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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 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
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UNITED ASSET MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2714625)
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number
ONE INTERNATIONAL PLACE 02110
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 330-8900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($.01 par value) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by stockholders who are
not directors or executive officers of the registrant was approximately $1.9
billion based on the last reported sale price of the registrant's common stock
on the New York Stock Exchange composite tape on March 10, 1997.
Thenumber of shares of common stock, par value $.01, outstanding as of March
10, 1997 was 70,024,162.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report
on Form 10- K is incorporated by reference from certain portions of (a) the
Annual Report to Stockholders of the registrant for the year ended December 31,
1996, and (b) the Proxy Statement of the registrant filed pursuant to Regulation
14A and sent to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 15, 1997. Such Report and Proxy Statement,
except for the parts therein which have been specifically incorporated herein
by reference, shall not be deemed "filed" as part of this report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
United Asset Management Corporation (UAM or the Company) is a holding
company organized in December 1980 to acquire and own firms that provide
investment advisory services primarily for institutional clients. The
Company's 46 wholly owned subsidiaries (Affiliated Firms or Firms) operate in
one business segment, that is, as investment advisers, managing both domestic
and international investment portfolios for corporate, government and union
benefit plans, endowments and foundations, mutual funds, and individuals. UAM
intends to continue expanding through the internal growth of its present
Affiliated Firms and through the acquisition or organization of additional
firms in the future (see "Affiliated Firms"). In addition, UAM plans to
continue to diversify, both domestically and internationally, with respect to
both the classes of assets managed and client base.
While UAM's Affiliated Firms primarily specialize in the management of
U.S. equities, bonds and cash, other asset classes under management have
grown significantly over recent years to include real estate, international
securities and stable value assets.
Advisory fees based on the assets of pension plans, profit sharing plans,
endowments and foundations provide the largest portion of the Company's
revenues. Such clients are sometimes referred to as "institutional" clients,
and they are generally "tax-exempt" in that the income and any capital gains
which result from their portfolio investments are not taxable to them under
present law. Advisory fees are primarily based on the value of assets under
management. Fee rates typically decline as account size increases. The assets
of institutional clients have generally been growing, with the most rapid
growth achieved by pension and profit sharing plans (sometimes called
employee benefit plans). For the year ended December 31, 1996, no single
client of any Affiliated Firm provided more than 4% of the Company's
consolidated revenues. Accordingly, the loss of any single client would not
have a material adverse effect on the Company's total investment management
business.
Each Affiliated Firm operates under its own name, with its own investment
philosophy and approach. Each conducts its own investment analysis, portfolio
selection, marketing and client service. During any given period, investment
results may vary among Firms. Client fees are set by each Firm based on its
own judgment concerning the market for the services it renders. Each Firm is
separately regulated under applicable federal, state or foreign law.
In addition to the Firms' individual efforts, UAM has established several
distribution and client service organizations which are available to the
Affiliated Firms to supplement the investment management services they
provide. This is described more fully under "Method of Operation."
UAM has revenue sharing plans with the Affiliated Firms which are
described more fully under "Revenue Sharing." These agreements provide for
UAM to derive increased or decreased revenues from each Affiliated Firm,
based on a percentage of the change in each Firm's revenues from year to
year, starting from a base amount agreed upon in the year of acquisition.
These arrangements allow each Firm to set its own operating expense budget
and compensation practices, limited by the share of revenues available to the
Firm.
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THE INDUSTRY
Revenues in the institutional investment management industry are
determined primarily by fees based on assets under management. Therefore, the
principal determinant of growth in the industry is the growth of
institutional assets under management. In management's judgment, the major
factors which influence changes in institutional assets under management are:
(a) changes in the market value of securities; (b) net cash flow into or out
of existing accounts; (c) gains of new or losses of existing accounts by
specific firms or segments of the industry; and (d) the introduction of new
products by the industry or by particular firms.
In general, assets under management in the institutional segments of the
industry have increased steadily. For example, Money Market Directories, Inc.
recorded in its 1997 Directory $4.4 trillion in assets under management in
accounts of employee benefit plans, foundations and endowments within the
United States as of mid-1996, which represents an average compound five-year
annual growth rate of 10.8% since mid-1991. The largest institutional segment
of assets under management is employee benefit plan assets. The 1997
Directory reported $4.1 trillion of employee benefit plan assets under
management as of mid-1996, which represents an average compound five-year
annual growth rate of 11.0% since mid-1991.
The employee benefit plan market includes two principal sectors: defined
benefit and defined contribution plans. The majority of U.S. retirement plan
assets are in defined benefit plans, which assure employees of a particular
level of pension benefits when they retire. The Employee Retirement Income
Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code)
require employers to fund their defined benefit plans sufficiently to
generate the benefits they have promised. However, the Code also discourages
overfunding of defined benefit plans by employers by limiting tax deductions
for contributions to fully funded plans. In management's opinion, high
investment returns experienced in the 1980s and thus far in the 1990s have
resulted in many defined benefit retirement plans reaching or exceeding their
full funding limits based on actuarial calculations; therefore, many
employers ceased to contribute additional cash to the plans. However, if the
value of plan assets declines due to market factors, or if sustained periods
of low interest rates cause an increase in the actuarial value of plan
liabilities, employers will generally be obligated to step up contributions
to their defined benefit pension plans. This counter-cyclical funding pattern
for defined benefit plans helps to smooth out fluctuations in the growth of
plan assets under management by firms that provide investment advisory
services to sponsors of defined benefit plans, and therefore, it helps to
moderate fluctuations in the revenues of these investment managers. Under
defined contribution plans, on the other hand, employers may contribute to
their employees' retirement funds on a tax-advantaged basis, but individual
employees generally decide how their plan assets will be invested. Defined
contribution plans are the fastest growing sector of the employee benefit
plan market.
The number and size of investment management firms which UAM would
consider acquiring have grown in the past five years. The 1992 Money Market
Directory showed 1,147 investment advisory firms (including branch offices)
within the United States managing $3.1 trillion as of mid-1991. The 1997
Directory showed 1,346 such firms (including branch offices) within the
United States managing approximately $7.9 trillion of assets as of mid-1996,
which represents an average compound five-year annual growth rate of 20.7%
over the corresponding assets of mid-1991.
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COMPETITION
The Affiliated Firms compete with a large number of investment management
firms, principally those engaged in the management of institutional accounts.
In addition, the Affiliated Firms compete with commercial banks and insurance
companies, many of which have substantially greater capital and other
resources and some of which offer a wider range of financial services.
Furthermore, each of the Affiliated Firms may compete with other Affiliated
Firms for clients.
Management believes that the most important factors affecting competition
in the investment management industry are the abilities and reputations of
investment managers, differences in the investment performance of investment
management firms and the development of new investment strategies, access to
channels of distribution, information technologies and client service
capabilities.
Barriers to entry are low, and firms are relatively long-lived in the
investment management business. A new investment management firm has low
capital requirements. Maintaining the firm requires only the continued
involvement of its professional personnel. A major portion of profits may be
regularly withdrawn because new capital commitments are limited and rarely
necessary.
UAM competes, with respect to the acquisition of investment management
firms, with many other potential purchasers of investment management firms,
including insurance companies, banks and other investment groups. As a result
of its continuing acquisition activities, including regular contacts with
potential acquisition candidates, UAM has an extensive knowledge of the
candidate population both domestically and internationally.
UAM'S ACQUISITION PROGRAM
Since its inception, UAM has sought to acquire or to organize
institutional investment management firms. Once it acquires or organizes such
firms, UAM seeks to preserve their autonomy by allowing their key employees
to retain control of investment decisions and manage day-to-day operations.
When an Affiliated Firm is acquired from employee-stockholders, the former
stockholders receive the added benefits of a more diversified company by
virtue of their equity ownership in UAM.
UAM conducts its own acquisition activities rather than relying primarily
upon outside agents to find and develop acquisition candidates for it. UAM's
activities include regular mailing and calling programs through which UAM
seeks to contact and visit potential acquisition candidates on a regular
basis. UAM is willing to use finders to locate suitable candidates and has
paid finders' fees on four occasions. Once acquisition negotiations begin,
UAM utilizes its own staff and outside legal counsel to negotiate price,
terms and the wording of specific documents required. Typically, a definitive
purchase agreement is signed and then clients of the firm to be acquired are
contacted by principals of that firm in order to obtain the client's consent
to the assignment of its advisory contract as required by the Investment
Advisers Act of 1940. Once sufficient consents have been received, the
acquisition is completed. Consent of all of a firm's clients has been
obtained in connection with virtually all of UAM's acquisitions to date. To
complete the acquisition or organization of a non-U.S. firm, regulatory
approval may be required in the host country.
After acquisition by UAM, Affiliated Firms continue to operate under
their own firm name, with their own leadership and individual investment
philosophy and approach. UAM seeks to achieve diversity by acquiring
investment management firms having different investment philosophies and
strategies and specializing in different asset classes. In addition, UAM has
acquired or organized firms at various stages of development, from start-up
to relatively mature firms and has acquired both employee-owned firms and
subsidiaries or divisions of financial institutions.
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UAM has observed that the major reasons that employee-owned firms
consider selling to UAM include: (a) the high value of the firm relative to
its principals' total net worth; (b) the need for liquidity on the part of
the principals; (c) their desire for diversification and a reduction in their
exposure to a single firm's results; (d) their autonomy after acquisition;
and (e) increasingly, the access to channels of distribution provided by
UAM's service firms. Substantially all the key employees of Affiliated Firms
continue to be actively involved in their firms long after their acquisition
by UAM.
In purchasing investment management firms, UAM has structured the
transactions to create incentives for key personnel to remain with their firm
after the expiration of their employment agreements. The key employees have
entered into employment and non-competition agreements for terms ranging
primarily from five to 12 years, which also prohibit the employees from
competing with their firm for a substantial period after termination of
employment. Most of the key employees of the Affiliated Firms were
stockholders of such firms prior to their acquisition by UAM. In connection
with the purchases, the former stockholders and/or key employees have
typically received consideration in the form of cash, subordinated notes and
warrants to purchase UAM common stock, or UAM common stock. The subordinated
notes, most of which may be used to exercise the warrants, generally have
terms between five and 10 years. The key employees of each Affiliated Firm
also participate directly, through revenue sharing, in revenues of their firm
and meet the firm's expenses from their share of these revenues, as described
more fully under "Revenue Sharing."
UAM has over the past several years identified a substantial number of
institutional investment management firms both domestically and
internationally which it believes may be candidates for future acquisition on
the basis of an evaluation of their personnel, investment approach, client
base, revenues and profitability.
To fund acquisitions, the Company utilizes its existing capital, together
with Operating Cash Flow (net income plus amortization and depreciation) and
borrowings available under the $500,000,000 Reducing Revolving Credit
Agreement (as more fully described in Note 3 to the Consolidated Financial
Statements; also see Items 8 and 14 of this Form 10-K). Such borrowings are
secured by the stock of the Company's subsidiaries.
METHOD OF OPERATION
UAM itself does not manage portfolio investments for clients and does not
provide any investment advisory services to Affiliated Firms and therefore is
not registered as an investment adviser under federal, state or foreign law.
UAM respects the individual character of each Affiliated Firm and seeks to
preserve an environment in which each Firm continues to provide investment
management services which meet the particular needs of the Firm's clients.
UAM provides assistance to the Affiliated Firms in connection with the
preparation of separate company financial statements, tax matters, insurance
and maintenance of a company-wide profit sharing retirement plan. In
addition, UAM has an operations group and a marketing and services strategies
group composed of senior officers of the Company who are responsible for
establishing new marketing and service organizations, creating growth
incentives and encouraging the undertaking of new projects and programs by
the Affiliated Firms. Upon request, the Operations Group is also available to
assist Affiliated Firms in planning for future growth and management
development, particularly with respect to succession planning. The Company
also sponsors seminars and meetings for executives from each of the
Affiliated Firms and from UAM which serve as forums for sharing business
information.
In recent years, UAM has established a number of organizations that
augment the marketing and client service capabilities of its Affiliated Firms.
4
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UAM Retirement Plan Services, Inc., formerly known as Regis Retirement
Plan Services, was established to participate in the growth of the defined
contribution plan sector of the market. This affiliate designs and markets
bundled defined-contribution plan services, including investment management
capabilities through UAM Funds portfolios, in addition to offering employee
education, recordkeeping and trustee services to the sponsors of these plans.
United Asset Management (Japan), Inc. offers the diverse investment
management services of the Affiliated Firms to the Japanese institutional
market. It has been registered in Japan as a non-discretionary adviser and
received approval in 1996 from the Ministry of Finance to offer fully
discretionary investment management services to Japanese institutional
investors. The new license allows UAM (Japan) to market to and service
institutional clients directly.
UAM Investment Services, Inc. provides multi-product and global
capabilities to large defined-benefit pension plans and other major
institutional investors such as insurance companies, as well as to financial
planners, on behalf of the Affiliated Firms. It provides a single convenient
channel through which clients, both domestically and abroad, can utilize the
many investment management products offered by the Affiliated Firms.
