<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 22, 1998
UNITED ASSET MANAGEMENT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9215 04-2714625
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One International Place, Boston, MA 02110
- ------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (617) 330-8900
<PAGE>
Item 5. Other Events
- ------- ------------
On January 22, 1998, United Asset Management Corporation published a
press release in the form attached hereto as Exhibit 99.1, which press
release is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
- ------- ----------------------------------
(c) Exhibits
Exhibit Number
--------------
99.1 Press Release of United Asset Management Corporation dated
January 22, 1998.
99.2 Cautionary Language Regarding Forward-Looking Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED ASSET MANAGEMENT CORPORATION
-----------------------------------
Registrant
DATED: January 22, 1998 By: /s/ William H. Park
-------------------
William H. Park
Executive Vice President
and Chief Financial Officer
<PAGE>
Exhibit 99.1
Contacts: Juliana M. Coyle (Investors)
Jonathan V. Hubbard (Media)
(617) 330-8900
Internet: http://www.uam.com
For Immediate Release
UNITED ASSET MANAGEMENT CORPORATION ANNOUNCES
1997 FOURTH QUARTER NON-CASH CHARGE
Board of Directors Expands Stock Repurchase Authorization by
Eight Million Shares
BOSTON, January 22, 1998--United Asset Management Corp. (NYSE: UAM) today
announced that it expects to report a non-cash charge of between $165 million
and $175 million against pre-tax earnings for the fourth quarter ended December
31, 1997. The charge is a result of the impairment, under Statement of
Financial Accounting Standards No. 121, of the recorded cost assigned to client
contracts in connection with two UAM transactions, the acquisition of JMB
Institutional Realty by Heitman Financial Ltd. and the acquisition of Newbold's
Asset Management, Inc. This non-cash charge will not affect the day-to-day
investment management and client service of either firm. Excluding the charge,
UAM expects to have fourth quarter earnings per share of between $.32 and $.34,
and Operating Cash Flow (net income plus amortization and depreciation) per
share of between $.76 and $.79.
UAM estimates that, if investment markets remain at current levels
throughout the year, its 1998 earnings could be in the range of $1.15 to $1.25
per share and Operating Cash Flow per share could be between $2.90 and $3.10
based on preliminary internal business projections. The Company's estimates
include less negative net client cash flow than in 1997, as well as the effect
of changes at Heitman and Newbold's. Compared to 1997 results, UAM's estimates
also include increased spending on its marketing and client service affiliates;
co-investing in growth opportunities with investment management affiliates;
existing start-ups including the two new European affiliates; support for The
Campbell Group; increased repurchases of UAM common stock; financing costs and
amortization of contingent payments in 1998 for prior acquisitions; and the tax
impact of certain recent acquisitions. In addition, UAM has taken steps to
reduce expenses at the holding company. Operating results could also be
affected by acquisitions, shifts in UAM's business mix resulting in changes in
average fee rates, the level of investment markets worldwide, general economic
conditions and other factors which are difficult to forecast.
<PAGE>
Negative net client cash flow in 1997 totaled approximately $16 billion or
8.1% of year-end assets under management. Total managed assets rose by $26
billion from December 31, 1996 to $197 billion on December 31, 1997. Of this
increase, acquisitions contributed approximately $16 billion and market
performance by affiliates added $26 billion, which was offset by the negative
net client cash flow. In the fourth quarter of 1997, negative net client cash
flow totaled $7.5 billion, approximately half of which was attributable to
Heitman, Newbold's and The Campbell Group, as described below.
In addition, the Company said that its Board of Directors has authorized an
eight-million- share expansion of UAM's stock buyback program, bringing the
total number of shares currently available for repurchase from 1,755,766 to
9,755,766 shares. The Company repurchased 829,700 shares of its common stock in
the 1997 fourth quarter and 2,867,900 shares during the full year, and it
expects to significantly increase its stock repurchase activity in 1998. During
the fourth quarter, UAM obtained an amendment of its credit agreements with its
banks which more than doubles the amount of cash flow it may spend on stock
repurchases and dividends for one year. UAM does not expect to recommend
raising its dividend in March 1998, when an increase would ordinarily be
considered, in order to increase the amount available for the potential
repurchase of its shares.
"UAM is focused on building shareholder value by pursuing selective
acquisitions, helping its affiliates to grow, assisting its firms with operating
changes where needed, and other measures such as the stock repurchase program,"
said Norton H. Reamer, President and Chief Executive Officer. "While some of
these steps may negatively affect financial results over the short term, our
goal is to significantly improve UAM's long-term financial prospects,
particularly our net client cash flow. Our strong Operating Cash Flow and
financial position will enable us to fund our ongoing initiatives at a
substantial level in order to meet our objectives."
