<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE PERIOD ENDED JUNE 30, 1994 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM to
Commission File Number 1-9215
---------------------------------------------
UNITED ASSET MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2714625
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
The number of shares of common stock outstanding as of July 28, 1994 was
28,071,535.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (F-1 to F-4)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (F-5 to F-7)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Certain of the Company's subsidiaries are subject to legal proceedings
arising in the ordinary course of business. On the basis of
information presently available and advice received from counsel, it
is the opinion of management that the disposition or ultimate
determination of such legal proceedings will not have a material
adverse effect on the financial position of the Company.
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 2 - Not Applicable
Exhibit 4 - Not Applicable
Exhibit 11 - Calculation of Earnings Per Share (F-8)
Exhibit 15 - Not Applicable
Exhibit 18 - Not Applicable
Exhibit 19 - Not Applicable
Exhibit 20 - Not Applicable
Exhibit 23 - Not Applicable
Exhibit 24 - Not Applicable
Exhibit 25 - Not Applicable
Exhibit 28 - Not Applicable
(b) There have been no reports on Form 8-K filed by the Company for
the quarter ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED ASSET MANAGEMENT CORPORATION
August 9, 1994 /s/ William H. Park
- ------------------------------ -------------------------------
(Date) William H. Park
Senior Vice President
(Duly authorized officer and
principal financial officer)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED ASSET MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -----------------------------
1994 1993 (1) 1994 1993 (1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues........................... $115,525,000 $109,661,000 $236,865,000 $219,685,000
------------ ------------ ------------ ------------
Operating expenses:
Compensation and related
expenses........................ 54,577,000 55,449,000 114,143,000 111,030,000
Amortization of cost assigned
to contracts acquired........... 13,308,000 12,121,000 26,649,000 24,062,000
Other operating expenses......... 19,715,000 15,312,000 38,783,000 32,396,000
------------ ------------ ------------ ------------
87,600,000 82,882,000 179,575,000 167,488,000
------------ ------------ ------------ ------------
Operating income................... 27,925,000 26,779,000 57,290,000 52,197,000
------------ ------------ ------------ ------------
Non-operating expenses:
Interest expense, net............ 2,608,000 3,640,000 5,495,000 7,559,000
Other amortization............... 300,000 348,000 630,000 697,000
------------ ------------ ------------ ------------
2,908,000 3,988,000 6,125,000 8,256,000
------------ ------------ ------------ ------------
Income before income tax expense... 25,017,000 22,791,000 51,165,000 43,941,000
Income tax expense................. 10,723,000 9,744,000 21,967,000 18,866,000
------------ ------------ ------------ ------------
Net income......................... $ 14,294,000 $ 13,047,000 $ 29,198,000 $ 25,075,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share:
Primary earnings per share....... $0.49 $0.45 $0.99 $0.89
Fully diluted earnings per
share.......................... $0.49 $0.45 $0.99 $0.86
Dividends per share................ $0.24 $0.20 $0.48 $0.40
<FN>
(1) Restated due to pooling of interests transactions completed during 1993.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-1
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................... $ 80,829,000 $ 62,807,000
Investment management fees receivable ....... 72,229,000 75,003,000
Other current assets ........................ 7,480,000 5,611,000
------------ ------------
Total current assets .......................... 160,538,000 143,421,000
Fixed assets, net ............................. 16,347,000 14,994,000
Cost assigned to contracts acquired, net ...... 447,214,000 461,705,000
Other assets .................................. 57,475,000 55,680,000
------------ ------------
Total assets .................................. $681,574,000 $675,800,000
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ....... $ 52,797,000 $ 56,541,000
Accrued compensation ........................ 40,249,000 20,331,000
Current portion of notes payable ............ 5,509,000 1,628,000
------------ ------------
Total current liabilities ..................... 98,555,000 78,500,000
Senior notes payable .......................... 53,000,000 80,000,000
Subordinated notes payable .................... 114,397,000 130,551,000
