<PAGE>
================================================================================
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, 1995 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 May 8, 1995 was
30,750,012.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (F-1 to F-5)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (F-6 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) A report on Form 8-K filed December 1, 1994 was amended on
March 2, 1995. The items reported were as follows:
Item 2. Acquisition or Disposition of Assets.
Item 5. Other Events.
Item 7. Financial Statements and Exhibits.
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 10, 1995 /s/ William H. Park
- ------------------------- -----------------------------------
(Date) William H. Park
Executive Vice President and
Chief 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, 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Revenues...................................... $151,102,000 $121,340,000
------------ ------------
Operating expenses:
Compensation and related expenses........... 71,275,000 59,566,000
Amortization of cost assigned to
contracts acquired........................ 20,068,000 13,341,000
Other operating expenses.................... 23,790,000 19,068,000
------------ ------------
115,133,000 91,975,000
------------ ------------
Operating income.............................. 35,969,000 29,365,000
------------ ------------
Non-operating expenses:
Interest expense, net....................... 8,319,000 2,887,000
Other amortization.......................... 373,000 330,000
------------ ------------
8,692,000 3,217,000
------------ ------------
Income before income tax expense.............. 27,277,000 26,148,000
Income tax expense............................ 11,672,000 11,244,000
------------ ------------
Net income.................................... $ 15,605,000 $ 14,904,000
------------ ------------
------------ ------------
Primary and fully diluted earnings per share.. $0.51 $0.50
Dividends per share........................... $0.28 $0.24
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-1
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited)
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................... $ 81,453,000 $ 89,050,000
Investment advisory fees receivable ....... 86,288,000 77,292,000
Other current assets....................... 12,324,000 12,922,000
-------------- ------------
Total current assets......................... 180,065,000 179,264,000
Fixed assets, net............................ 21,542,000 19,351,000
Cost assigned to contracts acquired, net..... 990,584,000 656,130,000
Other assets................................. 63,589,000 60,882,000
-------------- ------------
Total assets................................. $1,255,780,000 $915,627,000
-------------- ------------
-------------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses...... $ 72,018,000 $ 65,032,000
Accrued compensation....................... 34,518,000 48,048,000
Current portion of notes payable........... 1,009,000 1,009,000
-------------- ------------
Total current liabilities.................... 107,545,000 114,089,000
Senior notes payable......................... 171,500,000 172,000,000
Subordinated notes payable................... 444,809,000 192,330,000
Deferred income taxes........................ 38,910,000 37,367,000
-------------- ------------
Total liabilities............................ 762,764,000 515,786,000
-------------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share..... 308,000 283,000
Capital in excess of par value............. 338,606,000 255,162,000
Retained earnings.......................... 157,145,000 150,951,000
-------------- ------------
496,059,000 406,396,000
Less treasury shares at cost............... (3,043,000) (6,555,000)
-------------- ------------
Total stockholders' equity................... 493,016,000 399,841,000
-------------- ------------
Total liabilities and stockholders'
equity..................................... $1,255,780,000 $915,627,000
-------------- ------------
-------------- ------------
</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, 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income.............................................. $ 15,605,000 $ 14,904,000
Adjustments to reconcile net income to net
cash flow from operating activities:
Amortization of cost assigned to
contracts acquired.................................. 20,068,000 13,341,000
Depreciation.......................................... 1,206,000 1,048,000
Other amortization.................................... 373,000 330,000
------------ ------------
Net income plus amortization and
depreciation.......................................... 37,252,000 29,623,000
Changes in assets and liabilities:
Increase in investment advisory
fees receivable..................................... (8,680,000) (6,084,000)
Decrease (increase) in other current assets........... 616,000 (375,000)
Increase in accounts payable and
accrued expenses.................................... 6,539,000 8,335,000
(Decrease) increase in accrued compensation........... (13,603,000) 13,000,000
Increase in deferred income taxes..................... 1,543,000 425,000
------------ ------------
Net cash flow from operating activities................... 23,667,000 44,924,000
Cash flow used in investing activities:
Cash additions to cost assigned to
contracts acquired.................................... (11,559,000) (7,472,000)
Change in other assets.................................. (6,028,000) (2,158,000)
------------ ------------
Net cash flow used in investing activities................ (17,587,000) (9,630,000)
Cash flow from (used in) financing activities:
Purchase of treasury shares............................. (3,324,000) --
Reductions in long-term debt, net....................... (5,118,000) (28,980,000)
Issuance or reissuance of equity securities............. 2,531,000 4,561,000
Dividends declared...................................... (8,605,000) (6,778,000)
------------ ------------
Net cash flow used in financing activities................ (14,516,000) (31,197,000)
Effect of foreign exchange rate changes on
cash flow............................................... 839,000 (95,000)
Net (decrease) increase in cash and
cash equivalents........................................ (7,597,000) 4,002,000
Cash and cash equivalents at beginning of quarter......... 89,050,000 62,807,000
------------ ------------
Cash and cash equivalents at end of quarter............... $ 81,453,000 $ 66,809,000
------------ ------------
------------ ------------
</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 March 31, 1995 and their results of
operations and cash flows for the three months ended March 31, 1995 and 1994.
