SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10994
______________
For the quarterly period ended June 30, 1996
PHOENIX DUFF & PHELPS CORPORATION
DELAWARE 95-4191764
(State of Incorporation) (I.R.S. Employer
Identification No.)
56 Prospect St.,
Hartford,Connecticut 06115-0480 (860)403-5000
(Address of principal executive offices) (Registrant's telephone number)
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 been subject to such filing requirements for the past
90 days. Yes X No
--- ---
On July 31, 1996, the registrant had 43,881,916 shares of $.01 par
value common stock outstanding.
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 1996
Index
PART I - FINANCIAL INFORMATION:
ITEM 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition 3
June 30, 1996 and December 31, 1995
Consolidated Statements of Income - 4
Three Months Ended June 30, 1996 and
Three Months Ended June 30, 1995
Consolidated Statements of Income - 5
Six Months Ended June 30, 1996 and
Six Months Ended June 30, 1995
Consolidated Condensed Statements of Cash Flows - 6
Six Months Ended June 30, 1996 and
Six Months Ended June 30, 1995
Notes to the Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 10-13
PART II - OTHER INFORMATION:
ITEM 4. Submission of Matters to a Vote of Security Holders 14
Signatures 14
ITEM 6. EXHIBIT AND REPORTS OF FORM 8K
Exhibit 27 - Financial Data Schedule
<PAGE>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Condensed Statements of Financial Condition
(In thousands)
<TABLE>
(Unaudited)
June 30, December 31,
1996 1995
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 14,538 $ 16,306
Marketable securities, at market 3,895 3,473
Accounts receivable 27,977 32,024
Prepaid expenses and other assets 2,954 1,816
--------- ---------
Total current assets 49,364 53,619
Deferred commissions 16,818 13,139
Furniture, equipment and leasehold improvements, net 8,677 8,262
Goodwill and intangible assets, net 232,427 230,569
Investment in Beutel, Goodman & Company Ltd. 37,250 39,730
Long-term investments and other assets 12,366 11,300
--------- ---------
Total assets $ 356,902 $ 356,619
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 11,495 $ 12,317
Payables to related parties 3,609 11,833
Broker-dealer payable 8,247 8,520
--------- ---------
Total current liabilities 23,351 32,670
Deferred taxes 31,480 30,572
Long-term debt 25,100 23,500
Lease obligations and other long-term liabilities 9,035 10,358
--------- ---------
Total liabilities 88,966 97,100
--------- ---------
Contingent Liabilities
Series A Convertible Exchangeable Preferred Stock 78,320 78,029
--------- ---------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000
shares authorized, 43,723,521 and 43,563,521 shares
issued and outstanding 437 436
Additional paid-in capital 183,123 181,700
Retained earnings 6,995
Net unrealized loss on securities available for sale (411) (192)
Foreign currency translation (528) (454)
--------- ---------
Total stockholders' equity 189,616 181,490
--------- ---------
Total liabilities and stockholders' equity $ 356,902 $ 356,619
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three months ended June 30,
1996 1995
<S> <C> <C>
Revenues
Investment management fees $ 29,691 $ 19,429
Mutual funds - ancillary fees 4,550 4,279
Financial consulting fees 1,880
Underwriting fees 772 279
Investment research and securities revenue 1,164
Other income and fees 1,070 1,046
--------- ---------
Total revenues 39,127 25,033
--------- ---------
Operating Expenses
Employment expenses 15,911 7,191
Other operating expenses 9,989 8,091
Depreciation and amortization of
leasehold improvements 574 176
Amortization of goodwill and intangible assets 2,422 466
Amortization of deferred commissions 1,192 2,241
--------- ---------
Total operating expenses 30,088 18,165
--------- ---------
Operating Income 9,039 6,868
--------- ---------
Other Income - Net 710
--------- ---------
Interest Expense - Net
Interest expense 435 569
Interest income (508) (373)
--------- ---------
Total interest expense - net (73) 196
--------- ---------
Income before income taxes 9,822 6,672
Provision for income taxes 3,230 3,091
--------- ---------
Net Income 6,592 3,581
Series A preferred stock dividends 1,173
--------- ---------
Income available to common stockholders $ 5,419 $ 3,581
========= =========
Weighted average shares outstanding
Primary 44,263