Deferred income taxes ......................... 34,238,000 33,738,000
------------ ------------
Total liabilities ............................. 300,190,000 322,789,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share....... 283,000 270,000
Capital in excess of par value .............. 251,164,000 233,759,000
Retained earnings ........................... 137,337,000 118,982,000
------------ ------------
388,784,000 353,011,000
Less treasury shares at cost ................ (7,400,000) -
------------ ------------
Total stockholders' equity .................... 381,384,000 353,011,000
------------ ------------
Total liabilities and stockholders'
equity ...................................... $681,574,000 $675,800,000
------------ ------------
------------ ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1994 1993 (1) 1994 1993 (1)
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<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income.................................. $ 14,294,000 $ 13,047,000 $ 29,198,000 $ 25,075,000
Adjustments to reconcile net income
to net cash flow provided by operating
activities:
Amortization of cost assigned to
contracts acquired........................ 13,308,000 12,121,000 26,649,000 24,062,000
Depreciation................................ 1,005,000 898,000 2,053,000 1,890,000
Other amortization.......................... 300,000 348,000 630,000 697,000
------------ ------------ ------------ ------------
Net income plus amortization and
depreciation.............................. 28,907,000 26,414,000 58,530,000 51,724,000
Changes in assets and liabilities:
Decrease (increase) in investment
management fees receivable.............. 9,207,000 2,525,000 3,123,000 (567,000)
(Increase) decrease in other current
assets.................................. (1,472,000) 141,000 (1,847,000) 417,000
Decrease in accounts payable and
accrued expenses........................ (12,639,000) (9,430,000) (4,304,000) (1,784,000)
Increase in accrued compensation.......... 6,768,000 6,401,000 19,768,000 17,110,000
Increase in deferred income taxes......... 75,000 1,176,000 500,000 1,876,000
------------ ------------ ------------ ------------
Net cash flow from operating activities....... 30,846,000 27,227,000 75,770,000 68,776,000
------------ ------------ ------------ ------------
Cash flow used in investing activities:
Cash additions to cost assigned to
contracts acquired........................ (2,070,000) (4,234,000) (9,542,000) (6,796,000)
Change in other assets...................... (3,462,000) (3,548,000) (5,620,000) (6,308,000)
------------ ------------ ------------ ------------
Net cash flow used in investing activities.... (5,532,000) (7,782,000) (15,162,000) (13,104,000)
------------ ------------ ------------ ------------
Cash flow from (used in) financing activities:
Purchase of treasury shares................. (10,700,000) (978,000) (10,700,000) (4,166,000)
Additions to (reductions in) long-term
debt, net................................. 3,375,000 (17,771,000) (25,605,000) (34,271,000)
Issuance or reissuance of equity
securities................................ 1,431,000 551,000 5,992,000 3,093,000
Dividends declared.......................... (6,734,000) (4,538,000) (13,512,000) (8,927,000)
------------ ------------ ------------ ------------
Net cash flow used in financing activities:... (12,628,000) (22,736,000) (43,825,000) (44,271,000)
------------ ------------ ------------ ------------
Effect of foreign exchange rate changes
on cash flows............................... 1,334,000 418,000 1,239,000 (109,000)
Net increase (decrease) in cash and cash
equivalents................................. 14,020,000 (2,873,000) 18,022,000 11,292,000
Cash and cash equivalents at beginning
of period................................... 66,809,000 62,233,000 62,807,000 48,068,000
------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period...................................... $ 80,829,000 $ 59,360,000 $ 80,829,000 $ 59,360,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<FN>
(1) Restated due to pooling of interests transactions completed during 1993.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
In the opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial position of
the Company and its subsidiaries at June 30, 1994 and their results of
operations and cash flows for the three and six-month periods ended June 30,
1994 and 1993. These Financial Statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
Note 2
Accumulated depreciation of fixed assets was $27,783,000 and $25,730,000 at
June 30, 1994 and December 31, 1993, respectively. The accumulated amortization
of cost assigned to contracts acquired was $243,972,000 and $218,078,000 at
June 30, 1994 and December 31, 1993, respectively.
