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, 1998
PHOENIX INVESTMENT PARTNERS, LTD.
DELAWARE 95-4191764
(State of Incorporation) (I.R.S. Employer Identification No.)
56 Prospect St., Hartford, Connecticut 06115-0480 (860) 403-7667
(Address of principal executive offices) (Registrant's telephone number)
PHOENIX DUFF & PHELPS CORPORATION
(Former name)
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 X No ___
On July 31, 1998, the registrant had 44,261,832 shares of $.01 par value common
stock outstanding.
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD. AND SUBSIDIARIES
Quarter Ended June 30, 1998
Index
PART I - FINANCIAL INFORMATION:
Page
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition. 3
June 30, 1998 and December 31, 1997
Consolidated Statements of Income ....................... 4
Three Months Ended June 30, 1998 and
Three Months Ended June 30, 1997
Consolidated Statements of Income ....................... 5
Six Months Ended June 30, 1998 and
Six Months Ended June 30, 1997
Consolidated Condensed Statements of Cash Flows ......... 6
Six Months Ended June 30, 1998 and
Six Months Ended June 30, 1997
Notes to the Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition............ 13
Liquidity and Capital Resources.......................... 21
Impact of the Year 2000 Issue............................ 22
Cautionary Statement Under Section 21E of the Securities
Exchange Act of 1934..................................... 23
PART II - OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 6. Exhibits and Reports on Form 8-K......................... 25
Signatures........................................................ 26
2
<PAGE>
PART I. Financial Information
Item 1. Consolidated Financial Statements
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Condensed Statements of Financial Condition
(in thousands)
(Unaudited)
June 30, December 31,
1998 1997
Assets
Current Assets
Cash and cash equivalents $ 17,979 $ 21,872
Marketable securities, at market 12,874 12,000
Accounts receivable 35,056 31,537
Prepaid expenses and other current assets 2,632 2,712
--------- --------
Total current assets 68,541 68,121
Deferred commissions 3,573 3,998
Furniture, equipment and leasehold improvements, net 9,679 10,071
Goodwill and intangible assets, net 457,163 468,117
Investment in Beutel, Goodman & Company Ltd. 28,633 29,884
Long-term investments and other assets 20,384 24,758
--------- --------
Total assets $ 587,973 $604,949
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other accrued liabilities $ 24,562 $ 25,742
Payables to related parties 4,394 3,135
Broker-dealer payable 9,066 9,157
Short-term notes payable 5,853
Current portion of long-term debt 2,271 2,241
--------- --------
Total current liabilities 40,293 46,128
Deferred taxes, net 61,131 66,020
Long-term debt, net of current portion 2,207 2,682
Convertible subordinated debentures 76,359
Credit facility 180,000 185,000
Lease obligations and other long-term liabilities 5,732 6,617
--------- --------
Total liabilities 365,722 306,447
--------- --------
Minority Interest 1,286 976
--------- --------
Series A Convertible Exchangeable Preferred Stock 78,827
--------- --------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 44,837,082 and 44,295,261 shares issued,
and 44,248,082 and 43,950,261 shares outstanding 448 444
Additional paid-in capital 191,870 188,566
Retained earnings 25,659 21,624
Accumulated other comprehensive income 7,598 10,674
Treasury stock, at cost, 589,000 and 345,000 shares (4,610) (2,609)
--------- --------
Total stockholders' equity 220,965 218,699
--------- --------
Total liabilities and stockholders' equity $ 587,973 $604,949
========= ========
The accompanying notes are an integral part of these statements.
