<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
For the quarterly period ended June 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9215
----------------------------------------
United Asset Management Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2714625
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification 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 August 5, 1997 was
69,831,344.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (Pages F-1 to F-5)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Pages F-5 to F-8)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and 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
legal 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 Company's consolidated financial
position, its consolidated results of operations or its consolidated
cash flows.
Item 2. Changes in Securities.
On May 29, 1997, UAM acquired the assets and business of Pacific
Financial Research, Inc. ("PFR") pursuant to an Acquisition Agreement
dated March 19, 1997. As partial consideration, UAM issued a Warrant
to PFR to purchase 352,941 shares of Common Stock, $.01 par value, of
UAM for $34.00 per share, subject to adjustment as provided in the
Warrant Agreement. The Warrant is exercisable in whole or in part
prior to the earlier of (a) the close of business on May 29, 2004 or
(b) if UAM gives notice specified in the Warrant Agreement, at such
time as the closing price of Common Stock of UAM reaches specified
levels for periods specified in the Warrant Agreement.
On June 6, 1997, UAM acquired the assets and business of Thomson
Horstmann and Bryant, Inc. ("THB") pursuant to an Acquisition
Agreement dated April 17, 1997. As partial consideration, UAM issued
a Warrant to THB to purchase 472,888 shares of Common Stock, $.01 par
value, of UAM for $31.72 per share, subject to adjustment as provided
in the Warrant Agreement. The Warrant is exercisable in whole or in
part prior to the close of business on June 6, 2004.
The Warrants and the shares of Common Stock issuable upon exercise
thereof have not been registered under the Securities Act of 1933, as
amended, (the Act), in reliance on the exemption for transactions not
involving a public offering contained in Section 4(2) of the Act. The
Warrants contain, and the shares issuable upon exercise will contain,
restrictive legends. No commission was paid to any underwriter in
connection with the issuance of the Warrants.
In addition, during the second quarter of 1997, UAM issued an
aggregate of 652,777 shares of Common Stock, $.01 par value, pursuant
to Section 4(2) of the Act to certain executives of its subsidiaries
upon the exercise of Warrants originally issued in connection with the
acquisition of such subsidiaries by UAM. The exercise prices of the
Warrants ranged from $9.00 to $16.50 per share.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
<PAGE>
On May 15, 1997, the Company held its Annual Meeting of Stockholders
at which each of Harold J. Baxter, J. Duncan Campbell, Jr., John P.
Clay, Robert J. Greenebaum, Beverly L. Hamilton, Bryant M. Hanley,
Jr., Jay O. Light, John F. McNamara, Norton H. Reamer, David I.
Russell, Philip Scaturro, John A. Shane, Larry D. Tashjian and Barbara
S. Thomas were elected as directors to serve until the next Annual
Meeting. Each of the directors were elected with the following votes:
Mr. Baxter, 61,132,082 votes cast for and 604,664 votes withholding
authority; Mr. Campbell, 61,135,018 votes cast for and 601,728 votes
withholding authority; Mr. Clay, 61,133,818 votes cast for and 602,928
votes withholding authority; Mr. Greenebaum, 61,104,569 votes cast for
and 632,177 withholding authority; Mrs. Hamilton, 61,088,281 votes
cast for and 648,465 withholding authority; Mr. Hanley, 61,135,421
votes cast for and 601,325 withholding authority; Mr. Light,
61,136,121 votes cast for and 600,625 withholding authority; Mr.
McNamara, 61,004,021 votes cast for and 732,725 withholding authority;
Mr. Reamer, 61,135,283 votes cast for and 601,463 withholding
authority; Mr. Russell, 61,133,831 votes cast for and 602,915
withholding authority; Mr. Scaturro, 61,136,121 votes cast for and
600,625 withholding authority; Mr. Shane, 61,135,371 votes cast for
and 601,375 withholding authority; Mr. Tashjian, 61,136,021 votes cast
for and 600,725 withholding authority; and Mrs. Thomas, 61,132,671
votes cast for and 604,075 withholding authority.
The Company's stockholders approved the Compensation Arrangements for
Certain Executive Officers with 60,955,766 votes cast for such
approval, 562,951 votes cast against such approval and 218,029 votes
abstaining from such approval.
The Company's stockholders also approved the Company's Amended and
Restated 1994 Stock Option Plan with 40,538,349 votes cast for such
approval, 11,227,659 votes cast against such approval, 175,622 votes
abstaining from such approval and 9,795,116 non votes.
The Company's stockholders also approved the selection of Price
Waterhouse LLP as independent accountants of the Company for the
fiscal year ending December 31, 1997, with 61,091,244 votes cast for
such approval, 528,308 votes cast against such approval and 117,194
votes abstaining from such approval.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 2 - Not Applicable
Exhibit 3 - Not Applicable
Exhibit 4 - Not Applicable
Exhibit 10 - Amended and Restated 1994 Stock Option Plan
(effective as of May 15, 1997)
Exhibit 11 - Calculation of Earnings Per Share (Page F-9)
Exhibit 15 - Not Applicable
Exhibit 18 - Not Applicable
Exhibit 19 - Not Applicable
Exhibit 22 - Not Applicable
Exhibit 23 - Not Applicable
Exhibit 24 - Not Applicable
Exhibit 27 - Financial Data Schedule
(b) There have been no reports on Form 8-K filed by the Company for
the quarter ended June 30, 1997.
<PAGE>
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 6, 1997 /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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
1997 1996 (1) 1997 1996 (1)
-------------- -------------- -------------- --------------
Revenues....................................... $ 219,572,000 $ 206,665,000 $ 435,094,000 $ 415,187,000
-------------- -------------- -------------- --------------
Operating expenses:
Compensation and related expenses............ 107,041,000 100,786,000 212,113,000 202,690,000
Amortization of cost assigned to contracts
acquired................................... 25,662,000 24,582,000 50,574,000 53,362,000
Other operating expenses..................... 35,842,000 34,644,000 70,928,000 67,171,000
-------------- -------------- -------------- --------------
168,545,000 160,012,000 333,615,000 323,223,000
-------------- -------------- -------------- --------------
Operating income............................... 51,027,000 46,653,000 101,479,000 91,964,000
-------------- -------------- -------------- --------------
Non-operating expenses:
Interest expense, net........................ 8,445,000 9,640,000 16,362,000 20,236,000
Other amortization........................... 571,000 471,000 1,052,000 930,000
-------------- -------------- -------------- --------------
9,016,000 10,111,000 17,414,000 21,166,000
-------------- -------------- -------------- --------------
Income before income tax expense............... 42,011,000 36,542,000 84,065,000 70,798,000
Income tax expense............................. 17,981,000 15,665,000 35,980,000 30,434,000
-------------- -------------- -------------- --------------
Net income..................................... $ 24,030,000 $ 20,877,000 $ 48,085,000 $ 40,364,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Primary earnings per share (2)................. $ .33 $ .29 $ .66 $ .57
Fully diluted earnings per share (2)........... $ .33 $ .29 $ .65 $ .56
Dividends declared per share................... $ .185 $ .16 $ .37 $ .32
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
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(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) See Note 5 for pro forma earnings per share calculated in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share,
which will be effective for financial statements for both interim and annual
periods ending after December 15, 1997.
See Notes to Condensed Consolidated Financial Statements.
