<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, 2000 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 (I.R.S. 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 outstanding of the registrant's common stock as of
August 7, 2000 was 57,431,368.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. (Pages F-1 to F-6)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Pages F-6 to F-10)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
(Page F-10)
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. Not Applicable.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 18, 2000, the Company held its Annual Meeting of
Stockholders at which each of Harold J. Baxter, John P. Clay,
Beverly L. Hamilton, George E. Handtmann, III, 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. The directors were elected
with the following votes: Mr. Baxter, 38,954,073 votes cast for
and 12,070,562 votes withholding authority; Mr. Clay, 39,277,747
votes cast for and 11,746,888 votes withholding authority; Mrs.
Hamilton, 39,145,640 votes cast for and 11,878,995 votes
withholding authority; Mr. Handtmann, 39,269,715 votes cast for
and 11,754,920 votes withholding authority; Mr. Light, 39,281,647
votes cast for and 11,742,988 votes withholding authority; Mr.
Reamer, 39,270,464 votes cast for and 11,754,171 votes withholding
authority; Mr. Russell, 39,267,447 votes cast for and 11,757,188
votes withholding authority; Mr. Scaturro, 39,134,697 votes cast
for and 11,889,938 votes withholding authority; Mr. Shane,
39,269,317 votes cast for and 11,755,318 votes withholding
authority; and Mrs. Thomas, 39,274,990 votes cast for and
11,749,645 votes withholding authority.
The Company's stockholders approved the Company's Second Amended
and Restated 1994 Stock Option Plan with 29,961,310 votes cast for
such approval, 15,047,508 votes cast against such approval,
119,887 votes abstaining from such approval and 5,895,930
non-votes.
<PAGE> 3
The Company's stockholders also approved the selection of
PricewaterhouseCoopers LLP as independent accountants of the Company
for the fiscal year ending December 31, 2000, with 42,412,230 votes
cast for such approval, 8,592,105 votes cast against such approval,
and 20,300 votes abstaining from such approval.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - United Asset Management Corporation Second Amended
and Restated 1994 Stock Option Plan as of May 18,
2000.
Exhibit 10.2 - Third Amended and Restated Consulting Agreement by
and between United Asset Management Corporation and
David I. Russell as of May 4, 2000.
Exhibit 10.3 - Retirement and Consulting Agreement between United
Asset Management Corporation and Norton H. Reamer
as of May 12, 2000.
Exhibit 10.4 - Employment Agreement between United Asset Management
Corporation and James F. Orr III as of May 15, 2000.
Exhibit 10.5 - Change of Control Agreement between United Asset
Management Corporation and James F. Orr III as of
May 15, 2000.
Exhibit 11 - Calculation of Earnings Per Share (Page F-11).
Exhibit 27 - Financial Data Schedule.
(b) A report on Form 8-K was filed on June 19, 2000. The items
reported and financial statements and exhibits filed were
as follows:
Item 5. OTHER EVENTS.
On June 16, 2000, the Company entered into an Agreement and
Plan of Merger with Old Mutual plc, an English public
limited company and OM Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Old Mutual plc.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
10.1 Agreement and Plan of Merger, dated as of June 16,
2000, by and among United Asset Management
Corporation, OM Acquisition Corp. and Old
Mutual plc.
<PAGE> 4
99.1 Press Release of Old Mutual plc and United Asset
Management Corporation, dated June 19, 2000
(incorporated by reference to the press release
filed by United Asset Management Corp. with the
Securities and Exchange Commission under cover of
Schedule 14D-9 on June 19, 2000).
