(353
|
)
|
|
-1.8
|
%
|
|
264
|
|
|
-1.2
|
%
|
|
305
|
|
|
-12.5
|
%
|
Foreign tax rate differentials
|
974
|
|
|
4.9
|
%
|
|
143
|
|
|
-0.7
|
%
|
|
145
|
|
|
-6.0
|
%
|
Excess tax benefits from share-based awards
|
(493
|
)
|
|
-2.5
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Other non-deductible expenses
|
666
|
|
|
3.4
|
%
|
|
897
|
|
|
-4.1
|
%
|
|
541
|
|
|
-22.2
|
%
|
Total income taxes
|
$
|
(2,134
|
)
|
|
-10.8
|
%
|
|
$
|
(12,262
|
)
|
|
56.0
|
%
|
|
$
|
406
|
|
|
-16.7
|
%
|
Income taxes from continuing operations included in the consolidated statements of operations represent the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
U.S. federal tax (benefit)
|
$
|
506
|
|
|
$
|
(15,433
|
)
|
|
$
|
(5,751
|
)
|
State and local tax
|
(1,326
|
)
|
|
(4,631
|
)
|
|
(74
|
)
|
Non-U.S. operations
|
144
|
|
|
46
|
|
|
181
|
|
Total Current
|
(676
|
)
|
|
(20,018
|
)
|
|
(5,644
|
)
|
Deferred:
|
|
|
|
|
|
U.S. federal tax (benefit)
|
(1,215
|
)
|
|
5,856
|
|
|
4,198
|
|
State and local tax
|
1,725
|
|
|
617
|
|
|
1,632
|
|
Non-U.S. operations
|
(1,968
|
)
|
|
1,283
|
|
|
220
|
|
Total Deferred
|
(1,458
|
)
|
|
7,756
|
|
|
6,050
|
|
Total
|
$
|
(2,134
|
)
|
|
$
|
(12,262
|
)
|
|
$
|
406
|
|
Income (loss) before income taxes from continuing operations with respect to Non-U.S. operations was
$(8.5) million
,
$(965,000)
and
$732,000
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax global intangible low-taxed income ("GILTI"), which allows for the possibility of using foreign tax credits ("FTCs") and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) limitations on the use of FTCs to reduce the U.S. income tax liability; (6) eliminating the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; (7) creating the base erosion anti-abuse tax, a new minimum tax; (8) limitations on the deductibility of certain executive compensation; (9) creating a new limitation on deductible interest expense; (10) eliminating the deductibility of entertainment expenses; and (11) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The effective income tax rate from continuing operations for the year ended
December 31, 2017
was
10.8%
(benefit) compared with
56.0%
(benefit) for the year ended December 31,
2016
. The effective income tax rate for the year ended
December 31, 2017
was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of
$9.0 million
. The net discrete after-tax benefit was comprised of a benefit of
$29.0 million
related to the re-measurement of deferred tax liabilities offset by a detriment of
$19.6 million
related to the re-measurement of deferred tax assets as well as a detriment of
$0.4 million
related to miscellaneous non-deductible items. The effective income tax rate for the year ended December 31,
2016
was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance partially offset by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary.
On December 22, 2017, the SEC staff issued SAB 118 which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. The Company has not completed its accounting for the income tax effects of certain elements of the TCJA. However, the Company was able to make reasonable estimates of the effects of certain elements and recorded a provisional estimate in the consolidated financial statements. The estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the Company's current interpretations of the TCJA, and may change as it receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time. The Company is expected to complete its analysis within the measurement period in accordance with SAB 118.
U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such taxable temporary differences totaled
$11.2 million
as of
December 31, 2017
. The unrecognized deferred tax liability associated with earnings of foreign subsidiaries is estimated at
$3.0 million
for those subsidiaries with respect to which the Company would be subject to residual U.S. tax on cumulative earnings through 2017 were those earnings to be repatriated.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company's deferred tax assets and liabilities from continuing operations as of
December 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
Deferred compensation
|
$
|
19,105
|
|
|
$
|
26,271
|
|
Deferred rent and lease incentives
|
10,303
|
|
|
15,354
|
|
Net operating losses and credits
|
10,535
|
|
|
4,917
|
|
Receivable reserves
|
2,663
|
|
|
3,554
|
|
Accrued expenses
|
1,104
|
|
|
1,992
|
|
Auction rate securities reserves
|
540
|
|
|
1,194
|
|
Involuntary conversion
|
1,670
|
|
|
2,381
|
|
Depreciation
|
500
|
|
|
1,446
|
|
Other
|
1,177
|
|
|
1,953
|
|
Total deferred tax assets
|
47,597
|
|
|
59,062
|
|
Valuation allowance
|
1,350
|
|
|
1,280
|
|
Deferred tax assets after valuation allowance
|
46,247
|
|
|
57,782
|
|
Deferred tax liabilities:
|
|
|
|
Goodwill
|
40,534
|
|
|
57,117
|
|
Partnership investments
|
9,184
|
|
|
6,042
|
|
Company-owned life insurance
|
7,426
|
|
|
7,478
|
|
Other
|
195
|
|
|
282
|
|
Total deferred tax liabilities
|
57,339
|
|
|
70,919
|
|
Deferred tax liabilities, net
|
$
|
(11,092
|
)
|
|
$
|
(13,137
|
)
|
The Company has deferred tax assets at
December 31, 2017
of
$3.1 million
and
$541,000
arising from net operating losses incurred by Oppenheimer Israel (OPCO) Ltd. and Oppenheimer Europe Ltd., respectively. The Company believes that realization of the deferred tax assets is more likely than not based on expectations of future taxable income in Israel and Europe. These net operating losses carry forward indefinitely and are not subject to expiration, provided that these subsidiaries and their underlying businesses continue operating normally (as is anticipated).
Goodwill arising from the acquisitions of Josephthal Group Inc. and the Oppenheimer Divisions is being amortized for tax purposes on a straight-line basis over
15
years. The difference between book and tax is recorded as a deferred tax liability. As of December 31, 2017, the
15
year amortization period has ended.
The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. The Company has closed tax years through 2013 in the U.S. federal jurisdiction.
The Company is under examination in various states in which the Company has significant business operations. The Company has closed tax years through 2010 for New York State and is currently under exam for the
2011
to
2014
tax years. The Company also has closed tax years through 2008 with New York City and is currently under exam for the
2009
to
2012
tax years. With the exception of New York State and City, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The Company has unrecognized tax benefits of
$1.1 million
,
$1.1 million
and
$2.5 million
as of
December 31, 2017
,
2016
and
2015
, respectively, from continuing operations (as shown on the table below). Included in the balance of unrecognized tax benefits as of
December 31, 2017
and
2016
are
$853,000
and
$710,000
of tax benefits for either year that, if recognized, would affect the effective tax rate.
During the year ended
December 31, 2017
, the Company reversed
$9,000
of unrecognized tax benefit when the related statute of limitation expired. The Company does not believe any unrecognized tax benefit will significantly increase or decrease within twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of year
|
$
|
1,088
|
|
|
$
|
2,490
|
|
|
$
|
1,583
|
|
Additions for tax positions of prior years
|
—
|
|
|
98
|
|
|
907
|
|
Lapse in statute of limitations
|
(9
|
)
|
|
(652
|
)
|
|
—
|
|
Settlements with taxing authorities
|
—
|
|
|
(848
|
)
|
|
—
|
|
Balance at end of year
|
$
|
1,079
|
|
|
$
|
1,088
|
|
|
$
|
2,490
|
|
In its consolidated statements of operations, the Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively. For the year ended December 31, 2017, the Company recorded tax-related interest expense of
$231,000
in its consolidated statement of operations. For the year ended December 31, 2016, the Company reversed income tax interest payable of
$104,000
accrued on unrecognized tax benefits that were reversed during the year. As of December 31, 2017 and 2016, the Company had an income tax-related interest payable of
$232,000
and
$1,000
, respectively, on its consolidated balance sheets.
14. Employee compensation plans
The Company maintains various employee compensation plans for the benefits of its employees.
Two
types of employee compensation are granted under share-based compensation and cash-based compensation plans.
