<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
Commission file number 1-9215
----------
UNITED ASSET MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2714625
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 330-8900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares of common stock outstanding as of August 10, 1998 was
65,261,029.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. (Pages F-1 to F-5)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Pages F-5 to F-9)
Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not
Applicable.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain of the Company's subsidiaries are subject to
legal proceedings arising in the ordinary course of business. On the
basis of information presently available and advice received from
legal counsel, it is the opinion of management that the disposition or
ultimate determination of such legal proceedings will not have a
material adverse effect on the Company's consolidated financial
position, its consolidated results of operations or its consolidated
cash flows.
Item 2. Changes in Securities.
During the second quarter of 1998, UAM issued an aggregate of 9,188
shares of its Common Stock in reliance on Section 4(2) of the
Securities Act of 1933, as amended, (the Act), to certain executives
of its subsidiaries upon the exercise of warrants originally issued
in connection with the acquisition of such subsidiaries by UAM. The
exercise price of the warrants was $22.66.
Also, during the second quarter of 1998, UAM issued an aggregate of
239,320 shares of its Common Stock in reliance on Section 4(2) of the
Act to certain executives of Integra Capital Management Corporation
and Integra Capital Financial Corporation in exchange for an aggregate
of 239,320 Exchangeable Preferred Shares in such corporations
originally issued in connection with the acquisition of an equity
interest in such corporations by UAM. On April 29, 1998, UAM filed a
registration statement on Form S-3 to register such shares of its
Common Stock for resale.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
On May 21, 1998, the Company held its Annual Meeting of Stockholders
at which each of Harold J. Baxter, Francis Finlay, Robert J.
Greenebaum, Charles E. Haldeman, Jr., Beverly L. Hamilton, George E.
Handtmann, III, Bryant M. Hanley, Jr., Jay O. Light, Norton H. Reamer,
David I. Russell, Philip Scaturro, John A. Shane and Barbara S. Thomas
were elected as directors to serve until the next Annual Meeting of
Stockholders. Each of the directors were elected with the following
votes: Mr. Baxter, 59,519,123 votes cast for and 261,905 votes
withholding authority; Mr. Finlay, 59,523,643 votes cast for and
257,385 votes withholding authority; Mr. Greenebaum, 59,449,090 votes
cast for and 331,938 votes withholding authority; Mr. Haldeman,
59,524,743 votes cast for and 256,285 votes withholding
<PAGE> 3
authority; Mrs. Hamilton, 59,522,375 votes cast for and 258,653 votes
withholding authority; Mr. Handtmann, 59,526,143 votes cast for and
254,885 votes withholding authority; Mr. Hanley, 59,526,543 votes cast
for and 254,485 votes withholding authority; Mr. Light, 59,152,533
votes cast for and 628,495 votes withholding authority; Mr. Reamer,
59,523,186 votes cast for and 257,842 votes withholding authority; Mr.
Russell, 59,115,233 votes cast for and 665,795 votes withholding
authority; Mr. Scaturro, 59,525,883 votes cast for and 255,145 votes
withholding authority; Mr. Shane, 59,222,413 votes cast for and
558,615 votes withholding authority; and Mrs. Thomas, 59,520,563 votes
cast for and 260,465 votes withholding authority.
The Company's stockholders also approved the selection of
PricewaterhouseCoopers LLP as independent accountants of the Company
for the fiscal year ending December 31, 1998, with 59,323,249 votes
cast for such approval, 361,548 votes cast against such approval,
96,230 votes abstaining from such approval and one broker nonvote.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - First Amendment dated as of June 23, 1998 to Note
Purchase Agreement dated as of August 1, 1995.
Exhibit 11 - Calculation of Earnings Per Share (Page F-10).
Exhibit 27 - Financial Data Schedule.
