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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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 No. 1-7994
MACKENZIE INVESTMENT MANAGEMENT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2522153
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
700 South Federal Highway, Suite 300
Boca Raton, FL 33432
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 393-8900
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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. YES [ ] NO [X}
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Outstanding: 18,832,200 shares, common stock, par value $.01 per share at
October 25, 1999.
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MACKENZIE INVESTMENT MANAGEMENT INC.
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page
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Item 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations and
Retained Earnings 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5-10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 10
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 11
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
Item 3. DEFAULTS UPON SENIOR SECURITIES 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES HOLDERS 11
Item 5. OTHER INFORMATION 11
Item 6. EXHIBITS AND REPORT ON FORM 8-K 11
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PART 1. - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
MACKENZIE INVESTMENT MANAGEMENT INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
September 30, March 31,
1999 1999
------------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $32,166,925 $51,032,223
Short-term investments 7,079,022 -
Receivables:
Funds for fees and expense advances 5,661,716 5,372,633
Other 1,041,039 854,343
Property and equipment, net of accumulated
depreciation of $2,598,151 as of September 30, 1999
and $2,262,386 as of March 31, 1999 1,332,983 1,306,696
Management contracts, net of accumulated
amortization of $7,372,615 as of September 30, 1999
and $6,831,667 as of March 31, 1999 5,866,179 5,643,284
Deferred selling commissions 2,623,842 1,761,002
Other assets 4,907,240 2,199,076
----------- -----------
Total assets $60,678,946 $68,169,257
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to Funds for purchases of Funds' shares
and expense reimbursements $ 271,656 $ 158,365
Sub-advisory fees payable 3,449,735 3,447,159
Accounts payable 759,438 876,578
Accrued expenses and other liabilities 3,429,559 2,138,424
Income taxes payable -- 9,241,917
Deferred tax liability 383,633 2,976
----------- -----------
Total liabilities 8,294,021 15,865,419
----------- -----------
Commitments
Stockholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized;
18,832,200 and 19,210,200 shares issued and outstanding
as of September 30, 1999 and March 31, 1999, respectively 188,322 192,102
Additional paid-in capital 38,813,880 40,403,488
Retained earnings 13,382,723 11,708,248
----------- -----------
Total stockholders' equity 52,384,925 52,303,838
----------- -----------
Total liabilities and stockholders' equity $60,678,946 $68,169,257
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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MACKENZIE INVESTMENT MANAGEMENT INC.
Condensed Consolidated Statements of Operations and Retained Earnings
Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Management fees $ 7,984,235 $ 8,547,053 $16,041,773 $17,886,566
Sub-advisory fees from Canadian Funds 2,011,807 1,429,381 3,819,200 2,969,948
12b-1 Service and Distribution fees 2,216,600 3,848,981 4,352,759 8,041,337
Transfer agent fees 741,503 764,554 1,464,418 1,514,096
Administrative services fees 797,911 868,394 1,599,159 1,816,734
Fund accounting fees 205,336 173,682 383,082 352,422
Underwriting fees 30,415 29,037 66,022 84,371
Redemption fees 68,405 843,740 118,726 1,477,117
Interest, dividends and other 605,277 188,576 1,689,086 416,499
----------- ----------- ----------- -----------
14,661,489 16,693,398 29,534,225 34,559,090
----------- ----------- ----------- -----------
Expenses:
Sales literature, advertising and promotion 1,296,798 753,113 2,546,427 1,505,988
12b-1 Service fees 2,267,171 2,293,592 4,430,303 4,751,778
Employee compensation and benefits 3,591,240 2,699,482 6,572,302 5,525,067
Sub-advisory fees 3,448,361 3,778,292 6,932,730 7,865,752
Amortization of management contracts 270,474 270,474 540,948 540,948
Amortization of deferred selling commissions 224,805 1,675,330 447,862 3,373,363
Depreciation 171,878 135,234 335,765 253,912
General and administrative 1,523,869 992,017 2,988,114 2,054,965
Interest - 124,732 - 248,173
Occupancy and equipment rental 270,036 206,898 533,978 439,681
Reimbursement to Funds for expenses 581,862 374,967 1,032,534 757,155
----------- ----------- ----------- -----------
13,646,494 13,304,131 26,360,963 27,316,782
----------- ----------- ----------- -----------
Income before income taxes 1,014,995 3,389,267 3,173,262 7,242,308
Provision for income taxes 535,321 965,838 1,498,787 2,518,377
----------- ----------- ----------- -----------
Net income 479,674 2,423,429 1,674,475 4,723,931
Retained earnings, beginning of period 12,903,049 5,460,094 11,708,248 3,159,592
----------- ----------- ----------- -----------
Retained earnings, end of period $13,382,723 $ 7,883,523 $13,382,723 $ 7,883,523
=========== =========== =========== ===========
Basic earnings per share $ 0.03 $ 0.13 $ 0.09 $ 0.25
=========== =========== =========== ===========
Weighted average number of common shares
outstanding used in basic calculation 18,832,200 19,213,300 18,906,561 19,066,588
=========== =========== =========== ===========
Diluted earnings per share $ 0.03 $ 0.13 $ 0.09 $ 0.24
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding
used in diluted calculation 18,863,950 19,275,064 18,942,301 19,301,359
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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MACKENZIE INVESTMENT MANAGEMENT INC.