Share-based Compensation
Equity Incentive Plan
Under the Company's 2006 Equity Incentive Plan, adopted December 11, 2006 and amended December 2011, and its 1996 Equity Incentive Plan, as amended March 10, 2005 (together "EIP"), the Compensation Committee of the Board of Directors of the Company could grant options to purchase Class A Stock, Class A Stock awards and restricted Class A Stock awards to officers and key employees of the Company and its subsidiaries. Options were generally granted for a
five
-year term and generally vest at the rate of
25%
of the amount granted on the second anniversary of the grant,
25%
on the third anniversary of the grant,
25%
on the fourth anniversary of the grant and
25%
six months
before expiration. The EIP has been amended, restated and replaced by the OIP, discussed below.
Employee Share Plan
On March 10, 2005, the Company approved the Oppenheimer & Co. Inc. Employee Share Plan ("ESP") for employees of the Company and its subsidiaries to attract, retain and provide incentives to key management employees. The Compensation Committee of the Board of Directors of the Company could grant Class A Stock awards and restricted Class A Stock awards pursuant to the ESP. ESP awards were generally awarded for a
three
or
five
year term which fully vest at the end of the term. The ESP has been amended, restated and replaced by the OIP, discussed below.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Oppenheimer Holdings Inc. 2014 Incentive Plan
On February 26, 2014, the Company adopted the Oppenheimer Holdings Inc. 2014 Incentive Plan (the "OIP"). The OIP amends, restates and replaces
two
separate plans previously in place, the EIP and ESP (the "Prior Plans"), as described above.
The OIP permits the Company to grant options to purchase Class A Stock, Class A Stock awards and restricted Class A Stock to or for the benefit of employees and non-employee directors of the Company and its affiliates as part of their compensation. After February 26, 2014, n
o additional awards could be made under the Prior Plans, although outstanding awards previously made under the Prior Plans continue to be governed by the terms of the applicable Prior Plan.
Oppenheimer Holdings Inc. Stock Appreciation Right Plan
Under the Oppenheimer Holdings Inc. Stock Appreciation Right Plan, the Company awards stock appreciation rights ("OARs") to certain employees as part of their compensation package based on a formula reflecting gross production and length of service. These awards are granted once per year in January with respect to the prior year's production. The OARs vest
five
years from grant date and settle in cash at vesting.
Restricted stock
- The Company has granted restricted stock awards pursuant to the EIP, ESP and OIP. The following table summarizes the status of the Company's non-vested restricted Class A Stock awards under the EIP, ESP and OIP for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Class
A Shares
Subject to
Restricted Stock Awards
|
|
Weighted
Average Fair
Value
|
|
Remaining
Contractual
Life
|
Nonvested at beginning of year
|
1,223,533
|
|
|
$
|
17.11
|
|
|
2.1 Years
|
|
Granted
|
464,100
|
|
|
17.01
|
|
|
1.9 Years
|
|
Vested
|
(548,062
|
)
|
|
18.59
|
|
|
—
|
|
Forfeited
|
(72,275
|
)
|
|
16.50
|
|
|
—
|
|
Nonvested at end of year
|
1,067,296
|
|
|
$
|
16.34
|
|
|
2.2 Years
|
|
As of
December 31, 2017
, all outstanding restricted Class A Stock awards were non-vested. The aggregate intrinsic value of restricted Class A Stock awards outstanding as of
December 31, 2017
was
$28.6 million
. During the year ended
December 31, 2017
, the Company included
$5.6 million
(
$5.2 million
in
2016
and
$4.6 million
in
2015
) of compensation expense in its consolidated statements of operations relating to restricted Class A Stock awards.
As of
December 31, 2017
, there was
$9.8 million
of total unrecognized compensation cost related to unvested restricted Class A Stock awards. The cost is expected to be recognized over a weighted average period of
2.2
years.
As of
December 31, 2017
, the number of shares of Class A Stock available under the share-based compensation plans, but not yet awarded, was
1,143,598
.
On January 30, 2018, the Company awarded a total of
281,919
restricted shares of Class A Stock to current employees pursuant to the OIP. Of these restricted shares,
126,240
shares will cliff vest in
three
years and
155,679
shares will cliff vest in
five
years. These awards will be expensed over the applicable
three
or
five
year vesting period.
On January 31, 2018, the Company awarded
9,100
restricted shares of Class A Stock to an executive officer of the Company pursuant to the OIP. This award cliff vests in
five
years and will be expensed over the
five
year vesting period.
On March 1, 2018, the Company awarded
17,500
restricted shares of Class A Stock to its non-employee directors under the OIP. These shares of Class A Stock will vest as follows:
25%
on September 1, 2018, 2019, 2020 and 2021.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Stock options
- The Company has granted stock options pursuant to the EIP and OIP. There were
14,499
and
13,601
options outstanding as of
December 31, 2017
and
2016
, respectively.
In the year ended
December 31, 2017
, the Company included
$25,700
(
$19,900
in
2016
and
$69,900
in
2015
) of compensation expense in its consolidated statement of operations relating to the expensing of stock options.
On January 30, 2018, the Company awarded a total of
4,050
options to purchase Class A Stock to current employees pursuant to the OIP. These options will be expensed over
4.5
years (the vesting period).
OARs
- The Company has awarded OARs pursuant to the Oppenheimer Holdings Inc. Stock Appreciation Right Plan. The following table summarized the status of the Company's outstanding OARs awards as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Number of
OARs
Outstanding
|
|
Strike Price
|
|
Remaining
Contractual
Life
|
|
Fair Value as of December 31, 2017
|
January 14, 2013
|
|
311,780
|
|
|
$
|
15.94
|
|
|
13 Days
|
|
$
|
10.86
|
|
January 14, 2014
|
|
391,730
|
|
|
23.48
|
|
|
1 Year
|
|
4.75
|
|
January 9, 2015
|
|
444,660
|
|
|
21.94
|
|
|
2 Years
|
|
7.09
|
|
January 6, 2016
|
|
439,120
|
|
|
15.89
|
|
|
3 Years
|
|
11.77
|
|
January 6, 2017
|
|
421,660
|
|
|
18.90
|
|
|
4 Years
|
|
10.35
|
|
|
|
2,008,950
|
|
|
|
|
|
|
|
Total weighted average values
|
|
|
|
$
|
19.35
|
|
|
2.2 Years
|
|
$
|
8.93
|
|
The fair value as of
December 31, 2017
for each of the OARs was estimated using the Black-Scholes model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
January 14, 2013
|
|
January 14, 2014
|
|
January 9, 2015
|
|
January 6, 2016
|
|
January 6, 2017
|
Expected term
(1)
|
|
13 Days
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
Expected volatility factor
(2)
|
|
20.683
|
%
|
|
27.995
|
%
|
|
32.249
|
%
|
|
35.174
|
%
|
|
34.439
|
%
|
Risk-free interest rate
(3)
|
|
0.613
|
%
|
|
1.738
|
%
|
|
1.887
|
%
|
|
1.971
|
%
|
|
2.089
|
%
|
Actual dividends
(4)
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
|
(1)
|
The expected term was determined based on the remaining life of the actual awards.
|
|
|
(2)
|
The volatility factor was measured using the weighted average of historical daily price changes of the Company's Class A Stock over a historical period commensurate to the expected term of the awards.
|
|
|
(3)
|
The risk-free interest rate was based on periods equal to the expected term of the awards based on the U.S. Treasury yield curve in effect at
December 31, 2017
.
|
|
|
(4)
|
Actual dividends were used to compute the expected annual dividend yield.
|
As of
December 31, 2017
,
1,697,170
of outstanding OARs were unvested and
311,780
of outstanding OARs were vested. As of
December 31, 2017
, the aggregate intrinsic value of OARs outstanding was
$15.0 million
. In the year ended
December 31, 2017
, the Company included
$6.9 million
(
$1.0 million
in
2016
and
$1.8 million
of net credit in
2015
) in compensation expense in its consolidated statement of operations relating to OARs awards. The liability related to the OARs was
$7.1 million
as of
December 31, 2017
.
As of
December 31, 2017
, there was
$8.3 million
of total unrecognized compensation cost related to unvested OARs. The cost is expected to be recognized over a weighted average period of
2.2
years.