F-1
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................................. $ 151,625,000 $ 248,399,000
Investment advisory fees receivable........................................ 145,374,000 149,843,000
Other current assets....................................................... 10,869,000 11,713,000
---------------- ----------------
Total current assets......................................................... 307,868,000 409,955,000
Fixed assets, net............................................................ 32,645,000 30,297,000
Cost assigned to contracts acquired, net..................................... 1,110,670,000 941,490,000
Other assets................................................................. 51,690,000 48,911,000
---------------- ----------------
Total assets................................................................. $ 1,502,873,000 $ 1,430,653,000
---------------- ----------------
---------------- ----------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses...................................... $ 108,309,000 $ 113,718,000
Accrued compensation....................................................... 89,823,000 116,005,000
Current portion of notes payable........................................... 915,000 3,481,000
---------------- ----------------
Total current liabilities.................................................... 199,047,000 233,204,000
Senior notes payable......................................................... 150,000,000 150,000,000
Subordinated notes payable................................................... 547,922,000 457,486,000
Deferred income taxes........................................................ 35,875,000 37,719,000
---------------- ----------------
Total liabilities............................................................ 932,844,000 878,409,000
---------------- ----------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share..................................... 703,000 692,000
Capital in excess of par value............................................. 358,312,000 346,017,000
Retained earnings.......................................................... 220,166,000 217,703,000
---------------- ----------------
579,181,000 564,412,000
Less treasury shares at cost............................................... (9,152,000) (12,168,000)
---------------- ----------------
Total stockholders' equity................................................... 570,029,000 552,244,000
---------------- ----------------
Total liabilities and stockholders' equity................................... $ 1,502,873,000 $ 1,430,653,000
---------------- ----------------
---------------- ----------------
</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,
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
1997 1996 (1) 1997 1996 (1)
------------ ------------ ------------ ------------
Cash flow from operating activities:
Net income.................................... $ 24,030,000 $ 20,877,000 $ 48,085,000 $ 40,364,000
Adjustments to reconcile net income to net
cash flow from operating activities:
Amortization of cost assigned to contracts
acquired.................................. 25,662,000 24,582,000 50,574,000 53,362,000
Depreciation................................ 2,459,000 2,105,000 4,835,000 4,111,000
Other amortization.......................... 571,000 471,000 1,052,000 930,000
------------ ------------ ------------ ------------
Net income plus amortization and depreciation. 52,722,000 48,035,000 104,546,000 98,767,000
------------ ------------ ------------ ------------
Changes in assets and liabilities:
Decrease (increase) in investment advisory
fees receivable........................... (1,684,000) 1,064,000 4,191,000 (540,000)
Decrease in other current assets............ 209,000 1,337,000 912,000 1,311,000
Increase (decrease) in accounts payable and
accrued expenses.......................... 9,837,000 20,398,000 (4,200,000) 16,751,000
Increase (decrease) in accrued compensation. 19,718,000 26,113,000 (26,064,000) (9,649,000)
Decrease in deferred income taxes........... (603,000) (3,339,000) (1,844,000) (4,841,000)
------------ ------------ ------------ ------------
Net cash flow from operating activities......... 80,199,000 93,608,000 77,541,000 101,799,000
------------ ------------ ------------ ------------
Cash flow used in investing activities:
Cash additions to cost assigned to contracts
acquired.................................... (67,949,000) (93,000) (110,882,000) (103,000)
Change in other assets........................ (8,113,000) (2,154,000) (11,420,000) (6,714,000)
------------ ------------ ------------ ------------
Net cash flow used in investing activities...... (76,062,000) (2,247,000) (122,302,000) (6,817,000)
------------ ------------ ------------ ------------
Cash flow from (used in) financing activities:
Purchase of treasury shares................... (25,286,000) (15,476,000) (34,829,000) (29,663,000)
Reductions in notes payable, net.............. (352,000) (8,863,000) (10,515,000) (10,598,000)
Issuance or reissuance of equity securities... 8,539,000 8,159,000 18,704,000 17,180,000
Dividends paid................................ (12,988,000) (9,750,000) (24,691,000) (18,746,000)
------------ ------------ ------------ ------------
Net cash flow used in financing activities...... (30,087,000) (25,930,000) (51,331,000) (41,827,000)
------------ ------------ ------------ ------------
Effect of foreign exchange rate changes on cash
flow.......................................... 398,000 439,000 (682,000) (78,000)
-------------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................... (25,552,000) 65,870,000 (96,774,000) 53,077,000
Cash and cash equivalents at beginning of
period........................................ 177,177,000 112,655,000 248,399,000 125,448,000
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period...... $151,625,000 $178,525,000 $151,625,000 $178,525,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
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, 1997 and their results of
operations and cash flows for the three- and six-month periods ended June 30,
1997 and 1996. These Financial Statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Note 2
Accumulated depreciation of fixed assets was $44,875,000 and $40,040,000
at June 30, 1997 and December 31, 1996, respectively. The accumulated
amortization of cost assigned to contracts acquired was $518,145,000 and
$467,571,000 at June 30, 1997 and December 31, 1996, 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, 1997, the Company repurchased 962,900
shares of its common stock at a cost of $25,286,000 . For the six
months ended June 30, 1997, common stock repurchases totaled 1,314,300
shares at a cost of $34,829,000. During the three- and six-month
periods ended June 30, 1997, exercises of warrants and stock options
resulted in the Company extinguishing subordinated notes, receiving
cash proceeds and issuing stock as follows:
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
-------------- -------------
Subordinated notes extinguished $2,475,000 $ 6,848,000
Cash proceeds received $8,565,000 $18,730,000
Shares issued - 1,129,151
Treasury shares reissued 843,896 1,488,793
As of June 30, 1997, the Company held 331,553 treasury shares. In
addition, 9,342,000 warrants and 7,144,000 stock options were outstanding at
weighted average exercise prices of $23.00 and $20.75, respectively.
Note 4
The Company acquired Pacific Financial Research, Inc. and Thomson
Horstmann and Bryant, Inc. on May 29, 1997 and June 6, 1997, respectively, in
transactions that have been accounted for as purchases. Neither transaction
is material to the Company's Condensed Consolidated Financial Statements.
During July 1997, the Company established Expertise Asset Management. In
addition, the Company signed an agreement to acquire a minority interest in
Lincluden Management Limited which is expected to close during the third
quarter of 1997.
F-4
<PAGE>
Note 5
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share (FAS 128), which replaces
Accounting Principles Board Opinion No. 15. FAS 128 requires dual
presentation of basic and diluted earnings per share. This standard is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Although earlier adoption is prohibited, disclosing
pro forma earnings per share data in the notes to the financial statements is
permitted.
Based on the provisions of FAS 128, pro forma earnings per share
are set forth below:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Basic earnings per share $.34 $.30 $.69 $.59
Diluted earnings per share $.33 $.29 $.66 $.56
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The revenues of UAM's affiliated firms are derived primarily 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 is 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.
UAM's assets under management were $192.8 billion as of June 30, 1997,
$21.4 billion higher than the $171.4 billion under management on March 31,
1997. The net $21.4 billion increase in assets under management during the
quarter resulted from market performance of $19.1 billion and acquired assets
of $6.2 billion, partially offset by $3.9 billion in negative net client cash
flow.
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 approximately 74% of the Company's total assets as of June 30,
1997. 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, 1997. 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. The principal assets acquired
are the investment advisory 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 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.
F-5
<PAGE>
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.
OPERATING RESULTS
Three Months Ended June 30, 1997
compared to
Three Months Ended June 30, 1996
The 1996 results of operations have been restated to reflect the August
1996 acquisitions of Rogge Global Partners Plc and Clay Finlay Inc., which
were accounted for as poolings of interests.
Revenues increased 6% to $219,572,000 for the three months ended June 30,
1997, from $206,665,000 for the second quarter of 1996. This increase is the
result of favorable portfolio performance achieved by UAM's affiliated firms
as well as the impact of acquisitions, partially offset by the effect of
negative net client cash flows. The revenues of J.R. Senecal & Associates
Investment Counsel Corp., Pacific Financial Research, Inc. and Thomson
Horstmann and Bryant, Inc. acquired January 7, 1997, May 29, 1997 and June 6,
1997, respectively, have been included since their acquisition dates.