UAM Funds, Inc., a series mutual fund, allows Affiliated Firms to open
portfolios to pool client accounts in an efficient, cost-effective manner and
to provide additional investment styles. As of December 31, 1996, 19 of the
Affiliated Firms had opened 39 UAM Funds portfolios, and such portfolios held
assets totaling $2.4 billion.
UAM Fund Services, Inc. oversees service providers used by UAM Funds,
Inc. and, upon request, by separate fund families offered by Affiliated Firms.
UAM believes that the professional independence of the Affiliated Firms
and the continuing diversification of investment philosophies and approaches
within the Company are necessary ingredients of UAM's success and that of the
Affiliated Firms. Most key employees of each Affiliated Firm at the time of
acquisition by UAM have continued with their Firm in accordance with
employment agreements executed in connection with each acquisition, have
remained on their Firm's Board of Directors, and have continued to serve as
its executive officers. Each Affiliated Firm's directors and officers are
responsible for reviewing their respective Firm's results, plans and budgets.
UAM intends to continue the method of operation described above as it
acquires or organizes additional firms.
REVENUE SHARING
UAM operates with the Affiliated Firms UNDER REVENUE SHARING PLANS. Such
plans permit each Firm to retain a specified percentage of its revenues
(typically 50-70%) for use by its principals at their discretion in paying
expenses of operations, including salaries and bonuses. The purposes of the
plans are to provide significant ongoing incentives for the principals of the
Affiliated Firms to continue working as they did prior to the sale of their
firm to UAM, to support their autonomy, and to allow UAM to participate in
the growth of revenues of each Affiliated Firm. The plans are designed to
allow each Firm's principals to participate in that Firm's growth in a
substantial manner and to make operating decisions freely within the limits
of that portion of the Firm's revenues which is retained by the Firm. In
effect, the portion of its revenues retained by each Firm that is not used to
pay salaries and other operating expenses is available for payment to the
principals and other key employees of such Firm in the form of bonuses. The
portion of Affiliated Firm revenues retained by the Firms and used to pay
salaries and bonuses and to fund operating expenses is included in the
Company's Consolidated Statement of Income.
Under each agreement, when an Affiliated Firm is acquired by UAM, the base
revenues of the Firm are established, and a share of such revenues is allocated
to UAM, with the balance being
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the acquired Firm's share of revenues. In addition, agreement is reached on
the Firm's and UAM's respective percentage shares of changes in such Firm's
revenues compared to its base revenues. The Affiliated Firm is required to
pay for all of its business expenses out of its share of revenues. Each year,
the amount of the Affiliated Firm's revenues that is paid to UAM and the
amount that is retained by the Firm are adjusted upwards in the case of
growth in such Firm's revenues over its base, or downwards in the case of
decreases in such Firm's revenues below its base, by applying the agreed-upon
percentages to the total increase or decrease in the Firm's revenues. Under
most of the existing revenue sharing agreements, UAM's share of increases
above a Firm's base revenues is between 30% and 50%, and UAM's share of
decreases below a Firm's base revenues is between 50% and 70%. Thus, in any
year in which the Affiliated Firm's revenues increase over its base revenues,
the Firm retains a portion of such additional amounts to use as its
principals may decide. The balance of the increase in the Affiliated Firm's
revenues is paid to UAM, in addition to UAM's share of such Firm's base
revenues. In any year in which the Affiliated Firm's revenues decrease to a
level below its base revenues, the Firm's share of its base revenues is
reduced by the Firm's portion of the decrease, and therefore, the Firm may
need to reduce its expenses. Similarly, the revenue sharing amount paid to
UAM will be reduced by UAM's share of any decline in the Affiliated Firm's
revenues below its base.
In addition to revenue sharing with its Affiliated Firms, UAM has
designed several incentive programs to reward business growth, client
retention, investment performance and managerial development. Incentives
awarded under these programs are paid in the form of cash, stock options,
incentive units or some combination thereof.
AFFILIATED FIRMS
Each of the Affiliated Firms conducts its own marketing, client
relations, research, portfolio management and administrative functions. Each
Firm sets its own investment advisory fees and manages its business
independently on a day-to-day basis.
The investment philosophy, style and approach of each Affiliated Firm are
independently determined by it, and these philosophies, styles and approaches
may vary substantially from firm to firm. As a consequence, more than one
Affiliated Firm may be retained by a single client since many clients employ
multiple investment advisers. The strategies employed and securities selected
by Affiliated Firms are separately chosen by each of them, with the result
that any one Firm may be bullish on the stock or bond market while another
Firm is bearish. Two of the Affiliated Firms are full-service institutional
real estate investment management firms with $12.6 billion of assets under
management at year end. These Firms invest in real estate properties in the
U.S. and overseas for their U.S. and foreign clients and provide a broad
spectrum of real estate services, including research, acquisition and
disposition, financing and asset and property management. In addition,
another Affiliated Firm, with $8.3 billion of assets under management at year
end, manages stable value asset portfolios such as guaranteed investment
contracts (GICs) and synthetic GICs.
All of these differences, when combined with the separate names and
identities of the various Affiliated Firms may: (a) tend to insulate UAM from
the various cycles of market performance for specific asset classes and
individual Firms; (b) permit more than one Affiliated Firm to serve any
single client; and (c) mean that some Affiliated Firms may attract
substantial new business while other Firms may be growing more slowly or
losing business.
On December 31, 1996, UAM's 46 Affiliated Firms had 6,055 clients with
$171.0 billion of assets under management for an average account size of
$28.2 million. On a fee basis, the 20 largest clients represented 14% of
total revenues and the 100 largest clients represented 26%. The client list
includes many of the largest corporate, government, charitable and union
funds in the U.S. and abroad, along with several families of mutual funds and
many individuals and professional groups. Additional information regarding
the number of clients and types and amounts of assets under
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management is found in the table on page 52 of the Company's 1996 Annual
Report to Shareholders (the Annual Report), which table is incorporated
herein by reference.
The following table summarizes UAM's asset mix:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT AT DECEMBER 31,
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(IN $ MILLIONS) 1994 1995 1996
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<S> <C> <C> <C> <C> <C> <C>
U.S. Equities $ 52,546 50% $ 84,465 59% $ 99,814 58%
U.S. Bonds and Cash 20,530 20 25,130 18 27,266 16
International Securities 10,587 10 10,897 8 21,764 13
Real Estate 13,389 13 14,227 10 13,909 8
Stable Value 6,994 7 7,405 5 8,274 5
-------- --- -------- --- -------- ---
$104,046 100% $142,124 100% $171,027 100%
-------- --- -------- --- -------- ---
-------- --- -------- --- -------- ---
</TABLE>
As previously described, each Affiliated Firm is responsible for and
provides its own marketing of its investment management services. Typically,
one or more of the employees at each Firm is responsible for making an
initial contact with prospective clients. Most Firms have brochures
describing the Firm, its principals and its investment approach. These
brochures are mailed to prospective clients. In addition, clients are
solicited by telephone and in person. Once an initial contact is made,
face-to-face meetings between the principals of such Firm and the prospective
client take place at which investment philosophy, management fees and a
variety of other related matters are discussed.
REGULATION
UAM's domestic investment advisory subsidiaries are registered with and
subject to regulation by the Securities and Exchange Commission (the SEC)
under the Investment Advisers Act of 1940 and, where applicable, under state
advisory laws. The Company's foreign investment advisory affiliates are
members of or subject to certain self-regulatory bodies or other regulatory
agencies. The Company's brokerage subsidiaries are registered as
broker-dealers with the SEC under the Securities Exchange Act of 1934 and,
where applicable, under state securities laws, and are regulated by the SEC,
state securities administrators and the National Association of Securities
Dealers, Inc. Three Affiliated Firms are regulated by the Commodities Futures
Trading Commission, and among the Affiliated Firms are three trust companies
which are subject to regulation by the Office of Comptroller of the Currency
or applicable state law.
UAM's domestic investment advisory subsidiaries are subject to ERISA and
to regulations promulgated thereunder to the extent they are "fiduciaries"
under ERISA with respect to their clients.
Registrations, reporting, maintenance of books and records and compliance
procedures required by these laws and regulations promulgated thereunder are
maintained by each UAM subsidiary on an independent basis.
The officers, directors and employees of UAM's Affiliated Firms may from
time to time own securities which are also owned by one or more of their
clients. Each such Firm has internal guidelines and codes of ethics with
respect to individual investments, and requires reporting of securities
transactions and restricts certain transactions so as to minimize possible
conflicts of interest.
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UAM's Affiliated Firms as of December 31, 1996 are listed below in the
order in which they were acquired or organized.
<TABLE>
<CAPTION>
PRINCIPAL ACQUIRED
AFFILIATED FIRM LOCATION OR ORGANIZED
- -------------------------------------------- ----------------- -------------
<S> <C> <C>
Nelson, Benson & Zellmer, Inc. Denver, CO August 1983
Chicago Asset Management Company Chicago, IL October 1983
Hamilton, Allen & Associates, Inc. Atlanta, GA February 1984
Hellman, Jordan Management Company, Inc. Boston, MA August 1984
Thompson, Siegel & Walmsley, Inc. Richmond, VA December 1984
Sterling Capital Management Company Charlotte, NC December 1984
Analytic-TSA Global Asset Management, Inc.(1) Los Angeles, CA May 1985
Northern Capital Management, Inc. Madison, WI January 1986
Cooke & Bieler, Inc. Philadelphia, PA February 1986
Fiduciary Management Associates, Inc. Chicago, IL June 1986
Investment Counselors of Maryland, Inc. Baltimore, MD December 1986
Hagler, Mastrovita & Hewitt, Inc. Boston, MA December 1986
Rothschild/Pell, Rudman & Co., Inc. Baltimore, MD December 1986
Rice, Hall, James & Associates San Diego, CA May 1987
C.S. McKee & Company, Inc. Pittsburgh, PA August 1987
Hanson Investment Management Company San Rafael, CA August 1987
Barrow, Hanley, Mewhinney & Strauss, Inc. Dallas, TX January 1988
Sirach Capital Management, Inc.(2) Seattle, WA January 1989
Dewey Square Investors Corporation Boston, MA May 1989
The Campbell Group, Inc. Portland, OR May 1989
Cambiar Investors, Inc. Englewood, CO August 1990
Newbold's Asset Management, Inc. Bryn Mawr, PA September 1990
First Pacific Advisors, Inc. Los Angeles, CA June 1991
Spectrum Asset Management, Inc. Stamford, CT November 1991
Acadian Asset Management, Inc. Boston, MA February 1992
The L&B Group Dallas, TX June 1992
NWQ Investment Management Company Los Angeles, CA October 1992
Tom Johnson Investment Management, Inc. Oklahoma City, OK December 1992
UAM Retirement Plan Services, Inc.(3) New York, NY February 1993
Pell, Rudman & Co., Inc. Boston, MA March 1993
Ki Pacific Asset Management London, England June 1993
Heitman Financial Ltd. Chicago, IL August 1993
Murray Johnstone Limited Glasgow, Scotland November 1993
GSB Investment Management, Inc. Fort Worth, TX December 1993
Dwight Asset Management Company Burlington, VT January 1994
Investment Research Company San Diego, CA February 1994
Suffolk Capital Management, Inc. New York, NY July 1994
United Asset Management (Japan), Inc. Tokyo, Japan October 1994
UAM Investment Services, Inc. Boston, MA January 1995
Provident Investment Counsel Pasadena, CA February 1995
Pilgrim Baxter & Associates Wayne, PA April 1995
Jacobs Asset Management Fort Lauderdale, FL July 1995
UAM Fund Services, Inc. Boston, MA October 1995
OSV Partners Greenwich, CT April 1996
Rogge Global Partners Plc London, England August 1996
Clay Finlay Inc. New York, NY August 1996
</TABLE>
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(1) During 1996, Analytic Investment Management, Inc., with UAM's assistance,
acquired TSA Capital Management, Inc., and changed its name, and Alpha
Global Fixed Income Managers became affiliated with AnalyticTSA Global Asset
Management, Inc.
(2) During 1996, Sirach Capital Management, Inc. merged with Olympic Capital
Management, Inc., an existing UAM Affiliate. The combined Firms operate
under the name of Sirach Capital Management, Inc.
(3) During 1996, Regis Retirement Plan Services changed its name to UAM
Retirement Plan Services, Inc.
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EMPLOYEES
The UAM holding company has 57 employees, 11 of whom are executive
officers of UAM (see Item 10, Directors and Executive Officers). Each
Affiliated Firm employs its own investment advisory, marketing and client
service, administrative and operations personnel as needed to provide
advisory services to its clients and to maintain necessary records in
accordance with the rules of various regulatory agencies (see "Affiliated
Firms" and "Regulation" on pages 6 and 7, respectively). At December 31,
1996, the Company, as a whole, employed 2,343 persons. These numbers exclude
1,347 individuals who are employed by the property management subsidiaries of
The L&B Group and Heitman Financial Ltd. and whose total compensation is
billed directly to clients of these affiliates.