On January 5, 2018,
497,430
OARs were awarded to Oppenheimer employees related to fiscal
2017
performance. These OARs will be expensed over
5
years (the vesting period).
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
Cash-based Compensation Plan
Defined Contribution Plan
The Company, through its subsidiaries, maintains a defined contribution plan covering substantially all full-time U.S. employees. The Oppenheimer & Co. Inc. 401(k) Plan provides that Oppenheimer may make discretionary contributions. Eligible Oppenheimer employees could make voluntary contributions which could not exceed
$18,000
per annum in
2017
,
2016
and
2015
. The Company made contributions to the 401(k) Plan of
$1.5 million
,
$1.3 million
and
$1.6 million
in
2017
,
2016
and
2015
, respectively.
Deferred Compensation Plans
The Company maintains an Executive Deferred Compensation Plan ("EDCP") and a Deferred Incentive Plan ("DIP") in order to offer certain qualified high-performing financial advisers a bonus based upon a formula reflecting years of service, production, net commissions and a valuation of their clients' assets. The bonus amounts resulted in deferrals in fiscal
2017
of
$8.2 million
(
$7.7 million
in
2016
and
$8.3 million
in
2015
). These deferrals normally vest after
five
years. The liability is being recognized on a straight-line basis over the vesting period. The EDCP also includes voluntary deferrals by senior executives that are not subject to vesting. The Company maintains a Company-owned life insurance policy, which is designed to offset approximately
60%
of the EDCP liability. The EDCP liability is being tracked against the value of a benchmark investment portfolio held for this purpose. As of
December 31, 2017
, the Company's liability with respect to the EDCP and DIP totaled
$52.3 million
and is included in accrued compensation on the consolidated balance sheet as of
December 31, 2017
.
In addition, the Company is maintaining a deferred compensation plan on behalf of certain employees who were formerly employed by CIBC World Markets. The liability is being tracked against the value of an investment portfolio held by the Company for this purpose and, therefore, the liability fluctuates with the fair value of the underlying portfolio. As of
December 31, 2017
, the Company's liability with respect to this plan totaled
$17.2 million
.
The total amount expensed in
2017
for the Company's deferred compensation plans was
$17.1 million
(
$11.8 million
in
2016
and
$8.6 million
in
2015
).
15. Commitments and contingencies
Commitments
The Company and its subsidiaries have operating leases for office space, equipment and furniture and fixtures expiring at various dates through
2028
. Future minimum rental commitments under such office and equipment leases as of
December 31, 2017
are as follows:
|
|
|
|
|
(Expressed in thousands)
|
|
2018
|
$
|
43,727
|
|
2019
|
39,110
|
|
2020
|
30,452
|
|
2021
|
26,053
|
|
2022
|
22,998
|
|
2023 and thereafter
|
87,729
|
|
|
$
|
250,069
|
|
The above table includes operating leases which have been signed by the Company's subsidiary, Viner Finance Inc., in which the Company is responsible for rent charges associated with its occupancy.
Certain of the leases contain provisions for rent increases based on changes in costs incurred by the lessor.
The Company's rent expense for the year ended
December 31, 2017
was
$45.6 million
(
$44.4 million
in
2016
and
$45.9 million
in
2015
).
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
As of
December 31, 2017
, the Company had capital commitments of
$1.4 million
with respect to unfunded obligations in private equity funds sponsored by the Company.
As of
December 31, 2017
, the Company had no collateralized or uncollateralized letters of credit outstanding.
Contingencies
Many aspects of the Company's business involve substantial risks of liability. In the normal course of business, the Company has been named as defendant or co-defendant in various legal actions, including arbitrations, class actions, and other litigation, creating substantial exposure. Certain of the actual or threatened legal matters include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. These proceedings arise primarily from securities brokerage, asset management and investment banking activities. The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. The investigations include, among other things, inquiries from the Securities and Exchange Commission (the "SEC"), the Financial Industry Regulatory Authority ("FINRA") and various state regulators.
The Company accrues for estimated loss contingencies related to legal and regulatory matters when available information indicates that it is probable a liability had been incurred and the Company can reasonably estimate the amount of that loss. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss or possible additional losses or range of additional losses.
For certain legal and regulatory proceedings, the Company cannot reasonably estimate such losses, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial, indeterminate or special damages. Numerous issues may need to be reviewed, analyzed or resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a loss or range of loss or additional loss can be reasonably estimated for any proceeding. Even after lengthy review and analysis, the Company, in many legal and regulatory proceedings, may not be able to reasonably estimate possible losses or range of loss.
For certain other legal and regulatory proceedings, the Company can estimate possible losses, or range of loss in excess of amounts accrued, but does not believe, based on current knowledge and after consultation with counsel, that such losses individually, or in the aggregate, will have a material adverse effect on the Company's consolidated financial statements as a whole.
For legal and regulatory proceedings where there is at least a reasonable possibility that a loss or an additional loss may be incurred, the Company estimates a range of aggregate loss in excess of amounts accrued of
$0
to
$37.0 million
. This estimated aggregate range is based upon currently available information for those legal proceedings in which the Company is involved, where an estimate for such losses can be made. For certain cases, the Company does not believe that an estimate can currently be made. The foregoing estimate is based on various factors, including the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the numerous yet-unresolved issues in many of the proceedings and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Company's estimate will change from time to time, and actual losses may be more than the current estimate.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
In February 2010, Oppenheimer finalized settlements with the Regulators concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of
December 31, 2017
, the Company had no outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of
December 31, 2017
, the Company purchased and holds (net of redemptions)
$113.9 million
in ARS from its clients. In addition, the Company is committed to purchase another
$11.0 million
in ARS from clients through 2020 under legal settlements and awards.
The Company's purchases of ARS from its clients holding ARS eligible for repurchase will, subject to the terms and conditions of the settlements with the Regulators, continue on a periodic basis. Pursuant to these terms and conditions, the Company is required to conduct a financial review every
six
months, until the Company has extended Purchase Offers to all Eligible Investors (as defined), to determine whether it has funds available, after giving effect to the financial and regulatory capital constraints applicable to the Company, to extend additional Purchase Offers. The financial review is based on the Company's operating results, regulatory net capital, liquidity, and other ARS purchase commitments outstanding under legal settlements and awards (described below). There are no predetermined quantitative thresholds or formulas used for determining the final agreed upon amount for the Purchase Offers. Upon completion of the financial review, the Company first meets with its primary regulator, FINRA, and then with representatives of the NYAG and other regulators to present the results of the review and to finalize the amount of the next Purchase Offer. Various offer scenarios are discussed in terms of which Eligible Investors should receive a Purchase Offer. The primary criteria to date in terms of determining which Eligible Investors should receive a Purchase Offer has been the amount of household account equity each Eligible Investor had with the Company in February 2008. Once various Purchase Offer scenarios have been discussed, the regulators, not the Company, make the final determination of which Purchase Offer scenario to implement. The terms of settlements provide that the amount of ARS to be purchased during any period shall not risk placing the Company in violation of regulatory requirements.
Eligible Investors for future buybacks continued to hold approximately
$25.3 million
of ARS principal value as of
December 31, 2017
. It is reasonably possible that some ARS Purchase Offers will need to be extended to Eligible Investors holding ARS prior to redemptions (or tender offers) by issuers of the full amount that remains outstanding. The potential additional losses that may result from entering into ARS purchase commitments with Eligible Investors for future buybacks represents the estimated difference between the principal value and the fair value. It is possible that the Company could sustain a loss of all or substantially all of the principal value of ARS still held by Eligible Investors but such an outcome is highly unlikely. The amount of potential additional losses resulting from entering into these commitments cannot be reasonably estimated due to the uncertainties surrounding the amounts and timing of future buybacks that result from the six-month financial review and the amounts, scope, and timing of future issuer redemptions and tender offers of ARS held by Eligible Investors. The range of potential additional losses related to valuation adjustments is between
$0
and the amount of the estimated differential between the principal value and the fair value of ARS held by Eligible Investors for future buybacks that were not yet purchased or committed to be purchased by the Company at any point in time. The range of potential additional losses described here is not included in the estimated range of aggregate loss in excess of amounts accrued for legal and regulatory proceedings described above.