(b) There have been no reports on Form 8-K filed by the Company
during the quarter ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED ASSET MANAGEMENT CORPORATION
August 12, 1998 /s/ William H. Park
- -------------------- ---------------------------------------
(Date) William H. Park
Executive Vice President and
Chief Financial Officer
<PAGE> 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED ASSET MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $254,376,000 $219,572,000 $496,196,000 $435,094,000
Operating expenses:
Compensation and related
expenses 125,163,000 107,041,000 244,717,000 212,113,000
Amortization of cost assigned
to contracts acquired 30,812,000 25,662,000 57,645,000 50,574,000
Other operating expenses 46,355,000 35,842,000 91,418,000 70,928,000
------------ ------------ ------------ ------------
202,330,000 168,545,000 393,780,000 333,615,000
------------ ------------ ------------ ------------
Operating income 52,046,000 51,027,000 102,416,000 101,479,000
------------ ------------ ------------ ------------
Non-operating expenses:
Interest expense, net 12,476,000 8,445,000 23,313,000 16,362,000
Other amortization 905,000 571,000 1,803,000 1,052,000
------------ ------------ ------------ ------------
13,381,000 9,016,000 25,116,000 17,414,000
------------ ------------ ------------ ------------
Income before income tax expense 38,665,000 42,011,000 77,300,000 84,065,000
Income tax expense 16,548,000 17,981,000 33,085,000 35,980,000
------------ ------------ ------------ ------------
Net income $ 22,117,000 $ 24,030,000 $ 44,215,000 $ 48,085,000
============ ============ ============ ============
Basic earnings per share $ .33 $ .34 $ .64 $ .69
Diluted earnings per share $ .32 $ .33 $ .62 $ .66
Dividends declared per share $ .20 $ .185 $ .40 $ .37
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-1
<PAGE> 5
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 132,874,000 $ 173,638,000
Investment advisory fees receivable 167,019,000 180,921,000
Other current assets 13,124,000 11,863,000
-------------- --------------
Total current assets 313,017,000 366,422,000
Fixed assets, net 44,559,000 41,110,000
Cost assigned to contracts acquired, net 1,000,174,000 1,018,172,000
Other assets 107,539,000 87,796,000
-------------- --------------
Total assets $1,465,289,000 $1,513,500,000
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 107,735,000 $ 118,249,000
Accrued compensation 104,540,000 143,633,000
Current portion of notes payable -- 137,000
-------------- --------------
Total current liabilities 212,275,000 262,019,000
Senior notes payable 622,200,000 514,843,000
Subordinated notes payable 212,419,000 258,412,000
Deferred income taxes 32,089,000 20,074,000
-------------- --------------
Total liabilities 1,078,983,000 1,055,348,000
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share: 703,000 703,000
Capital in excess of par value 359,617,000 357,239,000
Retained earnings 139,803,000 133,291,000
Accumulated other comprehensive income (7,502,000) (4,369,000)
-------------- --------------
492,621,000 486,864,000
Less treasury shares at cost (106,315,000) (28,712,000)
-------------- --------------
Total stockholders' equity 386,306,000 458,152,000
-------------- --------------
Total liabilities and stockholders' equity $1,465,289,000 $1,513,500,000
============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE> 6
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cash flow from (used in) operating activities:
Net income $ 22,117,000 $ 24,030,000 $ 44,215,000 $ 48,085,000
Adjustments to reconcile net income to net cash
flow from operating activities:
Amortization of cost assigned to contracts
acquired 30,812,000 25,662,000 57,645,000 50,574,000
Depreciation 3,386,000 2,459,000 6,458,000 4,835,000
Amortization of goodwill and other 844,000 571,000 2,483,000 1,052,000
------------ ------------ ------------- -------------
Net income plus amortization and depreciation 57,159,000 52,722,000 110,801,000 104,546,000
Changes in assets and liabilities:
Decrease (increase) in investment advisory
fees receivable (3,744,000) (1,684,000) 14,854,000 4,191,000
Decrease (increase) in other current assets (2,118,000) 209,000 (3,052,000) 912,000
Increase (decrease) in accounts payable and
accrued expenses (820,000) 9,837,000 (14,483,000) (4,200,000)
Increase (decrease) in accrued compensation 25,049,000 19,718,000 (39,061,000) (26,064,000)
Increase (decrease) in deferred income taxes 1,547,000 (603,000) 2,293,000 (1,844,000)
------------ ------------ ------------- -------------
Net cash flow from operating activities 77,073,000 80,199,000 71,352,000 77,541,000
------------ ------------ ------------- -------------
Cash flow used in investing activities:
Cash additions to cost assigned to contracts acquired (6,278,000) (67,949,000) (29,161,000) (110,882,000)
Change in other assets (5,913,000) (8,113,000) (22,791,000) (11,420,000)
------------ ------------ ------------- -------------
Net cash flow used in investing activities (12,191,000) (76,062,000) (51,952,000) (122,302,000)
------------ ------------ ------------- -------------
Cash flow from (used in) financing activities:
Purchase of treasury shares (79,093,000) (25,286,000) (129,381,000) (34,829,000)
Additions to (reductions in) notes payable, net 31,405,000 (352,000) 79,189,000 (10,515,000)