Fully diluted 54,125
Earnings per share
Primary $ .12
Fully diluted $ .12
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
<TABLE>
Six months ended June 30,
1996 1995
<S> <C> <C>
Revenues
Investment management fees $ 60,299 $ 38,198
Mutual funds - ancillary fees 8,808 8,434
Financial consulting fees 5,050
Underwriting fees 1,367 585
Investment research and securities revenue 2,649
Other income and fees 2,139 1,858
--------- ---------
Total revenues 80,312 49,075
--------- ---------
Operating Expenses
Employment expenses 32,188 14,150
Other operating expenses 20,013 15,849
Depreciation and amortization of
leasehold improvements 1,084 402
Amortization of goodwill and intangible assets 4,830 932
Amortization of deferred commissions 2,624 4,102
--------- ---------
Total operating expenses 60,739 35,435
--------- ---------
Operating Income 19,573 13,640
--------- ---------
Other Income - Net 3,513
--------- ---------
Interest Expense - Net
Interest expense 910 1,207
Interest income (981) (720)
--------- ---------
Total interest expense - net (71) 487
--------- ---------
Income before income taxes 23,157 13,153
Provision for income taxes 9,452 6,093
--------- ---------
Net Income 13,705 7,060
Series A preferred stock dividends 2,345
--------- ---------
Income available to common stockholders $ 11,360 $ 7,060
========= =========
Weighted average shares outstanding
Primary 44,258
Fully diluted 54,122
Earnings per share
Primary $ .26
Fully diluted $ .25
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
Six months ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,705 $ 7,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,084 402
Amortization of goodwill and intangible assets 4,830 932
Amortization of deferred commissions 2,624 4,102
Payment of deferred commissions (6,303) (1,985)
Changes in other operating assets and liabilities (8,918) (1,979)
Unrealized (appreciation) depreciation
on mutual fund investments 64 (213)
--------- ---------
Net cash provided by operating activities 7,086 8,319
--------- ---------
Cash flows from investing activities:
Duff & Phelps Capital Markets transaction (2,970)
Purchase of marketable securities, net (486) (184)
Change in long-term investments, net 1,120
Capital expenditures, net (2,075) (416)
--------- ---------
Net cash used in investing activities (4,411) (600)
--------- ---------
Cash flows from financing activities:
Repayment under note payable agreement (4,794)
Borrowing of long-term debt 1,600
Dividends paid (6,709)
Proceeds from issuance of stock 666
--------- ---------
Net cash used in financing activities (4,443) (4,794)
--------- ---------
Net (decrease) increase in cash and cash equivalents (1,768) 2,925
Cash and cash equivalents, beginning of period 16,306 11,433
--------- ---------
Cash and cash equivalents, end of period $ 14,538 $ 14,358
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Phoenix Duff & Phelps Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Phoenix Duff &
Phelps Corporation (PDP or the Company) included herein have been
prepared in accordance with the instructions to Form 10-Q pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes included in PDP's
Annual Report incorporated by reference in PDP's Form 10-K for the
year ended December 31, 1995.
The accompanying consolidated financial statements for the second quarter
and six months of 1995 include only the accounts of Phoenix Securities
Group, Inc. (PSG) and its wholly-owned subsidiaries.
2. Organization
As described more fully in Notes 1 and 3 to PDP's Annual Report for
the year ended December 31, 1995, PDP was formed on November 1, 1995
when PSG merged into Duff & Phelps Corporation (D&P) (the Merger).
The transaction has been accounted for as a purchase of D&P by PSG
and these financial statements reflect management's current estimate
of the purchase price allocation which is in the process of being
finalized.
3. Dividends
For the period ended June 30, 1996, earnings per share were computed
using weighted average shares of common stock and common stock
equivalents outstanding. Common stock equivalents are based on
outstanding stock options under nonqualified stock option plans.
On August 6, 1996, the Company's Board of Directors approved quarterly
dividends of $.05 per common share and $.375 per preferred share,
payable September 10, 1996 to stockholders of record on August 29, 1996.