3
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Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Three months ended June 30,
1998 1997
Revenues
Investment management fees $ 48,784 $ 26,839
Mutual funds - ancillary fees 6,468 5,331
Other income and fees 730 1,005
--------- --------
Total revenues 55,982 33,175
--------- --------
Operating Expenses
Employment expenses 22,289 15,257
Other operating expenses 14,859 8,852
Restructuring charges 198
Depreciation and amortization of
leasehold improvements 960 606
Amortization of goodwill and intangible assets 5,509 2,366
Amortization of deferred commissions 265 1,134
--------- --------
Total operating expenses 44,080 28,215
--------- --------
Operating Income 11,902 4,960
--------- --------
Equity in Earnings of Unconsolidated Affiliates 1,126 580
--------- --------
Other Income - Net 83 12
--------- --------
Gain on Sale 6,907
Interest (Expense) Income - Net
Interest expense (3,946) (209)
Interest income 472 330
--------- --------
Total interest (expense) income - net (3,474) 121
--------- --------
Income to Minority Interest (465)
Income Before Income Taxes 9,172 12,580
Provision for income taxes 4,041 5,253
--------- --------
Net Income 5,131 7,327
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustment (703) 66
Unrealized (losses) gains on securities available-for-sale (2,130) 4,507
Total other comprehensive income (2,833) 4,573
--------- --------
Comprehensive Income $ 2,298 $ 11,900
========= ========
Net Income $ 5,131 $ 7,327
Series A preferred stock dividends 34 1,189
--------- --------
Income available to common stockholders $ 5,097 $ 6,138
========= ========
Weighted average shares outstanding
Basic 44,321 44,084
Diluted 54,497 54,254
Earnings per share
Basic $ .12 $ .14
Diluted $ .11 $ .14
The accompanying notes are an integral part of these statements.
4
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Six months ended June 30,
1998 1997
Revenues
Investment management fees $ 94,438 $ 55,683
Mutual funds - ancillary fees 12,622 11,152
Other income and fees 1,379 2,226
--------- --------
Total revenues 108,439 69,061
--------- --------
Operating Expenses
Employment expenses 45,020 30,754
Other operating expenses 26,383 17,052
Restructuring charges 366
Depreciation and amortization of
leasehold improvements 1,873 1,247
Amortization of goodwill and intangible assets 11,013 4,731
Amortization of deferred commissions 605 2,836
--------- --------
Total operating expenses 85,260 56,620
--------- --------
Operating Income 23,179 12,441
--------- --------
Equity in Earnings of Unconsolidated Affiliates 2,055 (354)
--------- --------
Other Income (Expense) - Net 598 (217)
--------- --------
Gain on Sale 6,907
Interest (Expense) Income - Net
Interest expense (6,898) (449)
Interest income 867 623
--------- --------
Total interest (expense) income - net (6,031) 174
--------- --------
Income to Minority Interest (953)
Income Before Income Taxes 18,848 18,951
Provision for income taxes 8,292 7,865
--------- --------
Net Income 10,556 11,086
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustment (511) (131)
Unrealized (losses) gains on securities available-for-sale (2,565) 4,984
Total other comprehensive income (3,076) 4,853
--------- --------
Comprehensive Income $ 7,480 $ 15,939
========= ========
Net Income $ 10,556 $ 11,086
Series A preferred stock dividends 1,223 2,374
--------- --------
Income available to common stockholders $ 9,333 $ 8,712
========= ========
Weighted average shares outstanding
Basic 44,132 44,070
Diluted 54,162 44,479
Earnings per share
Basic $ .21 $ .20
Diluted $ .21 $ .20
The accompanying notes are an integral part of these statements.
5
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Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
Six months ended June 30,
1998 1997
Cash Flows from Operating Activities:
Net income $ 10,556 $11,086
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of
leasehold improvements 1,873 1,247
Amortization of goodwill and intangible assets 11,013 4,731
Amortization of deferred commissions 605 2,836
Income to minority interest 953
Equity in earnings of unconsolidated
affiliates, net of dividends 370 1,452
Payments of deferred commissions (180) (4,279)
Gain on sale of deferred commissions asset (6,907)
Changes in other operating assets (2,991) (127)
Changes in other operating liabilities (3,596) (1,599)
-------- -------
Net cash provided by operating activities 18,603 8,440
-------- -------
Cash Flows from Investing Activities:
Repayment of short-term notes from acquisition (5,853)
Capital expenditures, net (1,482) (1,211)
Distributions to minority interests (643)
Purchase of long-term investments (508) (2,220)
Other investing activities (883) 443
Proceeds from sale of deferred commissions asset 26,015
Proceeds from long-term investments 10,147
-------- -------
Net cash (used in) provided by investing activities (9,369) 33,174
-------- -------
Cash Flows from Financing Activities:
Repayment of debt, net (5,446) (16,500)
Dividends paid (6,797) (7,662)
Stock repurchases (2,002) (1,550)
Proceeds from issuance of stock 1,118 1,653
-------- -------
Net cash used in financing activities (13,127) (24,059)
-------- -------
Net (decrease) increase in cash and cash equivalents (3,893) 17,555
Cash and cash equivalents, beginning of period 21,872 22,466
Cash and Cash Equivalents, End of Period $ 17,979 $40,021
======== =======
Supplemental Cash Flow Information:
Interest paid $ 6,809 $ 458
Income taxes paid $ 13,140 $ 4,740
The accompanying notes are an integral part of these statements.