Issuance or reissuance of equity securities 4,379,000 8,539,000 17,274,000 18,704,000
Dividends paid (13,792,000) (12,988,000) (27,680,000) (24,691,000)
------------ ------------ ------------- -------------
Net cash flow used in financing activities (57,101,000) (30,087,000) (60,598,000) (51,331,000)
------------ ------------ ------------- -------------
Effect of foreign exchange rate changes on cash flow 627,000 398,000 434,000 (682,000)
------------ ------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 8,408,000 (25,552,000) (40,764,000) (96,774,000)
Cash and cash equivalents at beginning of period 124,466,000 177,177,000 173,638,000 248,399,000
------------ ------------ ------------- -------------
Cash and cash equivalents at end of period $132,874,000 $151,625,000 $ 132,874,000 $ 151,625,000
============ ============ ============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE> 7
UNITED ASSET MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
In the opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial position of
the Company and its subsidiaries at June 30, 1998 and their results of
operations and cash flows for the three- and six-month periods ended June 30,
1998 and 1997. These Financial Statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Note 2
Accumulated depreciation of fixed assets was $55,189,000 and
$48,731,000 at June 30, 1998 and December 31, 1997, respectively. The
accumulated amortization of cost assigned to contracts acquired was $801,020,000
and $743,795,000 at June 30, 1998 and December 31, 1997, respectively.
Note 3
The Company has a systematic program to repurchase shares of its common
stock to meet the requirements for future issuance of shares upon the exercise
of stock options and warrants. During the three-month period ended June 30,
1998, the Company repurchased 3,059,400 shares of its common stock at a cost of
$79,093,000. For the six months ended June 30, 1998, common stock repurchases
totaled 5,063,500 shares at a cost of $129,381,000. During the three- and
six-month periods ended June 30, 1998, exercises of warrants and stock options,
as well as the issuance of stock to former owners of affiliates in connection
with purchase price commitments that came due, resulted in the Company
extinguishing subordinated notes, receiving cash proceeds and issuing stock as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Subordinated notes extinguished $ 208,000 $ 7,179,000
Cash proceeds received $3,569,000 $14,869,000
Shares issued -- --
Treasury shares reissued 449,760 2,094,670
</TABLE>
As of June 30, 1998, the Company held 4,058,378 treasury shares.
Warrants for the purchase of 8,877,000 shares and stock options for the purchase
of 8,368,000 shares were outstanding at weighted average exercise prices of
$23.35 and $22.49, respectively.
F-4
<PAGE> 8
Note 4
During the quarter ended June 30, 1998, the Company reached an
agreement to sell Analytic*TSA International, Inc., and also reached an
agreement to sell and subsequently sold Heitman Properties Limited, a
wholly-owned subsidiary of Heitman Financial Limited. In connection with the
above transactions, the Company reevaluated certain deferred tax assets
associated therewith. In addition, the Company received life insurance proceeds
as a result of the death of an executive. These events in aggregate did not have
a material effect on the Company's consolidated results of operations.
Note 5
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (FAS 130), became effective for annual periods beginning
after December 15, 1997 and establishes standards for reporting and displaying
comprehensive income and its components in a full set of financial statements.
FAS 130 requires only additional reporting in the consolidated financial
statements and does not affect the Company's financial position or results of
operations. The components of comprehensive income for the three- and six-month
periods ended June 30, 1998 are set forth below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Net income $22,117,000 $44,215,000
Other comprehensive income -
foreign currency translation adjustment (3,611,000) (3,133,000)
----------- -----------
Comprehensive income $18,506,000 $41,082,000
=========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The revenues of UAM's affiliated firms are derived primarily from fees
for investment advisory services provided to institutional and other clients.
Investment advisory fees are generally a function of the overall fee rate
charged to each account and the level of assets under management by the
affiliated firms. A minor portion of revenues is generated when firms consummate
transactions for client portfolios. Assets under management can be affected by
the addition of new client accounts or client contributions to existing
accounts, withdrawals of assets from or terminations of client accounts and
investment performance, which may depend on general market conditions.
UAM's assets under management were $210.1 billion as of June 30, 1998,
compared to $213.9 billion under management on March 31, 1998. The net $3.8
billion change in assets under management during the quarter resulted from
investment gains of $500 million and negative client cash flow of $4.3 billion.