Compensation and related expenses together with other operating expenses
increased 6% to $142,883,000 from $135,430,000, primarily reflecting the
acquisitions described above and higher operating expenses and compensation
earned by employees of existing affiliated firms in accordance with revenue
sharing plans. Amortization of cost assigned to contracts acquired increased
4% to $25,662,000 from $24,582,000 as a result of the acquisitions discussed
above.
Interest expense decreased from $10,839,000 to $10,365,000 primarily due
to the decrease in the Company's average debt levels.
Income before income tax expense increased 15% to $42,011,000 from
$36,542,000, reflecting the circumstances described above. The Company's
estimated annual effective tax rate approximated 43% for both of the
three-month periods ended June 30, 1997 and 1996.
F-6
<PAGE>
Net income increased 15% to $24,030,000 from $20,877,000, reflecting the
factors described above. Fully diluted earnings per share increased 14% to
$.33 for the second quarter of 1997 from $.29 in the second quarter of 1996,
reflecting higher net income and the effect of the Company's common stock
repurchased, partially offset by the impact of the issuance of shares of
common stock, the Company's higher common stock price and the hypothetical
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 was $.35 compared to $.34
in the second quarter of 1996 primarily due to the circumstances discussed
above.
Six Months Ended June 30, 1997
compared to
Six Months Ended June 30, 1996
The 1996 results of operations have been restated to reflect the 1996
acquisitions of Rogge Global Partners Plc and Clay Finlay Inc., which have
been accounted for as poolings of interests.
Revenues increased 5% to $435,094,000 for the six months ended June 30,
1997, from $415,187,000 for the first six months of 1996. This increase is
the result of favorable portfolio performance achieved by UAM's affiliated
firms as well as the impact of acquisitions, partially offset by the effect
of negative net client cash flows. The revenues of OSV Partners, J.R.
Senecal & Associates Investment Counsel Corp., Pacific Financial Research,
Inc., and Thomson Horstmann and Bryant, Inc. acquired April 22, 1996, January
7, 1997, May 29, 1997 and June 6, 1997, respectively, have been included
since their acquisition dates.
Compensation and related expenses together with other operating expenses
increased 5% to $283,041,000 from $269,861,000, primarily reflecting the
acquisitions described in the preceding paragraph and higher operating
expenses and compensation earned at existing affiliates. Amortization of cost
assigned to contracts acquired decreased 5% from $53,362,000 to $50,574,000
primarily due to an adjustment made during the first quarter of 1996 to the
carrying value of a contract with an executive at a UAM affiliate who died in
March 1996.
Interest expense decreased from $22,125,000 to $20,139,000 primarily due
to the decrease in the Company's average debt level.
Income before income tax expense increased 19% to $84,065,000 from
$70,798,000, reflecting the net result of the circumstances discussed above.
The Company's estimated annual effective tax rate approximated 43% for both
of the six-month periods ended June 30, 1997 and 1996.
Net income increased 19% to $48,085,000 from $40,364,000, reflecting the
factors described above. Fully diluted earnings per share increased 16% to
$.65 from $.56, reflecting higher net income and the effect of the Company's
common stock repurchased, partially offset by the impact of the issuance of
shares of common stock, the Company's higher common stock price and the
hypothetical 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 was $.69 compared to
$.74 for the first six months of 1996, primarily as a result of the
acquisitions described above.
CHANGES IN FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
The Company generated $52,722,000 and $104,546,000 in Operating Cash Flow
(net income plus amortization and depreciation) for the three- and six-month
periods ended June 30, 1997. The primary use of this Operating Cash Flow was
to fund the costs of acquisitions, to repurchase shares of the Company's
common stock and to pay dividends to shareholders. The Company invests its
excess
F-7
<PAGE>
cash in deposits with major banks, money market funds or in
securities, principally commercial paper of companies with strong credit
ratings in diversified industries. As of June 30, 1997, the Company had no
borrowings outstanding under its $500,000,000 Reducing Revolving Credit
Agreement.
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 due or potentially due to
former owners of affiliated firms, to pay 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 additional acquisitions or the timing of
such acquisitions is not certain.
F-8
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE (1)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996(2) 1997 1996(2)
--------- --------- --------- ---------
Common and common equivalent shares:
Net income.......................................................... $ 24,030 $ 20,877 $ 48,085 $ 40,364
Adjustments thereto(3).............................................. -- 91 -- 792
--------- --------- --------- ---------
Adjusted net income................................................. $ 24,030 $ 20,968 $ 48,085 $ 41,156
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding.......................................... 69,865 68,726 69,600 68,377
Adjustments thereto(3).............................................. 2,987 3,726 3,532 4,202
--------- --------- --------- ---------
Shares used in computation.......................................... 72,852 72,452 73,132 72,579
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share............................................................. $ .33 $ .29 $ .66 $ .57
--------- --------- --------- ---------
--------- --------- --------- ---------
Common shares--assuming full dilution:
Net income.......................................................... $ 24,030 $ 20,877 $ 48,085 $ 40,364
Adjustments thereto(3).............................................. -- -- -- 12
--------- --------- --------- ---------
Adjusted net income................................................. $ 24,030 $ 20,877 $ 48,085 $ 40,376
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding.......................................... 69,865 68,726 69,600 68,377
Adjustments thereto(3).............................................. 3,812 3,834 4,140 4,202
--------- --------- --------- ---------
Shares used in computation.......................................... 73,677 72,560 73,740 72,579
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share............................................................. $ .33 $ .29 $ .65 $ .56
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) See Financial Highlights for pro forma earnings per share calculated in
accordance with Statement of Financial Accounting Standards No. 128,
Earnings per Share, which will be effective for financial statements for
both interim and annual periods ending after December 15, 1997.
(2) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(3) Adjustments relate to application of modified treasury stock method.
F-9
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
PREAMBLE
The plan (the "Plan") comprises three subplans: Subplan A covers options
to be granted to any key employees, including officers, and any non-employees
(other than directors) who provide important services to United Asset
Management Corporation, a Delaware corporation ("UAM") or any of its
subsidiaries or parents. Subplan B covers options to be granted to employees
of UAM or of its subsidiaries who are subject to the income tax laws of the
United Kingdom, to the extent that such options can be granted with favorable
income tax treatment under such United Kingdom laws. Subplan C covers
options to be granted to non-employee directors of UAM.
Subject to the adjustments provided in the Plan, the aggregate number of
shares of Common Stock of UAM which may be issued and sold pursuant to
incentive stock options (as defined below) granted under Subplan A or Options
(as defined below) granted under Subplan B of the Plan shall not exceed
11,900,000 shares of Common Stock (as defined below), which may be either
authorized but unissued shares or treasury shares. Except as provided below,
the aggregate number of shares of Common Stock which may be issued and sold
pursuant to non-incentive stock options (as defined below) granted under
Subplan A or Subplan C of the Plan shall not exceed the number of shares
specified in the preceding sentence (subject to the adjustments provided in
the Plan), less (1) the number of shares issued pursuant to Subplan A
incentive stock options and Subplan B Options and (2) the number of shares
underlying outstanding Subplan A incentive stock options and Subplan B
Options. Notwithstanding the foregoing, additional shares of Common Stock
may be issued and sold pursuant to non-incentive stock options granted under
Subplan A or Subplan C in amounts up to the number of additional shares
reserved for such purpose from time to time under one or more written
resolutions adopted by the Committee (as defined below). The additional
shares of Common Stock that the Committee may reserve for non-incentive stock
options pursuant to the preceding sentence shall meet the following
requirements: (1) all such additional shares must have been reacquired by
UAM for not more than their fair market value at the time of reacquisition
and (2) as of the date of the Committee's resolution to reserve the
additional shares, the cumulative amount received in cash by UAM upon the
exercise of options granted under the Plan shall not be less than the
aggregate amount paid for the reacquired shares that are included in such
resolution or in any prior resolution to reserve additional shares. If any
option granted under the Plan shall terminate or expire without being fully
exercised, the shares which have not been purchased will again become
available for purposes of the Plan.