ITEM 2. PROPERTY
UAM's only offices are its executive offices in Boston, Massachusetts,
which occupy approximately 22,000 square feet under a lease which expires in
2002. Affiliated Firms are likewise lessees of their respective offices under
leases which expire at various dates.
ITEM 3. 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 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 nor
its consolidated cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of December 31, 1996, there were 460 stockholders of record. As of
March 10, 1997, there were 496 stockholders of record. The balance of the
information required by this item is incorporated herein by reference to the
"Common Stock Information" appearing on page 72 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference
to the "Eleven Year Review" appearing on pages 56 and 57 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference
to the "Management's Discussion and Analysis" appearing on pages 53 through
55 of the Annual Report.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to the "Selected Quarterly Financial Data" on page 72 of the Annual Report,
"Consolidated Financial Statements" and "Notes to the Consolidated Financial
Statements" appearing on pages 58 through 70 of the Annual Report and the
"Report of Independent Accountants" on page 71 of the Annual Report. (See
also the "Financial Statement Schedule" filed under Item 14 of this Form
10-K.)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors--Nominees for Election as
Directors" and "Executive Compensation--Executive Officers" included in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 15, 1997 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the sections entitled "Executive Compensation--Summary Compensation
Table," "Executive Compensation--Option Grants in 1996," "Executive
Compensation -Aggregated Option Exercises in 1996 and Option Values at
December 31, 1996," "Executive Compensation - Compensation Committee Report,"
"Company Stock Performance" and "Election of Directors--Directors' Fees"
included in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the section entitled "Voting Securities" included in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section entitled "Election of Directors--Certain Transactions" included in
the Proxy Statement.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of United Asset Management
Corporation and report of independent accountants, included on pages 58 through
71 of the Annual Report, are incorporated herein by reference as a part of this
Form 10-K:
Page(s) in the
Title Annual Report
- --------- --------------
Report of Independent Accountants 71
Consolidated Balance Sheet as of December 31, 1996
and 1995 58
Consolidated Statement of Income for each of the
three years in the period ended December 31, 1996 59
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1996 60
Consolidated Statement of Changes in Stockholders'
Equity for each of the three years in the period
ended December 31, 1996 61
Notes to Consolidated Financial Statements 62--70
2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule and report of
independent accountants are filed as a part of this Form 10-K and are located on
the following pages:
PAGE
------
Report of Independent Accountants on F-1
Financial Statement Schedule
Schedule VIII Valuation and Qualifying Accounts
for each of the three years in the
period ended December 31, 1996 F-3
All other schedules have been omitted since they are not required, not
applicable or the information is contained in the Financial Statements or Notes
thereto.
11
<PAGE>
3. EXHIBITS
Exhibit
Number Title
-------- ------
(1) 3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
(2) 4.1 Specimen Certificate of Common Stock, $.01 par value, of the
Registrant.
(3) 4.2 Agreement to furnish copies of subordinated debt instruments
to the Commission.
9.0 Not Applicable.
(4) 10.1 Acquisition Agreement by and among United Asset Management
Corporation, Heitman Financial Ltd., JMB Institutional Realty
Corporation, JMB Realty Corporation and Certain Affiliates of
JMB Institutional Realty Corporation and JMB Realty Corporation
dated as of October 18, 1994.
(4) 10.2 Acquisition Agreement by and among United Asset Management
Corporation, Provident Investment Counsel, PIC Newco, Inc.
and the Stockholders of Provident Investment Counsel dated
as of November 10, 1994.
(1) 10.3 Second Amended and Restated Reducing Credit Agreement dated as
of November 18, 1994, among United Asset Management
Corporation, the banks parties thereto, Morgan Guaranty Trust
Company of New York, as Agent, and The First National Bank of
Boston, as Collateral Agent.
(5) 10.4 Note Purchase Agreement dated as of August 1, 1995.
(5) 10.5 First Amendment and consent dated as of August 1, 1995 to the
Second Amended and Restated Credit Agreement dated as of
November 18, 1994.
(6) 10.6 Amended and Restated Credit Agreement dated as of April 19, 1996.
(7) 10.7 United Asset Management Corporation Profit Sharing and 401(k)
Plan dated as of May 11, 1989 and amended and restated as of
November 26, 1990.
(8) 10.8 Revised First Amendment to United Asset Management Corporation
Profit Sharing and 401(k) Plan effective as of January 1, 1992.
(8) 10.9 Second Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1993.
(1) 10.10 Third Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1994.
12
<PAGE>
Exhibit
Number Title
-------- ------
(9) 10.11 Fourth Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1995.
(1) 10.12 1994 Stock Option Plan.
(1) 10.13 1994 Eligible Directors Stock Option Plan.
(9) 10.14 United Asset Management Corporation Deferred Compensation
Plan effective January 1, 1994.
(10) 10.15 Consulting Agreement between United Asset Management
Corporation and David I. Russell dated as of January 1, 1993.
(11) 10.16 First Amendment to Consulting Agreement between United Asset
Management Corporation and David I. Russell dated as of
June 17, 1996.
11.1 Calculation of Earnings Per Share.
12.0 Not Applicable.
13.1 Annual Report to Stockholders for the Year Ended
December 31, 1996.
16.0 Not Applicable.
18.0 Not Applicable.
21.1 Subsidiaries of the Registrant.
22.0 Not Applicable.
23.1 Consent of Independent Accountants.
24.0 Not Applicable.
27.0 Financial Data Schedule for the Year Ended December 31, 1996.
28.0 Not Applicable.
NOTES TO EXHIBIT LISTING
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form S-1 as filed with the
Commission and which became effective on August 22, 1986, and
incorporated herein by reference (Registration No. 33-6874).
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, and incorporated herein by reference.
13
<PAGE>
(4) Filed as an Exhibit to the Company's Current Report on Form 8-K as
filed with the Commission on December 1, 1994, and incorporated herein by
reference.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1995, and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1996, and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1996, and incorporated herein by reference.
Location of Documents Pertaining to Executive Compensation Plans and
Arrangements:
(1) 1994 Stock Option Plan, Exhibit 10.12 to this Form 10-K.
(2) 1994 Eligible Directors Stock Option Plan, Exhibit 10.13 to this
Form 10-K.
(3) United Asset Management Corporation Deferred Compensation Plan
effective January 1, 1994, Exhibit 10.14 to this Form 10-K.
(4) Consulting Agreement between United Asset Management Corporation and
David I. Russell dated as of January 1, 1993--Form 10-K for fiscal year
ended December 31, 1992, Exhibit 10.15 to this Form 10-K.
(5) First Amendment to Consulting Agreement between United Asset
Management Corporation and David I. Russell dated as of June 17, 1996,
Exhibit 10.16 to this Form 10-K.
(b) Reports on Form 8-K
A report on Form 8-K was filed on December 30, 1996. The item reported was
as follows:
ITEM 5. OTHER EVENTS.
The report addressed the December 27, 1996 Revenue Agent's Report proposing
adjustments to UAM's federal income tax returns for the years ending
December 31, 1984 through 1992.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
---------------------------------------------
(Registrant)
Date: March 18, 1997 By /s/ Norton H. Reamer
--------------------------------
Norton H. Reamer
President and
Chief Executive Officer
By /s/ William H. Park
--------------------------------
William H. Park
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
/s/ NORTON H. REAMER
- ------------------------------ Director March 18, 1997
(Norton H. Reamer)
/s/ HAROLD J. BAXTER
- ------------------------------ Director March 18, 1997
(Harold J. Baxter)
/s/ JOHN K. DWIGHT
- ------------------------------ Director March 18, 1997
(John K. Dwight)
/s/ ROBERT J. GREENEBAUM
- ------------------------------ Director March 18, 1997
(Robert J. Greenebaum)
/s/ JAY O. LIGHT
- ------------------------------ Director March 18, 1997
(Jay O. Light)
/s/ JOHN F. MCNAMARA
- ------------------------------ Director March 18, 1997
(John F. Mcnamara)
/s/ DAVID I. RUSSELL
- ------------------------------ Director March 18, 1997
(David I. Russell)
/s/ PHILIP SCATURRO
- ------------------------------ Director March 18, 1997
(Philip Scaturro)
/s/ JOHN A. SHANE
- ------------------------------ Director March 18, 1997
(John A. Shane)
/s/ BARBARA S. THOMAS
- ------------------------------ Director March 18, 1997
(Barbara S. Thomas)
/s/ C. GILES H. WEAVER
- ------------------------------ Director March 18, 1997
(C. Giles H. Weaver)
/s/ JOHN S. WILLIAMS
- ------------------------------ Director March 18, 1997
(John S. Williams)
15
<PAGE>
Exhibit 11.1
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE
--------------------------------------
(In thousands, except per-share amounts)
- -------------------------------------------------------------------------------
Year Ended December 31,
1996 1995(1)(2) 1994(1)(2)
- -------------------------------------------------------------------------------
Common and common equivalent shares:
Net income $ 97,822 $ 67,256 $ 60,385
Adjustments thereto (3) 213 3,254 -
- -------------------------------------------------------------------------------
Adjusted net income $ 98,035 $ 70,510 $ 60,385
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average shares outstanding 68,791 67,985 63,755
Adjustments thereto (3) 3,564 4,637 2,881
- -------------------------------------------------------------------------------
Shares used in computation 72,355 72,622 66,636
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Per share $1.35 $.97 $.91
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Common shares - assuming full dilution:
Net income $ 97,822 $ 67,256 $ 60,385
Adjustments thereto (3) - 3,100 -
- -------------------------------------------------------------------------------
Adjusted net income $ 97,822 $ 70,356 $ 60,385
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average shares outstanding 68,791 67,985 63,755
Adjustments thereto (3) 4,840 4,637 2,895
- -------------------------------------------------------------------------------
Shares used in computation 73,631 72,622 66,650
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Per share $1.33 $.97 $.91
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Historical share and per-share figures restated for the two-for-one common
stock split effective June 7, 1996.
(3) Adjustments relate to application of modified treasury stock method.
16
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF FINANCIAL
AFFILIATED FIRM ORGANIZATION STATEMENTS
- ----------------------------------------------- --------------------- ----------------
<S> <C> <C>
Acadian Asset Management, Inc. Massachusetts Consolidated
Analytic-TSA Global Asset Management, Inc. California Consolidated
Barrow, Hanley, Mewhinney & Strauss, Inc. Nevada Consolidated
Cambiar Investors, Inc. Colorado Consolidated
The Campbell Group, Inc. Delaware Consolidated
Chicago Asset Management Company Delaware Consolidated
Clay Finlay Inc. New York Consolidated
Cooke & Bieler, Inc. Pennsylvania Consolidated
Dewey Square Investors Corporation Delaware Consolidated
Dwight Asset Management Company Delaware Consolidated
Fiduciary Management Associates, Inc. Delaware Consolidated
First Pacific Advisors, Inc. Massachusetts Consolidated
GSB Investment Management, Inc. Delaware Consolidated
Hagler, Mastrovita & Hewitt, Inc. Delaware Consolidated
Hamilton, Allen & Associates, Inc. Delaware Consolidated
Hanson Investment Management Company California Consolidated
Heitman Financial Ltd. Delaware Consolidated
Heitman Properties Ltd.(1) Illinois Consolidated
Heitman Capital Management Corporation Illinois Consolidated
Hellman, Jordan Management Company, Inc. Delaware Consolidated
Investment Counselors of Maryland, Inc. Maryland Consolidated
Investment Research Company Illinois Consolidated
Jacobs Asset Management Delaware Consolidated
Tom Johnson Investment Management, Inc. Massachusetts Consolidated
Ki Pacific Asset Management, Inc. Delaware Consolidated
L&B Realty Advisors, Inc. (The L&B Group) Delaware Consolidated
L&B Institutional Property Managers, Inc.(2) Delaware Consolidated
L&B Real Estate Counsel Texas Consolidated
C.S. McKee & Company, Inc. Pennsylvania Consolidated
Murray Johnstone Limited Scotland Consolidated
Nelson, Benson & Zellmer, Inc. Colorado Consolidated
Newbold's Asset Management, Inc. Pennsylvania Consolidated
Northern Capital Management, Inc. Wisconsin Consolidated
NWQ Investment Management Company Massachusetts Consolidated
OSV Partners Delaware Consolidated
Pell, Rudman & Co., Inc. Delaware Consolidated
Pilgrim Baxter & Associates Delaware Consolidated
Provident Investment Counsel Massachusetts Consolidated
Rice, Hall, James & Associates California Consolidated
Rogge Global Partners Plc United Kingdom Consolidated
Rothschild/Pell, Rudman & Co., Inc. Maryland Consolidated
Sirach Capital Management, Inc. Washington Consolidated
Spectrum Asset Management, Inc. Connecticut Consolidated
Sterling Capital Management Company North Carolina Consolidated
Suffolk Capital Management, Inc. Delaware Consolidated
Thompson, Siegel & Walmsley, Inc. Virginia Consolidated
UAM Fund Distributors, Inc. Massachusetts Consolidated
UAM Fund Services, Inc. Delaware Consolidated
UAM Investment Services, Inc. Delaware Consolidated
UAM Retirement Plan Services, Inc. Delaware Consolidated
United Asset Management (Japan), Inc. Delaware Consolidated
</TABLE>
- ------------------------
All of the Registrant's subsidiaries do business under the respective names
indicated above and are wholly owned.