F-5
<PAGE> 9
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 68% of the Company's total assets as of June 30, 1998.
Amortization of cost assigned to contracts acquired, which is a noncash charge,
represented 15% of the Company's operating expenses for both the three- and
six-month periods ended June 30, 1998. 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 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 should be shortened, the remaining cost assigned to contracts acquired
will be amortized over the shorter life commencing in the year in which the new
estimate is determined. The Company regularly performs reviews for potential
impairment of the value of contracts. If the review indicates that the carrying
value of the contracts is impaired, the asset is adjusted to its estimated fair
value.
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 diluted earnings-per-share calculation.
For purposes of this discussion, Operating Cash Flow is defined as net
income plus amortization and depreciation, as reflected in the Company's
Condensed Consolidated Statement of Cash Flows. Management uses Operating Cash
Flow not to the exclusion of net income, but rather as an additional important
measure of the Company's performance.
F-6
<PAGE> 10
OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 1998
COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997
Revenues increased 16% to $254,376,000 for the three months ended June
30, 1998, from $219,572,000 for the second quarter of 1997. This increase is the
result of rising securities markets, particularly in North America and Europe,
the impact of acquisitions and life insurance proceeds received as a result of
the death of an executive, partially offset by the effect of negative net client
cash flow. The revenues of Pacific Financial Research, Inc., Thomson Horstmann &
Bryant, Inc., Lincluden Management Limited and Integra Capital Management
Corporation acquired May 29, 1997, June 6, 1997, September 4, 1997 and January
6, 1998, respectively, have been included since their acquisition dates.
Compensation and related expenses together with other operating
expenses increased 20% to $171,518,000 from $142,883,000 primarily reflecting
higher operating expenses and compensation earned by employees of existing and
newly acquired affiliated firms in accordance with revenue sharing plans.
Amortization of cost assigned to contracts acquired increased 20% to $30,812,000
from $25,662,000 primarily as a result of the acquisitions discussed above as
well as the recording of additional purchase price commitments associated with
prior-year acquisitions.
Interest expense increased to $14,563,000 from $10,365,000 primarily
due to the increase in the Company's average debt levels as well as an increase
in the Company's average borrowing rates.
Income before income tax expense was $38,665,000 compared to
$42,011,000 in 1997, reflecting the circumstances described above. The
Company's annual effective tax rate approximately 43% for both of the
three-month periods ended June 30, 1998 and 1997.
Net income was $22,117,000 compared to $24,030,000 reflecting the net
results of the events discussed above. Diluted earnings per share were $.32 for
the second quarter of 1998 compared to $.33 in the second quarter of 1997,
reflecting the effect of the Company's common stock repurchased and the
Company's lower average stock price, partially offset by the impact of the
issuance of shares of common stock and the hypothetical exercise of warrants and
stock options on the calculation of earnings per share under the treasury stock
method. Amortization of cost assigned to contracts acquired per share increased
to $.44 in the second quarter of 1998 from $.35 in 1997 and Operating Cash Flow
increased to $57,159,000 in the second quarter of 1998 from $52,722,000 in 1997
primarily due to the circumstances discussed above.
F-7
<PAGE> 11
OPERATING RESULTS
SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO
SIX MONTHS ENDED JUNE 30, 1997
Revenues increased 14% to $496,196,000 for the six months ended June
30, 1998, from $435,094,000 for the first six months of 1997. This increase is
the result of rising securities markets, particularly in North America and
Europe, the impact of acquisitions and life insurance proceeds received as a
result of the death of an executive, partially offset by the effect of negative
net client cash flow. The revenues of Pacific Financial Research, Inc., Thomson
Horstmann & Bryant, Inc., Lincluden Management Limited and Integra Capital
Management Corporation acquired May 29, 1997, June 6, 1997, September 4, 1997
and January 6, 1998, respectively, have been included since their acquisition
dates.
Compensation and related expenses together with other operating
expenses increased 19% to $336,135,000 from $283,041,000 primarily reflecting
higher operating expenses and compensation earned by employees of existing and
newly acquired affiliated firms in accordance with revenue sharing plans.
Amortization of cost assigned to contracts acquired increased 14% to $57,645,000
from $50,574,000 primarily as a result of the acquisitions discussed above as
well as the recording of additional purchase price commitments associated with
prior year acquisitions, partially offset by a reduction in the value of
intangible assets recorded in the fourth quarter of 1997.