- --------------------
1 Of these 11,900,000 total shares, 6,400,000 were originally reserved under
the Plan by action of the shareholders in 1w994 and 5,500,000 have been
reserved under the amended and restated Plan by action of the shareholders in
1997.
<PAGE>
Subplan A--U.S. Subplan Portion of the
Amended and Restated 1994 Stock Option Plan
1. Purpose of Subplan A
The purpose of this Subplan A is to encourage key employees, including
officers, of UAM and any present or future subsidiary and parent of UAM
(hereinafter collectively referred to as the "Company") as well as
non-employees (other than directors of UAM) who provide important services to
the Company to acquire shares of common stock of UAM, $.01 par value per
share (the "Common Stock"), and thereby increase their proprietary interest
in the Company's success and provide an added incentive to remain in the
employ of the Company. For purposes of this Subplan A, the words parent and
subsidiary shall be interpreted in accordance with Section 422 and Section
424 of the Internal Revenue Code of 1986, as from time to time amended (the
"Code"). It is intended that options granted under this Subplan A shall
constitute either "incentive stock options" within the meaning of Section 422
of the Code, or "non-incentive stock options", as determined by the Committee
named in Section 3 of this Subplan in its sole discretion and indicated on
each form of option grant (the "Option Grant"), and the terms of this Subplan
and the Option Grants shall be construed accordingly.
2. Shares Reserved Under Subplan A
Subject to the adjustment provided in Section 9, the aggregate number of
shares of Common Stock which may be issued and sold pursuant to options
granted under this Subplan A of the Plan shall be determined in accordance
with the Preamble above.
3. Administration
Except to the extent otherwise provided in Subplan B, the Plan shall be
administered by a committee (the "Committee") consisting of not less than
three (3) members of the Board of Directors of UAM (the "Board"). Each of
the members of the Committee shall be a person who in the opinion of counsel
to the Company is (i) a "non-employee" as such term is used in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"), and (ii) an "outside director" as such term is used in Treasury
regulation Section 1.162-27(e) (3) under Section 162(m) of the Code. The
Committee shall be appointed by, and shall serve at the pleasure of, the
Board of Directors. A majority of the members present at any meeting at
which a quorum is present, and any acts approved in writing by all the
members of the Committee without a meeting, shall constitute the acts of the
Committee. The Committee shall have the powers granted to it in Sections 3,
4, 5, 7 and 8 of this Subplan A. The Committee is authorized to interpret
this Subplan A and, subject to the provisions of the Subplan, to prescribe,
amend, and rescind rules and regulations relating thereto. The Committee is
further authorized, subject to the express provisions of this Subplan A, to
alter or amend the form of Option Grant attached hereto as Exhibit A and to
make all other determinations necessary or advisable in the administration of
the Subplan. The interpretation and administration by the Committee of any
provisions of this Subplan A and the Option Grant shall be final and
conclusive on all persons having any interest therein.
2
<PAGE>
Notwithstanding any other provision of this Plan, if the Committee
determines that a person to whom an option may be granted under this Subplan
A will neither be a "covered employee" within the meaning of Section 162(m)
of the Code nor an employee subject to the short-swing profits rules of
Section 16(b) of the Act at any time from the date of grant until the end of
the term of any option which could be granted under this Subplan A at the
time of such determination, such options may be granted to such person by a
committee consisting of any number of members of the Board, any or all of
whom would not then be eligible to serve on the Committee. With respect to
all options referred to in this paragraph, the committee referred to in this
paragraph shall have all powers otherwise granted to the Committee in
Sections 3, 4, 5, 7 and 8 of this Subplan A, but the committee referred to in
this paragraph shall not otherwise administer this Subplan A.
No members of the Committee or of any committee referred to in the
preceding paragraph or of the Board shall be held liable for any action or
determination made in good faith with respect to the Plan, this Subplan A, or
any option granted hereunder.
4. Option Grants
Options to purchase shares of Common Stock under this Subplan A may be
granted to key employees (including officers and directors who are employees)
of the Company and to non-employees who provide important services to the
Company. The term "Employee" will include, for purposes of this Subplan A key
employees as well as such non-employees who provide important services to the
Company. In selecting the Employees to whom options will be granted and in
deciding how many shares of Common Stock will be subject to each option, the
Committee shall give consideration to the importance of an Employee's duties,
to his experience with the Company, to his future value to the Company, to
his present and potential contribution to the success of the Company, and to
such other factors as the Committee may deem relevant. Subject to the
express provisions of the Plan and the form of Option Grant incorporated
herein by reference as from time to time altered or amended, the Committee
shall have authority to determine with respect to each Option Grant the
number of installments, the number of shares of Common Stock in each
installment, and the exercise dates, and, to the extent not inconsistent with
the applicable provisions of the Code, if any, may specify additional
restrictions and conditions for any Option Grant. Each incentive stock
option shall expire not later than ten years from the date of the grant of
such option.
Except as provided in Section 7 of this Subplan A, no incentive stock
option may be granted to any Employee who, at the time such option is granted
owns stock possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company within the meaning of Section 422 of
the Code. Non-employees who provide services to the Company shall not be
eligible to receive incentive stock options under the Plan. The date of grant
of an option under this
3
<PAGE>
Subplan A shall be the date the Committee votes to grant the option, but no
optionee shall have the right to exercise his option until the Company has
executed and delivered the Option Grant to such optionee. Each option
granted under this Subplan A shall be evidenced by and subject to the terms
and conditions of the Option Grant which is incorporated into the Plan by
reference as from time to time altered or amended.
No incentive stock option may be transferred by the optionee, other than
by will or the laws of descent and distribution. An incentive stock option
can be exercised during such individual's life only by him. Notwithstanding
the foregoing, the Committee may grant non-incentive stock options under this
Subplan A or under Subplan C that are transferable (subject to any terms and
conditions imposed by the Committee) by the optionee, either directly or in
trust, to one or more members of the optionee's family. Following any
transfer permitted pursuant to this paragraph, of which the optionee has
notified the Committee in writing, such option may be exercised by the
transferee(s), subject to all terms and conditions of the Option Grant. For
these purposes, the members of the optionee's family are only the optionee's:
(i) spouse; (ii) lineal descendants; (iii) lineal ancestors; and (iv)
siblings and spouses and children of such siblings.
5. Option Price
The price per share at which each option granted under this Subplan A
may be exercised shall be determined by the Committee subject to the
provisions of this Section 5. In the case of an incentive stock option, the
exercise price shall not be less than the fair market value per share on the
date of the grant, as determined by the Committee in accordance with
applicable provisions of the Code then in effect. In the case of a
non-incentive stock option, the exercise price shall not be less than 50% of
the fair market value per share on the date of grant, as so determined. In
no event shall the option price per share for any option under the Plan be
less than the par value per share.
6. Limitation on Amount
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year
under all plans of the Company shall not exceed $100,000. To the extent that
the aggregate value of such options (determined in the order in which they
were granted) exceeds such amount, such options shall be treated as
non-incentive stock options.
The maximum number of shares with respect to which any options may be
granted under the Plan (including this Subplan A, to any individual during
any single calendar year shall be 300,000 shares.
7. Special Rule for 10 Percent Shareholders
The Committee may grant incentive stock options under this Subplan A to
Employees who own more than 10 percent of the combined voting stock of the
Company if (i) at the time of the Option Grant the price per share at which
the option may be exercised is at least 110 percent of the fair market value
of the stock subject to the option and (ii) such option is not exercisable
after the expiration of five years from the date such option is granted.
8. Non-Incentive Stock Options
4
<PAGE>
Notwithstanding the provisions of Sections 4, 5, 6 and 7 of this Subplan
A, the Committee may grant options which in one or more respects do not meet
the requirements for incentive stock options established by Section 422 of
the Code. The Committee shall indicate on each Option Grant whether an
incentive stock option within the meaning of Section 422 of the Code or a
non-incentive stock option is thereby granted.