Of the non-cash pre-tax charge against UAM's earnings, approximately 80% is
attributable to the impairment of the cost assigned to client contracts acquired
through the 1994 purchase of JMB Institutional Realty by Heitman, and 20% to
client contracts at Newbold's. In order to satisfy client objectives for
liquidity and realizing gains, Heitman has begun actively selling properties
held by its JMB-related commingled trusts, many of which are expected to be
liquidated in advance of their contractual lives. This development reflects a
shift in the market for institutionally managed real estate from commingled
funds to other investment vehicles, including real estate investment trusts that
offer liquidity and public pricing. Heitman, which is one of the largest
institutional real estate investment managers in the world, is reviewing its
long-term strategy in order to best serve its clients in the evolving real
estate investment management industry.
Newbold's Asset Management, which has also experienced a significant loss
of assets under management, was formally incorporated into another UAM firm,
Pilgrim Baxter & Associates, during the fourth quarter of 1997. Newbold's is a
value-oriented equity investment manager with a strong institutional focus,
which complements Pilgrim Baxter's strengths in growth equity investing. Its
investment managers and client portfolios will retain their unique value
philosophy as part of the Pilgrim Baxter organization. Pilgrim Baxter is
continuing to build
<PAGE>
a diversified mutual fund family and institutional investment management
business based on a growing cadre of talented portfolio managers with varied
investment styles.
To address UAM's negative net client cash flow, the Company has a variety
of initiatives underway to both improve growth incentives and provide a higher
degree of marketing and distribution support for its firms than previously:
- - UAM plans to further increase the co-investments it makes with affiliates
in marketing, distribution and new product development. For example, the
Company has established a mutual fund service center in partnership with
Pilgrim Baxter to enable it to consolidate and improve its shareholder
services and marketing for the PBHG Funds family. The facility has
sufficient capacity to serve additional fund families managed by UAM
affiliates. UAM also expects to provide financial support during 1998 for
Pilgrim Baxter to help it further diversify its mutual fund organization.
UAM is assisting The Campbell Group, as well, to enable it to market a
variety of timber management and investment services to a broad range of
clients in North America, Europe and Asia. The firm has restructured its
operations in order to replace a joint venture arrangement with John
Hancock managing approximately $1.3 billion in timber assets which ended in
1997.
- - UAM has consolidated and focused the incentive programs it offers
affiliates in order to reward positive net client cash flow specifically,
rather than overall increases in revenues, which can be affected by market
changes as well as by client additions and withdrawals. This new incentive
arrangement, which is designed to function in a manner similar to "phantom
stock," is in addition to the core revenue-sharing agreement that each firm
has with UAM, giving an affiliate control over a significant share of any
new revenues it generates.
- - The Company has improved the cost-sharing arrangements for affiliates that
utilize UAM Investment Services, Inc. to market to separate accounts,
mutual funds, insurance companies and other prospective clients. UAM
expects that it will increase its own financial support for this service
affiliate during 1998 as its new business efforts continue to gather
momentum. The Company also plans to increase support for its Tokyo-based
distribution affiliate, United Asset Management (Japan), Inc. in response
to a very high level of interest among Japanese institutions in the
investment management services of UAM affiliates.
United Asset Management Corporation provides investment management
services, primarily to institutional investors. These services are offered
through a broad range of operating firms which managed over $197 billion on
December 31, 1997 for clients located throughout the United States and abroad.
---------------
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, UAM notes that the statements in this press
release which look forward in time, including all statements containing other
than historical information, involve known and unknown risks and uncertainties
that may cause actual results, performances or achievements to differ
<PAGE>
materially from those expressed or implied by such forward-looking statements.
In addition to the risks and uncertainties identified above in this press
release, the following factors, among others, could cause UAM's actual results,
performances or achievements to differ materially: competition in the
investment management industry; adverse changes in domestic and foreign economic
and market conditions; higher than anticipated negative net client cash flow;
write-offs of acquired client contracts; UAM's ability to implement the proposed
changes at affiliate levels; and other factors as more thoroughly identified and
explained in Exhibit 99.2 to UAM's Current Report on Form 8-K filed on January
22, 1998 with the Securities and Exchange Commission.
# # #
<PAGE>
Exhibit 99.2
Cautionary Language Regarding Forward-Looking Statements
Certain statements in this Form 8-K, in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
other oral or written communications made by or with the approval of an
authorized executive officer of the Company constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words or phrases "can be," "expects," "may affect," "may depend,"
"believes," "will likely result," "will continue," "estimate," "project" and
similar words and phrases are intended to identify such forward-looking
statements.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results,
performances or achievements of the Company to be materially different from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Some of these risks, uncertainties and other
factors are summarized below. Because of such risks, uncertainties and other
factors, the Company cautions each person receiving such forward-looking
statements not to place undue reliance on any such statement. All such
forward-looking statements are current only as of the date and time they are
made. The Company has no obligation, and will not undertake, to release
publicly any revisions to such forward-looking statements (for example, to
reflect events or circumstances occurring after the date and time such
statements were made, or to reflect events or circumstances that were not
anticipated at the date and time such statements were made).