Interest expense increased to $26,692,000 from $20,139,000 primarily
due to the increase in the Company's average debt levels as well as an increase
in the Company's average borrowing rates.
Income before income tax expense was $77,300,000 compared to
$84,065,000 in 1997, reflecting the circumstances described above. Income tax
expense was $33,085,000 for the six months ended June 30, 1998, including the
effects of reevaluating certain deferred tax assets related to the sale of
certain operations. Income tax expense for the six months ended June 30, 1997
was $35,980,000. The Company's annual effective tax rate approximated 43% for
both of the six-month periods ended June 30, 1998 and 1997.
Net income was $44,215,000 compared to $48,085,000 reflecting the net
results of the events discussed above. Diluted earnings per share were $.62 for
the six months ended June 30, 1998 compared to $.66 for the six months ended
June 30, 1997, reflecting the effect of the Company's common stock repurchased
and the Company's lower average stock price, partially offset by the impact of
the issuance of shares of common stock and the hypothetical exercise of warrants
and stock options on the calculation of earnings per share under the treasury
stock method. Amortization of cost assigned to contracts acquired per share
increased to $.81 for the six months ended June 30, 1998 from $.69 in 1997,
primarily due to the circumstances discussed above.
F-8
<PAGE> 12
CHANGES IN FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
The Company generated $57,159,000 and $110,801,000 of Operating Cash
Flow for the three- and six-month periods ended June 30, 1998. This Operating
Cash Flow and additional borrowings under the Company's line of credit were
primarily used to finance the cash portion of acquisition activity, to
repurchase shares of the Company's common stock and to pay dividends to
shareholders. The Company invests its excess cash in deposits with major banks,
money market funds or in securities, principally commercial paper of companies
with strong credit ratings in diversified industries. As of June 30, 1998, the
Company had $277,800,000 available under its $750,000,000 Reducing Revolving
Credit Agreement.
Management believes that the Company's existing capital, together with
Operating Cash Flow and borrowings available under its revolving line of credit,
will provide the Company with sufficient resources to meet its present and
reasonably foreseeable future cash needs. Management expects that the principal
uses of financial resources will be to acquire additional investment management
firms, to fund commitments due or potentially due to former owners of affiliated
firms, to repurchase shares of the Company's common stock and to pay shareholder
dividends.
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 variable-rate debt outstanding. 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. Rates of interest on
the Senior Notes and 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
Certain statements within this Form 10-Q 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," "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: changes in domestic and foreign economic and market conditions, effects of
client cash flow, impairment of acquired client contracts, competition in the
investment management industry, and other factors as more thoroughly identified
and explained in Exhibit 99.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and Exchange
Commission. 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 statements. 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).
F-9
<PAGE> 13
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended June 30, For the Six Months Ended June 30,
- ---------------------------------------------------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the three- and six-month periods
ended June 30, 1998
Basic Earnings per Share
Income available to common shareholders $22,117,000 67,636,000 $.33 $44,215,000 68,586,000 $.64
==== ====
Effect of Dilutive Securities (1) -- 2,382,000 -- 2,364,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $22,117,000 70,018,000 $.32 $44,215,000 70,950,000 $.62
=========== ========== ==== =========== ========== ====
================================================================================ ===================================
For the three- and six-month periods
ended June 30, 1997
Basic Earnings per Share
Income available to common shareholders $24,030,000 69,865,000 $.34 $48,085,000 69,600,000 $.69
==== ====
Effect of Dilutive Securities (2) -- 3,145,000 -- 3,644,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $24,030,000 73,010,000 $.33 $48,085,000 73,244,000 $.66
=========== ========== ==== =========== ========== ====
================================================================================ ===================================
</TABLE>
(1) Options on 1,647,000 and 1,731,000 shares of common stock and warrants on
1,521,000 and 1,526,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 1998, respectively, but were
not included in computing diluted earnings per share because their effects
were antidilutive.
(2) Options on 1,271,000 and 717,000 shares of common stock and warrants on
957,000 and 833,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 1997, respectively, but were
not included in computing diluted earnings per share because their effects
were antidilutive.