These Financial Statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
Note 2
Accumulated depreciation of fixed assets was $28,979,000 and $27,773,000
at March 31, 1995 and December 31, 1994, respectively. The accumulated
amortization of cost assigned to contracts acquired was $292,512,000 and
$272,444,000 at March 31, 1995 and December 31, 1994, 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 March 31,
1995, the Company repurchased 90,000 shares of its common stock at a cost of
$3,324,000. During the same period, 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
Ended
March 31, 1995
--------------
<S> <C>
Subordinated notes extinguished $17,611,000
Cash proceeds received $3,087,000
Shares issued 657,687
Treasury shares reissued 197,377
</TABLE>
As of March 31, 1995, the Company held 82,349 treasury shares.
As of March 31, 1995, 5,031,000 warrants and 3,562,000 stock options were
outstanding at average exercise prices of $37.68 and $29.17, respectively.
Note 4
The Company established UAM Investment Services, Inc. in January, 1995.
The Company also acquired Provident Investment Counsel on February 15, 1995 in
a transaction that is being accounted for as a purchase.
F-4
<PAGE>
Unaudited pro forma data for the three month periods ended March 31, 1995
and 1994 is set forth below, giving consideration to the Provident
acquisition occurring in the respective periods assuming the revenue sharing
plan had been in effect and after certain other pro forma adjustments
have been made.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $162,328,000 $141,760,000
Net income $16,078,000 $15,547,000
Primary and fully diluted earnings per share $0.51 $0.50
</TABLE>
As of March 31, 1995, the results of the external appraisal of the assets
acquired in conjunction with the Provident transaction had not been completed.
Management believes the preliminary allocation of the purchase price to the
assets acquired is reasonable and no significant adjustments to these
allocations are anticipated.
The Company signed an agreement on February 3, 1995 to acquire Pilgrim
Baxter & Associates in a transaction that will be accounted for as a purchase.
This transaction was completed April 28, 1995.
F-5
<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 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. A
minor portion of revenues are generated when firms consummate transactions for
client portfolios. Assets under management can be affected by the addition of
new client accounts or client contributions to 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 79% of the Company's total assets as of March 31, 1995.
Amortization of cost assigned to contracts acquired, which is a non-cash charge,
represented 17% of the Company's operating expenses for the three months ended
March 31, 1995. 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 and the size and age of the
contracts acquired as of the acquisition date.
When actual terminations differ from the statistical patterns developed or
upon the occurrence of certain other events, the Company updates the lifing
analyses discussed above. If the update 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. There has been no material effect
on the Company's financial position or results of operations as a result of
these updates.
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-6
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1995
COMPARED TO
THREE MONTHS ENDED MARCH 31, 1994
Revenues increased 25% to $151,102,000 for the three months ended March 31,
1995, from $121,340,000 for the first quarter of 1994. This increase is the
result of acquisitions, as well as the impact of favorable portfolio
performance achieved by UAM's affiliated firms offset by the effect of net
client cash outflows. Some of our affiliates continued to experience negative
net client cash flows at a rate similar to that of last year. The revenues of
Suffolk Capital Management and JMB Institutional Realty acquired July 14, 1994
and December 2, 1994, respectively, have been included in the first quarter of
1995. In addition, the revenues of Provident Investment Counsel, acquired
February 15, 1995, have been included since its acquisition date.
