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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 MARCH 31, 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
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UNITED ASSET MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2714625
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
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 April 25, 1994 was
28,248,526.
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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-6)
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-7)
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 March 31, 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
May 6, 1994 /s/ William H. Park
- - ------------------------------- ------------------------------
(Date) William H. Park
Senior Vice President and
Treasurer
(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 March 31, 1994 1993*
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<S> <C> <C>
Revenues.. . . . . . . . . . . . . . . . . . . . . $121,340,000 $110,024,000
------------ ------------
Operating expenses:
Compensation and related expenses . . . . . . . 59,566,000 55,581,000
Amortization of cost assigned to
contracts acquired . . . . . . . . . . . . . 13,341,000 11,941,000
Other operating expenses . . . . . . . . . . . 19,068,000 17,084,000
------------ ------------
91,975,000 84,606,000
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Operating income . . . . . . . . . . . . . . . . . 29,365,000 25,418,000
------------ ------------
Non-operating expenses:
Interest expense, net . . . . . . . . . . . . . 2,887,000 3,919,000
Other amortization . . . . . . . . . . . . . . 330,000 349,000
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3,217,000 4,268,000
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Income before income tax expense . . . . . . . . . 26,148,000 21,150,000
Income tax expense . . . . . . . . . . . . . . . . 11,244,000 9,122,000
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Net income . . . . . . . . . . . . . . . . . . . . $ 14,904,000 $ 12,028,000
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Earnings per share:
Primary earnings per share. . . . . . . . . . . $0.50 $0.44
Fully diluted earnings per share. . . . . . . . $0.50 $0.43
Dividends per share. . . . . . . . . . . . . . . . $0.24 $0.20
<FN>
*Restated due to pooling of interests transactions completed during 1993.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-1
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UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 66,809,000 $ 62,807,000
Investment management fees receivable . . . . . 81,087,000 75,003,000
Other current assets . . . . . . . . . . . . . 5,986,000 5,611,000
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Total current assets . . . . . . . . . . . . . . . 153,882,000 143,421,000
Fixed assets, net . . . . . . . . . . . . . . . . 15,816,000 14,994,000
Cost assigned to contracts acquired, net . . . . . 461,240,000 461,705,000
Other assets . . . . . . . . . . . . . . . . . . . 55,525,000 55,680,000
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Total assets . . . . . . . . . . . . . . . . . . . $686,463,000 $675,800,000
------------ ------------
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses . . . . . $ 64,876,000 $ 56,541,000
Accrued compensation. . . . . . . . . . . . . . 33,331,000 20,331,000
Current portion of notes payable . . . . . . . 2,265,000 1,628,000
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Total current liabilities . . . . . . . . . . . . 100,472,000 78,500,000
Senior notes payable . . . . . . . . . . . . . . . 50,500,000 80,000,000
Subordinated notes payable . . . . . . . . . . . . 121,901,000 130,551,000
Deferred income taxes . . . . . . . . . . . . . . 34,163,000 33,738,000
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Total liabilities . . . . . . . . . . . . . . . . 307,036,000 322,789,000
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Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share. . . . . 282,000 270,000
Capital in excess of par value. . . . . . . . . 249,737,000 233,759,000
Retained earnings . . . . . . . . . . . . . . . 129,408,000 118,982,000
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Total stockholders' equity . . . . . . . . . . . . 379,427,000 353,011,000
------------ ------------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . . . . . . $686,463,000 $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 March 31, 1994 1993*
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<S> <C> <C>
Cash flow from operating activities:
Net income . . . . . . . . . . . . . . . . . . $14,904,000 $12,028,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of cost assigned to
contracts acquired . . . . . . . . . . . . 13,341,000 11,941,000
Other amortization . . . . . . . . . . . . . 330,000 349,000
Depreciation . . . . . . . . . . . . . . . . 1,048,000 992,000
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Net income plus amortization and
depreciation. . . . . . . . . . . . . . . 29,623,000 25,310,000
Changes in assets and liabilities:
Increase in investment management
fees receivable. . . . . . . . . . . . . (6,084,000) (3,092,000)
(Increase) decrease in other current assets (375,000) 276,000
Increase in accounts payable and
accrued expenses . . . . . . . . . . . . 8,335,000 7,646,000
Increase in accrued compensation. . . . . . 13,000,000 10,709,000
Increase in deferred taxes. . . . . . . . . 425,000 700,000
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Net cash flow from operating activities. . . . . . 44,924,000 41,549,000
Cash flow used in investing activities:
Cash additions to cost assigned to
contracts acquired . . . . . . . . . . . . (7,472,000) (2,562,000)
Change in other assets. . . . . . . . . . . . (2,158,000) (2,760,000)
------------ ------------
Net cash flow used in investing activities . . . . (9,630,000) (5,322,000)
Cash flow from (used in) financing activities:
Purchase of treasury shares . . . . . . . . . - (3,188,000)
Reductions in long-term debt, net . . . . . . (28,980,000) (16,500,000)
Issuance or reissuance of equity securities . 4,561,000 2,542,000
Dividends declared . . . . . . . . . . . . . (6,778,000) (4,389,000)
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Net cash flow used in financing activities . . . . (31,197,000) (21,535,000)
Effect of foreign exchange rate changes on
cash flows. . . . . . . . . . . . . . . . . . (95,000) (527,000)
Net increase in cash and cash equivalents. . . . . 4,002,000 14,165,000
Cash and cash equivalents at beginning of quarter. 62,807,000 45,988,000
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Cash and cash equivalents at end of quarter. . . $66,809,000 $60,153,000
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<FN>
*Restated due to pooling of interests transactions completed during 1993.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
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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 March 31, 1994 and their results of
operations and cash flows for the three months ended March 31, 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 $26,778,000 and $25,730,000
at March 31, 1994 and December 31, 1993, respectively. The accumulated
amortization of cost assigned to contracts acquired was $231,419,000 and
$218,078,000 at March 31, 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. Through March 31, 1994, 2,878,117 shares of
common stock out of a total of 4,000,000 shares which have been authorized, had
been repurchased at a cost of $43,343,000 and all such shares had been reissued
from Treasury upon the exercise of stock options and warrants.