Except as otherwise provided in this Subplan A, the Committee, in its
sole discretion, shall establish the terms and conditions for each
non-incentive stock option which it grants. Such terms and conditions may,
but need not, include some or all of the provisions of Sections 4, 5, 6 and 7
of this Subplan A with respect to incentive stock options. If the Committee
grants an option which in all respects meets the requirements for incentive
stock options it may nonetheless designate such option a non-incentive stock
option on the Option Grant.
9. Adjustment of Shares Reserved Under the Plan
The aggregate number and kind of shares reserved under the Plan, the
maximum number of shares as to which options may be granted to any individual
and the option price per share shall be appropriately adjusted by the Board
in the event of any recapitalization, stock split, stock dividend,
combination of shares, or other similar change in the capitalization of the
Company, but no adjustment in the option price shall be made which would
reduce the option price per share to less than the par value per share, and
any adjustment in the option price for options granted under Subplan B of the
Plan shall be subject to the requirements of Rule 5 of Subplan B.
10. Dissolution or Reorganization
Prior to a dissolution, liquidation, merger, consolidation, or
reorganization of the Company (the "Event"), the Board may decide to
terminate each outstanding option granted under this Subplan A. If the Board
so decides, such option shall terminate as of the effective date of the
Event, but the Board shall suspend the exercise of all outstanding options a
reasonable time prior to the Event, giving each optionee not less than
fourteen days written notice of the date of suspension, prior to which an
optionee may purchase in whole or in part the shares available to him as of
the date of receipt of the notice. If the Event is not consummated, the
suspension shall be removed and all options shall continue in full force and
effect, subject to the terms of their respective Option Grants.
11. Amendment and Termination of Plan and Subplan A
The Board may amend, suspend, or terminate the Plan and/or this Subplan
A, including the form of Option Grant incorporated herein by reference. No
such action, however, may, without approval or ratification by the
shareholders, increase the maximum number of shares reserved under the Plan
except as provided in Section 9 of this Subplan A, Rule 5 of Subplan B, or
Section 8 of Subplan C, alter the class or classes of individuals eligible
for options, or make any other change which, pursuant to the Code or
regulations thereunder or Section 16(b) of the Act and the rules and
regulations promulgated thereunder, requires action by the shareholders. No
such action may, without the consent of the holder of the option, alter or
impair any option previously granted.
5
<PAGE>
In any event, the Plan shall terminate 10 years from the date of
adoption of the amended and restated Plan by the Board of Directors, or if
earlier, from the date of its approval by the shareholders. Any shares
remaining under the Plan at the time of termination which are not subject to
outstanding options and any shares which thereafter become available because
of the expiration or termination of an option shall cease to be reserved for
purposes of the Plan.
12. Right to Terminate Employment
Nothing contained herein or in any Option Grant executed pursuant hereto
shall restrict the right of the Company to terminate the employment of any
optionee at any time. 13. Date of Adoption The date of adoption of this
amended and restated Plan by the Board is January 20, 1997.
13. Date of Adoption
The date of adoption of this amended and restate Plan by the Board is
Juanuary 20, 1997.
14. Date of Approval
The date of approval of this amended and restated Plan by the shareholders
and the Plan's effective date is May 15, 1997.
6
<PAGE>
Subplan B - UK Subplan Portion of
Amended and Restated 1994 Stock Option Plan
RULES OF THE UNITED ASSET MANAGEMENT CORPORATION
------------------------------------------------
EMPLOYEE SHARE OPTION SCHEME
----------------------------
1. DEFINITIONS
-----------
In this Scheme (hereinafter sometimes referred to as the "UK Subplan"),
unless the context otherwise requires, the following words and expressions
shall have the following meanings:
"Act" the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Adoption Date" the date on which the Scheme is adopted by the Company.
"Associated Company" the meaning given to that term in Section 416 of the
U.K. Income and Corporation Taxes Act 1988.
"Auditors" the auditors for the time being of the Company (acting
as experts and not as arbitrators).
"Board" the board of directors of the Company.
"Code" the U.S. Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
"Committee" the committee established by the Board pursuant to Rule
10.4.
"Company" United Asset Management Corporation.
"Control" the meaning given to that word by Section 840 of the
U.K. Income and Corporation Taxes Act 1988.
"Date of Grant" the date on which an Option is, was or is to be granted
under the Scheme.
"Eligible Employee" any employee of any Participating Company who is
subject to the income tax laws of the United Kingdom
and who is normally required to devote to his duties
not less than 20 hours per week (excluding meal breaks)
(in the case of an
7
<PAGE>
employee who is also a director of any Participating
Company, 25 hours per week (excluding meal breaks)) and
is not precluded by paragraph 8 of Schedule 9 from
participating in the Scheme.
"Event" the dissolution, liquidation, merger, consolidation, or
reorganization of the Company.
"Group" that group comprising all of the Participating
Companies.
"Market Value" on any day the closing sales price in U.S. Dollars of a
Share as derived from the consolidated tape of The New
York Stock Exchange for such day or, if such day was
not a trading day or if no Shares were sold on such
day, such closing sales price on the next previous
trading day on which a sale occurred.
"Option" a right to purchase Shares under the Scheme.
"Option Certificate" the certificate embodying an Option granted in
accordance with these Rules.
"Participating the Company and any other corporation
Company" which it Controls.
"Plan" the United Asset Management Corporation 1994 Stock
Option Plan, of which this Scheme is an integral part.
"Price" the price determined by the Committee in U.S. Dollars
at which each Share subject to an Option may be
acquired on the exercise of that Option, which price
shall be, subject to Rule 5, not less than the higher
of:
(i) the par value (if any) of a Share and
(ii) the Market Value of a Share on the Date of Grant
of that Option.
"Relevant Emoluments" the meaning given to that term in sub-paragraph (2) of
paragraph 28 of Schedule 9 by virtue of subparagraph
(4) of that paragraph.
"Rules" the terms of the Scheme, as expressed herein and as
amended from time to time.
8
<PAGE>
"Schedule 9" Schedule 9 to the U.K. Income and Corporation Taxes Act
1988.
"Scheme" this U.K. Subplan, as set forth in these Rules as
amended from time to time.
"Share" A share of common stock, U.S. $.01 par value, in the
capital of the Company which satisfies the conditions
specified in paragraphs 10 to 14 inclusive of Schedule
9 and which may either be an authorized but unissued
share or a treasury share.
"Sterling Value" In respect of an Option, the sterling equivalent of the
appropriate Price, calculated by reference to the U.S.
Dollar/Sterling exchange rate prevailing on the Date of
Grant of that Option.
"Subplan A" the portion of the Plan applicable to key employees of,
and non-employees (other than directors of the Company)
who provide important services to, a Participating
Company.
"Subplan C" the portion of the Plan applicable to non-employee
directors of the Company.
"Subsisting Option" an Option which has neither lapsed nor been exercised
or released, given up, or surrendered by its holder.
"UK Subplan" the portion of the Plan comprising the Scheme as set
forth in these Rules.
"Year of Assessment" year beginning on any 6th April and ending on the
following 5th April.
Where the context permits the singular shall include the plural and vice
versa and the masculine shall include the feminine. References to any Act or
statute shall include any statutory modification, amendment or re-enactment
thereof.
2. GRANT OF OPTION
---------------
2.1 Subject to the terms of these Rules, the Committee may at its absolute
discretion, from time to time, grant Options to any Eligible Employees
under the Scheme by issuing Option Certificates to them, complying
with Rule 2.2 below.