F-10
<PAGE> 1
Exhibit 10.1
================================================================================
UNITED ASSET MANAGEMENT CORPORATION
-----------------------------------
FIRST AMENDMENT
Dated as of June 23, 1998
to
NOTE PURCHASE AGREEMENTS
Dated as of August 1, 1995
-----------------------------------
Re: $150,000,000 7.12% Senior Secured Notes
Due August 25, 2005
================================================================================
<PAGE> 2
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENTS
THIS FIRST AMENDMENT dated as of June 23, 1998 (this "First Amendment") to
the Note Purchase Agreements, each dated as of August 1, 1995 is between UNITED
ASSET MANAGEMENT CORPORATION, a Delaware corporation (the "Company"), and each
of the institutions which is a signatory to this First Amendment (collectively,
the "Noteholders").
RECITALS:
A. The Company and each of the Noteholders have heretofore entered into
separate and several Note Purchase Agreements, each dated as of August 1, 1995
(collectively, the "Note Purchase Agreements"). The Company has heretofore
issued the $150,000,000 7.12% Senior Secured Notes Due August 25, 2005 (the
"Existing Notes") dated August 25, 1995 pursuant to the Note Purchase
Agreements.
B. The Company and the Noteholders now desire to amend the Note Purchase
Agreements in the respects, but only in the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Purchase Agreements unless herein defined or the
context shall otherwise require.
D. All requirements of law have been fully complied with and all other acts
and things necessary to make this First Amendment a valid, legal and binding
instrument according to its terms for the purposes herein expressed have been
done or performed.
NOW, THEREFORE, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of this First Amendment set forth in Section 3.1
hereof, and in consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Noteholders do
hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. Section 9.7 of the Note Purchase Agreements shall be and is
hereby amended in its entirety to read as follows:
"Section 9.7. Intentionally Omitted"
1.2. Section 10.4(a)(v) of the Note Purchase Agreements shall be and
is hereby amended in its entirety to read as follows:
<PAGE> 3
"(v) additional Funded Debt of the Company and/or any one or more of
its Subsidiaries, provided that at the time of creation, issuance, assumption,
guarantee or incurrence thereof and after giving effect thereto and to the
application of the proceeds thereof:
(A) Consolidated Operating Cash Flow for the immediately
preceding four fiscal quarters will be at least equal to the relevant
percentage of Consolidated Senior Funded Debt hereinafter specified
during the applicable period set forth below:
- --------------------------------------------------------------------------------
Consolidated Operating Cash Flow
If Funded Debt is Incurred as a Minimum Percentage of
During the Period: Consolidated Senior Funded Debt:
-------------------------- --------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 23, 1998 to and including 15.0%
December 31, 1999
- --------------------------------------------------------------------------------
January 1, 2000 to and including 18.0%
December 31, 2000
- --------------------------------------------------------------------------------
January 1, 2001 and thereafter 20.0%
- --------------------------------------------------------------------------------
and
(B) Consolidated Operating Cash Flow for the immediately
preceding four fiscal quarters will be at least equal to the relevant
percentage of Consolidated Funded Debt hereinafter specified during
the applicable period set forth below:
- --------------------------------------------------------------------------------
Consolidated Operating Cash Flow
If Funded Debt is Incurred as a Minimum Percentage of
During the Period: Consolidated Funded Debt:
-------------------------- --------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 23, 1998 to and including 12.0%
December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
January 1, 1999 to and including 13.5%
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
January 1, 2000 and thereafter 15.0%
- --------------------------------------------------------------------------------
-3-
<PAGE> 4
and
(C) in the case of the issuance of any Funded Debt of the Company
secured by Liens permitted by Section 10.5(k) and any Funded Debt of a
Subsidiary, the sum of (y) the aggregate amount of all Funded Debt
secured by Liens permitted by Section 10.5(k) plus (z) the aggregate
amount of all Funded Debt of Subsidiaries, shall not exceed
$63,000,000;".
1.3. Section 7.2(a) of the Note Purchase Agreements shall be and is
hereby amended by deleting the reference to "9.7," therefrom.
1.4. Section 11.1(c) of the Note Purchase Agreements shall be and is
hereby amended by deleting the reference to "9.7," therefrom.
1.5. From and after June 23, 1998 interest on the Notes shall accrue
at the rate of 8.92% per annum.
SECTION 2. EXCHANGE OF NOTES.
2.1. The Company agrees to issue and deliver amended notes not later
than July 10, 1998 in the form of Exhibit 1 to the Note Purchase Agreements (the
"Amended Notes") to the Noteholders in exchange for their outstanding
corresponding Existing Notes. The Noteholders agree to surrender their Existing
Notes to the Company (c/o Chapman and Cutler) in exchange for the Amended Notes,
and upon surrender, the Existing Notes shall be canceled by the Company and
shall be void. The Company shall pay any stamp tax or governmental charge
imposed upon such exchange.