(1) Heitman Properties Ltd. has 40 wholly owned property management subsidiaries
operating in the U.S.
(2) L&B Institutional Property Managers, Inc. has 6 wholly owned property
management subsidiaries operating in the U.S.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of United Asset Management Corporation
Our audits of the consolidated financial statements referred to in our
report dated February 10, 1997 appearing on page 71 of the 1996 Annual Report to
Stockholders of United Asset Management Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
- ----------------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 10, 1997
F-1
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-63350,
33-52517, 33-57049, 33-64449, 333-11395 and 333-11397) and in the
Registration Statements on Form S-8 (Nos. 33-10621, 33-21756, 33-34288,
33-48858 and 33-54233) of United Asset Management Corporation of our report
dated February 10, 1997 appearing on page 71 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
- ---------------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 21, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule VIII
</TABLE>
UNITED ASSET MANAGEMENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------
(in $ thousands)
<TABLE>
<CAPTION>
COST ASSIGNED
TO CONTRACTS ACQUIRED ACCUMULATED AMORTIZATION
-------------------------------------- -----------------------------------------------
WEIGHTED
RANGE OF AVERAGE ENDING
ESTIMATED ESTIMATED TAX
REMAINING REMAINING CHARGED TO BALANCE
LIVES LIVES BEGINNING ADDITIONS ENDING BEGINNING OPERATIONS ENDING IN EXCESS
FIRM (IN YEARS) (IN YEARS) BALANCE AND OTHER BALANCE BALANCE AND OTHER BALANCE OF BOOK
- -------------- ----------- ------------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
- ----
BHM&S 8-9 8 $ 106,088 $ -- $ 106,088 $ 41,640 $ 7,284 $ 48,924 $ 14,774
HFL 4-22 15 -- 212,668 212,668 -- 1,142 1,142 --
NWQ 2-11 10 96,076 -- 96,076 9,675 8,077 17,752 16,788
All Others 1-20 8 477,619 36,123 513,742 166,763 37,863 204,626 54,663
---------- -------- ---------- -------- -------- -------- --------
$ 679,783 $248,791 $ 928,574 $218,078 $ 54,366 $272,444 $ 86,225
---------- -------- ---------- -------- -------- -------- --------
---------- -------- ---------- -------- -------- -------- --------
1995
- ----
HFL 3-21 14 $ 212,668 $ 7,748 $ 220,416 $ 1,142 $ 14,678 $ 15,820 $ --
NWQ 1-10 9 96,076 -- 96,076 17,752 8,077 25,829 21,620
PBA 5-17 15 -- 104,605 104,605 -- 4,293 4,293 789
PIC 3-23 18 -- 347,307 347,307 -- 16,309 16,309 5,344
All Others 1-19 7 619,830 14,682 634,512 253,550 49,835 303,38 76,095
---------- -------- ---------- -------- -------- -------- --------
$ 928,574 $474,342 $1,402,916 $272,444 $ 93,192 $365,636 $103,848
---------- -------- ---------- -------- -------- -------- --------
---------- -------- ---------- -------- -------- -------- --------
1996
- ----
HFL 2-20 13 $ 220,416 $ -- $ 220,416 $ 15,820 $ 14,712 $ 30,532 $ 2,621
PBA 4-16 14 104,605 12,528 117,133 4,293 6,601 10,894 1,129
PIC 2-22 16 347,307 (167) 347,140 16,309 19,591 35,900 9,102
All Others 1-18 5 730,588 (6,216) 724,372 329,214 61,031 390,245 91,650
---------- -------- ---------- -------- -------- -------- --------
$1,402,916 $ 6,145 $1,409,061 $365,636 $101,935 $467,571 $104,502
---------- -------- ---------- -------- -------- -------- --------
---------- -------- ---------- -------- -------- -------- --------
</TABLE>
F-3
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
---ooOoo---
AMENDED AND RESTATED BY-LAWS (effective as of November 14, 1996)
---ooOoo---
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Boston, State of Massachusetts, at such place as
may be fixed from time to time by the board of directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1981,
shall be held on the second Wednesday of May if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If,
<PAGE>
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at such a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall not be less than one or more than twelve. The first board shall consist
of one director. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the board of directors or by
the stockholders at the annual meeting. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director shall hold office until his successor is elected
and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
<PAGE>
Section 5. The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time as determined
by the board.
Section 7. Special meetings of the board may be called by the president on
two days' notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director; in which case special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of the sole director.
Section 8. At all meetings of the board a majority of the board of directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of incorporation
or these by-laws, members of the board of directors, or any committee designated
by the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution or resolutions passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
Unless otherwise specified by resolution of the Board, in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the board of
directors, or in these by-laws, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware (GCL), fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares
<PAGE>
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation under Sections 251 and 252 of
the GCL, recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and, unless the resolution, by-laws
or the certificate of incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the GCL. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the board
of directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when requested.
Section 13. A committee may hold meetings, both regular and special, either
within or without the State of Delaware. Meetings of a committee may be called
by the president or the chair of such committee on two days' notice to each
member, either personally or by mail or by facsimile or telegram.
Unless otherwise specified by resolution of the Board, at all meetings of a
committee, a majority of the members thereof shall constitute a quorum for the
transaction of business and the act of a majority of the members present at any
meeting at which there is a quorum shall be the act of the committee. If a
quorum shall not be present at any meeting of a committee, the members present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of a
committee may be taken without a meeting, if all members of the committee
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the committee.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of a committee may participate in a meeting of the committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of incorporation
or these by-laws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 15. Unless otherwise restricted by the certificate of incorporation
or by law, any director or the entire board of directors may be removed, with or
without cause, by the holders of a majority of shares entitled to vote at an
election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid,
<PAGE>
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
Section 4. The salaries of all officers and agents of the corporation shall
be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his inability
or refusal to act, the vice-president (or in the event there be more than one
vice-president, the vice-presidents in the order designated by the directors, or
in the absence of any designation, then in the order of their election) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice-presidents shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the corporation and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
other duties as may be prescribed by the board of directors or president, under
whose supervision he shall be. He shall have custody of the corporate seal of
<PAGE>
the corporation and he, or an assistant secretary, shall have the authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper vouchers for such disbursements, and
shall render to the president and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
Section 2. Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of
<PAGE>
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate or incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
<PAGE>
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEARS
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the board of directors, when such power
is conferred upon the board of directors by the certificate or incorporation at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new by-laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
by-laws is conferred upon the board of directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
<PAGE>
Exhibit 11.1
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE
_________________________________
(In thousands, except per-share amounts)
________________________________________________________________________________
Year Ended December 31,
1996 1995(1)(2) 1994(1)(2)
________________________________________________________________________________
Common and common equivalent shares:
Net income $ 97,822 $ 67,256 $ 60,385
Adjustments thereto (3) 213 3,254 -
________________________________________________________________________________
Adjusted net income $ 98,035 $ 70,510 $ 60,385
________________________________________________________________________________
________________________________________________________________________________
Average shares outstanding 68,791 67,985 63,755
Adjustments thereto (3) 3,564 4,637 2,881
________________________________________________________________________________
Shares used in computation 72,355 72,622 66,636
________________________________________________________________________________
________________________________________________________________________________
Per share $1.35 $.97 $.91
________________________________________________________________________________
________________________________________________________________________________
Common shares - assuming full dilution:
Net income $ 97,822 $ 67,256 $ 60,385
Adjustments thereto (3) - 3,100 -
________________________________________________________________________________
Adjusted net income $ 97,822 $ 70,356 $ 60,385
________________________________________________________________________________
________________________________________________________________________________
Average shares outstanding 68,791 67,985 63,755
Adjustments thereto (3) 4,840 4,637 2,895
________________________________________________________________________________
Shares used in computation 73,631 72,622 66,650
________________________________________________________________________________
________________________________________________________________________________
Per share $1.33 $.97 $.91
________________________________________________________________________________
________________________________________________________________________________
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Historical share and per-share figures restated for the two-for-one common
stock split effective June 7, 1996.
(3) Adjustments relate to application of modified treasury stock method.
<PAGE>
United Asset Management's Clients
UNITED ASSET MANAGEMENT CORPORATION
United Asset Management is a global leader in the management of assets. By
funding growth, rewarding outstanding investment performance and ensuring
business stability, while maintaining the autonomy of its firms, UAM has
assembled an outstanding group of independent investment management affiliates
which employ a variety of investment styles to manage a broad mix of asset
classes around the world.
As of December 31, 1996, UAM's firms had 6,055 clients with approximately
$171.0 billion under management for an average account size of $28.2 million.
The client list includes many of the largest corporate, government, charitable
and union funds in the U.S. and abroad, along with several families of mutual
funds and many individuals and professional groups. The 20 largest clients of
UAM's affiliates represented 14% of total revenues and the 100 largest clients
represented 26%. As of January 7, 1997, reflecting the acquisition of J.R.
Senecal & Associates Investment Counsel Corp., the mix of assets under
management for clients of UAM's firms was 57% U.S. equities, 15% U.S. bonds and
cash, 15% international securities, 8% real estate and 5% stable value assets.
Each UAM firm is dedicated to providing superior, focused and individual
service to its clients. A sound and consistent investment philosophy, regular
communications and a keen awareness of individual client needs are all critical
elements in providing high-quality client service. Because each affiliate
retains its own identity, together with its investment and operating
independence, UAM's unique structure enhances each operating firm's ability to
meet or exceed client expectations, and thereby to retain existing clients and
attract new prospects.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
UNDER
MANAGEMENT AVERAGE
(IN NUMBER ACCOUNT SIZE
AS OF DECEMBER 31, 1996 MILLIONS) PERCENT OF CLIENTS (IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Employee Benefit Plans $ 61,513 36.0% 1,790 $ 34.4
Mutual Funds 35,959 21.0 152 236.6
Government Employee Benefit Plans 32,814 19.2 355 92.4
Individuals 15,795 9.2 2,555(1) 6.2
Endowments and Foundations 12,199 7.1 723 16.9
Union Member Benefit Plans 10,621 6.2 260 40.9
Professional Groups 1,505 0.9 202 7.5
Corporate Cash Reserves 621 0.4 18 34.5
- ------------------------------------------------------------------------------------------------------------------------
$ 171,027 100.0% 6,055 $ 28.2
========================================================================================================================
</TABLE>
(1)These clients include 75 wrap-fee relationships with brokerage firms which
represent approximately 25,000 individual accounts with $6.8 billion under
management.
52
<PAGE>
Common Stock Information
UNITED ASSET MANAGEMENT CORPORATION
The Company's common stock is listed on the New York Stock Exchange.
Presented below are the high, low and closing quarterly stock prices for 1995
and 1996, as reported on the New York Stock Exchange composite tape, together
with quarterly dividends declared. This information has been restated for the
two-for-one common stock split effective June 7, 1996.
Ticker Symbol: UAM
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DIVIDEND
HIGH LOW CLOSE DECLARED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter, 1995 $ 19-11/16 $ 17-1/2 $ 19-3/16 $ .14
Second Quarter, 1995 $ 20-9/16 $ 17-3/8 $ 17-13/16 $ .14
Third Quarter, 1995 $ 20-3/4 $ 17-9/16 $ 20-1/16 $ .15
Fourth Quarter, 1995 $ 20-3/16 $ 17-7/8 $ 19-3/16 $ .15
- -------------------------------------------------------------------------------------------------------------------
First Quarter, 1996 $ 23-5/16 $ 18-3/16 $ 23-3/16 $ .16
Second Quarter, 1996 $ 25-1/8 $ 21-3/4 $ 24-1/2 $ .16
Third Quarter, 1996 $ 25-1/8 $ 21-3/4 $ 23-5/8 $ .17
Fourth Quarter, 1996 $ 27-5/8 $ 23-1/4 $ 26-5/8 $ .17
</TABLE>
72
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED ASSET MANAGEMENT CORPORATION
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 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.
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 66% of the Company's total assets as of December
31, 1996. Amortization of cost assigned to contracts acquired, which is a
non-cash charge, represented 15% of the Company's operating expenses.
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 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
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.
RESULTS OF OPERATIONS
The 1995 and 1994 results of operations have been restated to reflect the
two-for-one common stock split effective June 7, 1996 and the August 1996
acquisitions of Rogge Global Partners Plc and Clay Finlay Inc., which were
accounted for as pooling of interests transactions.