Outside of the settlements with the Regulators, the Company has also reached various legal settlements with clients and received unfavorable legal awards requiring it to purchase ARS. The terms and conditions including the ARS amounts committed to be purchased under legal settlements and awards are based on the specific facts and circumstances of each legal proceeding. In most instances, the purchase commitments are in increments and extend over a period of time. As of
December 31, 2017
, there were no ARS purchase commitments related to legal settlements extending past 2020.
The Company has sought, with limited success, financing from a number of sources to try to find a means for all its clients to find liquidity from their ARS holdings and will continue to do so. There can be no assurance that the Company will be successful in finding a liquidity solution for all its clients' ARS.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
On January 27, 2015, the SEC approved an Offer of Settlement from Oppenheimer and issued an Order Instituting Administrative and Cease and Desist Proceedings (the "Order"). Pursuant to the Order, Oppenheimer was ordered to (i) cease and desist from committing or causing any violations of the relevant provisions of the federal securities laws; (ii) be censured; (iii) pay to the SEC
$10.0 million
comprised of
$4.2 million
in disgorgement,
$753,500
in prejudgment interest and
$5.1 million
in civil penalties; and (iv) retain an independent consultant to review Oppenheimer's policies and procedures relating to anti-money laundering and Section 5 of the Securities Act.
Oppenheimer made a payment of
$5.0 million
to the SEC on February 17, 2015 and agreed to make a second payment of
$5.0 million
to the SEC before January 27, 2017 which payment was made to the SEC on January 26, 2017.
On the same date the Order was issued, a division of the United States Department of the Treasury ("FinCEN") issued a Civil Monetary Assessment (the "Assessment") against Oppenheimer relating to potential violations of the Bank Secrecy Act ("BSA") and the regulations promulgated thereunder related primarily to, in the Company's view, the SEC matter discussed immediately above. Pursuant to the terms of the Assessment, Oppenheimer admitted that it violated the BSA and consented to the payment of a civil money penalty, which, as a result of the payments to the SEC described above, obligates Oppenheimer to make an aggregate payment of
$10.0 million
to FinCEN. On February 9, 2015, Oppenheimer made a payment of
$5.0 million
to FinCEN and agreed to make a second payment of
$5.0 million
before January 27, 2017 which payment was made to FinCEN on January 26, 2017.
Since August of 2014, Oppenheimer has been responding to information requests from the SEC regarding the supervision of one of its former financial advisers who was indicted by the United States Attorney's Office for the District of New Jersey in March 2014 on allegations of insider trading. A number of Oppenheimer employees have provided on-the-record testimony in connection with the SEC inquiry. Oppenheimer is continuing to cooperate with the SEC inquiry.
Since September 2016, Oppenheimer has been responding to information requests from FINRA regarding the supervision of Oppenheimer's sale of unit investment trusts from 2011 to 2015. The inquiry is part of a larger targeted examination or "sweep" examination involving many other brokerage firms. Oppenheimer is continuing to cooperate with the FINRA inquiry.
|
|
16.
|
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 the Securities Exchange Act of 1934. 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. As of
December 31, 2017
, the net capital of Oppenheimer as calculated under the Rule was
$142.0 million
or
14.00%
of Oppenheimer's aggregate debit items. This was
$121.7 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
$100,000
or 6-2/3% of aggregate indebtedness, as defined. As of
December 31, 2017
, Freedom had net capital of
$5.3 million
, which was
$5.2 million
in excess of the
$100,000
required to be maintained at that date.
New Basel III requirements being implemented in the European Union have changed how capital adequacy is reported under the Capital Requirements Directive (CRD IV), effective January 1, 2014, for Oppenheimer Europe Ltd. As of
December 31, 2017
, the capital required and held under CRD IV was as follows:
|
|
•
|
Common Equity Tier 1 ratio
27.27%
(required
4.5%
);
|
|
|
•
|
Tier 1 Capital ratio
27.27%
(required
6.0%
); and
|
|
|
•
|
Total Capital ratio
28.79%
(required
8.0%
).
|
As of
December 31, 2017
, the regulatory capital of Oppenheimer Investments Asia Limited was
$1.6 million
, which was
$1.2 million
in excess of the
$387,000
required to be maintained on that date. Oppenheimer Investments Asia Limited computes its regulatory capital pursuant to the requirements of the Securities and Futures Commission of Hong Kong.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
17. Goodwill and intangibles
Goodwill
The Company's goodwill of
$137.9 million
resides in its PCD reporting unit. The Company performed its annual test for goodwill impairment as of
December 31, 2017
and
2016
, which did not result in any impairment charges for either period. At each annual goodwill impairment testing date, the PCD reporting unit had a fair value that was substantially in excess of its carrying value.
Intangible Assets
Indefinite intangible assets are comprised of trademarks and trade names. Trademarks and trade names, carried at
$31.7 million
, which are not amortized, are subject to at least an annual test for impairment to determine if the estimated fair value is less than their carrying amount. Trademarks and trade names recorded as of
December 31, 2017
and
2016
have been tested for impairment and it has been determined that
no
impairment has occurred. At each annual intangible assets impairment testing date, the trademarks and trade names had a fair value that was substantially in excess of its carrying value.
18. 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 evaluates the performance of its segments and allocates resources to them based upon profitability.
The Company's reportable segments are:
Private Client
-
includes commissions and a proportionate amount of fee income earned on AUM, net interest earnings on client margin loans and cash balances, fees from money market funds, net contributions from stock loan activities and financing activities, and direct expenses associated with this segment;
Asset Management
- includes a proportionate amount of fee income earned on AUM from investment management services of Oppenheimer Asset Management Inc. Oppenheimer's asset management divisions employ various programs to professionally manage client assets either in individual accounts or in funds, and includes direct expenses associated with this segment;
Capital Markets
- includes investment banking, institutional equities sales, trading, and research, taxable fixed income sales, trading, and research, public finance and municipal trading, as well as the Company's operations in the United Kingdom, Hong Kong and Israel, and direct expenses associated with this segment; and
Corporate/Other
- the Company does not allocate costs associated with certain infrastructure support groups that are centrally managed for its reportable segments. These areas include, but are not limited to, legal, compliance, operations, accounting, and internal audit. Costs associated with these groups are separately reported in a Corporate/Other category and primarily include compensation and benefits.
The Commercial Mortgage Banking segment was discontinued during the second quarter of 2016. See note 3 for further details.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
The table below presents information about the reported revenue and income (loss) before income taxes from continuing operations of the Company for the years ended
December 31, 2017
,
2016
and
2015
. Asset information by reportable segment is not reported, since the Company does not produce such information for internal use by the chief operating decision maker.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
Private client
(1)
|
$
|
592,753
|
|
|
$
|
504,192
|
|
|
$
|
521,526
|
|
Asset management
(1)
|
89,896
|
|
|
92,852
|
|
|
97,121
|
|
Capital markets
|
231,632
|
|
|
254,933
|
|
|
279,589
|
|
Corporate/Other
|
6,057
|
|
|
5,802
|
|
|
(435
|
)
|
Total
|
$
|
920,338
|
|
|
$
|
857,779
|
|
|
$
|
897,801
|
|
Income (loss) before income taxes
|
|
|
|
|
|
Private client
(1)
|
$
|
128,840
|
|
|
$
|
66,072
|
|
|
$
|
59,016
|
|
Asset management
(1)
|
26,685
|
|
|
31,412
|
|
|
33,133
|
|
Capital markets
|
(39,978
|
)
|
|
(17,713
|
)
|
|
5,167
|
|
Corporate/Other
|
(95,811
|
)
|
|
(101,663
|
)
|
|
(99,744
|
)
|
Total
|
$
|
19,736
|
|
|
$
|
(21,892
|
)
|
|
$
|
(2,428
|
)
|
|
|
(1)
|
Clients investing in the OAM advisory program are charged fees based on the value of assets under management. Advisory fees were allocated
22.5%
to the Asset Management and
77.5%
to the Private Client segments. Starting January 1, 2017, the Company determined it was appropriate to change the allocation to
10.0%
to the Asset Management and
90.0%
to the Private Client segments due to changes in the mix of the business over time and costs associated with it.