6
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Phoenix Investment
Partners, Ltd. and subsidiaries (PXP or the Company), formerly Phoenix Duff &
Phelps Corporation, included herein have been prepared in accordance with the
instructions to the Quarterly Report on 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 the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. Reclassifications have been made, when necessary, to
conform the prior period presentation to the current period presentation.
2. Recent Accounting Pronouncements
PXP adopted Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of financial statements. This statement
defines the components of comprehensive income as those items that were
previously reported only as components of equity and were excluded from the
Statement of Income. (See Note 5.)
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for fiscal years beginning after December 15,
1997. This statement requires the disclosure of different types of business
activities and economic environments of an enterprise, as they relate to a
specific segment. These disclosures are not required for interim periods in
the initial year.
As the above statements only address financial statement disclosure, they
have no impact on PXP's financial results.
3. Pro Forma Results
On July 17, 1997, PXP acquired a 74.9% majority interest in GMG/Seneca
Capital Management LLC (Seneca), a San Francisco-based investment advisor,
for approximately $37.5 million. On September 3, 1997, PXP acquired Pasadena
Capital Corporation (PCC), the parent company of Roger Engemann & Associates,
Inc., for approximately $214.0 million. Since PXP's financial statements for
the second quarter of 1997 do not reflect the operations of PCC and Seneca,
management believes that, for comparative purposes, the most meaningful
presentation of 1997 financial results is on a pro forma basis.
The following financial information for the three and six months ended June
30, 1998 reflects actual results for the quarter. The following pro forma
financial information for the three and six months ended June 30, 1997 is
derived from the historical financial statements of PXP, PCC and Seneca, and
gives effect to the acquisitions of PCC and a majority interest in Seneca by
PXP. The pro forma financial information has been prepared assuming these
acquisitions were effected on January 1, 1997 and does not reflect the actual
results that would have been obtained had the acquisitions actually taken
effect on the aforementioned assumed date.
7
<PAGE>
Three months ended June 30,Six months ended June 30,
1998 1997 1998 1997
Actual Pro Forma Actual Pro Forma
(in thousands, except per share amounts)
Revenues $55,982 $ 48,945 $108,439 $101,065
------- -------- -------- --------
Employment expenses 22,289 22,300 45,020 43,345
Other operating expenses 16,282 14,456 29,227 29,692
Amortization of goodwill
and intangible assets 5,509 5,509 11,013 11,013
------- -------- -------- --------
Operating income 11,902 6,680 23,179 17,015
Other income - net 1,209 12,526 2,653 11,364
Interest expense - net (3,474) (2,597) (6,031) (5,356)
Income to minority interest (465) (150) (953) (440)
------- -------- -------- --------
Income before income taxes 9,172 16,459 18,848 22,583
Provision for income taxes 4,041 6,860 8,292 9,823
------- -------- -------- --------
Net income $ 5,131 $ 9,599 $ 10,556 $ 12,760
======= ======== ======== ========
Earnings per share
Basic $ .12 $ .19 $ .21 $ .24
Diluted $ .11 $ .18 $ .21 $ .23
4. Dividends and Other Capital Transactions
On August 6, 1998, the Company's Board of Directors approved a quarterly
dividend of $.06 per common share, payable September 10, 1998, to
stockholders of record on August 28, 1998.