1996 COMPARED TO 1995
Revenues increased 20% to $883,267,000 in 1996 from $734,353,000 in 1995.
This increase is the result of purchase business combinations during both 1996
and 1995, as well as positive portfolio performance achieved by UAM's affiliated
firms. The revenues of Provident Investment Counsel, Pilgrim Baxter & Associates
and OSV Partners, acquired February 15, 1995, April 28, 1995, and April 22,
1996, respectively, have been included since their acquisition dates. In
addition, the fourth quarter of 1996 included non-recurring revenues
approximating $12,000,000 which primarily related to the redemption of the
Company's minority interest in Aldrich Eastman Waltch.
53
<PAGE>
UAM's assets under management reached $171.0 billion at December 31, 1996, a
net increase of $28.9 billion compared to $142.1 billion as originally reported
at December 31, 1995. Acquisitions of assets under management totaling $11.8
billion and investment performance of $20.4 billion during the year were
partially offset by negative net client cash flow of $3.3 billion. This net
client cash flow had a positive effect on revenues due to the replacement of
lower-fee business with higher-fee business.
Compensation increased 19% to $431,877,000 from $362,516,000 and other
operating expenses increased 20% to $138,450,000 from $115,454,000,
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 rose 9% to $101,935,000 from $93,192,000 primarily due to a full
year of contract amortization for Provident Investment Counsel and Pilgrim
Baxter & Associates.
Interest expense decreased to $43,289,000 from $45,880,000 in 1995 due to
the decrease in the Company's average debt levels.
Income before income tax expense increased 44% to $171,248,000 from
$119,010,000, reflecting the net result of the events discussed above. Net
income for 1996 increased 45% to $97,822,000 from $67,256,000 in 1995.
Fully diluted earnings per share for 1996 increased 37% to $1.33 compared to
$.97 in 1995. This increase reflects the 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. The fourth quarter
1996 non-recurring items, as discussed above, increased earnings per share $.10
for both the year and quarter ended December 31, 1996. Amortization of cost
assigned to contracts acquired on a per-share basis increased to $1.38 in 1996
from $1.28 in 1995 primarily as a result of the acquisitions described above.
Operating Cash Flow increased 25% to $211,371,000 from $169,008,000 in 1995
as a result of the circumstances discussed above.
1995 COMPARED TO 1994
Revenues increased 41% to $734,353,000 in 1995 from $521,369,000 in 1994.
This increase is the result of purchase business combinations during both 1995
and 1994, as well as the overall increase in revenues due to positive portfolio
performance achieved by UAM's affiliated firms, partially offset by the effect
of net client cash outflows. The revenues of Provident Investment Counsel and
Pilgrim Baxter & Associates have been included since their acquisition dates,
February 15, 1995 and April 28, 1995, respectively. In addition, the revenues
from the acquisitions of Suffolk Capital Management, Inc. and JMB Institutional
Realty, acquired July 14, 1994 and December 2, 1994, respectively, have been
included for a full year in 1995.
During 1995, UAM experienced a net increase in assets under management of
$38.1 billion to a total of $142.1 billion at December 31, 1995, as originally
reported. Acquisitions totaling $19.6 billion and investment performance of
$27.2 billion were partially offset by net client cash outflows of $8.7 billion.
Compensation increased 39% to $362,516,000 from $261,031,000 and other
operating expenses increased 33% to $115,454,000 from $86,895,000, 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 rose 69% to $93,192,000 from $55,121,000 primarily due to the
acquisitions of Provident Investment Counsel and Pilgrim Baxter & Associates
and a full year of amortization for Suffolk Capital Management and JMB
Institutional Realty.
Interest expense increased to $45,880,000 from $13,494,000 in 1994 due to
the increase in both the Company's average debt levels and interest rates
charged on senior debt.
Income before income tax expense increased 13% to $119,010,000 from
$105,493,000, reflecting the net result of the events discussed above. Net
income for 1995 increased 11% to $67,256,000 from $60,385,000 in 1994.
Fully diluted earnings per share for 1995 increased 7% to $.97 compared
to $.91 in 1994. This increase reflects the 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
increased to $1.28 in 1995 from $.83 in 1994 primarily as a result of the
acquisitions described above.
Operating Cash Flow increased 39% to $169,008,000 from $121,979,000 in 1994
as a result of the circumstances discussed above.
54
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generated $211,371,000 of Operating Cash Flow in 1996. The
primary use of this Operating Cash Flow was to finance the $55,478,000 cash
portion of acquisition activity, to repurchase shares of the Company's common
stock for $43,718,000, and to pay dividends to shareholders totaling
$40,204,000. As of December 31, 1996, the Company had working capital of
$176,751,000 and had the full $500,000,000 available under its line of credit.
The Company intends to finance $244,250,000 of subordinated debt due in 1997 by
utilizing this line of credit (see Note 3 to the Consolidated Financial
Statements included in this Annual Report).
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.
EFFECTS OF INFLATION
The Company's business is not capital intensive. Management believes that
financial results as reported would not be significantly affected had such
results been adjusted to reflect the effects of inflation and price changes.
Increases or decreases in interest rates affect UAM's costs of operations
chiefly through increasing or decreasing the interest expense related to the
Company's assumption of debt. To mitigate the risks associated with increases in
interest rates, UAM has entered into and plans to continue to enter into
interest-rate protection agreements (see Notes 1 and 3 to the Consolidated
Financial Statements included in this Annual Report). Rates of interest on the
Senior Notes and a portion of existing subordinated debt are fixed. Increases
and decreases in interest rates may also affect market prices of assets managed
by the Company's affiliated firms. Changes in such prices may affect the
affiliated firms' revenues, and therefore UAM's consolidated revenues.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report, in future filings with the Securities
and Exchange Commission or in press releases or other written or oral
communications, the words or phrases "can be," "expects," "may affect," "may
depend," "believes," "estimate" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company cautions readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made. Various factors including the performance of the
financial markets and general economic conditions, future acquisitions, and
competitive and regulatory factors could cause actual results for future
periods to differ materially from those anticipated.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements.
55
<PAGE>
Eleven-Year Review
UNITED ASSET MANAGEMENT CORPORATION
(In thousands, unless otherwise
indicated, except per-share amounts)(1)
<TABLE>
<CAPTION>
1996(2) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Revenues $ 883,267 $ 734,353 $ 521,369 $ 476,729
- ---------------------------------------------------------------------------------
Operating expenses:
Compensation and related
expenses 431,877 362,516 261,031 237,403
Amortization of cost assigned
to contracts acquired 101,935 93,192 55,121 48,493
Other operating expenses 138,450 115,454 86,895 78,537
- ---------------------------------------------------------------------------------
672,262 571,162 403,047 364,433
- ---------------------------------------------------------------------------------
Operating income 211,005 163,191 118,322 112,296
- ---------------------------------------------------------------------------------
Interest expense net and
other amortization 39,757 44,181 12,829 15,328
- ---------------------------------------------------------------------------------
Income before income tax
expense 171,248 119,010 105,493 96,968
Income tax expense 73,426 51,754 45,108 41,989
- ---------------------------------------------------------------------------------
Net income $ 97,822 $ 67,256 $ 60,385 $ 54,979
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Earnings per Share(3)
Primary earnings per share $1.35 $.97 $.91 $.84
Fully diluted earnings per
share $1.33 $.97 $.91 $.84
Dividends Declared per
Share(3) $ .66 $.58 $.50 $.42
- ---------------------------------------------------------------------------------
Operating Data
Operating Cash Flow (net
income plus amortization
and depreciation) $ 211,371 $ 169,008 $ 121,979 $ 109,552
Assets under management at
end of year (in
millions) $ 171,027 $ 151,606 $ 111,507 $ 106,082
Balance Sheet Data
Total assets $ 1,430,653 $ 1,400,635 $ 929,202 $ 690,016
Cost assigned to contracts
acquired, net $ 941,490 $ 1,037,280 $ 656,130 $ 461,705
Long-term debt (including
current portion $ 610,967 $ 680,300 $ 369,268 $ 216,230
Total stockholders' equity $ 552,244 $ 491,769 $ 406,158 $ 358,301
Number of common shares
outstanding at end of
year(3) 68,711 67,540 63,772 61,530
</TABLE>
- -------------------------------------------------------------------------------
(1) All years prior to 1996 have been restated due to pooling of interests
transactions completed in the third quarter of 1996.
(2) Non-recurring events contributed approximately $12,000,000 to revenues and
$.10 to earnings per share.
(3) Historical share and per-share figures restated for the two-for-one common
stock split effective June 7, 1996.
(4) Represents the increase in dividends declared from December 1986 through
December 1996.
56
<PAGE>
<TABLE>
<CAPTION>
10-YEAR
ANNUAL
COMPOUND
GROWTH
1992 1991 1990 1989 1988 1987 1986 RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$396,074 $ 324,772 $ 268,022 $ 227,745 $ 189,839 $ 169,790 $ 124,698 21.6%
- ------------------------------------------------------------------------------------------------
200,884 163,054 130,095 108,595 86,789 80,594 62,815 21.3%
37,279 30,535 27,157 23,808 21,387 14,398 8,527 28.2%
70,650 58,825 57,665 43,446 39,951 36,752 25,616 18.4%
- ------------------------------------------------------------------------------------------------
308,813 252,414 214,917 175,849 148,127 131,744 96,958 21.4%
- ------------------------------------------------------------------------------------------------
87,261 72,358 53,105 51,896 41,712 38,046 27,740 22.5%
- ------------------------------------------------------------------------------------------------
16,232 17,040 13,158 13,166 13,203 7,275 6,453 19.9%
- ------------------------------------------------------------------------------------------------
71,029 55,318 39,947 38,730 28,509 30,771 21,287 23.2%
30,298 22,936 16,664 15,107 11,380 13,278 9,823 22.3%
- ------------------------------------------------------------------------------------------------
$ 40,731 $ 32,382 $ 23,283 $ 23,623 $ 17,129 $ 17,493 $ 11,464 23.9%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
$.68 $.59 $.46 $.47 $.38 $.35 $.24 18.9%
$.67 $.55 $.46 $.47 $.37 $.35 $.23 19.2%
$.34 $.28 $.22 $.17 $.13 $.09 $.03 27.5%4
- ------------------------------------------------------------------------------------------------
$ 83,681 $ 67,572 $ 54,772 $ 51,416 $ 42,954 $ 35,744 $ 22,899 24.9%
$ 90,240 $ 76,182 $ 58,123 $ 53,319 $ 40,628 $ 35,795 $ 27,296 20.1%
$658,900 $ 532,610 $ 461,626 $ 406,952 $ 345,747 $ 299,133 $ 267,600 --
$460,523 $ 343,421 $ 320,940 $ 292,199 $ 258,804 $ 187,507 $ 187,843 --
$275,110 $ 208,475 $ 190,635 $ 157,459 $ 133,541 $ 75,050 $ 81,350 --
$288,751 $ 226,904 $ 190,185 $ 175,528 $ 160,359 $ 162,420 $ 140,640 --
56,986 50,926 47,986 46,518 46,436 46,410 44,144 --
- ------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Unaudited (In Thousands, FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
except per-share data) QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1) QUARTER QUARTER(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $159,422 $180,323 $185,367 $209,241 $208,522 $206,665 $219,618 $248,462
Operating income $ 34,741 $ 41,654 $ 42,132 $ 44,664 $ 45,311 $ 46,653 $ 49,803 $ 69,238
Income before income
expense tax $ 25,984 $ 30,213 $ 29,840 $ 32,973 $ 34,256 $ 36,542 $ 40,215 $ 60,235
Net income $ 14,008 $ 17,303 $ 17,059 $ 18,886 $ 19,487 $ 20,877 $ 23,005 $ 34,453
- -----------------------------------------------------------------------------------------------------------------------------------
Primary earnings per
share (3),(4) $.21 $.24 $.25 $.27 $.28 $.29 $.32 $.47
Fully diluted earnings
per share(3),(4) $.20 $.24 $.24 $.27 $.27 $.29 $.32 $.47
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Cash
Flow(5) $ 35,810 $ 43,193 $ 43,949 $ 46,056 $ 50,732 $ 48,035 $ 50,475 $ 62,129
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Non-recurring events contributed approximately $12,000,000 to revenues and
$.10 to earnings per share.
(3) Historical per-share figures restated for the two-for-one common stock split
effective June 7, 1996.
(4) Under generally accepted accounting principles, when earnings per share are
computed under the modified treasury stock method and when the market price
of a company's common stock changes, the total of four quarters' earnings
per share may not equal the earnings per share for the year.
(5) Net income plus amortization and depreciation.