During the three months ended March 31, 1994, the Company received cash
proceeds of $2,173,000 and extinguished subordinated notes of $13,605,000 upon
the issuance of 693,038 shares to satisfy exercises of stock options and
warrants.
As of March 31, 1994, 3,706,000 common stock warrants and 2,979,000 stock
options were outstanding at average exercise prices of $30.06 and $26.41,
respectively.
Note 4
During the three months ended March 31, 1994, the Company acquired Dwight
Asset Management Company in a transaction that is being accounted for as a
purchase. In addition, the Company also acquired Investment Research Company in
a transaction that is being accounted for as a pooling of interests. As this
transaction is not considered material to the Company's Condensed Consolidated
Financial Statements, prior year Financial Statements have not been restated.
F-4
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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 67% of the Company's total assets as of March 31, 1994. Amortization
of cost assigned to contracts acquired, which is a non-cash charge, represented
15% of the Company's operating expenses for the three months ended March 31,
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 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. The Company changed its definition of
Operating Cash Flow during the first quarter of 1994, to "net income plus
amortization and depreciation" from "Cash flow provided by operations before
working capital changes" which it had previously used. The only difference is
that deferred taxes is now excluded from Operating Cash Flow.
F-5
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1994
COMPARED TO
THREE MONTHS ENDED MARCH 31, 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 10% to $121,340,000 in the three months ended March 31,
1994, from $110,024,000 for the first quarter of 1993, due to several factors.
The revenues of Pell, Rudman & Co., Inc., acquired March 29, 1993, were included
for the full first quarter of 1994. 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, have been included for the full first quarter of 1994. The portfolio
performance since the first quarter of 1993 also added modestly to assets under
management and higher revenues.
Compensation and related expenses together with other operating expenses
increased 8% to $78,634,000 from $72,665,000 primarily reflecting the
acquisitions described in the preceding paragraph and higher compensation earned
at existing affiliates. The amortization of cost assigned to contracts acquired
increased 12% to $13,341,000 from $11,941,000 as a result of the purchase
acquisitions discussed above.
Income before income tax expense increased 24% to $26,148,000 from
$21,150,000, reflecting the net result of the circumstances described above. The
Company's estimated annual effective tax rate is 43%.
Net income increased 24% to $14,904,000 from $12,028,000 again reflecting
the net result of the circumstances described above. Fully diluted earnings per
share increased 16% to $.50 in 1994 from $.43 in 1993, reflecting the higher net
income, partially offset by the impact of the Company's higher common stock
price 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 $.44 from $.42 primarily as a result of the purchase acquisitions
described above.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
The Company generated $29,623,000 in Operating Cash Flow (net income plus
amortization and depreciation) in the three months ended March 31, 1994. 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 finance the
purchase acquisition made during the current quarter, and to pay dividends to
shareholders. There were $50,500,000 in borrowings outstanding under the
Company's $225,000,000 revolving credit facility at March 31, 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-6
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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
March 31,
-----------------------
1994 1993 (1)
---- ----
<S> <C> <C>
Common and common equivalent shares:
Net income. . . . . . . . . . . . . . . . $14,904 $12,028
Adjustments thereto (2) . . . . . . . . . -- 176
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Adjusted net income . . . . . . . . . . . $14,904 $12,204
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Average shares outstanding . . . . . . . 28,070 25,457
Adjustments thereto (3) . . . . . . . . . 1,919 2,509
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Shares used in computation . . . . . . . 29,989 27,966
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Per Share . . . . . . . . . . . . . . . . . $ 0.50 $ 0.44
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Common shares -- assuming full dilution:
Net income. . . . . . . . . . . . . . . . $14,904 $12,028
Adjustments thereto (2) . . . . . . . . . -- --
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Adjusted net income . . . . . . . . . . . $14,904 $12,028
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Average shares outstanding . . . . . . . 28,070 25,457
Adjustments thereto (3) . . . . . . . . . 1,919 2,646
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Shares used in computation . . . . . . . 29,989 28,103
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------- -------
Per Share . . . . . . . . . . . . . . . . . $ 0.50 $ 0.43
------- -------
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<FN>
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(1) The calculations of earnings per share for 1993 have been restated to
reflect the effect of the 1993 acquisitions of Heitman Financial Ltd. and
Murray Johnstone Limited, which have been accounted for as pooling of
interests transactions.
(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-7