4. Investment in Beutel, Goodman & Company Ltd.
At June 30, 1996, PDP had a 49% interest in the outstanding common
stock of Beutel, Goodman & Company Ltd. (BG). BG is a Canadian-based
investment counseling firm with approximately $8.9 billion in assets
under management at June 30, 1996. In addition, PDP held
approximately $5.9 million of 8.5% BG debentures due 2003.
The June 30, 1996 consolidated condensed statement of financial
condition and income statement contain the following components
related to the BG investment (in thousands):
Statement of Financial Condition:
<TABLE>
<S> <C>
Acquisition costs of investment in BG's
common stock and debentures $ 36,578
Equity in BG net income 2,294
Dividends received (171)
Amortization of BG acquisition costs (923)
Currency translation adjustments (528)
---------
Total BG investment $ 37,250
---------
Statement of Income:
Interest income - BG debentures $ 298
</TABLE> =========
7
<PAGE>
The PDP consolidated condensed statement of financial condition
contains currency translation adjustments, related to the investment in
BG, as a component of stockholders' equity. These losses, resulting from
the translation of foreign currency, are deferred and accumulated in
stockholders' equity until the investment in BG is sold or substantially
liquidated.
The following reflects summarized BG financial information for the
six months ended June 30, 1996 (in thousands):
Total revenues $ 14,000
Net income 3,300
5. CBO Investments
For the six months ended June 30, 1996, the Company's equity
interests, inclusive of unrealized losses on securities, in the
earnings of D&P CBO Partners, L.P. and Windy City CBO Partners, L.P.
(WCCBO) were zero and $622,000, respectively. The Company's undistributed
earnings in investments at June 30, 1996 in D&P CBO Partners, L.P.
and Windy City CBO Partners, L.P. were zero and $8.0 million,
respectively. In addition, the Company received management fees of
approximately $271,000 from Windy City CBO Partners, L.P. for the
six month period ended June 30, 1996.
6. Capital Markets
On May 14, 1996 the Company announced that it was exiting the fee
based investment research and financial consulting business.
Substantially all of the fee based investment research activities were
immediately closed and on July 1, 1996 the Company completed the sale
of certain assets of the financial consulting and underwriting businesses
to several former key executives. The divestitures were contemplated at
the time of the Merger. The financial effects of these divestitures were
treated as adjustments to the purchase price relating to the Merger.
7. Second quarter 1996 compared to pro forma second quarter 1995
PDP results from the Merger on November 1, 1995 of the businesses of
PSG and D&P. The Merger was accomplished by the contribution by PM
Holdings, Inc. (PSG's parent) of the businesses and substantially all
of the assets of PSG to D&P in exchange for an approximately 60%
interest in the combined entity. The Merger was accounted for as an
acquisition of D&P by PSG using the purchase accounting method (a
"reverse acquisition"). Under this accounting treatment, the 1995
financial statements include the operations of PSG prior to the Merger
and do not include the operations of D&P or reflect certain adjustments
associated with the Merger. Because this accounting treatment makes it
difficult to analyze and compare the historical financial statements,
management believes the most meaningful financial presentation for the
second quarter, and first six months of 1995 is on a pro forma basis.
The following pro forma financial information for the three and six
months ended June 30, 1995 is derived from the historical financial
statements of PSG and D&P, and gives effect to the Merger of PSG and
D&P and certain transactions effected by PSG and D&P in connection
with the Merger. The pro forma financial information has been
prepared assuming these transactions and arrangements were effected
on January 1, 1995.
8
<PAGE>
The financial information for the three and six months ended June 30,
1996 reflect actual results for the periods. The 1995 pro forma
information does not necessarily reflect the actual results
that would have been obtained had the Merger taken effect on the
aforementioned assumed date.