72
<PAGE>
Consolidated Balance Sheet
UNITED ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995(1)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 248,399,000 $ 125,448,000
Investment advisory fees
receivable 149,843,000 134,822,000
Other current assets 11,713,000 14,149,000
- -------------------------------------------------------------------------------------
Total current assets 409,955,000 274,419,000
Fixed assets, net 30,297,000 28,428,000
Cost assigned to contracts acquired,
net of accumulated amortization of
$467,571,000 in 1996 and
$365,636,000 in 1995 941,490,000 1,037,280,000
Other assets 48,911,000 60,508,000
- -------------------------------------------------------------------------------------
Total assets $1,430,653,000 $1,400,635,000
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued
expenses $ 113,718,000 $97,250,000
Accrued compensation 116,005,000 86,710,000
Current portion of notes payable 3,481,000 6,780,000
- -------------------------------------------------------------------------------------
Total current liabilities 233,204,000 190,740,000
Senior notes payable 150,000,000 150,000,000
Subordinated notes payable 457,486,000 523,520,000
Deferred income taxes 37,719,000 44,606,000
- -------------------------------------------------------------------------------------
Total liabilities 878,409,000 908,866,000
- -------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per
share:
Authorized--200,000,000 shares
Issued--69,217,426 shares(2) 692,000 692,000
Capital in excess of par value(2) 346,017,000 341,631,000
Retained earnings 217,703,000 180,950,000
- -------------------------------------------------------------------------------------
564,412,000 523,273,000
Less treasury shares at cost--
506,046 shares in 1996 and
1,676,930 in 1995(2) (12,168,000) (31,504,000)
- -------------------------------------------------------------------------------------
Total stockholders' equity 552,244,000 491,769,000
- -------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $1,430,653,000 $1,400,635,000
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Historical figures restated for the two-for-one common stock split effective
June 7, 1996.
See Notes to Consolidated Financial Statements.
58
<PAGE>
Consolidated Statement of Income
UNITED ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995(1) 1994(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $883,267,000 $734,353,000 $521,369,000
- -----------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation and related expenses 431,877,000 362,516,000 261,031,000
Amortization of cost assigned to contracts acquired 101,935,000 93,192,000 55,121,000
Other operating expenses 138,450,000 115,454,000 86,895,000
- -----------------------------------------------------------------------------------------------------------------
672,262,000 571,162,000 403,047,000
- -----------------------------------------------------------------------------------------------------------------
Operating income 211,005,000 163,191,000 118,322,000
- -----------------------------------------------------------------------------------------------------------------
Non-operating expenses:
Interest expense, net 37,523,000 42,486,000 11,568,000
Other amortization 2,234,000 1,695,000 1,261,000
- -----------------------------------------------------------------------------------------------------------------
39,757,000 44,181,000 12,829,000
- -----------------------------------------------------------------------------------------------------------------
Income before income tax expense 171,248,000 119,010,000 105,493,000
Income tax expense 73,426,000 51,754,000 45,108,000
- -----------------------------------------------------------------------------------------------------------------
Net income $ 97,822,000 $ 67,256,000 $ 60,385,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Primary earnings per share $1.35 $.97(2) $.91(2)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share $1.33 $.97(2) $.91(2)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Historical per-share figures restated for the two-for-one common stock split
effective June 7, 1996.
See Notes to Consolidated Financial Statements.
59
<PAGE>
Consolidated Statement of Cash Flows
UNITED ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995(1) 1994(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 97,822,000 $ 67,256,000 $ 60,385,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Amortization of cost assigned to contracts
acquired 101,935,000 93,192,000 55,121,000
Depreciation 9,380,000 6,865,000 5,212,000
Other amortization 2,234,000 1,695,000 1,261,000
- ----------------------------------------------------------------------------------------------------
Net income plus amortization and depreciation 211,371,000 169,008,000 121,979,000
Changes in assets and liabilities:
Increase in investment advisory fees receivable (14,234,000) (48,732,000) (2,638,000)
Decrease (increase) in other current assets 2,446,000 (507,000) (7,288,000)
Increase in accounts payable and accrued expenses 16,512,000 30,213,000 5,092,000
Increase in accrued compensation 28,965,000 37,745,000 28,578,000
Increase (decrease) in deferred income taxes (6,887,000) 7,188,000 3,679,000
- ----------------------------------------------------------------------------------------------------
Net cash flow from operating activities 238,173,000 194,915,000 149,402,000
- ----------------------------------------------------------------------------------------------------
Cash flow from (used in) investing activities:
Purchase of fixed assets (10,897,000) (13,937,000) (9,625,000)
Cash additions to cost assigned to contracts
acquired (292,000) (43,582,000) (161,649,000)
Change in other assets 10,291,000 (1,283,000) (4,058,000)
- ----------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (898,000) (58,802,000) (175,332,000)
- ----------------------------------------------------------------------------------------------------
Cash flow from (used in) financing activities:
Purchase of treasury shares (43,718,000) (48,819,000) (14,883,000)
Reductions in notes payable (117,597,000) (295,435,000) (140,547,000)
Additions to notes payable 61,750,000 268,175,000 224,656,000
Issuance or reissuance of equity securities 22,743,000 10,494,000 8,153,000
Dividends paid (40,204,000) (35,650,000) (28,498,000)
- ----------------------------------------------------------------------------------------------------
Net cash flow from (used in) financing activities (117,026,000) (101,235,000) 48,881,000
- ----------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash flow 2,702,000 (390,000) 1,566,000
- ----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 122,951,000 34,488,000 24,517,000
Cash and cash equivalents at beginning of year 125,448,000 90,960,000 66,443,000
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 248,399,000 $ 125,448,000 $ 90,960,000
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
See Notes to Consolidated Financial Statements.
60
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
UNITED ASSET MANAGEMENT CORPORATION
<TABLE>
<CAPTION>
COMMON CAPITAL IN TREASURY
SHARES STOCK AT EXCESS OF RETAINED TREASURY SHARES
ISSUED(2) PAR VALUE PAR VALUE EARNINGS SHARES(2) AT COST
------------ ---------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993(1) 61,531,198 $346,000 $234,153,000 $123,802,000 -- $ --
Issuance of stock 1,150,874 6,000 1,000 2,205,000 -- --
Exercise of stock options and
warrants 1,470,494 7,000 17,357,000 (2,989,000) 512,548 8,328,000
Issuance of warrants -- -- 4,045,000 -- -- --
Purchase of treasury shares -- -- -- -- (892,000) (14,883,000)
Net income -- -- -- 60,385,000 -- --
Dividends declared ($.50 per
share(2)) -- -- -- (28,123,000) -- --
Dividends declared by pooled
companies -- -- -- (375,000) -- --
Foreign currency translation
adjustment -- -- -- 1,893,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1994(1) 64,152,566 359,000 255,556,000 156,798,000 (379,452) (6,555,000)
Issuance of stock 3,746,008 19,000 67,351,000 -- -- --
Exercise of stock options and
warrants 1,318,852 6,000 17,530,000 (7,229,000) 1,304,122 23,870,000
Issuance of warrants -- -- 1,502,000 -- -- --
Purchase of treasury shares -- -- -- -- (2,601,600) (48,819,000)
Net income -- -- -- 67,256,000 -- --
Dividends declared ($.58 per
share(2)) -- -- -- (35,275,000) -- --
Dividends declared by pooled
companies -- -- -- (375,000) -- --
Foreign currency translation
adjustment -- -- -- (225,000) -- --
Two-for-one common stock split -- 308,000 (308,000) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1995(1) 69,217,426 692,000 341,631,000 180,950,000 (1,676,930) (31,504,000)
Issuance of stock -- -- -- -- -- --
Exercise of stock options and
warrants -- -- 4,284,000 (21,302,000) 3,113,184 63,054,000
Issuance of warrants -- -- 102,000 -- -- --
Purchase of treasury shares -- -- -- -- (1,942,300) (43,718,000)
Net income -- -- -- 97,822,000 -- --
Dividends declared ($.66 per
share(2)) -- -- -- (42,729,000) -- --
Foreign currency translation
adjustment -- -- -- 2,962,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1996 69,217,426 $692,000 $346,017,000 $217,703,000 (506,046) $(12,168,000)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Restated due to pooling of interests transactions completed in the third
quarter of 1996.
(2) Historical figures restated for the two-for-one common stock split effective
June 7, 1996.
See Notes to Consolidated Financial Statements.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED ASSET MANAGEMENT CORPORATION
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The principal business activities of United Asset Management Corporation
(the Company) are investment advisory services, primarily for institutional
clients, and the acquisition of institutional investment management firms. The
Company's wholly owned subsidiaries operate in one business segment, that is, as
investment advisers, managing both domestic and international investment
portfolios for corporate, government and union benefit plans, endowments and
foundations, mutual funds, and individuals. While the Company's subsidiaries
primarily specialize in the management of U.S. equities, bonds and cash, other
asset classes under management have grown significantly in recent years to
include real estate, international securities and stable value assets.
The Company has arrangements with its subsidiaries and certain of their
principal officers to share revenues (revenue sharing plans). Under these
revenue sharing plans, the subsidiaries are entitled to use a portion
(determined by formula) of their revenues to meet all their operating expenses,
including compensation, at the discretion of the subsidiaries' management. The
remaining portion of those revenues is used by the Company to meet its operating
and cash flow needs. All operating expenses incurred by the subsidiaries are
charged to operations and reported as compensation and related expenses or as
other operating expenses in these consolidated financial statements.
RESTATEMENT
During 1996, the Company's Board of Directors approved a two-for-one common
stock split effected in the form of a 100% stock dividend. The stock split was
payable June 21, 1996 to the stockholders of record at the close of business on
June 7, 1996. The par value of the Company's common stock remained unchanged. An
amount equal to the $.01 par value of the shares outstanding at December 31,
1995 has been transferred from capital in excess of par value to common stock.
All historical per-share amounts and numbers of shares have been restated to
retroactively reflect the stock split.
As more fully described in Notes 4 and 7, during 1996, the Company issued
shares of its common stock to acquire Rogge Global Partners Plc (Rogge Global
Partners) and Clay Finlay Inc. and Clay Finlay Ltd. (collectively Clay Finlay
Inc.) through transactions accounted for as poolings of interests. As a result
of these poolings, the accompanying consolidated financial statements have been
restated for all years to include the balance sheets and the related statements
of income, of cash flows and of changes in stockholders' equity of Rogge Global
Partners and Clay Finlay.
CONSOLIDATION
The Company's consolidated financial statements include the accounts of the
Company and all of its subsidiaries. Inter-company balances and transactions
have been eliminated.
REVENUE RECOGNITION
The majority of the Company's revenues are derived from investment advisory
fees that are normally accrued over the period in which services are performed.
Any fees collected in advance are deferred and recognized as income over the
period earned. Transaction-based fees are recognized when all contractual
obligations have been satisfied. All investment advisory fees receivable are
expected to be collected.
FIXED ASSETS AND DEPRECIATION
Equipment and other fixed assets are recorded at cost and depreciated using
the straight-line method over their estimated useful lives. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the term of the lease.
COST ASSIGNED TO CONTRACTS ACQUIRED AND GOODWILL
The purchase price for the acquisition of a firm acquired in a business
combination accounted for as a purchase transaction is allocated based on the
fair value of the net assets acquired, primarily investment advisory contracts.
The cost assigned to contracts acquired is amortized using the straight-line
method over periods ranging from five to 20 years. These lives represent the
estimated weighted average lives of the contracts acquired and are based
generally on the historical experience of the individual companies acquired. The
estimated remaining weighted average lives of contracts acquired are
periodically reevaluated. If experience after the acquisition indicates that the
estimate of the average remaining lives should be shortened, the cost assigned
to contracts acquired will be amortized over the shorter life commencing in the
year in which the new estimate is determined. The results of the most recent
reevaluations of estimated remaining lives had no material effect on the
Company's financial position or results of operations.
62
<PAGE>
Amounts paid to certain key employees for entering into long-term employment
contracts and noncompetition agreements at the time of acquisitions are included
in cost assigned to contracts acquired and are amortized on a straight-line
basis over the lives of such arrangements.
Purchase price in excess of the fair value of the net assets acquired is
recorded as goodwill and amortized on a straight-line method over 40 years.
Goodwill, net of accumulated amortization, was $20,157,000 and $20,793,000 at
December 31, 1996 and 1995, respectively, and is included in other assets in the
accompanying consolidated balance sheet.
INCOME TAXES
Income taxes for financial reporting purposes are recorded in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (FAS 109). The asset and liability approach underlying FAS 109 requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and tax
bases of the Company's assets and liabilities, primarily the cost assigned to
contracts acquired.
RETIREMENT AND PENSION PLANS
The Company has certain retirement and pension plans which cover eligible
employees of the Company and its subsidiaries. All plans are defined
contribution retirement plans, with the exception of a defined benefit pension
plan maintained by a non-U.S. subsidiary. The expense related to all plans was
$10,428,000, $11,039,000 and $7,590,000 in 1996, 1995 and 1994, respectively.