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Six months ended
September 30,
-------------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,674,475 $ 4,723,931
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 335,765 253,912
Amortization of management contracts 540,948 540,948
Amortization of deferred selling commissions 447,862 3,373,363
Provision for deferred income taxes 380,657 2,248,377
Payment of deferred selling commissions (1,310,702) (2,525,203)
Change in assets and liabilities:
Receivables (475,779) 1,200,811
Management contracts (763,843) --
Other assets (2,708,164) (342,182)
Payable to Funds for purchases of Funds' shares
and expense reimbursements 113,291 60,612
Sub-advisory fees payable 2,576 16,992
Accounts payable, accrued expenses and
other liabilities 1,173,995 43,840
Income taxes payable (9,241,917) -
------------ -----------
Net cash (used in) provided by operating activities (9,830,836) 9,595,401
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (362,052) (452,078)
Purchases of short-term investments (7,079,022) --
------------ -----------
Net cash used in investing activities (7,441,074) (452,078)
------------ -----------
Cash flows from financing activities:
Purchase and retirement of common stock (1,593,388) (39,116)
Proceeds from the exercise of stock options -- 406,400
------------ -----------
Net cash (used in) provided by financing activities (1,593,388) 367,284
------------ -----------
Net (decrease) increase in cash and cash equivalents (18,865,298) 9,510,607
------------ -----------
Cash and cash equivalents, beginning of period 51,032,223 20,959,781
------------ -----------
Cash and cash equivalents, end of period 32,166,925 30,470,388
============ ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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MACKENZIE INVESTMENT MANAGEMENT INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. Basis of Presentation
The unaudited interim financial statements of Mackenzie Investment
Management Inc. ("MIMI") and its consolidated subsidiaries (the "Company")
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, these financial
statements include all appropriate adjustments, consisting of normal
recurring adjustments, necessary to a fair presentation of the results of
operations for the periods shown. Certain prior year amounts have been
reclassified to conform to current year presentation. The results of
operations for the three months and six months ended September 30, 1999
are not necessarily indicative of the results of operations to be expected
for the year ended March 31, 2000. These interim financial statements
should be read in conjunction with the Company's audited financial
statements for the fiscal year ended March 31, 1999.
2. Normal Course Issuer Bid
In June 1998, the Company entered into a normal course issuer bid, which
was approved by the Toronto Stock Exchange ("TSE"), to purchase up to
945,000 of its common shares. The bid commenced on June 10, 1998 and
terminated on June 9, 1999. During this bid period, the Company purchased
400,800 of its common shares at a total cost of $1,701,923. These shares
were acquired at market price at the time of acquisition and were
immediately retired.
In July 1999, the Company filed another notice with the TSE to commence a
normal course issuer bid to purchase up to an additional 941,610 common
shares of its stock representing 5% of the issued and outstanding common
shares at the date of the notice. The bid was approved by the TSE
effective on July 16, 1999 and will terminate on the earlier of the date
on which the maximum number of common shares have been purchased, the date
the Company provides notice of termination, or July 15, 2000. The Company
believes that its common shares are undervalued at current market prices
based on its current earnings and that the repurchase of common shares is
an appropriate use of corporate funds and will benefit shareholders.