<TABLE>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
Actual Pro Forma Actual Pro Forma
-------------------- -------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 39,127 $ 41,071 $ 80,312 $ 80,416
--------- --------- --------- ---------
Expenses
Employment expenses 15,911 14,380 32,188 27,913
Other expenses 11,755 13,590 23,721 26,559
Amortization of goodwill
and intangible assets 2,422 2,422 4,830 4,830
--------- --------- --------- ---------
30,088 30,392 60,739 59,302
--------- --------- --------- ---------
Operating Income 9,039 10,679 19,573 21,114
Other Income - Net 710 825 3,513 1,352
Interest Expense - Net (73) (44) (71) (131)
--------- --------- --------- ---------
Income before income taxes 9,822 11,548 23,157 22,597
Provision for income taxes 3,230 5,020 9,452 9,931
--------- --------- --------- --------
Net Income $ 6,592 $ 6,528 $ 13,705 $ 12,666
========= ========= ========= =========
Earnings per common and common
equivalent share
Primary $ 0.12 $ 0.12 $ 0.26 $ 0.24
Assuming full dilution $ 0.12 $ 0.12 $ 0.25
</TABLE>
8. Recent Accounting Pronouncement
Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of", was adopted by PDP in 1996. SFAS
No. 121 mandates specific methodologies to be used for identifying
and measuring the impairment of long-lived assets. Management has
determined that the adoption of SFAS No. 121 did not materially
impact the consolidated financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Assets Under Management
- ------------------------
At June 30, 1996, Phoenix Duff & Phelps had $34.1 billion of assets
under management, down $2.2 billion (6.0%) from June 30, 1995, on a pro
forma basis and $227 million (.7%) from March 31, 1996. Since the revenues
of the Company are substantially based upon assets under management this
information is important to an understanding of the business.
<TABLE>
Pro Forma Actual Actual Actual
June 30, December 31, March 31, June 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Open-end mutual funds $ 10,501 $ 11,141 $ 11,508 $ 11,664
Closed-end funds 2,827 3,056 2,844 2,949
Institutional 16,895 14,626 13,442 12,860
General account 6,018 6,223 6,501 6,595
--------- --------- --------- ---------
$ 36,241 $ 35,046 $ 34,295 $ 34,068
========= ========= ========= =========
</TABLE>
Three Months Ended June 30, 1996 Compared With Three Months Ended
- -----------------------------------------------------------------
June 30, 1995 - Historical
- --------------------------
The historical financial statements reflect the results of operations of
PSG only for the second quarter of 1995 and the consolidated results of
the Company for the second quarter of 1996.
Revenues for the three months ended June 30, 1996 were $39.1 million, a
$14.1 million (56%) increase from the $25.0 million in revenues for the
corresponding period in 1995 reflecting the inclusion of $14.1 million
of D&P's revenues in 1996.
Operating expenses for the three months ended June 30, 1996 of $30.1 million
increased by $11.9 million (66%) from $18.2 million for the corresponding
period in 1995 reflecting the inclusion of $10.3 million of D&P's operating
expenses in 1996. PSG's operating expenses increased $1.6 million for the
three months ended June 30, 1996 over the same period in 1995. PSG's employment
expenses increased $1.5 million principally due to increased sales based and
performance based compensation and annual salary adjustments. Amortization
of goodwill and intangible assets, a non-cash expense, increased $1.6 million
in the second quarter of 1996 reflecting amortization of goodwill and
intangible assets resulting from the Merger. These increases were offset
principally by decreases in PSG's other operating expenses ($803,000) and
amortization of deferred commissions ($1.0 million).
Operating income increased $2.2 million (32%) to $9.0 million for the three
months ended June 30, 1996 compared to the same period in 1995 as a result
of the changes discussed above.
Net income of $6.6 million in the second quarter of 1996 reflects an increase
of $3.0 million (84%) over the same period in 1995 resulting from the effects
of the increased operating income and expenses, as discussed above, and a
decrease in interest expense of $134,000 reflecting the difference in interest
charged in 1995 on PSG's note payable, which was converted to stock at the time
of the Merger, and that charged in 1996 on the revolving credit facility.
The effective tax rate decreased from 46% in the second quarter of 1995 to
33% in 1996 principally as a result af change enacted by the state of
Connecticut in May 1996 which modified the method of apportioning income for
investment advisors. The change was retroactive to January 1, 1996.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30,
- -----------------------------------------------------------------------
1995 - Historical
- -----------------
The historical financial statements reflect the results of operations of
PSG only for the six months ended June 30, 1995 and the consolidated results
of the Company for the same period in 1996.