|
Revenue, classified by the major geographic areas in which it was earned for the years ended
December 31, 2017
,
2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Americas
|
$
|
880,602
|
|
|
$
|
815,231
|
|
|
$
|
853,221
|
|
Europe/Middle East
|
36,364
|
|
|
39,048
|
|
|
40,603
|
|
Asia
|
3,372
|
|
|
3,500
|
|
|
3,977
|
|
Total
|
$
|
920,338
|
|
|
$
|
857,779
|
|
|
$
|
897,801
|
|
19. Subsequent events
On
February 1, 2018
, the Company announced a quarterly dividend in the amount of
$0.11
per share, paid on
February 26, 2018
to holders of Class A Stock and Class B Stock of record on
February 12, 2018
.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
20. Quarterly information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
|
|
For the Year Ended December 31, 2017
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Year
|
Revenue
|
|
$
|
264,973
|
|
|
$
|
226,220
|
|
|
$
|
215,884
|
|
|
$
|
213,261
|
|
|
$
|
920,338
|
|
Expenses
|
|
248,403
|
|
|
214,392
|
|
|
217,521
|
|
|
220,286
|
|
|
900,602
|
|
Income (Loss) before income taxes from continuing operations
|
|
16,570
|
|
|
11,828
|
|
|
(1,637
|
)
|
|
(7,025
|
)
|
|
19,736
|
|
Income taxes
|
|
(4,598
|
)
|
|
4,425
|
|
|
(274
|
)
|
|
(1,687
|
)
|
|
(2,134
|
)
|
Net income (loss) from continuing operations
|
|
21,168
|
|
|
7,403
|
|
|
(1,363
|
)
|
|
(5,338
|
)
|
|
21,870
|
|
Net income from discontinued operations
|
|
29
|
|
|
461
|
|
|
53
|
|
|
587
|
|
|
1,130
|
|
Net income (loss)
|
|
21,197
|
|
|
7,864
|
|
|
(1,310
|
)
|
|
(4,751
|
)
|
|
23,000
|
|
Less net income attributable to noncontrolling interest, net of tax
|
|
4
|
|
|
75
|
|
|
9
|
|
|
96
|
|
|
184
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
|
$
|
21,193
|
|
|
$
|
7,789
|
|
|
$
|
(1,319
|
)
|
|
$
|
(4,847
|
)
|
|
$
|
22,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.61
|
|
|
$
|
0.56
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.65
|
|
Discontinued operations
|
|
—
|
|
|
0.03
|
|
|
—
|
|
|
0.04
|
|
|
0.07
|
|
Net income (loss) per share
|
|
$
|
1.61
|
|
|
$
|
0.59
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
1.72
|
|
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.54
|
|
|
$
|
0.54
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.60
|
|
Discontinued operations
|
|
—
|
|
|
0.03
|
|
|
—
|
|
|
0.04
|
|
|
0.07
|
|
Net income (loss) per share
|
|
$
|
1.54
|
|
|
$
|
0.57
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
Market price of Class A Stock
(1)
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.00
|
|
|
$
|
17.70
|
|
|
$
|
18.25
|
|
|
$
|
19.60
|
|
|
$
|
29.00
|
|
Low
|
|
$
|
17.35
|
|
|
$
|
15.40
|
|
|
$
|
15.10
|
|
|
$
|
15.90
|
|
|
$
|
15.10
|
|
|
|
(1)
|
The price quotations above were obtained from the New York Stock Exchange website.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
|
|
For the Year Ended December 31, 2016
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Year
|
Revenue
|
|
$
|
218,945
|
|
|
$
|
211,804
|
|
|
$
|
212,074
|
|
|
$
|
214,956
|
|
|
$
|
857,779
|
|
Expenses
|
|
226,441
|
|
|
213,614
|
|
|
217,320
|
|
|
222,296
|
|
|
879,671
|
|
Loss before income taxes from continuing operations
|
|
(7,496
|
)
|
|
(1,810
|
)
|
|
(5,246
|
)
|
|
(7,340
|
)
|
|
(21,892
|
)
|
Income taxes
|
|
(5,072
|
)
|
|
(751
|
)
|
|
(2,391
|
)
|
|
(4,048
|
)
|
|
(12,262
|
)
|
Net loss from continuing operations
|
|
(2,424
|
)
|
|
(1,059
|
)
|
|
(2,855
|
)
|
|
(3,292
|
)
|
|
(9,630
|
)
|
Net income (loss) from discontinued operations
|
|
759
|
|
|
413
|
|
|
9,566
|
|
|
(617
|
)
|
|
10,121
|
|
Net income (loss)
|
|
(1,665
|
)
|
|
(646
|
)
|
|
6,711
|
|
|
(3,909
|
)
|
|
491
|
|
Less net income (loss) attributable to noncontrolling interest, net of tax
|
|
125
|
|
|
66
|
|
|
1,523
|
|
|
(62
|
)
|
|
1,652
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
|
$
|
(1,790
|
)
|
|
$
|
(712
|
)
|
|
$
|
5,188
|
|
|
$
|
(3,847
|
)
|
|
$
|
(1,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.28
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.72
|
)
|
Discontinued operations
|
|
0.05
|
|
|
0.03
|
|
|
0.60
|
|
|
(0.04
|
)
|
|
0.63
|
|
Net income (loss) per share
|
|
$
|
(0.23
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.39
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.09
|
)
|
Diluted net income (loss) per share attributable to Oppenheimer Holdings Inc.
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.28
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.72
|
)
|
Discontinued operations
|
|
0.05
|
|
|
0.03
|
|
|
0.60
|
|
|
(0.04
|
)
|
|
0.63
|
|
Net income (loss) per share
|
|
$
|
(0.23
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.39
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
Market price of Class A Stock
(1)
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
19.65
|
|
|
$
|
16.49
|
|
|
$
|
16.66
|
|
|
$
|
16.98
|
|
|
$
|
19.65
|
|
Low
|
|
$
|
13.65
|
|
|
$
|
13.74
|
|
|
$
|
13.63
|
|
|
$
|
13.58
|
|
|
$
|
13.58
|
|
|
|
(1)
|
The price quotations above were obtained from the New York Stock Exchange website.
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
21. Condensed consolidating financial information
On June 23, 2017, the Parent issued in a private offering
$200.0 million
aggregate principal amount of the Notes. The Company used a portion of the net proceeds from the offering of the Notes to redeem in full its
8.75%
Notes. See note 10 for further details.
The 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 Parent. The indenture for the Notes contains covenants with restrictions which are discussed in note 10. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of the Parent, the Guarantor subsidiaries, the Non-Guarantor subsidiaries and elimination entries necessary to consolidate the Company.
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 ceasing to be a direct or indirect subsidiary of the Parent 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 indenture 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 Parent of its legal defeasance option or covenant defeasance option or the discharge of the Parent's obligations under the indenture for the Notes in accordance with the terms of such indenture.