3. Introduction of a New Product
On July 1, 1999, the Company introduced a new product line, International
Solutions, an asset allocation program, which consists of five separate
investment portfolios. The portfolios invest in Ivy Funds, for which the
Company provides investment management and other related services, as well
as other unrelated mutual funds.
4. Acquisition of the Assets of Hudson Capital Appreciation Fund
On September 29, 1999, the Company acquired the assets of Hudson Capital
Appreciation Fund (the "Hudson Fund"). The assets of the Hudson Fund,
which were approximately $20,056,000, were merged into the Ivy U.S.
Emerging Growth Fund. The cost of this transaction has been included in
management contracts at September 30, 1999.
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5. Subsequent Event
On October 13, 1999, the Corporation entered into a $10 million line of
credit agreement with the First Union National Bank. The line of credit
has a term of 364 days and is available for general working capital and
short-term capital expenditure needs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in the Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results
of Operations", and elsewhere in this report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions; the loss
of, or the failure to replace, any significant sub-advisory relationships;
changes in the relative investment performance; investor sentiment for
international investing; and the year 2000 issue. The Company wishes to
caution readers not to place undue reliance on such forward-looking
statements and remind readers that these forward-looking statements speak
only as of the date of this Quarterly Report. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect
any change in the Company's expectations with regard thereto or any change
in events, conditions or circumstances on which any such statement is
based.
GENERAL
MIMI is a public company listed on the TSE. Its majority shareholder,
Mackenzie Financial Corporation ("MFC"), is a Toronto-based investment
counsel and mutual fund management company. As of September 30, 1999, MFC
holds 84.9% of the outstanding common shares of MIMI. MIMI is an
investment adviser and has three wholly owned subsidiaries, as follows:
Ivy Management, Inc. ("IMI"), an investment adviser;
Ivy Mackenzie Distributors, Inc. ("IMDI"), a broker/dealer; and
Ivy Mackenzie Services Corp. ("IMSC"), a transfer agent.
The Company's principal business activities are carried on solely in the
United States and include:
o Managing public mutual funds offered in the U.S. (the "Funds") by Ivy
Fund and Mackenzie Solutions, which are U.S. open-end series
investment companies registered under the Investment Company Act of
1940, as amended;
o Providing investment advisory services to the Funds and sub-advisory
services to nine Universal Funds sold only in Canada and managed by
MFC (the "Canadian Funds");
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o Underwriting, selling and otherwise distributing redeemable shares of
the Funds in the U.S. through various distribution channels;
o Providing transfer agent, administrative and fund accounting services
to the Funds.
The Company derives its revenues principally from ongoing management fees
and sub-advisory fees calculated as a percentage of average daily net
assets under management, and from fees related to services performed for
the Funds under contracts for administrative, transfer agent and fund
accounting services. The level of assets under management is affected by
gross sales, redemptions and changes in market values of the mutual fund's
portfolio of investments. As the level of assets under management
fluctuates so does management fee revenue. While an increase in assets
under management will most likely increase transfer agent fees, these fees
are more directly related to the number of shareholder accounts in the
Funds.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1998
Net assets under management, exclusive of assets of the Canadian Funds,
for which MIMI provides sub-advisory services to MFC, increased 5% to
$3,258 million at September 30, 1999 from $3,105 million at September 30,
1998. Of the $153 million increase, a $616 million decrease was
attributable to net redemptions (sales less redemptions) which was offset
by a $769 million increase which was attributable to market appreciation
and introduction of new products. However, average assets under management
decreased 11% to $3,338 million during the six months ended September 30,
1999 from $3,731 million during the six months ended September 30, 1998.
Net sales for the six month period ended September 30, 1999 decreased by
$93 million compared to the six month period ended September 30, 1998 due
to (i) a $52 million increase in redemptions and (ii) a $41 million
decrease in sales. The increase in redemptions and the decrease in sales
are primarily caused by (i) the Ivy International Fund ("IIF") being
closed to new shareholders, and (ii) in management's opinion, investors'
apprehension of the world financial markets.
REVENUES
Total revenues decreased 15% in the first six months of fiscal year 2000
from the first six months of fiscal year 1999 due primarily to the sale of
the Class B deferred selling commission asset (See Liquidity and Capital
Resources) and the decrease in the average assets under management.