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 10, 2000 /s/ William H. Park
---------------------- ---------------------------------------
(Date) William H. Park
Executive Vice President and
Chief Financial Officer
<PAGE> 5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $249,607,000 $219,342,000 $488,655,000 $437,037,000
--------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation and related
expenses 128,005,000 110,311,000 253,080,000 219,380,000
Amortization of cost assigned
to contracts acquired 25,778,000 26,507,000 52,072,000 52,595,000
Other operating expenses 44,219,000 38,791,000 82,467,000 77,937,000
--------------------------------------------------------------------------------------------------------------------------
198,002,000 175,609,000 387,619,000 349,912,000
--------------------------------------------------------------------------------------------------------------------------
Operating income 51,605,000 43,733,000 101,036,000 87,125,000
--------------------------------------------------------------------------------------------------------------------------
Non-operating expenses:
Interest expense, net 17,349,000 16,502,000 34,138,000 32,336,000
Other amortization 1,219,000 1,184,000 2,358,000 2,343,000
--------------------------------------------------------------------------------------------------------------------------
18,568,000 17,686,000 36,496,000 34,679,000
--------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 33,037,000 26,047,000 64,540,000 52,446,000
Income tax expense 13,580,000 11,146,000 26,622,000 22,444,000
--------------------------------------------------------------------------------------------------------------------------
Net income $ 19,457,000 $ 14,901,000 $ 37,918,000 $ 30,002,000
==========================================================================================================================
Basic earnings per share $.34 $.25 $.67 $.50
Diluted earnings per share $.34 $.25 $.67 $.50
Dividends declared per share $.20 $.20 $.40 $.40
==========================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-1
<PAGE> 6
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,
2000 December 31,
(Unaudited) 1999
--------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 168,036,000 $ 123,754,000
Investment advisory fees receivable 170,685,000 169,566,000
Other current assets 11,990,000 11,621,000
--------------- ---------------
Total current assets 350,711,000 304,941,000
Fixed assets, net 34,956,000 37,391,000
Cost assigned to contracts acquired, net 785,910,000 841,454,000
Other assets 147,316,000 137,905,000
--------------- ---------------
Total assets $ 1,318,893,000 $ 1,321,691,000
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 105,101,000 $ 134,556,000
Accrued compensation 106,565,000 87,994,000
--------------- ---------------
Total current liabilities 211,666,000 222,550,000
Senior notes payable 732,426,000 700,401,000
Subordinated notes payable 176,762,000 181,737,000
Deferred income taxes -- 31,883,000
--------------- ---------------
Total liabilities 1,120,854,000 1,136,571,000
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share 690,000 703,000
Capital in excess of par value 356,657,000 361,808,000
Retained earnings 129,074,000 139,044,000
Accumulated other comprehensive income (11,000,000) (6,495,000)
--------------- ---------------
475,421,000 495,060,000
Less treasury shares at cost (277,382,000) (309,940,000)
--------------- ---------------
Total stockholders' equity 198,039,000 185,120,000
--------------- ---------------
Total liabilities and stockholders' equity $ 1,318,893,000 $ 1,321,691,000
=============== ===============
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE> 7
UNITED ASSET MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flow related to operating activities:
Net income $ 19,457,000 $ 14,901,000 $ 37,918,000 $ 30,002,000
Adjustments to reconcile net income to net cash flow
from operating activities:
Amortization of cost assigned to contracts acquired 25,778,000 26,507,000 52,072,000 52,595,000
Depreciation 3,504,000 4,098,000 6,985,000 7,716,000
Amortization of goodwill and other 2,153,000 1,993,000 4,228,000 3,961,000
------------------------------------------------------------------------------------------------------------------------------------
Net income plus amortization and depreciation 50,892,000 47,499,000 101,203,000 94,274,000
Changes in assets and liabilities:
Decrease (increase) in investment advisory fees receivable 3,963,000 (7,884,000) (1,888,000) 5,517,000
Decrease (increase) in other current assets 812,000 (1,782,000) (23,000) (3,227,000)
Increase (decrease) in accounts payable and accrued expenses (18,731,000) 4,342,000 (29,539,000) (19,901,000)
Increase (decrease) in accrued compensation 27,752,000 5,137,000 18,624,000 (22,894,000)
Decrease in deferred income tax liabilities and other (36,342,000) (2,050,000) (41,377,000) (1,576,000)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 28,346,000 45,262,000 47,000,000 52,193,000
------------------------------------------------------------------------------------------------------------------------------------
Cash flow related to investing activities:
Cash additions to cost assigned to contracts acquired -- (137,000) -- (5,134,000)
Change in other assets (3,402,000) (697,000) (9,638,000) (4,482,000)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (3,402,000) (834,000) (9,638,000) (9,616,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash flow related to financing activities:
Purchase of treasury shares -- (16,936,000) (13,149,000) (88,095,000)
Additions to (reductions in) notes payable, net (3,080,000) (23,578,000) 32,313,000 23,751,000
Issuance or reissuance of equity securities 11,231,000 2,468,000 12,075,000 13,742,000
Dividends paid (11,298,000) (11,896,000) (22,757,000) (24,186,000)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flow from (used in) financing activities (3,147,000) (49,942,000) 8,482,000 (74,788,000)
------------------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash flow (1,130,000) (502,000) (1,562,000) (1,352,000)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 20,667,000 (6,016,000) 44,282,000 (33,563,000)
Cash and cash equivalents at beginning of period 147,369,000 126,069,000 123,754,000 153,616,000
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 168,036,000 $ 120,053,000 $ 168,036,000 $ 120,053,000
====================================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE> 8
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, 2000 and their results of
operations and cash flows for the three- and six-month periods ended June 30,
2000 and 1999. These Financial Statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Note 2
Accumulated depreciation of fixed assets was $67,587,000 and $62,997,000 at
June 30, 2000 and December 31, 1999, respectively. The accumulated amortization
of cost assigned to contracts acquired was $741,347,000 and $700,410,000 at June
30, 2000 and December 31, 1999, respectively.
Note 3
The Company has a 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. No shares were repurchased during the three-month period
ended June 30, 2000. During the six-month period ended June 30, 2000, the
Company repurchased 815,300 shares of its common stock at a cost of $13,149,000.
In addition, exercises of stock options and warrants resulted in the Company
extinguishing subordinated notes, receiving cash proceeds and issuing stock as
follows:
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
Subordinated notes extinguished $2,067,000 $3,312,000
Cash proceeds received $7,738,000 $8,563,000
Treasury shares reissued 685,843 811,298
As of June 30, 2000, the Company held 11,814,728 treasury shares. Warrants
for the purchase of 7,072,000 shares and stock options for the purchase of
9,949,000 shares were outstanding at weighted average exercise prices of $24.67
and $21.02, respectively.
F-4
<PAGE> 9
Note 4
The components of comprehensive income for the three- and six-month periods
ended June 30, 2000 and 1999, respectively, are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income: $ 19,457,000 $ 14,901,000 $ 37,918,000 $ 30,002,000
Other comprehensive income:
Foreign currency translation
adjustment, net of tax (2,958,000) 963,000 (3,867,000) 1,054,000
Unrealized gain on marketable
securities, net of tax 211,000 451,000 436,000 553,000
Less: reclassification adjustment for
gains realized in net income,
net of tax
(1,074,000) (853,000) (1,074,000) (1,162,000)
------------ ------------ ------------ ------------
Comprehensive income $ 15,636,000 $ 15,462,000 $ 33,413,000 $ 30,447,000
============ ============ ============ ============
</TABLE>
Note 5
The Company operates in one business segment, that is, as investment
advisors, managing both domestic and international portfolios for corporate,
government and union benefit plans, mutual funds, individuals, endowments, and
foundations. Although each affiliated firm operates under its own name with its
own investment philosophy and approach, the firms' regulatory environments and
the economic characteristics of their products, services, client bases, and
manner of distribution are similar. Therefore, the affiliated firms are
aggregated as one business segment.
Revenues and long-lived assets shown below are classified according to the
affiliate's geographic location. The majority of the foreign long-lived assets
are domiciled in Canada. These Canadian assets totaled $133,211,000 and
$142,155,000 at June 30, 2000 and 1999, respectively. Revenues are derived
primarily from fees for investment advisory services provided to institutions
and other clients. These 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Domestic revenues $226,945,000 $199,201,000 $445,923,000 $397,206,000
Foreign revenues $ 22,662,000 $ 20,141,000 $ 42,732,000 $ 39,831,000
Domestic long-lived assets $819,029,000 $893,607,000 $819,029,000 $893,607,000
Foreign long-lived assets $149,153,000 $159,142,000 $149,153,000 $159,142,000
</TABLE>
F-5
<PAGE> 10
Note 6
Effective April 19, 2000, the Company entered into a closing agreement with
the Internal Revenue Service for the tax years 1984 through 1992. As part of
this agreement, all intangibles arising in taxable transactions prior to 1993
will be fully deductible over a 15-year life beginning with the date of
acquisition. In conjunction with this agreement, the Company incurred net
payments for certain previously recognized tax accruals of approximately $49
million during the three months ended June 30, 2000. The Company will recover a
significant portion of this payment through increased tax deductions in the
current and future years. As a result of this settlement, a deferred tax asset
of $8.4 million has been included in other assets in the accompanying balance
sheet. The impact of this agreement on the Company's current and future earnings
is immaterial.