The defined benefit pension plan has an excess of plan assets over plan
obligations. Excess plan assets and pension expense relating to this plan are
not significant in relation to the Company's consolidated financial statements.
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (FAS 123), became effective for fiscal years
beginning after December 15, 1995. As permitted under FAS 123, the Company
has decided to continue accounting for its stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principals Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). (See Note
5.)
EARNINGS PER SHARE
Primary earnings per share represent earnings per common and common
equivalent share, which are determined on the basis of the weighted average
number of shares outstanding after giving effect to (1) potentially dilutive
stock options and warrants under the modified treasury stock method; and (2)
contingently issuable stock and warrants based on the probability of issuance.
Fully diluted earnings per share represent earnings per common share
assuming full dilution based on (1) the weighted average number of common and
common equivalent shares assumed outstanding under the modified treasury stock
method during the period; and (2) the issuance of contingently issuable stock
and warrants at the most dilutive level.
CASH EQUIVALENTS
Cash equivalents represent highly liquid investments with an original
maturity of three months or less. The Company invests its excess cash in
deposits with major banks, money market funds or in securities comprised
primarily of commercial paper of companies with strong credit ratings in
diversified industries. At December 31, 1996 and 1995, cash equivalents included
$89,483,000 and $30,946,000, respectively, of short-term interest-bearing
securities, which were classified as held to maturity and for which cost
approximated fair value.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation, the financial statements of all non-U.S.
subsidiaries are translated into U.S. dollars as follows: assets and liabilities
at year-end exchange rates; income, expenses and cash flows at average exchange
rates; and stockholders' equity at historical exchange rates. The resulting
translation adjustment is recorded as a component of stockholders' equity.
INTEREST-RATE PROTECTION AGREEMENTS
The Company periodically enters into interest-rate protection agreements to
reduce the potential impact of interest rate increases associated with the
Company's outstanding borrowings. Premiums paid for these instruments are
amortized as interest expense over the terms of the agreements. Any amounts
receivable under these agreements are recorded as a reduction of interest
expense.
63
<PAGE>
DEFERRED INCENTIVE COMPENSATION PLAN
The Company has a deferred incentive compensation plan for employees of
affiliates that is based on each affiliate's growth. The deferred compensation
is payable at the end of seven years and is subject to increases or decreases in
value during that period based on performance. An employee must remain employed
by his or her affiliate at the end of the seven-year period to receive the cash
payments called for. The expense of this incentive plan is being recorded over
the period in which the incentive compensation is earned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
consolidated financial statements.
NOTE 2--FIXED ASSETS AND LEASE OBLIGATIONS
Fixed assets, which have estimated useful lives up to 10 years, consist of
the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Equipment, leasehold improvements and other fixed
assets $ 70,337,000 $ 62,576,000
Accumulated depreciation and amortization (40,040,000) (34,148,000)
- -----------------------------------------------------------------------------------
$ 30,297,000 $ 28,428,000
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, future minimum rentals for operating leases that have
initial or non-cancelable lease terms in excess of one year are payable as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
REQUIRED
MINIMUM
YEAR ENDED DECEMBER 31, PAYMENT
- ------------------------------------------------------------------------------
<S> <C>
1997 $20,698,000
1998 $21,342,000
1999 $18,761,000
2000 $17,686,000
2001 $15,516,000
Thereafter $33,125,000
</TABLE>
Rent expense for 1996, 1995 and 1994 approximated $21,361,000, $20,179,000
and $14,323,000, respectively.
NOTE 3--NOTES PAYABLE
In April 1996, the Company extended and expanded its Reducing Revolving
Credit Agreement (the Credit Agreement) with a group of banks whereby the
Company may borrow, prepay and reborrow up to $500,000,000 through April 19,
2001. Any principal amount of borrowings outstanding under the Credit Agreement
will be due and payable at that date. The Company had no borrowings outstanding
under the Credit Agreement at December 31, 1996.
As of December 31, 1996, an annual commitment fee of .125% is payable on the
daily average unused portion of the Credit Agreement. Interest rates available
for amounts outstanding under this arrangement are currently: prime, .40% over
LIBOR, .525% over certain certificate of deposit rates, or a money market bid
option. Under the money market bid option, the Company can borrow up to
$50,000,000 from members of its banking group at prevailing money market rates;
any such borrowings reduce the commitment under the Credit Agreement.
The Company has an additional $150,000,000 in Senior Notes outstanding with
a group of institutional investors. The Senior Notes bear interest at a fixed
rate of 7.12% and mature in accordance with a scheduled payment plan calling for
equal annual payments beginning August 25, 2000 and ending August 25, 2005.
64
<PAGE>
Under the terms of the Senior Notes and the Credit Agreement, the Company
is required to meet certain financial covenants, including covenants
restricting dividends and repurchase of the Company's common stock, and
requiring the Company to maintain minimum net worth, as defined. The Company
must also continue to maintain certain minimum working capital, cash flow and
debt-to-equity ratios.
Borrowings under both the Senior Notes and the Credit Agreement are secured
by the stock of the Company's subsidiaries.
At December 31, 1996, the Company was a party to interest-rate protection
agreements entered into with certain members of the Company's banking group,
which extend up to two years and limit interest rates to an average of 7.8%. The
notional principal amount of debt covered by these arrangements over their
remaining lives ranges from $15,000,000 to $105,000,000. Unamortized premiums
outstanding were $1,363,000 and $2,309,000 at December 31, 1996 and 1995,
respectively. These amounts approximate the fair market value of the agreements.
Amortization of premiums, which is included in interest expense, was $1,381,000,
$1,477,000, and $51,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Currently, the Company mitigates the credit risk associated with
interest-rate protection agreements by entering into these arrangements only
with members of the group of banks who are party to the Credit Agreement. The
Company monitors the credit standing of these counterparties on a continuous
basis.
At December 31, 1996 and 1995, the Company also had $460,967,000 and
$530,300,000, respectively, of subordinated notes outstanding. These notes
primarily represent a portion of the consideration paid to selling
shareholders of businesses acquired, the majority of whom remain employed by
the Company's subsidiaries after the date of acquisition. The notes mature at
various dates through 2003, and have interest rates currently ranging from
5.5% to 9.0%. The notes outstanding, with the exception of $244,250,000 which
were originally due in 1996 but extended to 1997, may be tendered upon the
exercise of warrants issued in conjunction with the notes. In connection with
the exercise of warrants through the tender of subordinated notes,
subordinated debt of $19,375,000, $23,676,000, and $16,611,000 was
extinguished in 1996, 1995 and 1994, respectively. In addition, during 1996,
subordinated notes totaling $49,832,000 were paid in cash. The Company
intends to finance subordinated debt that becomes due which has not been
tendered through the exercise of warrants by utilizing its Credit Agreement.
As such, the $244,250,000 of subordinated notes due in 1997 have been
included in the payments due in 2001, the year the line of credit expires.
The aggregate cash repayments of all outstanding borrowings during each of
the five years subsequent to December 31, 1996 total the following amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
REQUIRED
MINIMUM
YEAR ENDED DECEMBER 31, PAYMENT
- -------------------------------------------------------------------------------------
<S> <C>
1997 $ 14,029,000
1998 $ 3,291,000
1999 $ 24,150,000
2000 $ 30,073,000
2001 $368,790,000
</TABLE>
The recorded cost of the Senior Notes approximates fair value. Due to the
unique nature of each of the subordinated debt instruments issued to the sellers
of firms, the assessment of current fair value is not practicable.
Included in accounts payable and accrued expenses at December 31, 1996 and
1995 are accrued interest of $16,941,000 and $26,305,000, respectively. Interest
expense and interest paid for each of the three years ended December 31 were as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $43,289,000 $45,880,000 $13,494,000
Interest paid $51,272,000 $23,039,000 $12,283,000
</TABLE>
65
<PAGE>
NOTE 4--STOCKHOLDERS' EQUITY
During 1996, the Company issued 7,586,402 shares of common stock to effect
acquisitions accounted for as poolings of interests. In 1995, the Company issued
3,746,008 shares of common stock in connection with acquisitions accounted for
as purchases. In 1994, the Company issued 1,150,874 shares of its common stock
to effect an acquisition accounted for as a pooling of interests. The Company
issued 62,010, 2,718,076 and 3,381,306 warrants during 1996, 1995 and 1994,
respectively, to effect acquisitions accounted for as purchases.
The Company has a program to systematically repurchase shares of its common
stock to meet the requirements for future issuance of shares upon the exercise
of stock options and warrants. Since the program began in 1987, 11,192,134
shares of common stock have been repurchased at a cost of $150,763,000, and as
of December 31, 1996, all but 506,046 shares had been reissued from treasury
upon the exercise of stock options and warrants. During 1996, the Company's
directors increased the number of shares authorized for repurchase from
12,000,000 to 16,000,000 shares.
Included in accounts payable and accrued expenses at December 31, 1996 and
1995 are dividends payable of $11,681,000 and $9,036,000, respectively.
At December 31, 1996, the following warrants were outstanding at a weighted
average exercise price of $20.60 per share:
<TABLE>
<CAPTION>
- -------------------------------------------------
RANGE OF
YEAR OF SHARES EXERCISE
EXPIRATION ISSUABLE PRICES
- -------------------------------------------------
<S> <C> <C>
1997 1,001,660 $ 8.25-11.50
1998 162,232 $11.50-14.50
1999 1,352,844 $16.50-17.50
2000 240,840 $14.50-16.50
2001 3,868,076 $14.50-28.75
2002 2,718,076 $19.50-28.75
2003 62,010 $23.00
----------
9,405,738
----------
----------
</TABLE>
The Company is authorized to issue 5,000,000 shares of $1.00 par value
preferred stock, none of which has been issued through December 31, 1996.
NOTE 5--STOCK OPTION PLANS
Under the Company's 1994 Stock Option Plan, the Board of Directors is
authorized to grant options for the purchase of 5,800,000 shares of the
Company's common stock to officers and other key employees of the Company and
its subsidiaries. The exercise price of the options is not less than the fair
market value at the date of the grant. The options expire five years from the
date of the grant and may not be exercised for one year from the date of the
grant. Thereafter, they may be exercised at dates stipulated in each grant.
An additional 600,000 shares may be awarded under the 1994 Eligible
Directors Stock Option Plan. Under this plan, each eligible director is granted
10,000 options annually for the purchase of shares of the Company's common stock
at the fair market value at the date of the grant. In addition, eligible
directors may also elect to receive discounted options in lieu of a portion of
their directors' fees. In 1996, 60,000 shares were granted under the annual
provision and 10,108 discounted options were issued in lieu of directors' fees.
These options expire five years from the date of the grant.
The Company applies APB 25, in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for such plans. Had
compensation cost for the Company's plans been determined based on the fair
value of the awards at the grant dates, consistent with the methodology
prescribed by FAS 123, the impact on the Company's 1996 and 1995 net income and
earnings per share would not have been material.
66
<PAGE>
A summary of the Company's stock option plans as of December 31, 1996 and
1995, and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
-------------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year 7,212,422 $15.23 6,575,660 $13.89
Options granted 1,658,644 $20.72 1,753,912 $18.38
Options exercised (1,693,498) $13.77 (877,190) $10.66
Options canceled (159,372) $17.79 (239,960) $18.05
---------- --------
Outstanding at the end of the year 7,018,196 $16.83 7,212,422 $15.23
---------- --------
---------- --------
Options available for future grants 2,591,696
Shares reserved, but unissued at the beginning of the year 11,379,188
Shares reserved, but unissued at the end of the year 9,609,892
</TABLE>
The following table summarizes information about all stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF NUMBER OF AVERAGE NUMBER OF AVERAGE
YEAR IF EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
EXPIRATION PRICES OUTSTANDING PRICE EXERCISABLE PRICE
- ----------- -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1997 $ .01-15.63 1,022,498 $ 5.77 1,022,498 $ 5.77
1998 $ 7.11-23.19 1,029,486 $16.37 696,962 $16.53
1999 $13.41-20.38 1,718,453 $18.48 802,531 $18.54
2000 $13.36-19.94 1,615,215 $18.40 423,558 $18.25
2001 $18.19-26.75 1,632,544 $20.74 70,108 $23.72
--------- ---------
$ .01-26.75 7,018,196 $16.83 3,015,657 $13.83
--------- ---------
--------- ---------
</TABLE>
The options outstanding at December 31, 1996 expire at various times in 1997
through 2001. The options which are exercisable at $.01 per share resulted from
exchanging UAM options for options outstanding at an affiliated firm acquired in
1992.