Management fees, transfer agent fees, administrative services fees and
fund accounting fees decreased 10% for the six months ended September 30,
1999 from the comparable period last year as a result of the decrease in
average assets under management.
Sub-advisory fees from the Canadian Funds increased 29% for the six months
ended September 30, 1999 as compared to the six months ended September 30,
1998. This increase is attributable to a 65% increase in the Canadian
Funds' assets to $1,960 million at September 30, 1999 from $1,185 million
at September 30, 1998. Nine Canadian Funds are currently being sub-advised
as compared to eight Canadian Funds at September 30, 1998.
12b-1 Service and Distribution fees received from the Funds decreased by
$3,688,000 to $4,353,000 for the six months ended September 30, 1999 from
$8,041,000 for the comparable period last year, primarily due to the sale
of the Class B deferred selling commission asset and a decrease in average
assets under management. As a result of the sale, 12b-1 Distribution fees
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on the mutual fund shares represented by the deferred selling commission
asset sold are paid to a third party. The sale resulted in a decrease in
the asset base on which the Company collects 12b-1 Distribution fees. (See
Liquidity and Capital Resources). The sale also resulted in a 92%
reduction of contingent deferred sales charges (redemption fees).
Interest, dividends and other revenue increased 306% for the six months
ended September 30, 1999 from the comparable period last year. This
increase is due to (i) an increase in average cash balances primarily due
to cash received from the sale of the Class B deferred selling commission
asset (See Liquidity and Capital Resources) and (ii) dividends received on
investments held by the Company.
EXPENSES
Total operating expenses decreased by 3% during the six months ended
September 30, 1999 as compared to the six months ended September 30, 1998
due to (i) the reduction in the amortization of deferred selling
commissions as a result of the sale of the Class B deferred selling
commission asset (See Liquidity and Capital Resources) and (ii) reduced
sub-advisory fees expense due to a decrease in the net assets of IIF, for
which a third party provides investment advisory services.
Sales literature, advertising and promotion increased 69% for the six
months ended September 30, 1999 over the comparable period last year
because of sales force and related marketing expenditure increases for the
promotion of new and existing products.
12b-1 Service fees paid to broker/dealers decreased 7% due to the decrease
in average assets under management.
Employee compensation and benefits increased 19% for the six months ended
September 30, 1999 from the comparable period last year. This increase is
due to (i) a severance payment made to the former President and Chief
Executive Officer who resigned in July 1999 and (ii) an increase in
staffing levels at September 30, 1999 as compared to September 30, 1998.
General and administrative expenses increased 45% for the six months ended
September 30, 1999 from the comparable period last year, primarily due to
(i) the expensing of certain fund organization costs resulting from the
adoption of Statement of Position No. 98-5, Reporting on the Cost of
Start-Up Activities, and (ii) the outsourcing of certain technology
related services to an unrelated third party.
There were no charges to interest expense for the six months ended
September 30, 1999 as compared to $248,000 for the comparable period last
year as the bank line of credit was repaid when the deferred selling
commission asset was sold in fiscal year 1999. (See Liquidity and Capital
Resources).
IMI voluntarily limits total fund expenses for certain Funds and bears
expenses in excess of such limits. The increase of $275,000 for the six
months ended September 30, 1999 from the comparable period last year is
attributable to (i) a decrease in the average net assets of many of the
Funds that IMI reimburses and (ii) the introduction of a new product line
in July 1999, International Solutions, which consists of five separate
investment portfolios for which IMI voluntarily limits expenses.
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THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Average net assets for the quarter decreased 7% to $3,303 million during
the quarter ended September 30, 1999 from $3,547 million during the
quarter ended September 30, 1998.
Net sales for the three month period ended September 30, 1999 increased by
$57 million compared to the three month period ended September 30, 1998
due to (i) a $56 million decrease in redemptions and (ii) a $1 million
increase in sales. During the quarter ended September 30, 1998, worldwide
markets were extremely volatile because of the many economic and political
uncertainties existing throughout the world. In management's opinion, this
volatility caused an increase in mutual fund redemptions during the
quarter ended September 30, 1998. It appears that investor sentiment
towards international investing may be changing. However, the Funds
continue to show net redemptions of $107 million for the quarter ended
September 30, 1999 primarily in the closed IIF.