Note 7
On June 16, 2000, the Company entered into an Agreement and Plan of Merger
with Old Mutual plc and OM Acquisition Corp., a wholly owned subsidiary of Old
Mutual plc. In accordance with the terms of the agreement, OM Acquisition Corp.
has commenced a Tender Offer beginning on July 17, 2000, offering to purchase
all of the issued and outstanding shares of the Company for a cash price of $25
per share. The tender offer is subject to certain conditions, including (1) a
majority of the outstanding shares of the Company, determined on a fully diluted
basis after giving effect to the exercise or conversion of all options,
warrants, rights and securities convertible into or exercisable for voting
securities of the Company, must be tendered and not properly withdrawn; (2)
required regulatory approvals must be received; and (3) certain approvals and
consents from investment advisory and subadvisory clients of the Company's
affiliates must be received in the manner provided in the Merger Agreement. The
price to be paid is subject to downward adjustment in the event the Company's
revenue rate from assets under management, excluding the effects of market
movements, decline below a specified level prior to the consummation of the
offer.
After the successful completion of the tender offer, OM Acquisition Corp.
will be merged with and into the Company, with the Company surviving as a
subsidiary of Old Mutual plc. Subject to the conditions above, the transaction
is expected to be completed by the end of the current year.
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. 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 $195.4 billion as of June 30, 2000,
compared to $203.2 billion on March 31, 2000. During the quarter, investment
performance subtracted $3.3 billion from assets under management and negative
net client cash flow reduced these assets by $4.3 billion. The sale of a small
business segment by an affiliate reduced assets under management by
approximately $200 million.
F-6
<PAGE> 11
AMORTIZATION OF COST ASSIGNED TO CONTRACTS
Cost assigned to contracts acquired, net of accumulated amortization,
represented approximately 60% of the Company's total assets as of June 30, 2000.
Amortization of cost assigned to contracts acquired, which is a tax-deductible
noncash charge, represented 13% of the Company's operating expenses for the
three- and six-month periods ended June 30, 2000. 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.
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.
The Company regularly performs reviews of estimated lives as well as for
potential impairment of the value of contracts. 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. 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.
OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
Revenues were $249,607,000 for the three months ended June 30, 2000
compared to $219,342,000 for the second quarter of 1999. Revenues increased due
to positive market performance which generated higher fee revenues, and an
increase in performance and transaction fees recorded during the three months
ended June 30, 2000 as compared to the second quarter of 1999, partially offset
by the effect of negative client cash flows and the divestiture of three small
affiliates.
Compensation and related expenses together with other operating expenses
were $172,224,000 compared to $149,102,000 in 1999, primarily reflecting higher
compensation earned by employees of existing affiliated firms in accordance with
revenue sharing plans and higher operating expenses. Amortization of cost
assigned to contracts acquired was $25,778,000 compared to $26,507,000 in 1999.
The decrease was the result of various factors including certain cost assigned
to contracts acquired being fully amortized at the end of 1999, partially offset
by the recording of additional purchase price commitments associated with
prior-year acquisitions.
F-7
<PAGE> 12
Net interest expense increased to $17,349,000 from $16,502,000, primarily
as the result of an increase in the average interest rate charged on borrowings,
partially offset by lower average borrowings.
Income before income tax expense was $33,037,000 compared to $26,047,000 in
1999, reflecting the circumstances described above. The Company's tax rate
approximated 41% for the three-month period ended June 30, 2000 compared to 43%
in 1999.