During the first quarter of 1998, PXP's Board of Directors voted to authorize
the exchange of the 3.2 million shares of Series A Convertible Exchangeable
Preferred Stock (Preferred Stock) for 6% Convertible Subordinated Debentures
(Debentures), due 2015. The exchange occurred on April 3, 1998. Holders of
outstanding Preferred Stock as of the exchange date received the $25.00
principal amount of the Debentures in exchange for each share of Preferred
Stock, including unpaid and accrued dividends. Interest on the Debentures for
the period from June 10, 1998 through September 9, 1998 will be payable on
September 10, 1998 to registered holders as of August 20, 1998.
As of June 30, 1998, the Company, in accordance with the previously announced
stock repurchase program, had purchased 589,000 shares of PXP common stock
for a total cost of $4.6 million.
5. Comprehensive Income
The components of, and related tax effects for, other comprehensive income
are as follows (in thousands):
Three Months Ended June 30, 1998 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
Foreign currency translation adjustment $ (1,192) $ 489 $ (703)
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising
during period (3,610) 1,480 (2,130)
-------- ------- --------
Other comprehensive income $ (4,802) $ 1,969 $ (2,833)
======== ======= ========
8
<PAGE>
Six Months Ended June 30, 1998 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
Foreign currency translation adjustment $ (866) $ 355 $ (511)
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising
during period (4,347) 1,782 (2,565)
-------- -------- -------
Other comprehensive income $ (5,213) $ 2,137 $(3,076)
======== ======== =======
Three Months Ended June 30, 1997 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
Foreign currency translation adjustment $ 112 $ (46) $ 66
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period 7,639 (3,132) 4,507
--------- -------- -------
Other comprehensive income $ 7,751 $ (3,178) $ 4,573
========= ======== =======
Six Months Ended June 30, 1997 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
Foreign currency translation adjustment $ (222) $ 91 $ (131)
-------- -------- --------
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period 8,020 (3,288) 4,732
Plus: reclassification adjustment for losses
realized in net income 427 (175) 252
--------- -------- -------
Net unrealized gains 8,447 (3,463) 4,984
--------- -------- -------
Other comprehensive income $ 8,225 $ (3,372) $ 4,853
========= ======== =======
The following tables summarize accumulated other comprehensive income
balances (in thousands):
As of June 30, 1998: Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income
Balance as of December 31, 1997 $ (1,171) $ 11,845 $ 10,674
Current period change (511) (2,565) (3,076)
---------- ---------- ----------
Balance as of June 30, 1998 $ (1,682) $ 9,280 $ 7,598
========== ========== ==========
As of December 31, 1997: Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income
Balance as of December 31, 1996 $ (330) $ 4,932 $ 4,602
Current period change (841) 6,913 6,072
---------- ---------- ----------
Balance as of December 31, 1997 $ (1,171) $ 11,845 $ 10,674
========== ========== ==========
9
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6. Earnings Per Share
For the periods ended June 30, 1998 and June 30, 1997, basic and diluted
earnings per share (EPS) were computed in accordance with SFAS No. 128,
"Earnings per Share." Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing net income,
adjusted for debenture interest, net of tax, by the weighted average number
of common stock equivalent shares outstanding for the period, with the
exception that common stock equivalents, and the related earnings effect, are
ignored in the event of anti-dilution. Common stock equivalents are computed
based on outstanding stock options under the non-qualified stock option
plans, the conversion of the subordinated debentures to common stock, in 1998
only, and the conversion of preferred stock to common stock.