THE PERFORMANCE OF THE COMPANY AND ITS AFFILIATED FIRMS MAY BE ADVERSELY
AFFECTED BY CHANGES IN ECONOMIC AND MARKET CONDITIONS
The advisory fees earned by the Company's affiliated firms vary widely
depending on client account size, type of service, product or style offered, and
other factors, but are based primarily on the market value of assets under
management and by the performance of the affiliated firm in managing those
assets. Consequently, the Company's performance is directly affected by
conditions in financial and securities markets around the world. These markets
are highly volatile and are directly affected by, among other factors, domestic
and foreign economic conditions and general trends in business and finance.
The performance of securities markets may also have an inverse effect on
the assets under management by the Company's affiliated firms which are part of
U.S. defined benefit plans. 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. The Company believes that 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
<PAGE>
limits based on actuarial calculations and that, therefore, many employers may
have ceased to contribute additional cash to the plans.
THE INVESTMENT MANAGEMENT BUSINESS IS HIGHLY COMPETITIVE
The Company's affiliated firms manage both domestic and international
investment portfolios for corporate, government and union benefit plans,
endowments and foundations, mutual funds, and individuals. These portfolios are
invested in equities, bonds, real estate, international securities, timber
resources, and cash and other stable value assets. With regard to each of these
client bases, and to each of these asset classes, the investment management
business is highly competitive. Each of the Company's affiliated firms competes
for clients with a broad range of investment managers, including public and
private investment advisers, as well as affiliates of securities broker-dealers,
commercial banks, insurance companies and other entities. In addition to
competing directly for clients, competition can also impact the affiliated
firms' fee structures.
The Company believes that the most important factors affecting competition
in the investment management industry are: (a) the abilities and reputations of
investment managers; (b) differences in the investment performance of investment
management firms; (c) the development of new investment strategies; (d) access
to channels of distribution; (e) resources to invest in information
technologies; and (f) client service capabilities. Further, periodic shifts in
the retirement funds market may favor advisers with strength in particular
factors. For example, the Company believes that the growing prominence of
defined contribution plans is requiring advisers to develop different marketing
and client service capabilities, and that this shift has tended to favor mutual
fund complexes that also offer bundled record-keeping, accounting and other
services to plan sponsors and participants. The press release attached to this
Form 8-K as Exhibit 99.1 describes a shift in the market for institutionally
managed real estate from commingled funds to other investment vehicles,
including real estate investment trusts that offer liquidity and public pricing.
Barriers to entry are low, and firms are relatively long-lived in the
investment management business. Client assets are mobile as investment
management contracts are typically terminable by clients without the payment of
a penalty upon 60 days' notice, in the case of contracts with mutual fund
clients, and, typically upon 30 days' notice, in the case of institutional
contracts. Many of the affiliated firms' competitors have greater capital and
other resources than any of the affiliated firms, and than the Company and its
affiliated firms on a consolidated basis. Also, some competitors of the
affiliated firms have more widely recognized trade names which may offer a
further competitive advantage in the retail market.
THE COMPANY COULD BE ADVERSELY AFFECTED BY WRITE-OFFS OF ACQUIRED CLIENT
CONTRACTS AND BY ADVERSE TAX RULINGS CONCERNING AMORTIZATION OF CLIENT CONTRACTS
At September 30, 1997, the Company's total assets were approximately $1.5
billion. Cost assigned to contracts acquired, net of accumulated amortization,
was approximately $1.1 billion
<PAGE>
(or approximately 73% of total assets). The cost assigned to contracts acquired
is amortized on a straight-line basis over the estimated weighted average useful
life of the contracts of the 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 analysis
described 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.
In addition, the Company regularly performs reviews for potential
impairment of the values of contracts, which may result from various changes in
circumstances including, among others, changes at the respective affiliated
firms in advisory fee schedules, strategic planning, client and consultant
relationships, and management of portfolio assets. The press release attached
to this Form 8-K as Exhibit 99.1 describes an expected non-cash charge against
pre-tax earnings for the fourth quarter of fiscal year 1997 resulting from the
impairment of client contracts at two of the Company's affiliated firms. This
impairment, under Statement of Financial Accounting Standards No. 121,
represents the difference between the carrying value of the client contracts on
the Company's consolidated balance sheet and the estimated future value of their
cash flows.