Net income was $19,457,000 compared to $14,901,000, reflecting the net
result of the events discussed above. Diluted earnings per share were $.34 for
the second quarter of 2000 compared to $.25 in the second quarter of 1999,
reflecting the effect of the Company's common stock repurchased and the
Company's lower average common stock price. Amortization of cost assigned to
contracts acquired per share was $.45 in both the second quarter of 2000 and
1999. The decrease in amortization expense was offset by the smaller number of
shares outstanding. Net income plus amortization and depreciation was
$50,892,000 in the second quarter of 2000 compared to $47,499,000 in 1999, and
EBITDA (earnings before interest, taxes, depreciation and amortization) was
$81,821,000 in the second quarter of 2000 compared to $75,147,000 in 1999 due to
the circumstances discussed above. Management uses the last two statistics not
to the exclusion of net income, but rather as an additional important measure of
the Company's performance.
SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999
Revenues were $488,655,000 for the six months ended June 30, 2000 compared
to $437,037,000 for the first six months of 1999. Revenues increased due to
positive market performance which generated higher fee revenues, and an increase
in performance and transaction fees recorded during the six months ended June
30, 2000 as compared to the prior year period, partially offset by the effect of
negative client cash flows and the divestiture of three small affiliates.
Compensation and related expenses together with other operating expenses
were $335,547,000 compared to $297,317,000 in 1999, primarily reflecting higher
compensation earned by employees of existing affiliated firms in accordance with
revenue sharing plans and higher operating expenses. Amortization of cost
assigned to contracts acquired was $52,072,000 compared to $52,595,000 in 1999.
The decrease was the result of certain cost assigned to contracts acquired being
fully amortized at the end of 1999, partially offset by the recording of
additional purchase price commitments associated with prior-year acquisitions.
Net interest expense increased to $34,138,000 from $32,336,000, primarily
as the result of an increase in the average interest rate charged on borrowings.
Income before income tax expense was $64,540,000 compared to $52,446,000 in
1999, reflecting the circumstances described above. The Company's tax rate
approximated 41% for the six-month period ended June 30, 2000 compared to 43% in
1999.
Net income was $37,918,000 compared to $30,002,000, reflecting the net
result of the events discussed above. Diluted earnings per share were $.67 for
the six months ended June 30, 2000 compared to $.50 for the six months ended
June 30, 1999, reflecting the effect of the Company's common stock repurchased
and the Company's lower average common stock price. Amortization of
F-8
<PAGE> 13
cost assigned to contracts acquired per share increased to $.92 for the six
months ended June 30, 2000 from $.87 in 1999 due to the smaller number of shares
outstanding. Net income plus amortization and depreciation was $101,203,000 for
the six months ended June 30, 2000 compared to $94,274,000 in 1999, and EBITDA
(earnings before interest, taxes, depreciation and amortization) was
$161,963,000 for the six months ended June 30, 2000 compared to $149,054,000 in
1999 due to the circumstances discussed above. Management uses the last two
statistics not to the exclusion of net income, but rather as an additional
important measure of the Company's performance.
CHANGES IN FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
The Company's internally generated cash totaled $50,892,000 and
$101,203,000 for the three- and six-month periods ended June 30, 2000. This cash
and additional borrowings under the Company's line of credit were primarily used
to pay deferred tax obligations in connection with the IRS settlement, pay
dividends to shareholders and repurchase shares of the Company's common stock.
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, 2000, the Company had
drawn down $331,000,000 leaving $419,000,000 available under its $750,000,000
Reducing Revolving Credit Agreement.
Management believes that the Company's existing capital, together with
internally generated cash 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 provide further support for
investing in the growth initiatives of existing affiliates, repurchase shares of
the Company's common stock, pay shareholder dividends, acquire additional
investment management firms, and fund commitments due or potentially due to
former owners of affiliated firms.
Increases or decreases in interest rates affect UAM's costs of operations
chiefly through raising or lowering 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
This Quarterly Report on Form 10-Q contains "forward-looking" statements.
These statements include descriptions of UAM's operational plans, expectations
about future earnings and other results of operations, views of future industry
or market conditions, and other statements that include words like "may,"
"expects," "believes," and "intends," and that describe opinions about future
events.