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,442
|
|
|
$
|
3,716
|
|
|
$
|
36,996
|
|
|
$
|
—
|
|
|
$
|
48,154
|
|
Deposits with clearing organizations
|
—
|
|
|
—
|
|
|
42,222
|
|
|
—
|
|
|
42,222
|
|
Receivable from brokers, dealers and clearing organizations
|
—
|
|
|
—
|
|
|
187,115
|
|
|
—
|
|
|
187,115
|
|
Receivable from customers, net of allowance for credit losses of $769
|
—
|
|
|
—
|
|
|
848,226
|
|
|
—
|
|
|
848,226
|
|
Income tax receivable
|
45,998
|
|
|
26,025
|
|
|
—
|
|
|
(69,084
|
)
|
|
2,939
|
|
Securities purchased under agreements to resell
|
—
|
|
|
—
|
|
|
658
|
|
|
—
|
|
|
658
|
|
Securities owned, including amounts pledged of $655,683, at fair value
|
—
|
|
|
1,386
|
|
|
925,211
|
|
|
—
|
|
|
926,597
|
|
Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,705 and $7,975, respectively
|
—
|
|
|
—
|
|
|
40,520
|
|
|
—
|
|
|
40,520
|
|
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $82,826
|
—
|
|
|
20,221
|
|
|
6,966
|
|
|
—
|
|
|
27,187
|
|
Subordinated loan receivable
|
—
|
|
|
112,558
|
|
|
—
|
|
|
(112,558
|
)
|
|
—
|
|
Intangible assets
|
—
|
|
|
—
|
|
|
31,700
|
|
|
—
|
|
|
31,700
|
|
Goodwill
|
—
|
|
|
—
|
|
|
137,889
|
|
|
—
|
|
|
137,889
|
|
Other assets
|
133
|
|
|
2,573
|
|
|
142,604
|
|
|
—
|
|
|
145,310
|
|
Deferred tax assets
|
3,502
|
|
|
—
|
|
|
18,463
|
|
|
(21,965
|
)
|
|
—
|
|
Investment in subsidiaries
|
622,824
|
|
|
507,747
|
|
|
—
|
|
|
(1,130,571
|
)
|
|
—
|
|
Intercompany receivables
|
52,149
|
|
|
83,437
|
|
|
—
|
|
|
(135,586
|
)
|
|
—
|
|
Total assets
|
$
|
732,048
|
|
|
$
|
757,663
|
|
|
$
|
2,418,570
|
|
|
$
|
(1,469,764
|
)
|
|
$
|
2,438,517
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Drafts payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,412
|
|
|
$
|
—
|
|
|
$
|
42,412
|
|
Bank call loans
|
—
|
|
|
—
|
|
|
118,300
|
|
|
—
|
|
|
118,300
|
|
Payable to brokers, dealers and clearing organizations
|
—
|
|
|
—
|
|
|
211,483
|
|
|
—
|
|
|
211,483
|
|
Payable to customers
|
—
|
|
|
—
|
|
|
385,907
|
|
|
—
|
|
|
385,907
|
|
Securities sold under agreements to repurchase
|
—
|
|
|
—
|
|
|
586,478
|
|
|
—
|
|
|
586,478
|
|
Securities sold but not yet purchased, at fair value
|
—
|
|
|
—
|
|
|
94,486
|
|
|
—
|
|
|
94,486
|
|
Accrued compensation
|
—
|
|
|
—
|
|
|
173,116
|
|
|
—
|
|
|
173,116
|
|
Accounts payable and other liabilities
|
7,221
|
|
|
33,994
|
|
|
51,280
|
|
|
—
|
|
|
92,495
|
|
Income tax payable
|
2,440
|
|
|
22,189
|
|
|
44,455
|
|
|
(69,084
|
)
|
|
—
|
|
Senior secured notes, net of debt issuance cost of $1,163
|
198,837
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
198,837
|
|
Subordinated indebtedness
|
—
|
|
|
—
|
|
|
112,558
|
|
|
(112,558
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
17
|
|
|
33,040
|
|
|
(21,965
|
)
|
|
11,092
|
|
Intercompany payables
|
—
|
|
|
62,163
|
|
|
73,423
|
|
|
(135,586
|
)
|
|
—
|
|
Total liabilities
|
208,498
|
|
|
118,363
|
|
|
1,926,938
|
|
|
(339,193
|
)
|
|
1,914,606
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
Stockholders' equity attributable to Oppenheimer Holdings Inc.
|
523,550
|
|
|
639,300
|
|
|
491,271
|
|
|
(1,130,571
|
)
|
|
523,550
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
361
|
|
|
—
|
|
|
361
|
|
Total stockholders' equity
|
523,550
|
|
|
639,300
|
|
|
491,632
|
|
|
(1,130,571
|
)
|
|
523,911
|
|
Total liabilities and stockholders' equity
|
$
|
732,048
|
|
|
$
|
757,663
|
|
|
$
|
2,418,570
|
|
|
$
|
(1,469,764
|
)
|
|
$
|
2,438,517
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
229
|
|
|
$
|
10,284
|
|
|
$
|
54,400
|
|
|
$
|
—
|
|
|
$
|
64,913
|
|
Deposits with clearing organizations
|
—
|
|
|
—
|
|
|
38,185
|
|
|
—
|
|
|
38,185
|
|
Receivable from brokers, dealers and clearing organizations
|
—
|
|
|
—
|
|
|
214,934
|
|
|
—
|
|
|
214,934
|
|
Receivable from customers, net of allowance for credit losses of $794
|
—
|
|
|
—
|
|
|
847,386
|
|
|
—
|
|
|
847,386
|
|
Income tax receivable
|
41,996
|
|
|
28,289
|
|
|
—
|
|
|
(64,469
|
)
|
|
5,816
|
|
Securities purchased under agreements to resell
|
—
|
|
|
—
|
|
|
24,006
|
|
|
—
|
|
|
24,006
|
|
Securities owned, including amounts pledged of $438,385, at fair value
|
—
|
|
|
23,227
|
|
|
683,881
|
|
|
—
|
|
|
707,108
|
|
Notes receivable, net of accumulated amortization and allowance for uncollectibles of $24,826 and $6,784, respectively
|
—
|
|
|
—
|
|
|
30,099
|
|
|
—
|
|
|
30,099
|
|
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $84,073
|
—
|
|
|
21,963
|
|
|
5,270
|
|
|
—
|
|
|
27,233
|
|
Subordinated loan receivable
|
—
|
|
|
112,558
|
|
|
—
|
|
|
(112,558
|
)
|
|
—
|
|
Intangible assets
|
—
|
|
|
—
|
|
|
31,700
|
|
|
—
|
|
|
31,700
|
|
Goodwill
|
—
|
|
|
—
|
|
|
137,889
|
|
|
—
|
|
|
137,889
|
|
Other assets
|
71
|
|
|
2,598
|
|
|
104,992
|
|
|
—
|
|
|
107,661
|
|
Deferred tax assets
|
394
|
|
|
309
|
|
|
37,961
|
|
|
(38,664
|
)
|
|
—
|
|
Investment in subsidiaries
|
584,767
|
|
|
483,623
|
|
|
—
|
|
|
(1,068,390
|
)
|
|
—
|
|
Intercompany receivables
|
37,906
|
|
|
37,914
|
|
|
—
|
|
|
(75,820
|
)
|
|
—
|
|
Total assets
|
$
|
665,363
|
|
|
$
|
720,765
|
|
|
$
|
2,210,703
|
|
|
$
|
(1,359,901
|
)
|
|
$
|
2,236,930
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Drafts payable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,228
|
|
|
$
|
—
|
|
|
$
|
39,228
|
|
Bank call loans
|
—
|
|
|
—
|
|
|
145,800
|
|
|
—
|
|
|
145,800
|
|
Payable to brokers, dealers and clearing organizations
|
—
|
|
|
—
|
|
|
221,389
|
|
|
—
|
|
|
221,389
|
|
Payable to customers
|
—
|
|
|
—
|
|
|
449,946
|
|
|
—
|
|
|
449,946
|
|
Securities sold under agreements to repurchase
|
—
|
|
|
—
|
|
|
378,084
|
|
|
—
|
|
|
378,084
|
|
Securities sold but not yet purchased, at fair value
|
—
|
|
|
—
|
|
|
85,050
|
|
|
—
|
|
|
85,050
|
|
Accrued compensation
|
—
|
|
|
—
|
|
|
145,053
|
|
|
—
|
|
|
145,053
|
|
Accounts payable and other liabilities
|
2,868
|
|
|
34,920
|
|
|
58,769
|
|
|
—
|
|
|
96,557
|
|
Income tax payable
|
2,440
|
|
|
22,189
|
|
|
39,840
|
|
|
(64,469
|
)
|
|
—
|
|
Senior secured notes, net of debt issuance costs of $648
|
149,352
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
149,352
|
|
Subordinated indebtedness
|
—
|
|
|
—
|
|
|
112,558
|
|
|
(112,558
|
)
|
|
—
|
|
Deferred tax liabilities
|
—
|
|
|
7
|
|
|
51,794
|
|
|
(38,664
|
)
|
|
13,137
|
|
Intercompany payables
|
—
|
|
|
62,205
|
|
|
13,615
|
|
|
(75,820
|
)
|
|
—
|
|
Total liabilities
|
154,660
|
|
|
119,321
|
|
|
1,741,126
|
|
|
(291,511
|
)
|
|
1,723,596
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
Stockholders' equity attributable to Oppenheimer Holdings Inc.