REVENUES
Total revenues decreased 12% for the quarter ended September 30, 1999 from
the comparable quarter last year. The decrease is primarily due to the
sale of the Class B deferred selling commission asset (See Liquidity and
Capital Recourses) and the decrease in the average assets under
management. This also has led to reductions in management fees, transfer
agent fees, administrative services fees and fund accounting fees.
12b-1 Service and Distribution fees and redemption fees have been reduced
for the quarter ended September 30, 1999 from the comparable quarter last
year as a result of the sale of the Class B deferred selling commission
asset. (See Liquidity and Capital Recourses).
Sub-advisory fees from the Canadian Funds increased 41% for the three
months ended September 30, 1999 as compared to the three months ended
September 30, 1998. This increase is attributable to a 65% increase in the
Canadian Funds' assets to $1,960 million at September 30, 1999 from $1,185
million at September 30, 1998.
Interest, dividends and other revenue increased 220% for the three months
ended September 30, 1999 from the comparable period last year. This
increase is due to (i) an increase in average cash balances primarily due
to cash received from the sale of the Class B deferred selling commission
asset (See Liquidity and Capital Resources) and (ii) dividends received on
investments held by the Company.
EXPENSES
Total operating expenses increased by 3% during the three months ended
September 30, 1999 as compared to the three months ended September 30,
1998 primarily due to a severance payment to the former President and
Chief Executive Officer who resigned in July 1999.
Sale literature, advertising and promotion increased 72% for the three
months ended September 30, 1999 from the comparable period last year due
to an increase in the sales force and related marketing expenditures for
the promotion of new and existing products.
Employee compensation and benefits increased 33% for the three months
ended September 30, 1999 from the comparable period last year. This
increase is due to (i) a severance payment to the former President and
Chief Executive Officer and (ii) an increase in staffing levels at
September 30, 1999 as compared to September 30, 1998.
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Sub-advisory fees paid to the sub-advisor of IIF decreased 9% for the
three months ended September 30, 1999 from the comparable period last
year, due to the decrease in average net assets of IIF.
General and administrative expenses increased 54% for the three months
ended September 30, 1999 from the comparable period last year as a result
of the expensing of certain fund organization costs resulting from the
adoption of Statement of Position No. 98-5, Reporting on the Cost of
Start-Up Activities and the outsourcing of certain technology related
services to an unrelated third party.
IMI voluntarily limits total fund expenses for certain Funds and bears
expenses in excess of such limits. The increase of 55% for the three
months ended September 30, 1999 from the comparable period last year
resulted from a decrease in the average net assets of many of the Funds
that IMI reimburses and the introduction of five new funds in July 1999
for which IMI voluntarily limits expenses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources are primarily derived from the operating
cash flows received by the Company from managing and providing investment
advisory services to the mutual funds offered in the U.S. and from
providing sub-advisory services to the Canadian Funds. The Company manages
its resources to ensure the availability of sufficient cash flows to meet
all of its financial commitments.
In March 1999, the Class B deferred selling commission asset was sold to
an unrelated third party resulting in net proceeds of approximately $21
million. The cash received will be used for general corporate purposes.
The Company estimates that cash flows in fiscal year 2000 will decrease by
approximately $8 million due to the estimated decrease in 12b-1
Distribution fees and redemption fees resulting from the transaction. In
March 1999, the Company repaid BankBoston, N.A. all amounts outstanding
under its credit facility, which was used to fund the commissions paid to
brokers.
The Company's cash and cash equivalents decreased by $18.9 million at
September 30, 1999 from the balance at March 31, 1999. The decrease
resulted from the payment of federal and state income taxes of $9.2
million, purchases of short-term investments of $7.1 million, purchases of
property and equipment of $362,000, principally consisting of computer
equipment and software enhancements, and the purchase and retirement of
the Company's common stock for $1,593,000.
Included in cash equivalents at September 30, 1999 are $23.0 million of
short-term investments that can be readily converted into cash.
The payment of deferred selling commissions to broker/dealers decreased to
$1.3 million for the six months ended September 30, 1999 as compared to
$2.5 million for the six months ended September 30, 1998. Commissions
payments made during the six-month periods ended September 30, 1999 and
1998 were funded internally from operations.