10
<PAGE>
Revenues for the six months ended June 30, 1996 were $80.3 million, a
$31.2 million (64%) increase from the $49.1 million for the corresponding
period in 1995 reflecting the inclusion of $29.9 million of D&P's revenues
in 1996 and a $1.3 million increase in PSG's revenues resulting principally
from increased fees earned managing Phoenix Home Life Mutual Insurance
Company's (PHL) general account and PHL sponsored variable products
($1.5 million), offset in part by the loss of certain institutional accounts.
Operating expenses for the six months ended June 30, 1996 of $60.7
million increased by $25.3 million (71%) from $35.4 million from the
corresponding period in 1995 reflecting the inclusion of $22.2 million of
D&P's operating expenses in 1996. PSG's expenses increased by $3.1 million
in 1996 over the same period in 1995. PSG had increased employment expenses
of $3.1 million related, in part, to sales based and performance based
incentive compensation. Amortization of goodwill and intangible assets,
a non-cash expense, increased $3.2 million as a result of the Merger.
Offsetting these increases were reductions in other operating expenses
relating to cost savings achieved by the Merger and reduced amortization
of deferred commissions.
Operating income increased $5.9 million (43%) to $19.6 million for the
six months ended June 30, 1996 compared to the same period in 1995 as
a result of the changes discussed above.
Net income for the six months ended June 30, 1996 of $13.7 million reflects
an increase of $6.6 million (93%) over the $7.1 million for the same period
in 1995, resulting from the effects of the increased operating income and
expenses, as discussed above. In addition, interest expense decreased in 1996,
when interest was charged on the revolving credit facility, as compared to
1995 when interest was charged on PSG's note payable which was converted to
preferred stock at the time of the Merger. The effective tax rate decreased
from 46% for the first six months of 1995 to 41% in 1996 as a result of a
change in the tax law enacted by the state of Connecticut in May of 1996
which modified the method of apportioning income for investment advisors.
This change was retroactive to January 1, 1996.
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30,
- --------------------------------------------------------------------------
1995 - Pro Forma (See Note 7)
- ------------------------------
Investment management fees of $29.7 million for the three months ended
June 30, 1996 were down $1.0 million (3%) over the pro forma results of
$30.7 million for the same period a year ago as a result of lower overall
assets under management due principally to the loss of certain institutional
accounts. The most significant account loss (and one that was known at the
time of the Merger) was the AAL Mutual Funds account which generated fees
for the Company of approximately $1.0 million in the second quarter of 1995.
Financial consulting fees of $1.9 million earned by Duff & Phelps Capital
Markets Co. for the three months ended June 30, 1996 were $760,000 lower
than the $2.6 million earned in 1995. This reduction was the result of a
decrease in consulting activities at Duff & Phelps Capital Markets Co.
after it was announced on May 14, 1996 that the consulting business was
being sold to certain key executives of Duff & Phelps Capital Markets Co.
This sale was contemplated at the time of the Merger.
(See Note 6 to the financial statements.)
Investment research and securities revenues of $1.2 million decreased
$361,000 (24%) for the three months ended June 30, 1996 as compared to
$1.5 million for the same period in the prior year primarily as a result
of the fee based investment research and securities businesses being
closed down in May of 1996.
Underwriting fees of $772,000 for the second quarter of 1996 were up by
$414,000 from $358,000 for the same period in 1995 as a result of increased
sales of retail mutual funds and securities underwriting.
Employment expenses of $15.9 million for the second quarter of 1996 were up
$1.5 million (11%) over the second quarter of 1995 as a result of increased
sales based incentive compensation due to the aforementioned increased sales
of mutual funds, the expansion of the sales force and the effect of salary
adjustments. In addition, certain costs associated with data processing
activities previously performed by PHL personnel, and which were charged to
the Company as an administrative cost and included in other operating
expenses, are included in employment expenses in 1996 as these activities
are now performed by Company personnel. The costs associated with these data
processing activities were approximately $500,000 in the second quarter of
1996. The increases in employment expenses were offset, in part, by the
decreases in commissions, payroll and bonus costs for the employees of
Duff & Phelps Capital Markets Co., Duff & Phelps Securities Co., and Duff &
Phelps Investment Research. As discussed previously, the financial
consulting and underwriting businesses of Duff & Phelps Capital Markets Co.
were sold to former key executives, and the fee based research operations
were discontinued on May 14, 1996.