The following tables reconcile PXP's basic earnings per share to diluted
earnings per share (in thousands, except per-share amounts):
Three Months Ended June 30, 1998
Per-Share
Income Shares Amount
Net income $ 5,131
Less: preferred stock dividends 34
Basic EPS
Income available to common
stockholders 5,097 44,321 $ .12
======
Effect of Dilutive Securities
Stock options 677
6% convertible debentures 652 9,499
Convertible preferred stock 34
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 5,783 54,497 $ .11
======= ====== ======
Six Months Ended June 30, 1998
Per-Share
Income Shares Amount
Net income $ 10,556
Less: preferred stock dividends 1,223
Basic EPS
Income available to common
stockholders 9,333 44,132 $ .21
======
Effect of Dilutive Securities
Stock options 531
6% convertible debentures 652 9,499
Convertible preferred stock 1,223
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 11,208 54,162 $ .21
======== ====== ======
10
<PAGE>
Three Months Ended June 30, 1997
Per-Share
Income Shares Amount
Net income $ 7,327
Less: preferred stock dividends 1,189
Basic EPS
Income available to common
stockholders 6,138 44,084 $ .14
======
Effect of Dilutive Securities
Stock options 280
Convertible preferred stock 1,189 9,890
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 7,327 54,254 $ .14
======= ====== ======
Six Months Ended June 30, 1997
Per-Share
Income Shares Amount
Net income $ 11,086
Less: preferred stock dividends 2,374
Basic EPS
Income available to common
stockholders 8,712 44,070 $ .20
======
Effect of Dilutive Securities
Stock options 409
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 8,712 44,479 $ .20
======= ====== ======
In accordance with SFAS No. 128, the computation of diluted earnings per
share and the respective weighted average diluted shares for the six months
ended June 30, 1997, excludes the effect of the conversion of the Preferred
Stock since these securities were anti-dilutive. Had the Preferred Stock not
been anti-dilutive, the weighted average number of diluted shares for the six
months ended June 30, 1997 would have been 54.4 million.
11
<PAGE>
7. Subsequent Events
On July 27, 1998, PXP purchased GMG/Seneca Capital Management L.P. for $.7
million, a transaction that was contemplated at the time of the Seneca
acquisition.
On July 30, 1998, PXP entered into a definitive agreement with Toronto-based
First International Asset Management, Inc. to sell PXP's investment in
Beutel, Goodman & Company Ltd. for US$57.5 million. As consideration, PXP
will receive $45.0 million in cash and a $12.5 million three-year interest-
bearing note. The transaction is expected to close by September 30, 1998
and is subject to Canadian regulatory approval.
12
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Business Description
Phoenix Investment Partners, Ltd. and subsidiaries (PXP or the Company) provide
a variety of financial services to a broad base of institutional, corporate and
individual clients. The original business of PXP's predecessor company, Duff &
Phelps Corporation (D&P), which was founded in 1932, was to provide clients with
investment research on public utility companies. D&P grew by expanding its
products and services in areas in which management believed its core investment
research business provided a competitive advantage. D&P's utility research was
expanded over time to include leading industrial and financial companies. As
its capabilities in investment research grew, D&P built upon its reputation
to establish a range of complementary financial services. D&P entered the
institutional investment management business in 1979, and investment management
grew to become D&P's primary business. In 1995, D&P merged with Phoenix
Securities Group, Inc. (PSG), the money management subsidiary of Phoenix Home
Life Mutual Insurance Company (PHL). The merger between D&P and PSG formed
Phoenix Duff & Phelps Corporation, which was renamed PXP in 1998. In 1996, in
order to better focus on merging and growing the retail and institutional
investment management business, PXP exited the fee based investment research,
investment banking and financial advisory businesses.
PXP is organized into two lines of business: retail investment management and
institutional investment management. The retail investment management line of
business provides discretionary investment management services to individuals
and individually managed account clients. Individually managed accounts are
primarily administered through broker-dealer sponsored and distributed wrap
programs offered to high net-worth individuals. The institutional investment
management line of business provides discretionary and advisory investment
management services primarily to corporate entities and multi-employer
retirement funds, as well as endowment, insurance and other special purpose
funds. PXP, through its subsidiaries, provides investment management services on
a discretionary basis (including administrative services) to retail accounts,
consisting of open-end mutual funds and individually managed accounts. In
addition, PXP provides discretionary and advisory investment management services
to institutional accounts, including three closed-end mutual funds.