Compensation and related expenses together with other operating expenses
increased 21% to $95,065,000 from $78,634,000 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 50% to $20,068,000 from $13,341,000 as a result of the acquisitions
discussed above.
Interest expense, net increased to $8,319,000 from $2,887,000, reflecting
the cost of financing the acquisitions discussed above.
Income before income tax expense increased 4% to $27,277,000 from
$26,148,000, reflecting the net result of the circumstances described above. The
Company's estimated annual effective tax rate is 43% for both the three months
ended March 31, 1995 and 1994.
Net income increased 5% to $15,605,000 from $14,904,000 again reflecting
the net result of the circumstances described above. Fully diluted earnings per
share increased 2% to $0.51 in 1995 from $0.50 in 1994, 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, and the exercise of
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 $0.63 from $0.44 primarily as a
result of the acquisitions described above.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
The Company generated $37,252,000 in Operating Cash Flow (net income plus
amortization and depreciation) for the three months ended March 31, 1995. The
primary use of this Operating Cash Flow was to fund the cash portions of
acquisitions, to pay dividends to shareholders and to repurchase shares of the
Company's common stock. There were $171,500,000 in borrowings outstanding under
the Company's $500,000,000 revolving credit facility at March 31, 1995.
Management believes that the company's existing capital, together with
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. Management expects that the principal
need for financial resources will be to acquire additional investment
management firms, to fund commitments related to acquisitions of investment
management firms, to fund shareholder dividends and to repurchase shares of
the Company's common stock, which will require cash, the issuance of additional
UAM securities, or some combination thereof. Whether the Company ultimately
completes any such additional acquisitions or the timing of such acquisitions
is not certain.
F-7
<PAGE>
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,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Common and common equivalent shares:
Net income .......................................... $15,605 $14,904
Adjustments thereto (1) ............................. 597 --
------- -------
Adjusted net income ................................. $16,202 $14,904
------- -------
------- -------
Average shares outstanding .......................... 29,597 28,070
Adjustments thereto (2) ............................. 2,236 1,919
------- -------
Shares used in computation .......................... 31,833 29,989
------- -------
------- -------
Per Share ............................................. $ 0.51 $ 0.50
------- -------
------- -------
Common shares - assuming full dilution:
Net income .......................................... $15,605 $14,904
Adjustments thereto (1).............................. 508 --
------- -------
Adjusted net income ................................. $16,113 $14,904
------- -------
------- -------
Average shares outstanding .......................... 29,597 28,070
Adjustments thereto (2) ............................. 2,236 1,919
------- -------
Shares used in computation .......................... 31,833 29,989
------- -------
------- -------
Per Share ............................................. $ 0.51 $ 0.50
------- -------
------- -------
<FN>
- --------------------
(1) 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.
(2) 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 (1) above.
</TABLE>
F-8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Company's three months ended March 31, 1995 consolidated statement
of income and the condensed Consolidated Balance Sheet. This information is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 81,453
<SECURITIES> 0
<RECEIVABLES> 86,288
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180,065
<PP&E> 50,521
<DEPRECIATION> 28,979
<TOTAL-ASSETS> 1,255,780<F1>
<CURRENT-LIABILITIES> 107,545
<BONDS> 616,309<F2>
<COMMON> 308
0
0
<OTHER-SE> 492,708
<TOTAL-LIABILITY-AND-EQUITY> 1,255,780
<SALES> 0
<TOTAL-REVENUES> 151,102
<CGS> 0
<TOTAL-COSTS> 95,065
<OTHER-EXPENSES> 20,068<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,692
<INCOME-PRETAX> 27,277
<INCOME-TAX> 11,672
<INCOME-CONTINUING> 15,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,605
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<FN>
<F1>Includes $990,584,000 of cost assigned to contracts acquired, net.
<F2>Represents $171,500,000 in senior notes payable and $444,809,000 in
subordinated notes payable.
<F3>Represents amortization of cost assigned to contracts acquired for the
three months ended March 31, 1995.
</FN>
</TABLE>