11
<PAGE>
Other operating expenses decreased $1.0 million (9%) to $10.0 million in the
second quarter of 1996 from $11.0 million for the second quarter of 1995.
The decrease is attributable, in part, to approximately $500,000 less in
data processing costs in the second quarter of 1996 as compared to the same
period in 1995 due to the change discussed above. The remaining reduction
can be attributed to $1.0 million in costs savings achieved in Chicago
including savings related to the divestiture of Duff & Phelps Capital Markets.
These decreases were partially offset by an increase of $250,000 in the cost
for sales seminars and training in the second quarter of 1996. Amortization
of deferred commissions of $1.2 million for the second quarter of 1996 was
down $1.0 million from the second quarter of 1995.
Other Income - Net of $710,000 for the second quarter of 1996 declined
$115,000 as compared to the same period in 1995 due, in large part, to
a net decrease in the equity income earned by the Company on its
investments in WCCBO and BG.
The provision for income taxes of $3.2 million for the second quarter of
1996 declined by $1.8 million from the second quarter of 1995. This decline
is attributable to a change enacted by the state of Connecticut in May of
1996, in the method of apportioning income for investment advisors, which
resulted in a decline in the Company's effective tax rate from 43% for the
second quarter of 1995 to 33% for the second quarter of 1996. The change was
retroactive to January 1, 1996, and the six month effect was recognized in
the second quarter of 1996.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30,
- ----------------------------------------------------------------------
1995 - Pro Forma (See Note 7.)
- ------------------------------
Investment management fees of $60.3 million for the six months ended
June 30, 1996 were consistent with the pro forma results of $60.4 million
for the same period in 1995. Investment management fees remained consistent
in spite of reduced fees related to the loss of the AAL Mutual Funds account,
which generated $1.9 million in fees in the first six months of 1995, due to
increased fees earned for managing PHL's general account and PHL sponsored
variable products of $1.5 million.
Financial consulting fees of $5.0 million earned by Duff & Phelps Capital
Markets Co. for the six months ended June 30, 1996 were consistent with the
fees earned during the same period a year ago. Reduced fees in the second
quarter of 1996, resulting from the decrease in consulting activities at
Duff & Phelps Capital Markets Co., certain assets of which were subsequently
sold on July 1, 1996, offset the gains realized in the first quarter of 1996.
Investment research and securities revenues of $2.7 million decreased
$440,000 (14%) for the six months ended June 30, 1996 as compared to $3.1
million for the same period in the prior year primarily as a result of the
closure, in May of 1996, of the fee based investment research and securities
businesses.
Underwriting fees of $1.4 million for the six months ended June 30, 1996
were up $700,000 from $665,000 in the first six months of 1995 due to
increased sales of retail mutual funds and securities underwriting.
Other income and fees of $2.1 million in the first six months of 1996 were
down $700,000 from $2.8 million for the same period in 1995 as a result
of a reduction in redemption income.
Employment expenses of $32.2 million for the six months ended June 30, 1996
were up $4.3 million (15%) over the first six months of 1995. This increase
resulted from the previously discussed inclusion of $1.0 million in payroll
costs associated with data processing activities, increased sales based and
performance based incentive compensation of $1.3 million as well as annual
salary adjustments for the Company's employees.
12
<PAGE>
Other operating expenses decreased $1.6 million from $21.6 million for the
first six months of 1995 to $20.0 million in 1996. As previously discussed,
the Company experienced a decrease in administrative costs, related to data
processing, of approximately $1.0 million. In addition, there were decreases
in professional fees and other service costs, and 1995 included a nonrecurring
bad debt expense of $419,000.