Investors should not rely on these statements as though they were
guarantees. These statements are current only when they are made. UAM's
management has no obligation to revise or update these statements based on
future developments. Known and unknown risks, including those relating to the
acquisition of UAM by Old Mutual, may cause UAM's actual results and
performances to be materially different from those expressed or implied by these
statements. Some of these risks, uncertainties and other factors are that: most
of UAM's revenues are based on the market value of managed assets and,
F-9
<PAGE> 14
therefore, will rise and fall with changes in the economy and financial markets;
the investment management business is highly competitive; the investment
management business is susceptible to internal shifts and frequently requires
firms to adapt; UAM's affiliated firms depend significantly on key employees;
and the change in control of UAM will necessitate a transition period of
uncertain duration and effect. Certain of these and other factors are identified
and more thoroughly explained in Exhibit 99.1 to UAM's Annual Report on Form
10-K filed on March 21, 2000 with the U.S. Securities and Exchange Commission
(SEC).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided below updates that which was previously presented
in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the
Company's Form 10-K for the year ended December 31, 1999.
The Company had $331,000,000 outstanding under its $750,000,000 Reducing
Revolving Credit Agreement (the Credit Agreement) as of June 30, 2000. Interest
rates available for amounts outstanding under the Credit Agreement are
currently: prime, 1.875% over 30-day LIBOR or a money market bid option. In
addition, an annual commitment fee, payable on the daily average unused portion
of the Credit Agreement, is currently .375%. The effective interest rate on the
outstanding borrowings at June 30, 2000 was 8.6% compared to 6.9% at June 30,
1999. To mitigate against the risks associated with increases in interest rates,
the Company has entered into and plans to continue to enter into interest-rate
protection agreements with members of the Company's banking group. As of June
30, 2000, these agreements extend up to 13 months and limit interest rates to no
more than 10%.
At June 30, 2000, the Company also had $176,762,000 of subordinated notes
outstanding which mature at various dates through March 2005 and have interest
rates ranging from 5.5% to 7.5%.
F-10
<PAGE> 15
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, 2000
Basic Earnings per Share
Income available to common
shareholders $19,457,000 56,549,000 $.34 $37,918,000 56,665,000 $.67
==== ====
Effect of Dilutive Securities (1) -- 365,000 -- 230,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $19,457,000 56,914,000 $.34 $37,918,000 56,895,000 $.67
=========== ========== ==== =========== ========== ====
====================================================================================================================
For the three- and six-month periods
ended June 30, 1999
Basic Earnings per Share
Income available to common
shareholders $14,901,000 58,922,000 $.25 $30,002,000 59,733,000 $.50
==== ====
Effect of Dilutive Securities (2) -- 319,000 -- 489,000
----------- ---------- ----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $14,901,000 59,241,000 $.25 $30,002,000 60,222,000 $.50
=========== ========== ==== =========== ========== ====
====================================================================================================================
</TABLE>
(1) Options on 6,444,000 and 7,172,000 shares of common stock and warrants on
7,163,000 and 7,224,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 2000 respectively, but were not
included in computing diluted earnings per share because their effects were
antidilutive.
(2) Options on 5,095,000 and 4,469,000 shares of common stock and warrants on
7,288,000 and 5,153,000 shares of common stock were outstanding during the
three- and six-month periods ended June 30, 1999, respectively, but were
not included in computing diluted earnings per share because their effects
were antidilutive.
F-11
<PAGE> 16
EXHIBIT INDEX
Exhibit 10.1 - United Asset Management Corporation Second Amended
and Restated 1994 Stock Option Plan as of May 18,
2000.
Exhibit 10.2 - Third Amended and Restated Consulting Agreement by
and between United Asset Management Corporation and
David I. Russell as of May 4, 2000.
Exhibit 10.3 - Retirement and Consulting Agreement between United
Asset Management Corporation and Norton H. Reamer
as of May 12, 2000.
Exhibit 10.4 - Employment Agreement between United Asset Management
Corporation and James F. Orr III as of May 15, 2000.
Exhibit 10.5 - Change of Control Agreement between United Asset
Management Corporation and James F. Orr III as of
May 15, 2000.
Exhibit 11 - Calculation of Earnings Per Share (Page F-11).
Exhibit 27 - Financial Data Schedule.