The Company intends to acquire additional investment management firms in
the future. While these firms will contribute additional revenue to the
Company, such investments will also result in the recording of additional
intangible assets. Future impairments requiring the write-off of a significant
portion of unamortized cost assigned to contracts acquired, with respect to
existing affiliated firms or firms that the Company may acquire in the future,
could adversely affect the Company's financial position or results of
operations.
Contract amortization for income tax purposes is described in detail in
the Notes to Consolidated Financial Statements which are included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
As more fully described in such Notes, 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. Although the Company believes
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, 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 period in question would
total approximately $56,000,000, plus statutory interest.
THE COMPANY'S AFFILIATED FIRMS RELY ON KEY MANAGEMENT PERSONNEL WHOSE CONTINUED
SERVICE IS NOT GUARANTEED
The Company believes that the business of many of its affiliated firms is
largely dependent on the efforts of key management personnel. Individual
investment managers at the affiliated firms often have regular direct contact
with particular clients, which can lead to a strong client relationship based on
the client's trust in that individual manager. The loss of a key investment
<PAGE>
manager of an affiliated firm could jeopardize the firm's relationships with its
clients and lead to the loss of client accounts at the firm. Further, an
inability to attract, retain and motivate sufficient numbers of successor
qualified management personnel for any of the affiliated firms would also
adversely affect the Company's business.
In most cases key management personnel have entered into long-term
employment agreements, pursuant to which they have agreed to devote
substantially all of their working time to the business and affairs of the
respective affiliated firm, and agreed not to provide investment advisory
services to any client of the respective affiliated firm for a period
following the termination of their employment. Also, the Company has used a
combination of economic incentives and vesting provisions as a means of
seeking to retain these individuals. The Company is dependent on the
enforceability of these employment and non-competition agreements. Further,
these methods can serve as no guarantee that these individuals will remain
with the Company for the specified term of the agreements, or for any further
term thereafter. The market for investment managers is extremely competitive
and is increasingly characterized by frequent movement by investment managers
among different firms. Also, as described above, the barriers to entry for
new firms in the investment management industry are low.
THE COMPANY'S ABILITY TO ALTER OR COORDINATE THE MANAGEMENT PRACTICES AND
POLICIES OF ITS AFFILIATED FIRMS IS LIMITED
The principals of the affiliated firms are authorized to manage their own
day-to-day operations, including matters relating to certain employees,
investment management policies and fee structures, product development,
marketing, client relationships, compensation programs and compliance
activities. The Company does retain the authority to elect and remove the
directors of its affiliated firms, and to prevent directly any significant
actions by its affiliated firms. Also, in recent years, the Company has
established a number of organizations that augment the marketing and client
service capabilities of the affiliated firms. However, the Company itself is
not registered as an investment adviser either with the Securities and Exchange
Commission or with any state or foreign regulatory agency, and therefore cannot
render investment advisory services except through its affiliated firms which
are properly registered. Accordingly, the Company's ability to alter the
management practices and policies of its affiliated firms, and to coordinate
marketing and client service efforts, is limited.
THE COMPANY'S GROWTH STRATEGY AND INVESTMENTS MAY NOT BE SUCCESSFUL
A significant component of the Company's growth strategy is to continue
acquiring ownership interests in investment management firms. To date, the
Company has invested in over fifty such firms and intends to continue this
investment program in the future, subject to its ability to locate suitable
investment management firms in which to invest, its ability to negotiate
agreements with such firms on acceptable terms, and its ability to finance such
acquisitions through the incurrence of additional long-term or short-term
indebtedness or the issuance of additional equity securities in private or
public transactions. As the aggregate amount of assets under management by the
Company's affiliated firms rises, it may require larger acquisitions or
<PAGE>
more frequent acquisitions to have a material effect on the financial condition
and results of operations comparable to the effects achieved in the past through
the Company's acquisitions program. Also, each acquisition the Company
completes may require additional managerial resources at the Company level.
The market for partial or total acquisitions of interests in investment
management firms is highly competitive. The Company is aware of several other
holding companies which have been organized to invest in or acquire investment
management firms. In addition, numerous other companies, both privately and
publicly held, including commercial and investment banks, insurance companies,
and investment management firms, many of which have longer established operating
histories and significantly greater resources than the Company, make investments
in and acquire investment management firms. In addition to competing directly
for acquisitions, competition can also increase the prices that must be paid to
successfully acquire firms, and therefore decrease the expected returns on such
investments.
As described above, in recent years, the Company has established a number
of organizations that augment the marketing and client service capabilities of
its affiliated firms. As another significant component of its growth strategy,
the Company expects that it will increase its financial support for these
organizations. However, there can be no guarantee that these organizations will
be successful in attracting new assets for management by the Company's
affiliated firms.