Depreciation, a non-cash expense, increased by $228,000 from $856,000 for
the period ended June 30, 1995 compared to $1.1 million in the first half
of 1996 due to the Company's January 1, 1996 purchase of assets from PHL.
Amortization of deferred commissions of $2.6 million for the six months ended
June 30, 1996 was down $1.5 million from the same period in 1995.
Other Income - Net of $3.5 million for the six months ended June 30, 1996
increased $2.2 million as compared to the same period in 1995 due to the
Company's share of the earnings of Duff & Phelps/Inverness LLC joint venture
income of $1.5 million in the first quarter of 1996 relating to the
recognition of the joint venture's advisory fee income on a significant
first quarter transaction and an increase in the equity income earned
from WCCBO and BG.
The provision for income taxes of $9.5 million for the six months ended
June 30, 1996 declined $479,000 from the same period in 1995. This reduction
is attributable to the change in Connecticut tax law (previously discussed),
which essentially reduced the Company's overall effective state income tax
rate, offset in part by a $560,000 increase in pretax earnings.
Liquidity and Capital Resources
- -------------------------------
PDP has $14.5 million of cash and cash equivalents at June 30, 1996.
The cash is available for general corporate purposes including the
financing of brokers' commissions with respect to sales of mutual funds
distributed without a front-end load.
The Company's bank credit agreement provides for a $40.0 million, three
year revolving credit facility. As of June 30, 1996, $25.1 million was
outstanding. The credit agreement contains financial and operating
covenants, with which the Company is in compliance, including, among other
provisions, requirements that the Company maintain certain financial ratios
and satisfy certain financial tests, restrictions on the ability to incur
indebtedness, and limitations on the amount of the Company's capital
expenditures. Commitment fees are accrued on the unused facility at a rate
of .25% per annum and are paid quarterly.
The Company believes that funds from operations and amounts available
under the credit agreement will provide adequate liquidity for the
foreseeable future.
13
<PAGE>
Part II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the registrant was held
May 13, 1996 for the election of directors.
(b) The following persons were re-elected Directors of the registrant
and each continued to hold office after the meeting:
John T. Anderson
Richard H. Booth
Glen D. Churchill
Robert W. Fiondella
Martin J. Gavin
Chester A. Gougis
Michael E. Haylon
Francis E. Jeffries
Marilyn E. LaMarche
Edward P. Lyons
Philip R. McLoughlin
James M. Oates
Calvin J. Pedersen
Wayne C. Stevens
Donna F. Tuttle
Ferdinand Verdonck
David A. Williams
(c) The election of directors was the only matter submitted to vote
of the shareholders. The results of that vote are as follows:
Candidate: For: Against/Withheld: Abstain/Nonvote:
- -------- ---- ---------------- ----------------
John T. Anderson 40,320,782 74,002 0
Richard H. Booth 40,330,782 64,002 0
Glen D. Churchill 40,320,782 74,002 0
Robert W. Fiondella 40,330,782 64,002 0
Martin J. Gavin 40,330,782 64,002 0
Chester A. Gougis 40,320,782 74,002 0
Michael E. Haylon 40,330,782 64,002 0
Francis E. Jeffries 40,330,782 64,002 0
Marilyn E. LaMarche 40,330,782 64,002 0
Edward P. Lyons 40,330,782 64,002 0
Philip R. McLoughlin 40,330,782 64,002 0
James M. Oates 40,330,782 64,002 0
Calvin J. Pedersen 40,330,782 64,002 0
Wayne C. Stevens 40,320,782 74,002 0
Donna F. Tuttle 40,330,782 64,002 0
Ferdinand Verdonck 40,330,782 64,002 0
David A. Williams 40,330,782 64,002 0
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.
Phoenix Duff & Phelps Corporation
/S/Francis E. Jeffries
August 14, 1996 -----------------------------------------------
Francis E. Jeffries, Chairman
/S/Philip R. Mcloughlin
August 14, 1996 -----------------------------------------------
Philip R. McLoughlin, Vice Chairman and CEO
/S/William R. Moyer
August 14, 1996 -----------------------------------------------
William R. Moyer, Chief Financial Officer
14
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