|
510,703
|
|
|
601,444
|
|
|
466,946
|
|
|
(1,068,390
|
)
|
|
510,703
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
2,631
|
|
|
—
|
|
|
2,631
|
|
Total stockholders' equity
|
510,703
|
|
|
601,444
|
|
|
469,577
|
|
|
(1,068,390
|
)
|
|
513,334
|
|
Total liabilities and stockholders' equity
|
$
|
665,363
|
|
|
$
|
720,765
|
|
|
$
|
2,210,703
|
|
|
$
|
(1,359,901
|
)
|
|
$
|
2,236,930
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Commissions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
336,620
|
|
|
$
|
—
|
|
|
$
|
336,620
|
|
Advisory fees
|
—
|
|
|
1,752
|
|
|
323,114
|
|
|
(4,120
|
)
|
|
320,746
|
|
Investment banking
|
—
|
|
|
—
|
|
|
81,215
|
|
|
(3,000
|
)
|
|
78,215
|
|
Interest
|
—
|
|
|
9,589
|
|
|
48,548
|
|
|
(9,639
|
)
|
|
48,498
|
|
Principal transactions, net
|
—
|
|
|
17
|
|
|
23,256
|
|
|
—
|
|
|
23,273
|
|
Other
|
22
|
|
|
361
|
|
|
112,962
|
|
|
(359
|
)
|
|
112,986
|
|
Total revenue
|
22
|
|
|
11,719
|
|
|
925,715
|
|
|
(17,118
|
)
|
|
920,338
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
1,237
|
|
|
—
|
|
|
600,901
|
|
|
—
|
|
|
602,138
|
|
Communications and technology
|
160
|
|
|
—
|
|
|
71,818
|
|
|
—
|
|
|
71,978
|
|
Occupancy and equipment costs
|
—
|
|
|
—
|
|
|
61,523
|
|
|
(359
|
)
|
|
61,164
|
|
Clearing and exchange fees
|
—
|
|
|
—
|
|
|
23,545
|
|
|
—
|
|
|
23,545
|
|
Interest
|
13,740
|
|
|
—
|
|
|
24,253
|
|
|
(9,639
|
)
|
|
28,354
|
|
Other
|
4,969
|
|
|
1,382
|
|
|
114,192
|
|
|
(7,120
|
)
|
|
113,423
|
|
Total expenses
|
20,106
|
|
|
1,382
|
|
|
896,232
|
|
|
(17,118
|
)
|
|
900,602
|
|
Income (loss) before income taxes
|
(20,084
|
)
|
|
10,337
|
|
|
29,483
|
|
|
—
|
|
|
19,736
|
|
Income taxes
|
(7,110
|
)
|
|
(12,655
|
)
|
|
17,631
|
|
|
—
|
|
|
(2,134
|
)
|
Net income (loss) from continuing operations
|
(12,974
|
)
|
|
22,992
|
|
|
11,852
|
|
|
—
|
|
|
21,870
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
2,071
|
|
|
—
|
|
|
2,071
|
|
Income taxes
|
—
|
|
|
—
|
|
|
941
|
|
|
—
|
|
|
941
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
1,130
|
|
|
—
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
35,790
|
|
|
12,798
|
|
|
—
|
|
|
(48,588
|
)
|
|
—
|
|
Net income
|
22,816
|
|
|
35,790
|
|
|
12,982
|
|
|
(48,588
|
)
|
|
23,000
|
|
Less net income attributable to noncontrolling interest, net of tax
|
—
|
|
|
—
|
|
|
184
|
|
|
—
|
|
|
184
|
|
Net income attributable to Oppenheimer Holdings Inc.
|
22,816
|
|
|
35,790
|
|
|
12,798
|
|
|
(48,588
|
)
|
|
22,816
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
2,263
|
|
|
—
|
|
|
2,263
|
|
Total comprehensive income
|
$
|
22,816
|
|
|
$
|
35,790
|
|
|
$
|
15,061
|
|
|
$
|
(48,588
|
)
|
|
$
|
25,079
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Commissions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
377,317
|
|
|
$
|
—
|
|
|
$
|
377,317
|
|
Advisory fees
|
—
|
|
|
1,571
|
|
|
271,763
|
|
|
(4,215
|
)
|
|
269,119
|
|
Investment banking
|
—
|
|
|
—
|
|
|
81,011
|
|
|
—
|
|
|
81,011
|
|
Interest
|
—
|
|
|
10,242
|
|
|
47,804
|
|
|
(10,397
|
)
|
|
47,649
|
|
Principal transactions, net
|
—
|
|
|
16
|
|
|
20,465
|
|
|
—
|
|
|
20,481
|
|
Other
|
—
|
|
|
326
|
|
|
62,201
|
|
|
(325
|
)
|
|
62,202
|
|
Total revenue
|
—
|
|
|
12,155
|
|
|
860,561
|
|
|
(14,937
|
)
|
|
857,779
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
1,241
|
|
|
—
|
|
|
583,469
|
|
|
—
|
|
|
584,710
|
|
Communications and technology
|
124
|
|
|
—
|
|
|
70,266
|
|
|
—
|
|
|
70,390
|
|
Occupancy and equipment costs
|
—
|
|
|
—
|
|
|
61,116
|
|
|
(325
|
)
|
|
60,791
|
|
Clearing and exchange fees
|
—
|
|
|
—
|
|
|
25,126
|
|
|
—
|
|
|
25,126
|
|
Interest
|
13,125
|
|
|
—
|
|
|
16,709
|
|
|
(10,397
|
)
|
|
19,437
|
|
Other
|
1,887
|
|
|
1,284
|
|
|
120,261
|
|
|
(4,215
|
)
|
|
119,217
|
|
Total expenses
|
16,377
|
|
|
1,284
|
|
|
876,947
|
|
|
(14,937
|
)
|
|
879,671
|
|
Income (loss) before income taxes
|
(16,377
|
)
|
|
10,871
|
|
|
(16,386
|
)
|
|
—
|
|
|
(21,892
|
)
|
Income taxes
|
(8,296
|
)
|
|
3,325
|
|
|
(7,291
|
)
|
|
—
|
|
|
(12,262
|
)
|
Net income (loss) from continuing operations
|
(8,081
|
)
|
|
7,546
|
|
|
(9,095
|
)
|
|
—
|
|
|
(9,630
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
17,339
|
|
|
—
|
|
|
17,339
|
|
Income taxes
|
—
|
|
|
—
|
|
|
7,218
|
|
|
—
|
|
|
7,218
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
10,121
|
|
|
—
|
|
|
10,121
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
6,920
|
|
|
(626
|
)
|
|
—
|
|
|
(6,294
|
)
|
|
—
|
|
Net income (loss)
|
(1,161
|
)
|
|
6,920
|
|
|
1,026
|
|
|
(6,294
|
)
|
|
491
|
|
Less net income attributable to noncontrolling interest, net of tax
|
—
|
|
|
—
|
|
|
1,652
|
|
|
—
|
|
|
1,652
|
|
Net income (loss) attributable to Oppenheimer Holdings Inc.