Investment management fees for the management of discretionary accounts are
based on the asset value of the investment portfolios under management, while
fees for advisory accounts are at fixed rates. A major portion of institutional
account revenues is earned from managing the general account of PXP's
majority shareholder, PHL. Management fee revenues from PHL represent
approximately 12.5% of total institutional account management fee revenue for
the six months ended June 30, 1998. Mutual fund shares and variable annuity
products are distributed by Phoenix Equity Planning Corporation (PEPCO), a
wholly-owned subsidiary of PXP, under sales agreements with unaffiliated
national and regional broker-dealers and financial institutions and registered
representatives of WS Griffith & Co., Inc. (Griffith). Griffith is a registered
broker-dealer subsidiary of PHL engaged in the retail distribution of mutual
funds and variable annuity contracts. Griffith is currently one of the largest
sellers of PXP's retail investment products, accounting for approximately 5% and
74% of mutual fund and variable annuity product sales, respectively, as of June
30, 1998. Through Griffith, PEPCO obtains the services of more than 1,250 PHL
insurance agents and brokers who are registered representatives of Griffith.
The following table summarizes revenues, pre-tax income and assets under
management by line of business as of, and for the six months ended, June 30,
1998 and 1997, respectively:
Assets Under
Revenues Pre-Tax Income Management
1998 1997 1998 1997 1998 1997
(in thousands) (in millions)
Retail $69,987 $42,487 $ 9,002 $15,116 $20,378 $11,969
Institutional 37,402 25,524 7,127 3,088 30,169 22,428
Other 1,050 1,050 2,719 747
------- ------- ------- ------- ------- -------
Total $108,439 $69,061 $18,848 $18,951 $50,547 $34,397
======== ======= ======= ======= ======= =======
13
<PAGE>
Results of Operations
Assets Under Management
At June 30, 1998, PXP had $50.5 billion of assets under management, an increase
of $1.2 billion (2.5%) from March 31, 1998, and $16.1 billion (46.8%) from June
30, 1997. The increase from June 30, 1997 is primarily the result of the
acquisitions of Pasadena Capital Corporation (PCC), on September 3, 1997, and a
majority interest in Seneca Capital Management LLC (Seneca), on July 17, 1997,
which increased assets under management by $12.3 billion as of June 30, 1998.
Since the revenues of the Company are substantially earned based upon assets
under management, this information is important to an understanding of the
business.
Historical Pro Forma
June 30, March 31, December 31, June 30, June 30,
1998 1998 1997 1997 1997
(in millions)
Retail:
Open-end Mutual Funds $ 13,867 $14,085 $ 13,001 $ 11,727 $ 12,604
Managed Accounts * 6,511 6,315 5,559 242 5,328
-------- ------- -------- -------- --------
20,378 20,400 18,560 11,969 17,932
Institutional:
Closed-end Mutual Funds 3,380 3,373 3,336 3,015 3,015
Institutional Accounts ** 18,430 17,207 16,155 12,367 16,241
PHL General Account 8,359 8,324 8,351 7,046 7,046
-------- ------- -------- -------- --------
30,169 28,904 27,842 22,428 26,302
-------- ------- -------- -------- --------
$ 50,547 $49,304 $ 46,402 $ 34,397 $ 44,234
======== ======= ======== ======== ========
* Managed Accounts represent assets which are individually managed for retail
clients.
** Institutional Accounts include 100% of the assets managed by Seneca Capital
Management.
Three Months Ended June 30, 1998 Compared with Three Months Ended June 30, 1997
- - Historical
Revenues for the three months ended June 30, 1998 of $56.0 million, which
includes $20.5 million for PCC and Seneca, increased $22.8 million (69%) from
$33.2 million for the same period in 1997. Excluding the effects of PCC and
Seneca, the Company's revenues for the three months ended June 30, 1998
increased $2.3 million (7%) compared to the same period in 1997.