2.2. Each Amended Note shall be in the form of a single registered
Note, shall be registered in the name of the Noteholder surrendering such
Existing Note as reflected on the books and records of the Company, shall be
issued for the same principal amount as the outstanding principal amount of the
Existing Note surrendered in exchange therefor.
2.3. The Company shall not later than July 10, 1998 deliver the
Amended Notes in proper form at the offices of Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, to be held by such firm for delivery
against surrender by the Noteholders in exchange therefor of the Existing Notes.
2.4. Each of the Noteholders and the Company agrees that the
amendments effected pursuant to this First Amendment and the exchange of Amended
Notes for Existing Notes pursuant to this First Amendment shall not be deemed a
prepayment, redemption or
-4-
<PAGE> 5
repurchase of the Existing Notes for any purpose, including Section 8 of the
Note Purchase Agreements.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
3.1. To induce the Noteholders to execute and deliver this First
Amendment (which representations shall survive the execution and delivery of
this First Amendment), the Company represents and warrants to the Noteholders
that:
(a) this First Amendment has been duly authorized, executed and
delivered by it and this First Amendment constitutes the legal, valid
and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Purchase Agreements, as amended by this First
Amendment, constitute the legal, valid and binding obligations,
contracts and agreements of the Company enforceable against it in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting
creditors' rights generally;
(c) the execution, delivery and performance by the Company of
this First Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order of
any other agency or government binding upon it, or (3) any provision
of any material indenture, agreement or other instrument to which it
is a party or by which its properties or assets are or may be bound,
including, without limitation, the Bank Credit Agreement, or (B)
result in a breach or constitute (alone or with due notice or lapse of
time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 3.1(c);
and
(d) as of the date hereof and after giving effect to this First
Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS FIRST AMENDMENT; CERTAIN CLOSING
CONDITIONS.
-5-
<PAGE> 6
4.1. Executed counterparts of this First Amendment, duly executed by
the Company and the holders of at least 51% of the outstanding principal of the
Notes (exclusive of Notes owned by the Company or any of its Affiliates), having
been delivered, this First Amendment shall become and be effective on and as of
June 23, 1998.
4.2. Not later than July 10, 1998, each and everyone of the following
conditions shall have been satisfied:
(a) the Noteholders shall have received a copy of the resolutions
of the Board of Directors of the Company authorizing the execution,
delivery and performance by the Company of this First Amendment,
certified by its Secretary or an Assistant Secretary;
(b) The Noteholders shall have received a certificate of an
Responsible Officer of the Company to the effect that the
representations and warranties of the Company set forth in Section 3
hereof are true and correct on and with respect to the date hereof;
and
(c) the Noteholders shall have received the favorable opinion of
counsel to the Company as to the matters set forth in Sections 3.1(a),
3.1(b) and 3.1(c) hereof, which opinion shall be in form and substance
satisfactory to the Noteholders.
SECTION 5. PAYMENT OF NOTEHOLDERS' COUNSEL FEES AND EXPENSES.
The Company agrees to pay upon demand the reasonable fees and
expenses of Chapman and Cutler, counsel to the Noteholders, in connection with
the negotiation, preparation, approval, execution and delivery of this First
Amendment.
SECTION 6. MISCELLANEOUS.
6.1. This First Amendment shall be construed in connection with and as
part of each of the Note Purchase Agreements, and except as modified and
expressly amended by this First Amendment, all terms, conditions and covenants
contained in the Note Purchase Agreements and the Notes are hereby ratified and
shall be and remain in full force and effect.
6.2. Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this First Amendment
may refer to the Note Purchase Agreements without making specific reference to
this First Amendment but nevertheless all such references shall include this
First Amendment unless the context otherwise requires.
-6-
<PAGE> 7
6.3. The descriptive headings of the various Sections or parts of this
First Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
6.4. This First Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (excluding
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State) and shall take
effect as a sealed instrument in accordance with such laws.
6.5. The execution hereof by you shall constitute a contract between
us for the uses and purposes hereinabove set forth, and this First Amendment may
be executed in any number of counterparts, each executed counterpart
constituting an original, but all together only one agreement.