Note 3
The Company has a systematic program to repurchase shares of its common
stock to meet the requirements for future issuance of shares upon the exercise
of stock options and warrants. During the three month period ended June 30,
1994, the Company repurchased 326,000 shares of its common stock at a cost of
$10,700,000. No shares were repurchased during the first quarter of 1994.
During the three and six-month periods ended June 30, 1994, exercises of
warrants and stock options resulted in the Company extinguishing subordinated
notes, receiving cash proceeds and issuing stock as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1994 June 30, 1994
------------- -------------
<S> <C> <C>
Subordinated notes extinguished $2,359,000 $15,964,000
Cash proceeds received $718,000 $2,891,000
Shares issued 42,209 735,247
Treasury shares reissued 100,488 100,488
</TABLE>
As of June 30, 1994, the Company held 225,512 treasury shares.
As of June 30, 1994, 3,606,000 warrants and 3,249,000 stock options were
outstanding at average exercise prices of $30.24 and $27.15, respectively.
Note 4
During the three months ended June 30, 1994, the Company signed an
agreement to acquire an investment management firm in a transaction which will
be accounted for as a purchase. This transaction, which was completed in July,
1994, is not material to the Company's Condensed Consolidated Financial
Statements.
F-4
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The revenues of UAM's affiliated firms are principally derived from fees
for investment advisory services provided to institutional and other clients.
Investment advisory fees are generally a function of the overall fee rate
charged to each account and the level of assets under management by the
affiliated firms. Assets under management can be affected by client
contributions to new or existing accounts, withdrawals of assets from or
terminations of client accounts and investment performance, which may depend on
general market conditions.
AMORTIZATION OF COST ASSIGNED TO CONTRACTS ACQUIRED AND OPERATING CASH FLOW (NET
INCOME PLUS AMORTIZATION AND DEPRECIATION)
Cost assigned to contracts acquired, net of accumulated amortization,
represented 66% of the Company's total assets as of June 30, 1994. Amortization
of cost assigned to contracts acquired, which is a non-cash charge, represented
15% of the Company's operating expenses for both the three and six-month periods
ended June 30, 1994. Recording the cost assigned to contracts acquired as an
asset, with the resulting amortization as an operating expense, reflects the
application of generally accepted accounting principles to acquisitions by UAM
of investment management firms in transactions accounted for as purchases, where
the principal assets acquired are the contracts which evidence the firms'
ongoing relationships with their clients.
Although the contracts acquired are typically terminable on 30 days notice,
analyses conducted by independent consultants retained by UAM to assist the
Company in allocating the purchase price among the assets acquired and the
experience of UAM's firms to date have indicated that: 1) contracts are usually
relatively long-lived; 2) the duration of contracts can be reasonably estimated;
and 3) the value of the cost assigned to contracts acquired can be estimated
based on the present value of its projected income stream.
The cost assigned to contracts acquired is amortized on a straight-line
basis over the estimated weighted average useful life of the contracts of
individual firms acquired. These lives are estimated through statistical
analysis of historical patterns of terminations for each firm or similar firms
and the size and age of the contracts acquired as of the acquisition date.
Since actual terminations can differ from the statistical patterns
developed, the Company updates the lifing analyses discussed above based on
terminations subsequent to the acquisition. If the subsequent termination
experience indicates that any of the estimates of the average remaining lives
should be shortened, the remaining cost assigned to contracts acquired will be
amortized over the shorter life commencing in the year in which the new estimate
is determined. The results of the most recent reevaluations of estimated
remaining lives had no material effect on the Company's financial position or
results of operations.
Cost assigned to contracts acquired is amortized as an operating expense.
It does not, however, require the use of cash and therefore, management believes
that it is important to distinguish this expense from other operating expenses
in order to evaluate the performance of the Company. Amortization of cost
assigned to contracts acquired per share referred to below has been calculated
by dividing total amortization by the same number of shares used in the fully
diluted earnings per share calculation.