2.2 Each Option Certificate shall be under seal and shall specify:
9
<PAGE>
(i) the Date of Grant of the relevant Option;
(ii) the number of Shares for which the Option is granted (which shall
not be so large that the grant of an Option for that number of
Shares would cause the applicable limits specified in Rule 3 to
be exceeded);
(iii) the Price at which the relevant Shares can be acquired; and
(iv) any conditions on the Option imposed by the Committee, including
(without limitation) any vesting schedule.
In addition each Option Certificate shall indicate that Options cannot
be transferred, assigned or charged and that any purported transfer,
assignment or charge shall cause the relevant Option to lapse forthwith.
Each Option Certificate shall be accompanied by a "form of acceptance"
(as described in Rule 4.3) which shall indicate that the Option to which it
relates will automatically lapse if the Option holder does not sign and
return such form to the Company within 3 months of the Date of Grant.
3. LIMITATIONS
-----------
3.1 Subject to adjustment as provided in Rule 5, the aggregate number of
Shares in respect of which Options may be granted under the Scheme on
any Date of Grant or which my be issued and sold pursuant to such
Options shall not exceed 11,900,000 Shares, less (i) any Shares then
subject to any outstanding incentive stock option granted under
Subplan A of the Plan or previously issued pursuant to any such
incentive stock option and (ii) any shares that are then subject to
any outstanding non-incentive stock option granted under Subplan A or
Subplan C or previously issued pursuant to any such non-incentive
stock option and are not reacquired shares (as described in the
Preamble to the Plan). If any Option granted under the Plan shall
lapse or shall be released, given up or surrendered without being
fully exercised, the Shares which have not been purchased under the
Option shall again become available for purposes of the Plan.
3.2 No Option shall be granted to an Eligible Employee if immediately
following such grant he would hold Subsisting Options with an
aggregate Sterling Value exceeding L30,000.
For the purposes of this Rule 3.2, Options shall include all Options granted
under this Scheme and all options granted under any other scheme approved
under Schedule 9 and established by the Company or any Associated Company.
- ---------------------
2 See footnote ot the Preamble of the Plan.
10
<PAGE>
3.3 The maximum number of Shares with respect to which any options may be
granted under the Plan (including this UK Subplan) to any individual
during any single calendar year shall be 100,000 Shares.
4. EXERCISE OF OPTIONS
-------------------
4.1 Unless the Committee otherwise agrees, any Option which has not lapsed
may be exercised only after the earliest of the following events:
(i) the first anniversary of the Date of Grant;
(ii) the death of the Option holder;
(iii) the Option holder ceasing to be an employee of any
Participating Company by reason of injury, disability,
redundancy or retirement or, at the discretion of the
Committee, for any other reason.
Provided always that when granting an Option the Committee may
provide, as regards all or any part(s) of it, that the Option or such
part(s) of it shall not become exercisable under sub Rules (i), (ii)
or (iii) above until after such time(s) as the Committee may
previously have determined. Any such restriction shall be set forth
in the Option Certificate for that Option.
4.2 Once an Option has become exercisable under Rule 4.1 above, it may be
exercised either in whole or in part at any time unless or until it
shall lapse under Rule 4.3 below, but subject in all cases to Rule 6
below.
4.3 An Option shall lapse on the earliest of the following events:
(i) the expiry of three months from the Date of Grant, unless the
Option holder has previously given notice to the Company of his
acceptance of the Scheme's Rules using the form of acceptance
supplied to him with the relevant Option Certificate;
(ii) subject to a shorter period specified in the Option Certificate,
the tenth anniversary of the Date of Grant;
(iii)subject to a shorter period specified in the Option Certificate,
the first anniversary of the Option holder's death;
(iv) the Option holder ceasing to be an employee of any Participating
Company by reason of gross misconduct;
11
<PAGE>
(v) subject to a shorter period specified in the Option Certificate,
the expiry of three months after the date on which the Option
holder ceases to be an employee of any Participating Company
otherwise than by reason of death or gross misconduct in
circumstances in which sub-clause (iv) applies;
(vi) the Option holder being adjudicated bankrupt; and
(vii)the first date upon which the Option holder purports to transfer,
assign or charge the Option.
5. VARIATION OF SHARE CAPITAL
In the event of any capitalization or rights issue or any stock split or
stock dividend or any consolidation, sub-division or reduction of capital by
the Company, the number of Shares subject to any Option and the Price payable
for each of those Shares shall be adjusted in such manner as the Auditors
confirm to be fair and reasonable provided that:
(i) the aggregate amount payable on the exercise of any Option in
full is not increased;
(ii) the Price of a Share is not reduced below its par value if any;
(iii)no adjustments shall be made without the prior approval of the
Board of Inland Revenue; and
(iv) following the adjustment the Shares continue to satisfy the
conditions specified in paragraphs 10 to 14 inclusive of Schedule
9.
6. MANNER OF EXERCISE OF OPTIONS
-----------------------------
6.1 No Option may be exercised by an individual at any time when he is
precluded by paragraph 8 of Schedule 9 from participating in the
Scheme.
6.2 An Option shall be exercised by the Option holder, or as the case may
be his personal representative, giving notice to the Company in
writing of the number of Shares in respect of which he wishes to
exercise the Option and making arrangements reasonably acceptable to
the Committee for payment of the appropriate amount, and submitting
the relevant Option Certificate. Any such notice shall be effective
on the date of its receipt by the Company.
6.3 Shares shall be allocated and issued pursuant to a notice of exercise
within 30 days of the date of exercise.
12
<PAGE>
7. RIGHTS ATTACHING TO SHARES
--------------------------
All Shares allocated pursuant to the exercise of an Option shall rank pari
passu in all respects with all other Shares in issue at the date of such
allocation.
8. AVAILABILITY OF SHARES
----------------------
The Company shall at all times procure that it can secure the issue or the
transfer of sufficient Shares to permit the exercise of all Subsisting
Options.
9. LOSS OF OFFICE
--------------
If any Option holder shall cease to be an employee of a Participating
Company within the Group for any reason, he shall not be entitled by way of
compensation for loss of office or otherwise howsoever to any sum or other
benefit to compensate him for any loss of any right under the Scheme, and
in returning the form of acceptance referred to in Rule 4.3 he shall be
deemed to have agreed to this.
10. ADMINISTRATION AND AMENDMENT
----------------------------
10.1 No member of the Committee or the Board shall be held liable for any
action or determination made in good faith with respect to the Plan,
the UK Subplan, these Rules or any Option granted hereunder.
10.2 The cost of establishing and operating the Scheme shall be borne by
the Participating Companies in such proportions as the Board shall
determine.
10.3 The Board may from time to time suspend or terminate the Plan and/or
the UK Subplan or amend these Rules or the form of Option Certificate,
provided that:
(i) no such action may, without approval or ratification by the
Company's shareholders, increase the maximum number of Shares
reserved under the UK Subplan (except as provided in Rule 5) or
under the Plan (except as otherwise expressly provided in the
Plan), alter the class or classes of employees eligible for
Options, or make any other such change which, pursuant to Section
16(b) of the Act and the rules and regulations promulgated
thereunder, requires action by the Company's shareholders;
(ii) except as provided in Rule 10.5, no such action may detrimentally
affect an Option holder as regards an Option granted prior to the
taking of such action; and
(iii) no amendment to these Rules shall have effect until approved
by the Board of the Inland Revenue.
13
<PAGE>
10.4 The Scheme shall be administered by the Committee, the members of
which shall be appointed by and shall serve at the pleasure of the
Board (subject to the restrictions of this Rule 10.4).