UNITED ASSET MANAGEMENT
CORPORATION
By /s/ William H. Park
-----------------------------
Executive Vice President and
Chief Financial Officer
Accepted and Agreed to as of June 23, 1998:
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Charles D. Mires
-----------------------------
Charles D. Mires
By /s/ Robert B. Bodett
-----------------------------
Robert B. Bodett
Authorized Signatories
-7-
<PAGE> 8
PROVIDENT LIFE AND ACCIDENT INSURANCE
COMPANY
By: Provident Investment Management, LLC,
Its Agent
By /s/ David Fussell
-----------------------------
David Fussell
Agent
THE TRAVELERS INSURANCE COMPANY
By /s/ Pamela Westmoreland
-----------------------------
Pamela Westmoreland
Investment Officer
CM LIFE INSURANCE COMPANY
By /s/ Richard E. Spencer II
-----------------------------
Richard E. Spencer II
Managing Director
CONNECTICUT MUTUAL LIFE INSURANCE
COMPANY
By: Massachusetts Mutual Life Insurance
Company As Successor In Interest
By /s/ Richard E. Spencer II
-----------------------------
Richard E. Spencer II
Managing Director
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ Richard E. Spencer II
-----------------------------
Richard E. Spencer II
Managing Director
-8-
<PAGE> 9
OXFORD LIFE INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ J. Steven Staggs
-----------------------------
J. Steven Staggs
Vice President
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ J. Steven Staggs
-----------------------------
J. Steven Staggs
Vice President
LINCOLN NATIONAL REINSURANCE COMPANY
(BARBADOS) LTD.
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ J. Steven Staggs
-----------------------------
J. Steven Staggs
Vice President
LONDON LIFE INTERNATIONAL REINSURANCE
CORPORATION
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ J. Steven Staggs
-----------------------------
J. Steven Staggs
Vice President
-9-
<PAGE> 1
Exhibit 11
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended June 30, For the Six Months Ended June 30,
- ---------------------------------------------------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the three- and six-month periods
ended June 30, 1998
Basic Earnings per Share
Income available to common shareholders $22,117,000 67,636,000 $.33 $44,215,000 68,586,000 $.64
==== ====
Effect of Dilutive Securities (1) -- 2,382,000 -- 2,364,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $22,117,000 70,018,000 $.32 $44,215,000 70,950,000 $.62
=========== ========== ==== =========== ========== ====
================================================================================ ===================================
For the three- and six-month periods
ended June 30, 1997
Basic Earnings per Share
Income available to common shareholders $24,030,000 69,865,000 $.34 $48,085,000 69,600,000 $.69
==== ====
Effect of Dilutive Securities (2) -- 3,145,000 -- 3,644,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $24,030,000 73,010,000 $.33 $48,085,000 73,244,000 $.66
=========== ========== ==== =========== ========== ====
================================================================================ ===================================
</TABLE>
(1) Options on 1,647,000 and 1,731,000 shares of common stock and warrants on
1,521,000 and 1,526,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 1998, respectively, but were
not included in computing diluted earnings per share because their effects
were antidilutive.
(2) Options on 1,271,000 and 717,000 shares of common stock and warrants on
957,000 and 833,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 1997, respectively, but were
not included in computing diluted earnings per share because their effects
were antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998, AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796370
<NAME> UNITED ASSET MANAGEMENT CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 132,874
<SECURITIES> 0
<RECEIVABLES> 167,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 313,017
<PP&E> 99,748
<DEPRECIATION> 55,189
<TOTAL-ASSETS> 1,465,289<F1>
<CURRENT-LIABILITIES> 212,275
<BONDS> 834,619<F2>
0
0
<COMMON> 703
<OTHER-SE> 385,603
<TOTAL-LIABILITY-AND-EQUITY> 1,465,289
<SALES> 0
<TOTAL-REVENUES> 496,196
<CGS> 0
<TOTAL-COSTS> 336,135
<OTHER-EXPENSES> 57,645<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,116
<INCOME-PRETAX> 77,300
<INCOME-TAX> 33,085
<INCOME-CONTINUING> 44,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,215
<EPS-PRIMARY> .64
<EPS-DILUTED> .62
<FN>
<F1>Includes cost assigned to contracts acquired, net of $1,000,174.
<F2>Includes Senior Notes payable of $622,200 and subordinated notes payable of
$212,419.
<F3>Represents amortization of cost assigned to contracts acquired.
</FN>
</TABLE>