For purposes of this discussion, "Operating Cash Flow" is defined as net
income plus amortization and depreciation, as reflected in the Company's
Condensed Consolidated Statement of Cash Flows. Management uses Operating Cash
Flow not to the exclusion of net income, but rather as an additional important
measure of the Company's performance.
F-5
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
OPERATING RESULTS
SIX MONTHS ENDED JUNE 30, 1994
COMPARED TO
SIX MONTHS ENDED JUNE 30, 1993
The 1993 results of operations have been restated to reflect the 1993
acquisitions of Heitman Financial Ltd. and Murray Johnstone Limited, which have
been accounted for as pooling of interests transactions.
Revenues increased 8% to $236,865,000 for the six months ended June 30,
1994 from $219,685,000 for the first six months of 1993, due to several factors.
The revenues of Pell, Rudman & Co., Inc. and GSB Investment Management, Inc.,
acquired March 29, 1993 and December 29, 1993, respectively, have been included
since their acquisition dates. In addition, the revenues of Dwight Asset
Management Company, acquired January 4, 1994, were included since its
acquisition date, and the revenues of Investment Research Company, acquired
February 25, 1994 in a transaction accounted for as a pooling of interests, are
included retroactive to January 1, 1994. Portfolio performance since June 30,
1993 also contributed slightly to assets under management and thus, higher fee
revenues.
Compensation and related expenses together with other operating expenses
increased 7% from $143,426,000 to $152,926,000 for the six months ended June 30,
1994. This increase reflects the activity described above as well as higher
compensation earned at existing affiliates under revenue sharing agreements. The
amortization of cost assigned to contracts acquired increased 11% to $26,649,000
from $24,062,000 primarily as a result of the acquisitions described above.
Income before income tax expense increased 16% to $51,165,000 from
$43,941,000, reflecting the net result of the circumstances described above as
well as a reduction in interest expense due to a decrease in the average debt
outstanding. The Company's estimated annual effective tax rate remained at 43%.
Net income increased 16% to $29,198,000 for the first half of 1994 from
$25,075,000 for the same period in 1993. Again, this increase reflects the net
result of the circumstances described above. Fully diluted earnings per share
increased 15% to $0.99 from $0.86, reflecting the higher net income together
with the effect of the Company's lower common stock price, partially offset by
the issuance of shares of common stock, warrants and stock options on the
calculation of earnings per share under the modified treasury stock method.
Amortization of cost assigned to contracts acquired on a per share basis
increased to $0.90 from $0.83 primarily as a result of the purchase acquisitions
described above.
THREE MONTHS ENDED JUNE 30, 1994
COMPARED TO
THREE MONTHS ENDED JUNE 30, 1993
The 1993 results of operations have been restated to reflect the 1993
acquisitions of Heitman Financial Ltd. and Murray Johnstone Limited, which have
been accounted for as pooling of interests transactions.
Revenues increased 5% to $115,525,000 in the three months ended June 30,
1994, from $109,661,000 for the second quarter of 1993, due to several factors.
The revenues of GSB Investment Management, Inc. and Dwight Asset Management
Company, acquired December 29, 1993 and January 4, 1994, respectively, have been
included since their acquisition dates. In addition, the revenues of Investment
Research Company, acquired February 25, 1994 in a transaction accounted for as a
pooling of interests, have been included for the full second quarter of 1994.
The portfolio performance since the second quarter of 1993 also added slightly
to assets under management and higher revenues.
F-6
<PAGE>
Compensation and related expenses together with other operating expenses
increased 5% to $74,292,000 from $70,761,000 primarily reflecting the activity
described above and higher compensation earned at existing affiliates. The
amortization of cost assigned to contracts acquired increased 10% to $13,308,000
from $12,121,000 as a result of the purchase acquisitions discussed above.
Income before income tax expense increased 10% to $25,017,000 from
$22,791,000, reflecting the net result of the circumstances described above as
well as a reduction in interest expense due to a decrease in the average debt
outstanding. The Company's estimated annual effective tax rate remained at 43%.