Notwithstanding the foregoing, until and unless the Board shall have
constituted the Committee pursuant to this Rule 10.4, the committee
serving from time to time as administrator of the Plan generally shall
also serve as the Committee for purposes of the UK Subplan. Actions
taken by a majority of the members present at any meeting of the
Committee at which a quorum is present, and any acts approved in
writing by all members of the Committee without a meeting, shall
constitute the acts of the Committee. The Committee shall have all
powers of administration granted under these Rules, except such powers
as are expressly reserved to the Board. The Committee is authorized
to interpret these Rules and, subject to the provisions of Rule 10.3,
to prescribe, amend, and rescind rules and regulations relating
thereto. The Committee is further authorized, subject to the express
provisions of the Plan and these Rules, to alter or amend the form of
Option Certificate pursuant to which Options may be granted under the
Scheme from time to time and to make all determinations necessary or
advisable in the administration of the Scheme. The interpretation and
administration by the Committee of any provisions of the Plan and the
UK Subplan, including these Rules, and any Option Certificate issued
pursuant to the Scheme shall be final, binding and conclusive on all
persons having any interest therein.
10.5 Prior to the occurrence of an Event, the Board may elect to terminate
each Subsisting Option. If the Board so elects, such Option shall
terminate as of the effective date of the Event, but the Board shall
suspend the exercise of all Subsisting Options a reasonable time prior
to the Event, giving each Option holder not less than fourteen days
written notice of the date of suspension, prior to which an Option
holder may purchase in whole or in part the Shares available to him as
of the date of receipt of the notice. If the Event is not
consummated, the suspension shall be removed and all Options shall
continue in full force and effect, subject to the terms of their
respective Option Certificates.
10.6 Any notice or communication to be given by or on behalf of the Company
to any Eligible Employee may be given by personal delivery or by
sending the same by ordinary post to his last known address in which
case it shall be deemed to have been received on the day after it was
posted. Any notice, document, option, share certificate or other
communication sent by post shall be sent at the risk of the Eligible
Employee involved.
10.7 Unless otherwise provided any notice or other communication to be
given by an Eligible Employee to the Company shall be regarded as
having been properly given if sent or delivered to the company
secretary of the Participating Company by whom he is employed at that
company's registered office, any such communication being effective
only upon receipt.
14
<PAGE>
10.8 The Scheme shall at all times be read in accordance with the
provisions of the U.K. Income and Corporation Taxes Act 1988 and
insofar as any of its Rules shall be inconsistent with any of the said
provisions and/or with any requirements of the Board of Inland Revenue
necessary for its approval or continued approval under the said Act
they shall be deemed automatically varied or deleted in such a way as
to ensure compliance with the same.
15
<PAGE>
SUBPLAN C - NON-EMPLOYEE ("ELIGIBLE") DIRECTOR PORTION
OF AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. Purpose of Subplan C
The purpose of this Subplan C is to grant options to purchase shares of
the common stock, $.01 par value (the "Common Stock"), of United Asset
Management Corporation (the "Company") to Eligible Directors (as defined in
Section 4 of this Subplan) of the Company at market value on the date of
grant, and to permit the granting of stock options to Eligible Directors at
an exercise price less than market value at the date of grant as an
alternative to the payment of Directors' fees in cash. The Company believes
that the granting of such options will serve to enhance the Company's ability
to attract and retain the services of such persons, to provide additional
incentives to them and to encourage the highest level of performance by them
by offering them a proprietary interest in the Company's success. The
Company also believes that the Plan will encourage directors to make greater
equity investment in the Company, more closely aligning the interests of the
directors and the stockholders.
2. Shares Reserved Under Subplan C
Subject to the adjustment provided in Section 8, the aggregate number of
shares of Common Stock which may be issued and sold pursuant to options
granted under this Subplan C of the Plan shall not exceed 800,000 shares (or,
if less, the then remaining aggregate number of shares determined in
accordance with the Preamble to the Plan), which may be either authorized but
unissued shares or treasury shares. If any option granted under the Plan
shall terminate or expire without being fully exercised, the shares which
have not been purchased will again become available for purposes of the Plan.
3. Administration
This Subplan C shall be interpreted and administered by a committee (the
"Committee") consisting of not less than three (3) members of the Board of
Directors of the Company (the "Board") appointed pursuant to Section 3 of
Subplan A of the Plan. The interpretation and administration by the
Committee of any provisions of the Plan and any option granted thereunder
shall be final and conclusive on all persons having any interest therein.
No members of the Committee or the Board shall be held liable for any
action or determination made in good faith with respect to the Plan or any
option granted thereunder.
4. Option Grants
"Eligible Directors" shall mean directors of the Company who are
directors on the date of grant and who are not officers or employees of the
Company. All options granted under this
16
<PAGE>
Subplan C shall be non-incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
(a) Regular Options
Each Eligible Director who is such on the 30th day
following the date on which each Annual Meeting of the Stockholders of
the Company (the "Annual Meeting") is held during the term of the Plan
shall on such 30th day be granted a stock option to purchase 14,000
shares of Common Stock. Each such option is defined herein as a
"Regular Option." The date of grant of an option to an Eligible Director
under this Subplan C shall be the applicable day referred to immediately
above.
(b) Discounted Options
(i) Subject to such other rules as the Committee may
adopt from time to time, during the term of the Plan, options to
purchase Common Stock at a discount from fair market value on the date
of grant ("Discounted Options") shall be granted to any Eligible
Director who, no later than June 30, with respect to the six-month
period following such date, and no later than December 31, with respect
to the six-month period following such date (each six month period, a
"Semi-Annual Period"), has filed with the Company an irrevocable
election to receive a stock option in lieu of all or a specified portion
(expressed in terms of a percentage of the Semi-Annual Fee) of the
Semi-Annual Fee (as defined in Subsection 4(b) (iii)) earned or expected
to be earned by such Director for the Semi-Annual Period specified in
the election.
(ii) Discounted Options shall be granted to an electing
Eligible Director on the first day (July 1 or January 1) of each
applicable Semi-Annual Period.
A separate election must be made for each Semi-Annual
Period, although a Director may specify that a particular election shall
apply to future Semi-Annual Periods unless amended or revoked; provided,
however, that no amendment or revocation may be made with respect to a
Semi-Annual Period after the applicable election date for such
Semi-Annual Period. The Director shall not be entitled to receive in
cash any portion of the Semi-Annual Fee for which an election has been
made to receive an option.
(iii) Option Formula. The number of shares of Common
Stock subject to each Discounted Option granted to any Eligible Director
for a Semi-Annual Period shall be equal to the nearest number of whole
shares of Common Stock, with cash payment for fractional shares,
determined in accordance with the following formula:
17
<PAGE>
Semi-Annual Fee
------------------------ = Number of Shares
Fair Market Value minus
Discounted Option Price
"Discounted Option Price" and "Fair Market Value" shall be defined as
set forth in Section 5 below. "Semi-Annual Fee" shall mean the quarterly
retainer fees which the Director will be entitled to receive during a
Semi-Annual Period for serving as a Director pursuant to the policy in effect
for each year during the term of the Plan, but expressly excluding fees paid
for attendance at or participation in meetings of the Board or any committee
thereof; provided, however, that if a Director elects to receive a stock
option in lieu of only a portion of the Semi-Annual Fee, the Semi-Annual Fee
for purposes of the foregoing formula shall equal the portion of the
Semi-Annual Fee so elected. For purposes of this Subplan C, "Semi-Annual Fee"
shall also not include expenses reimbursed by the Company for attendance at
or participation in meetings of the Board or any committee of the Board or
fees for any other services to be provided to the Company.
5. Option Price
(a) Regular Option
The price per share at which each Regular Option granted under
this Subplan C to an Eligible Director may be exercised ("Regular Option
Price") shall be the fair market value of the Common Stock as determined
by the closing sales price of such Common Stock on the consolidated tape
of the principal exchange on which such Common Stock is traded on the
date of grant, or if there are no sales on such date, on the trading day
next preceding the date of grant on which a sale took place, or, if the
Common Stock is not so traded, then as determined by a principal market
maker for such Common Stock selected by the Committee ("Fair Market
Value").