NOTE 6--INCOME TAXES
Income before income tax expense was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 159,436,000 $ 107,992,000 $ 93,530,000
Foreign 11,812,000 11,018,000 11,963,000
- ----------------------------------------------------------------------------------------------------------------
$ 171,248,000 $ 119,010,000 $ 105,493,000
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $65,031,000 $33,126,000 $30,401,000
State 11,371,000 7,489,000 7,239,000
Foreign 3,911,000 3,951,000 3,792,000
Deferred:
Federal (5,914,000) 6,143,000 2,975,000
State (973,000) 1,045,000 701,000
- -----------------------------------------------------------------------------------------------------------------
$73,426,000 $51,754,000 $45,108,000
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
December 31, 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Additional contract amortization for tax purposes $40,062,000 $42,356,000
Other (2,343,000) 2,250,000
- ---------------------------------------------------------------------------------------------
$37,719,000 $44,606,000
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
For purchase acquisitions which occurred prior to The Revenue Reconciliation
Act of 1993 (the Act), the additional contract amortization for income tax
purposes results from the application of a method under which the deductions for
income tax purposes are determined by (1) amortizing the cost assigned to
contracts acquired on a straight-line basis over the same estimated useful lives
as those used for financial reporting purposes; and (2) deducting the
unamortized balance of such cost which is allocated to an individual contract
when the contract is terminated. For acquisitions subsequent to the Act, the
deduction for income tax purposes is determined by amortizing the cost assigned
to contracts acquired on a straight-line basis over a 15-year period, with no
deduction for the unamortized balance of individual contract terminations. The
effective income tax rate differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax statutory rate 35% 35% 35%
State income taxes, net of federal benefit 5 5 5
Nondeductible items 3 3 3
- ---------------------------------------------------------------------------------------------------------------------------------
43% 43% 43%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income taxes of $61,536,000, $41,538,000 and $40,720,000 were paid in 1996,
1995 and 1994, respectively.
The Company's federal income tax returns for the years ending December
31, 1984 through December 31, 1992 are under audit by the Internal Revenue
Service. The Company received a Revenue Agent's Report on December 27, 1996
proposing certain adjustments for these years. The principal issue raised in
the Report is the amount of deductions claimed by the Company for
amortization of the cost of acquired investment management contracts. The
Company is appealing the results of the audit to the Appellate Division of
the Internal Revenue Service. Previously, in a 1992 Revenue Agent's Report
covering the years ending December 31, 1984, 1985 and 1986, the Internal
Revenue Service challenged the Company's practice of deducting the
amortization of cost assigned to acquired investment management contracts on
the premise that no part of these costs could be amortized and deducted
because such assets were in the nature of non-amortizable goodwill. The
Revenue Agent's Report received in 1996 now agrees with the Company's
position that costs properly assigned to acquired contracts are amortizable
and deductible, but proposes
68
<PAGE>
adjustments to the Company's valuation of the acquired contracts. If the
adjustments proposed in the Revenue Agent's Report were upheld in their
entirety, the Company's additional liability for federal income tax for the
years 1984 through 1992 would approximate $56,000,000, plus statutory
interest thereon. Management and its advisors believe that there are
substantial defects in the Revenue Agent's Report with respect to the
valuation of the acquired contracts and that the audit will be resolved
without material adverse effect on the Company's consolidated financial
position, its consolidated results of operations or its consolidated cash
flows.
NOTE 7--ACQUISITIONS, COMMITMENTS AND OTHER
During 1996, the Company issued shares of its common stock to acquire Rogge
Global Partners and Clay Finlay through transactions accounted for as poolings
of interests. The Company also acquired OSV Partners in a purchase transaction
as well as provided financing for an affiliate, Analytic Investment Management,
Inc., to acquire TSA Capital Management, now called Analytic[bullet]TSA Capital
Management, Inc.
During 1995, the Company acquired Provident Investment Counsel and Pilgrim
Baxter & Associates through purchase transactions.
During 1994, the Company issued shares of its common stock to acquire
Investment Research Company through a transaction accounted for as a pooling of
interests. The Company also acquired Dwight Asset Management Company and Suffolk
Capital Management, Inc. during 1994 through purchase transactions. In addition,
the Company acquired, through a purchase transaction, certain assets of JMB
Institutional Realty and JMB Properties Company which were contributed to an
affiliate, Heitman Financial Ltd.
The purchase price, including direct costs, associated with the acquisitions
accounted for as purchases and the allocations thereof are summarized as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consideration:
Cash $651,000 $ 52,295,000 $170,394,000
Subordinated notes -- 356,893,000 85,584,000
Common stock and warrants -- 68,872,000 4,045,000
- -------------------------------------------------------------------------------------------------------------------
$651,000 $478,060,000 $260,023,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Allocation of purchase price:
Net tangible assets $ -- $ 9,336,000 $ 6,464,000
Cost assigned to contracts acquired 251,000 468,724,000 251,365,000
Other assets 400,000 -- 2,194,000
- -------------------------------------------------------------------------------------------------------------------
$651,000 $478,060,000 $260,023,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The results of operations of TSA Capital Management and OSV Partners are
included in the consolidated results of operations of the Company from their
respective dates of acquisition, January 31, 1996 and April 22, 1996.
69
<PAGE>
During 1996, the Company issued 7,586,402 shares of its common stock to the
former shareholders of Rogge Global Partners and Clay Finlay to effect the
poolings of interests with these firms. Accordingly, the consolidated financial
statements of the Company have been restated to include Rogge Global Partners
and Clay Finlay for the applicable periods. A reconciliation of revenues, net
income and earnings per share as previously reported and as restated follows:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Revenues:
As previously reported $698,462,000 $492,288,000
Pooled firms 35,891,000 29,081,000
----------------------------
As restated $734,353,000 $521,369,000
----------------------------
----------------------------
Net income:
As previously reported $ 67,317,000 $ 59,012,000
Pooled firms (61,000) 1,373,000
----------------------------
As restated $ 67,256,000 $ 60,385,000
----------------------------
----------------------------
Earnings per share:
Primary and fully diluted, as previously reported $1.08 $1.00
Primary and fully diluted, as restated $ .97 $ .91
</TABLE>
At December 31, 1996, $12,500,000 was accrued in connection with additional
purchase price commitments that are payable in 1997 to the former owners of an
affiliate. Of this amount, $6,250,000 will be paid in cash and the remainder
will be issued as subordinated notes. At December 31, 1995, $7,940,000 was
accrued in connection with additional purchase price commitments that were paid
in 1996 to the former owners of affiliates. Of this amount, $6,470,000 was paid
in cash and the remainder was issued as subordinated notes. At December 31,
1994, $7,683,000 was accrued in connection with additional purchase price
commitments that were paid in 1995 to the former owners of affiliates. Of this
amount, $4,398,000 was paid in cash and the remainder was issued as subordinated
notes.
In conjunction with certain acquisitions, employment arrangements and
incentive plans, the Company is contingently liable to make payments totaling as
much as $262,000,000 related to acquisitions and employment agreements, and
$31,000,000 related to incentive plans. These payments may be in the form of
cash, subordinated notes and the Company's common stock, on dates through 2003
and are dependent upon the achievement and maintenance of stipulated performance
measures.
The 1996 results included non-recurring revenues approximating $12,000,000
which primarily related to the redemption of the Company's minority interest in
Aldrich Eastman Waltch. Fully diluted earnings per share would have been $1.23
and $.37 for the year and quarter ended December 31, 1996, respectively, had
these non-recurring items not occurred.
Unaudited pro forma data for the years ended December 31, 1996, 1995 and
1994 are set forth below, giving consideration to the acquisitions occurring in
the respective three-year period, assuming revenue sharing plans (see Note 1)
had been in effect and after certain other pro forma adjustments have been made.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $883,267,000 $758,490,000 $691,239,000
Net income $103,858,000 $ 78,734,000 $ 75,753,000
Primary earnings per share $1.44 $1.12 $1.10
Fully diluted earnings per share $1.41 $1.12 $1.10
</TABLE>
70
<PAGE>
Report of Independent Accountants
UNITED ASSET MANAGEMENT CORPORATION To the
Board of Directors and Stockholders of United Asset Management Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
United Asset Management Corporation and its subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, Massachusetts
February 10, 1997
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF FINANCIAL
AFFILIATED FIRM ORGANIZATION STATEMENTS
- ----------------------------------------------- --------------------- ----------------
<S> <C> <C>
Acadian Asset Management, Inc. Massachusetts Consolidated
Analytic-TSA Global Asset Management, Inc. California Consolidated
Barrow, Hanley, Mewhinney & Strauss, Inc. Nevada Consolidated
Cambiar Investors, Inc. Colorado Consolidated
The Campbell Group, Inc. Delaware Consolidated
Chicago Asset Management Company Delaware Consolidated
Clay Finlay Inc. New York Consolidated
Cooke & Bieler, Inc. Pennsylvania Consolidated
Dewey Square Investors Corporation Delaware Consolidated
Dwight Asset Management Company Delaware Consolidated
Fiduciary Management Associates, Inc. Delaware Consolidated
First Pacific Advisors, Inc. Massachusetts Consolidated
GSB Investment Management, Inc. Delaware Consolidated
Hagler, Mastrovita & Hewitt, Inc. Delaware Consolidated
Hamilton, Allen & Associates, Inc. Delaware Consolidated
Hanson Investment Management Company California Consolidated
Heitman Financial Ltd. Delaware Consolidated
Heitman Properties Ltd.(1) Illinois Consolidated
Heitman Capital Management Corporation Illinois Consolidated
Hellman, Jordan Management Company, Inc. Delaware Consolidated
Investment Counselors of Maryland, Inc. Maryland Consolidated
Investment Research Company Illinois Consolidated
Jacobs Asset Management Delaware Consolidated
Tom Johnson Investment Management, Inc. Massachusetts Consolidated
Ki Pacific Asset Management, Inc. Delaware Consolidated
L&B Realty Advisors, Inc. (The L&B Group) Delaware Consolidated
L&B Institutional Property Managers, Inc.(2) Delaware Consolidated
L&B Real Estate Counsel Texas Consolidated
C.S. McKee & Company, Inc. Pennsylvania Consolidated
Murray Johnstone Limited Scotland Consolidated
Nelson, Benson & Zellmer, Inc. Colorado Consolidated
Newbold's Asset Management, Inc. Pennsylvania Consolidated
Northern Capital Management, Inc. Wisconsin Consolidated
NWQ Investment Management Company Massachusetts Consolidated
OSV Partners Delaware Consolidated
Pell, Rudman & Co., Inc. Delaware Consolidated
Pilgrim Baxter & Associates Delaware Consolidated
Provident Investment Counsel Massachusetts Consolidated
Rice, Hall, James & Associates California Consolidated
Rogge Global Partners Plc United Kingdom Consolidated
Rothschild/Pell, Rudman & Co., Inc. Maryland Consolidated
Sirach Capital Management, Inc. Washington Consolidated
Spectrum Asset Management, Inc. Connecticut Consolidated
Sterling Capital Management Company North Carolina Consolidated
Suffolk Capital Management, Inc. Delaware Consolidated
Thompson, Siegel & Walmsley, Inc. Virginia Consolidated
UAM Fund Distributors, Inc. Massachusetts Consolidated
UAM Fund Services, Inc. Delaware Consolidated
UAM Investment Services, Inc. Delaware Consolidated
UAM Retirement Plan Services, Inc. Delaware Consolidated
United Asset Management (Japan), Inc. Delaware Consolidated
</TABLE>
All of the Registrant's subsidiaries do business under the respective names
indicated above and are wholly owned.
(1) Heitman Properties Ltd. has 40 wholly owned property management subsidiaries
operating in the U.S.
(2) L&B Institutional Property Managers, Inc. has 6 wholly owned property
management subsidiaries operating in the U.S.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
__________________________________
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-63350,
33-52517, 33-57049, 33-64449, 333-11395 and 333-11397) and in the
Registration Statements on Form S-8 (Nos. 33-10621, 33-21756, 33-34288,
33-48858 and 33-54233) of United Asset Management Corporation of our report
dated February 10, 1997 appearing on page 71 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information
extracted from the Company's year ended December 31, 1996 consolidated
statement of income (see Annual Report page 59) and the consolidated
Balance Sheet (see Annual Report page 58). This information is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 248,399
<SECURITIES> 0
<RECEIVABLES> 149,843
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 409,955
<PP&E> 70,337
<DEPRECIATION> 40,040
<TOTAL-ASSETS> 1,430,653<F1>
<CURRENT-LIABILITIES> 233,204
<BONDS> 607,486<F2>
0
0
<COMMON> 692
<OTHER-SE> 551,552
<TOTAL-LIABILITY-AND-EQUITY> 1,430,653
<SALES> 0
<TOTAL-REVENUES> 883,267
<CGS> 0
<TOTAL-COSTS> 570,327
<OTHER-EXPENSES> 101,935<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,757
<INCOME-PRETAX> 171,248
<INCOME-TAX> 73,426
<INCOME-CONTINUING> 97,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,822
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.33
<FN>
<F1>Includes $941,490,000 of cost assigned to contracts acquired, net.
<F2>Includes $150,000,000 in senior notes payable and $457,486,000 in
subordinated notes payable.
<F3>Represents amortization of cost assigned to contracts acquired for the
year ended December 31, 1996.
</FN>
</TABLE>