On October 13, 1999, the Corporation entered into a $10 million line of
credit agreement with the First Union National Bank. The line of credit
has a term of 364 days and is available for general working capital and
short-term capital expenditure needs.
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YEAR 2000 PROJECT
The Company's year 2000 project plan has included discovery, assessment,
remediation, system testing, contingency planning and internal
certification. The Company has completed 100% of the assessment,
remediation and system testing for internal mission critical information
technology and non-information technology systems. Internal systems have
been certified as being year 2000 compliant. The Company continues
integration testing among internal systems. The Company continues testing
with third-party vendors of mission-critical information technology
systems as well. The testing is precautionary and will continue through
the end of calendar year 1999.
To date, the Company's expenditures for year 2000 project plan have not
been significant to its operations. Mission critical systems are provided
by third parties who have been primarily responsible for compliance.
Existing staff has been redeployed to address the year 2000 project. The
Company does not believe that the redeployment of existing staff has had
or will have a material adverse effect on its business, results of
operations or financial position.
The impact of year 2000 issues on the Company will depend not only on the
corrective actions that it takes, but also on the way in which year 2000
issues are addressed by businesses and other third parties that provide
services or data to, or receive services or data from, the Company. To
reduce this exposure, the Company has an on-going process of contacting
mission critical third-party vendors to determine their year 2000 plans
and target dates. As of October 25, 1999, the Company has not been advised
by any such third-party vendors that they will not be year 2000 compliant.
However, in many cases, the Company is not in a position to verify the
accuracy or completeness of the information it receives from third parties
and as a result is dependent on their willingness and ability to disclose,
and to address, their year 2000 problems. While the Company has received
assurances from its critical vendors regarding year 2000 compliance, such
assurances have been qualified and it is not clear whether or not such
assurances are legally enforceable. Thus, notwithstanding the Company's
efforts, there can be no assurance that mission critical third-party
vendors will adequately address their year 2000 issues.
The Company has developed contingency plans to address risks associated
with year 2000 issues. These activities include retaining and testing
off-site recovery procedures with a third party service to ensure that
computer and communications hardware will function. In addition, the
Company is developing and testing manual procedures as alternatives to
mission critical processes.
Until the year 2000 event actually occurs and for a period of time
thereafter, there can be no assurance that there will be no problems
related to year 2000. If year 2000 issues are not adequately addressed by
the Company and third parties, the Company could face, among other things,
business disruptions, operational problems, financial losses, legal
liability and similar risks, and the Company's business, results of
operations and financial position could be materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
10
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are currently no legal proceedings pending to which the Company is a
party or of which any of its property is the subject. Further, there are
no material legal proceedings to which any director, officer, or affiliate
of the Company or any associate thereof is a party adverse to the Company.
There are no material administrative or judicial proceedings pending or
known to be contemplated by any governmental authorities.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Company's Annual and Special Meeting of Shareholders held on
September 9, 1999, the election of the Board of Directors' nominees was
approved, the appointment of the auditors and the authorization of the
directors to fix the remuneration of the auditors was approved, and the
resolution of the Board of Directors increasing the maximum number of
shares available for issue under the Stock Option Plan was approved.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
EXHIBITS DESCRIPTION
-------- -----------
27.1 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/ KEITH J. CARLSON
- ------------------------------
Keith J. Carlson President and Chief Executive Officer October 25, 1999
/s/ C. WILLIAM FERRIS
- ------------------------------
C. William Ferris Senior Vice President, Chief Financial October 25, 1999
Officer and Secretary/Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,167
<SECURITIES> 7,079
<RECEIVABLES> 6,703
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,949
<PP&E> 3,931
<DEPRECIATION> (2,598)
<TOTAL-ASSETS> 60,679
<CURRENT-LIABILITIES> 8,294
<BONDS> 0
0
0
<COMMON> 188
<OTHER-SE> 52,197
<TOTAL-LIABILITY-AND-EQUITY> 60,679
<SALES> 0
<TOTAL-REVENUES> 29,534
<CGS> 0
<TOTAL-COSTS> 26,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,173
<INCOME-TAX> 1,499
<INCOME-CONTINUING> 1,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,674
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