(b) Discounted Stock Options
The price per share at which each Discounted Option granted
under this Subplan C to an Eligible Director may be exercised (the
"Discounted Option Price," the Regular Option Price and the Discounted
Option Price being sometimes hereinafter referred to as the "Option
Price") shall be seventy-five percent (75%) of the Fair Market Value of
the Common Stock on the date the Discounted Option is granted.
(c) In no event shall the Option Price per share for any option under this
Subplan C be less than the par value per share.
6. Terms of Grant
Each option granted under this Subplan C shall be evidenced by and
subject to the terms and conditions of an Option Grant attached hereto as
Exhibit A. Each Option Grant executed
18
<PAGE>
and delivered to an Eligible Director shall contain the following terms and
conditions. Each option shall expire 5 years from the date of grant of such
option, and shall be exercisable in full beginning on or after the date which
is 6 months after the date of grant thereof. Each Eligible Director to whom
an option is granted may exercise such option from time to time, in whole or
in part, during the period that it is exercisable, by payment of the Option
Price of each share purchased, in cash, or by delivery to the Company of a
number of shares of Common Stock having an aggregate Fair Market Value of not
less than the product of the Option Price multiplied by the number of shares
the participant intends to purchase upon exercise of the option on the date
of delivery. The shares of Common Stock issued upon exercise of an option
granted under this Subplan C will be acquired for investment and not with a
view to distribution thereof unless there shall be an effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"), with
respect thereto. In the event that the Company, upon the advice of counsel,
deems it necessary to list upon official notice of issuance shares to be
issued pursuant to the Plan on a national securities exchange or to register
under the 1933 Act or other applicable federal or state statute any shares to
be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the 1933 Act under the Rules and
Regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify each Eligible
Director to that effect and no shares of Common Stock subject to an option
shall be issued until such registration, listing or exemption has been
obtained. The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state law or rules
of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing or exemption to become
and remain effective. Nothing in this Subplan C or in the Option Grant will
confer upon any Eligible Director the right to continue as a director of the
Company. The shares of Common Stock issued on exercise of the option shall
be subject to any restrictions on transfer then in effect pursuant to the
Certificate of Incorporation or Bylaws of the Company.
Options granted under this Subplan C shall be transferable (subject to
any terms and conditions imposed by the Committee) by the optionee, either
directly or in trust, to one or more members of the optionee's family.
Following any transfer permitted pursuant to this paragraph, of which the
optionee has notified the Committee in writing, such option may be exercised
by the transferee(s), subject to all terms and conditions of the Option
Grant. For these purposes, the members of the optionee's family are only the
optionee's: (i) spouse; (ii) lineal descendants; (iii) lineal ancestors; and
(iv) siblings and spouses and children of such siblings.
7. Termination of Directorship
An Eligible Director's right to participate in this Subplan C shall
automatically terminate if and when such Director becomes an employee of the
Company. Options granted to an Eligible Director shall cease to be
exercisable 6 months after the date such Director ceases to be a director for
any reason other than death. If an Eligible Director ceases to be a director
on account of his death, any option previously granted to him, whether or not
exercisable at the date of death, may be exercised by his executor,
administrator or the person or persons to whom his rights under the option
shall pass by will or the applicable laws of descent and distribution, at any
time within 12 months after the date of death, but in no event after the
expiration of the option.
19
<PAGE>
8. Adjustment of Shares Reserved Under the Plan
The aggregate number and kind of shares that may be issued under this
Subplan C, the maximum number of shares as to which options may be granted to
any individual and the Option Price per share shall be appropriately adjusted
by the Board in the event of any recapitalization, stock split, stock
dividend, combination of shares, or other similar change in the
capitalization of the Company, but no adjustment in the Option Price shall be
made which would reduce the Option Price per share to less than the par value
per share.
9. Dissolution or Reorganization
Prior to a dissolution, liquidation, merger, consolidation, or
reorganization of the Company (the "Event"), the Board may decide to
terminate each outstanding option. If the Board so decides, such option
shall terminate as of the effective date of the Event, but the Board shall
suspend the exercise of all outstanding options a reasonable time prior to
the Event, giving each optionee not less than fourteen days written notice of
the date of suspension, prior to which an optionee may purchase in whole or
in part the shares available to him as of the date of receipt of the notice.
If the Event is not consummated, the suspension shall be removed and all
options shall continue in full force and effect subject to the terms of their
respective Option Grants.
10. Amendment and Termination of Subplan C
The Board may amend, suspend, or terminate this Subplan C, including the
form of Option Grant incorporated herein by reference. No such action,
however, may, without approval or ratification by the shareholders, increase
the maximum number of shares reserved under this Subplan C except as provided
in Section 8, alter the class or classes of individuals eligible for options,
or make any other change which, pursuant to the Code or regulations
thereunder or Section 16(b) of the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, requires action by the
shareholders. No such action may, without the consent of the holder of the
option, alter or impair any option previously granted.
20
<PAGE>
EXHIBIT 11
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE (1)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996(2) 1997 1996(2)
--------- --------- --------- ---------
Common and common equivalent shares:
Net income.......................................................... $ 24,030 $ 20,877 $ 48,085 $ 40,364
Adjustments thereto(3).............................................. -- 91 -- 792
--------- --------- --------- ---------
Adjusted net income................................................. $ 24,030 $ 20,968 $ 48,085 $ 41,156
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding.......................................... 69,865 68,726 69,600 68,377
Adjustments thereto(3).............................................. 2,987 3,726 3,532 4,202
--------- --------- --------- ---------
Shares used in computation.......................................... 72,852 72,452 73,132 72,579
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share............................................................. $ .33 $ .29 $ .66 $ .57
--------- --------- --------- ---------
--------- --------- --------- ---------
Common shares--assuming full dilution:
Net income.......................................................... $ 24,030 $ 20,877 $ 48,085 $ 40,364
Adjustments thereto(3).............................................. -- -- -- 12
--------- --------- --------- ---------
Adjusted net income................................................. $ 24,030 $ 20,877 $ 48,085 $ 40,376
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding.......................................... 69,865 68,726 69,600 68,377
Adjustments thereto(3).............................................. 3,812 3,834 4,140 4,202
--------- --------- --------- ---------
Shares used in computation.......................................... 73,677 72,560 73,740 72,579
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share............................................................. $ .33 $ .29 $ .65 $ .56
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) See Financial Highlights for pro forma earnings per share calculated in
accordance with Statement of Financial Accounting Standards No. 128,
Earnings per Share, which will be effective for financial statements for
both interim and annual periods ending after December 15, 1997.
(2) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(3) Adjustments relate to application of modified treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Company's six months ended June 30, 1997 Consolidated Statement of
Income and the Condensed Consolidated Balance Sheet. This information is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000796370
<NAME> UNITED ASSET MANAGEMENT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 151,625
<SECURITIES> 0
<RECEIVABLES> 145,374
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 307,868
<PP&E> 77,520
<DEPRECIATION> 44,875
<TOTAL-ASSETS> 1,502,873<F1>
<CURRENT-LIABILITIES> 199,047
<BONDS> 697,922<F2>
0
0
<COMMON> 703
<OTHER-SE> 569,326
<TOTAL-LIABILITY-AND-EQUITY> 1,502,873
<SALES> 0
<TOTAL-REVENUES> 435,094
<CGS> 0
<TOTAL-COSTS> 283,041
<OTHER-EXPENSES> 50,574<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,414
<INCOME-PRETAX> 84,065
<INCOME-TAX> 35,980
<INCOME-CONTINUING> 48,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,085
<EPS-PRIMARY> .66
<EPS-DILUTED> .65
<FN>
<F1>Includes $1,110,670,000 of cost assigned to contracts acquired, net.
<F2>Includes 150,000,000 in senior notes payable and $ 547,922,000 in subordinated
notes payable.
<F3>Represents amortization of cost assigned to contracts acquired for the six
months ended June 30,1997.
</FN>
</TABLE>