|
(1,161
|
)
|
|
6,920
|
|
|
(626
|
)
|
|
(6,294
|
)
|
|
(1,161
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
220
|
|
|
—
|
|
|
220
|
|
Total comprehensive income (loss)
|
$
|
(1,161
|
)
|
|
$
|
6,920
|
|
|
$
|
(406
|
)
|
|
$
|
(6,294
|
)
|
|
$
|
(941
|
)
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Commissions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
417,559
|
|
|
$
|
—
|
|
|
$
|
417,559
|
|
Advisory fees
|
—
|
|
|
1,296
|
|
|
282,633
|
|
|
(3,682
|
)
|
|
280,247
|
|
Investment banking
|
—
|
|
|
—
|
|
|
102,540
|
|
|
—
|
|
|
102,540
|
|
Interest
|
—
|
|
|
10,237
|
|
|
49,056
|
|
|
(10,261
|
)
|
|
49,032
|
|
Principal transactions, net
|
—
|
|
|
—
|
|
|
15,244
|
|
|
(64
|
)
|
|
15,180
|
|
Other
|
—
|
|
|
370
|
|
|
33,173
|
|
|
(300
|
)
|
|
33,243
|
|
Total revenue
|
—
|
|
|
11,903
|
|
|
900,205
|
|
|
(14,307
|
)
|
|
897,801
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
1,185
|
|
|
—
|
|
|
609,635
|
|
|
—
|
|
|
610,820
|
|
Communications and technology
|
142
|
|
|
—
|
|
|
66,407
|
|
|
—
|
|
|
66,549
|
|
Occupancy and equipment costs
|
—
|
|
|
—
|
|
|
63,142
|
|
|
(300
|
)
|
|
62,842
|
|
Clearing and exchange fees
|
—
|
|
|
—
|
|
|
26,022
|
|
|
—
|
|
|
26,022
|
|
Interest
|
13,125
|
|
|
—
|
|
|
13,465
|
|
|
(10,261
|
)
|
|
16,329
|
|
Other
|
1,663
|
|
|
892
|
|
|
118,858
|
|
|
(3,746
|
)
|
|
117,667
|
|
Total expenses
|
16,115
|
|
|
892
|
|
|
897,529
|
|
|
(14,307
|
)
|
|
900,229
|
|
Income (loss) before income taxes
|
(16,115
|
)
|
|
11,011
|
|
|
2,676
|
|
|
—
|
|
|
(2,428
|
)
|
Income taxes
|
(6,030
|
)
|
|
5,553
|
|
|
883
|
|
|
—
|
|
|
406
|
|
Net income (loss) from continuing operations
|
(10,085
|
)
|
|
5,458
|
|
|
1,793
|
|
|
—
|
|
|
(2,834
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
9,139
|
|
|
—
|
|
|
9,139
|
|
Income taxes
|
—
|
|
|
—
|
|
|
3,407
|
|
|
—
|
|
|
3,407
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
5,732
|
|
|
—
|
|
|
5,732
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
12,047
|
|
|
6,589
|
|
|
—
|
|
|
(18,636
|
)
|
|
—
|
|
Net income
|
1,962
|
|
|
12,047
|
|
|
7,525
|
|
|
(18,636
|
)
|
|
2,898
|
|
Less net income attributable to noncontrolling interest, net of tax
|
—
|
|
|
—
|
|
|
936
|
|
|
—
|
|
|
936
|
|
Net income attributable to Oppenheimer Holdings Inc.
|
1,962
|
|
|
12,047
|
|
|
6,589
|
|
|
(18,636
|
)
|
|
1,962
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Total comprehensive income
|
$
|
1,962
|
|
|
$
|
12,047
|
|
|
$
|
6,606
|
|
|
$
|
(18,636
|
)
|
|
$
|
1,979
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
$
|
(25,979
|
)
|
|
$
|
(6,568
|
)
|
|
$
|
16,411
|
|
|
$
|
—
|
|
|
$
|
(16,136
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of furniture, equipment and leasehold improvements
|
—
|
|
|
—
|
|
|
(5,611
|
)
|
|
—
|
|
|
(5,611
|
)
|
Proceeds from the settlement of Company-owned life insurance
|
—
|
|
|
—
|
|
|
1,744
|
|
|
—
|
|
|
1,744
|
|
Cash used in investing activities
|
—
|
|
|
—
|
|
|
(3,867
|
)
|
|
—
|
|
|
(3,867
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on Class A non-voting and Class B voting common stock
|
(5,836
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,836
|
)
|
Cash dividends paid to noncontrolling interest
|
—
|
|
|
—
|
|
|
(2,448
|
)
|
|
—
|
|
|
(2,448
|
)
|
Issuance of Class A non-voting common stock
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Repurchase of Class A non-voting common stock for cancellation
|
(7,464
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,464
|
)
|
Payments of employee taxes withheld related to vested share-based awards
|
(2,237
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,237
|
)
|
Issuance of senior secured notes
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
Redemption of senior secured notes
|
(150,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(150,000
|
)
|
Debt issuance costs
|
(1,297
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,297
|
)
|
Decrease in bank call loans, net
|
—
|
|
|
—
|
|
|
(27,500
|
)
|
|
—
|
|
|
(27,500
|
)
|
Cash provided by (used in) in financing activities
|
33,192
|
|
|
—
|
|
|
(29,948
|
)
|
|
—
|
|
|
3,244
|
|
Net increase (decrease) in cash and cash equivalents
|
7,213
|
|
|
(6,568
|
)
|
|
(17,404
|
)
|
|
—
|
|
|
(16,759
|
)
|
Cash and cash equivalents, beginning of the year
|
229
|
|
|
10,284
|
|
|
54,400
|
|
|
—
|
|
|
64,913
|
|
Cash and cash equivalents, end of the year
|
$
|
7,442
|
|
|
$
|
3,716
|
|
|
$
|
36,996
|
|
|
$
|
—
|
|
|
$
|
48,154
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
$
|
10,485
|
|
|
$
|
7,698
|
|
|
$
|
(85,048
|
)
|
|
$
|
—
|
|
|
$
|
(66,865
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of furniture, equipment and leasehold improvements
|
—
|
|
|
—
|
|
|
(5,731
|
)
|
|
—
|
|
|
(5,731
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
45,448
|
|
|
—
|
|
|
45,448
|
|
Cash provided by investing activities
|
—
|
|
|
—
|
|
|
39,717
|
|
|
—
|
|
|
39,717
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on Class A non-voting and Class B voting common stock
|
(5,887
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,887
|
)
|
Cash dividends paid to noncontrolling interest
|
—
|
|
|
—
|
|
|
(5,740
|
)
|
|
—
|
|
|
(5,740
|
)
|
Repurchase of Class A non-voting common stock for cancellation
|
(3,935
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,935
|
)
|
Payments of employee taxes withheld related to vested share-based awards
|
(1,341
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,341
|
)
|
Increase in bank call loans, net
|
—
|
|
|
—
|
|
|
45,600
|
|
|
—
|
|
|
45,600
|
|
Cash provided by (used in) financing activities
|
(11,163
|
)
|
|
—
|
|
|
39,860
|
|
|
—
|
|
|
28,697
|
|
Net increase (decrease) in cash and cash equivalents
|
(678
|
)
|
|
7,698
|
|
|
(5,471
|
)
|
|
—
|
|
|
1,549
|
|
Cash and cash equivalents, beginning of the year
|
907
|
|
|
2,586
|
|
|
59,871
|
|
|
—
|
|
|
63,364
|
|
Cash and cash equivalents, end of the year
|
$
|
229
|
|
|
$
|
10,284
|
|
|
$
|
54,400
|
|
|
$
|
—
|
|
|
$
|
64,913
|
|
|
|
|
|
|
OPPENHEIMER HOLDINGS INC.
Notes to Consolidated Financial Statements
|
OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expressed in thousands)
|
Parent
|
|
Guarantor
subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
$
|
16,409
|
|
|
$
|
1,029
|
|
|
$
|
(36,851
|
)
|
|
$
|
—
|
|
|
$
|
(19,413
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of furniture, equipment and leasehold improvements
|
—
|
|
|
—
|
|
|
(5,889
|
)
|
|
—
|
|
|
(5,889
|
)
|
Cash used in investing activities
|
—
|
|
|
—
|
|
|
(5,889
|
)
|
|
—
|
|
|
(5,889
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on Class A non-voting and Class B voting common stock
|
(6,008
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,008
|
)
|
Repurchase of Class A non-voting common stock for cancellation
|
(8,250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,250
|
)
|
Payments of employee taxes withheld related to vested share-based awards
|
(1,683
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,683
|
)
|
Redemption of senior secured notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Decrease in bank call loans, net
|
—
|
|
|
—
|
|
|
40,800
|
|
|
—
|
|
|
40,800
|
|
Cash provided by (used in) financing activities
|
(15,941
|
)
|
|
—
|
|
|
40,800
|
|
|
—
|
|
|
24,859
|
|
Net increase (decrease) in cash and cash equivalents
|
468
|
|
|
1,029
|
|
|
(1,940
|
)
|
|
—
|
|
|
(443
|
)
|
Cash and cash equivalents, beginning of the year
|
439
|
|
|
1,557
|
|
|
61,811
|
|
|
—
|
|
|
63,807
|
|
Cash and cash equivalents, end of the year
|
$
|
907
|
|
|
$
|
2,586
|
|
|
$
|
59,871
|
|
|
$
|
—
|
|
|
$
|
63,364
|
|