Net income increased 10% to $14,294,000 from $13,047,000 again reflecting
the net result of the circumstances described above. Fully diluted earnings per
share increased 9% to $0.49 for the second quarter of 1994 from $0.45 in the
second quarter of 1993, reflecting the higher net income coupled with the impact
of the Company's lower common stock price, partially offset by the issuance of
shares of common stock, warrants and stock options on the calculation of
earnings per share under the modified treasury stock method. Amortization of
cost assigned to contracts acquired on a per share basis increased to $0.45 from
$0.42 primarily as a result of the purchase acquisitions described above.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
The Company generated $58,530,000 and $28,907,000 in Operating Cash Flow
(net income plus amortization and depreciation) for the six and three-month
periods ended June 30, 1994, respectively. The primary use of this Operating
Cash Flow was to pay down a portion of the borrowings under the Company's
revolving credit facility, to fund the cash portions of acquisitions, to pay
dividends to shareholders and to repurchase shares of the Company's common
stock. There was $53,000,000 in borrowings outstanding under the Company's
$225,000,000 revolving credit facility at June 30, 1994.
The Company expects to use Operating Cash Flow together with funds borrowed
from banks under the revolving credit facility referred to above and other
Company securities to 1) fund possible future acquisitions of institutional
investment management firms, 2) pay dividends and 3) repurchase shares of the
Company's common stock. Whether the Company ultimately completes any such
additional acquisitions or the timing of such acquisitions is not certain.
Management believes that the Company's existing capital, together with its
Operating Cash Flow and borrowings available under its revolving line of credit,
will provide the Company with sufficient resources to meet its present and
reasonably foreseeable future cash needs.
F-7
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UNITED ASSET MANAGEMENT CORPORATION
Exhibit 11
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993(1) 1994 1993(1)
<S> <C> <C> <C> <C>
Common and common equivalent shares:
Net income.......................... $14,294 $13,047 $29,198 $25,075
Adjustments thereto (2)............. 99 - - -
------- ------- ------- -------
Adjusted net income................. $14,393 $13,047 $29,198 $25,075
------- ------- ------- -------
------- ------- ------- -------
Average shares outstanding.......... 28,142 25,835 28,109 25,642
Adjustments thereto (3)............. 1,248 2,862 1,524 2,545
------- ------- ------- -------
Shares used in computation.......... 29,390 28,697 29,633 28,187
------- ------- ------- -------
------- ------- ------- -------
Per Share.............................. $ 0.49 $ 0.45 $ 0.99 $ 0.89
------- ------- ------- -------
------- ------- ------- -------
Common shares -- assuming full dilution:
Net income.......................... $14,294 $13,047 $29,198 $25,075
Adjustments thereto (2)............. 99 - - -
------- ------- ------- -------
Adjusted net income................. $14,393 $13,047 $29,198 $25,075
------- ------- ------- -------
------- ------- ------- -------
Average shares outstanding.......... 28,142 25,835 28,109 25,642
Adjustments thereto (3)............. 1,248 3,279 1,524 3,392
------- ------- ------- -------
Shares used in computation.......... 29,390 29,114 29,633 29,034
------- ------- ------- -------
------- ------- ------- -------
Per Share.............................. $ 0.49 $ 0.45 $ 0.99 $ 0.86
------- ------- ------- -------
------- ------- ------- -------
- -------------------------
<FN>
(1) Restated due to pooling of interests transactions completed during 1993.
(2) The proceeds from the exercise of stock options and warrants in accordance
with the modified treasury stock method are first used to buy back up to
20% of the Company's common stock at the average price for the period in
the primary calculation and at the higher of the average or closing price
in the fully diluted calculation. Any remaining proceeds are used to
retire debt, and this adjusts income for interest assumed to be saved net
of income tax from the use of such proceeds.
(3) Adjusts shares for stock options and warrants under the modified treasury
stock method and contingently issuable shares based on the probability of
issuance, after adjusting for the stock assumed repurchased in accordance
with (2) above.
</TABLE>
F-8