Investment management fees of $48.8 million for the three months ended June 30,
1998, which includes $18.6 million for PCC and Seneca, increased $21.9 million
(82%) as compared to $26.8 million for the same period in 1997. Management fees
earned from open-end mutual funds, including institutional mutual funds,
increased $1.5 million, of which $1.1 million is due to an increase in average
assets under management as a result of investment performance in the second
quarter of 1998. The remaining increase is primarily due to a change in the
asset mix. Management fees earned from closed-end mutual funds, PHL sponsored
variable annuity products, and managed accounts increased $1.3 million primarily
as a result of an increase in average assets under management, due to investment
performance. Management fees earned from managing PHL's general account
increased $.3 million as a result of a $1.5 billion increase in average assets
under management offset, in part, by a change in the fee structure.
Institutional accounts management fees increased $.3 million as a result of a
change in asset mix, as well as an increase in average assets under management.
The addition of several new mutual funds in the latter part of 1997 for which
the advisors, subsidiaries of the Company, agreed to waive or reimburse expenses
to the extent they exceeded limits detailed in the funds' prospectuses,
decreased revenues by $.3 million.
14
<PAGE>
Mutual funds - ancillary fees of $6.5 million for the three months ended June
30, 1998, which includes $1.8 million for PCC, increased $1.1 million (21%) as
compared to $5.3 million for the same period in 1997. Fund accounting fees
earned on open-end mutual funds and PHL sponsored variable annuity products
increased $.3 million primarily as a result of an increase in average assets
under management and an approved change in the fee structure. This change was
implemented to reimburse Phoenix Equity Planning Corporation (PEPCO) for
operating costs related to the out-sourcing of substantially all of PXP's fund
accounting operations in the first quarter of 1998. Net distributor fees
decreased $.8 million primarily as a result of the sale of the then existing
deferred commissions asset (excluding PCC's) in June of 1997. Shareholder
service agent fees decreased $.2 million as a result of a decline in mutual fund
shareholder accounts.
Other income and fees of $.7 million for the three months ended June 30, 1998,
which includes $.2 million of contingent deferred sales charge (CDSC) income
from the Phoenix-Engemann B share mutual funds, decreased $.3 million (27%) as
compared to $1.0 million for the same period in 1997, due to reduced CDSC income
resulting from the sale of the Company's then existing deferred commissions
asset.
Employment expenses of $22.3 million for the three months ended June 30, 1998,
which includes $6.9 million for PCC and Seneca, increased $7.0 million (46%) as
compared to $15.3 million for the same period in 1997. Incentive compensation
increased $.9 million resulting from improved performance by several portfolio
managers and research analysts, as well as an increase in sales-based and
management incentives. The retirement of a key executive in the second quarter
of 1997 decreased employment expenses by $.1 million. Annual salary adjustments
were offset, in part, by a reduction in the average number of employees during
the second quarter of 1998 as compared to the same period in the prior year.
Other operating expenses of $14.9 million for the three months ended June 30,
1998, which includes $2.4 million for PCC and Seneca, increased $6.0 million
(68%) as compared to $8.9 million for the same period in 1997. Other operating
expenses increased $1.7 million as a result of payments to a third party
administrator related to the out-sourcing of substantially all of PXP's fund
accounting operations in the first quarter of 1998. Other operating expenses
increased $1.2 million as a result of additional administrative costs incurred
on behalf of PCC and Seneca, a portion of which are recovered by administrative
fees earned on the Phoenix-Engemann Funds. The use of consultants, primarily for
information technology purposes, increased other operating expenses by $.6
million. PXP recorded a one-time loss of $.6 million in the second quarter of
1997 relating to the sub-lease of certain office space.
Restructuring charges of $.2 million for the three months ended June 30, 1998
represent the final costs resulting from the Company's decision to out-source
substantially all of its fund accounting operations effective in the first
quarter of 1998.
Depreciation and amortization of leasehold improvements of $1.0 million for the
three months ended June 30, 1998, which includes $.2 million for PCC and Seneca,
increased $.4 million (58%) from $.6 million for the same period in 1997 as a
result of capital assets purchased since June, 1997.
Amortization of goodwill and intangible assets of $5.5 million for the three
months ended June 30, 1998 increased $3.1 million (133%) as compared to $2.4
million for the same period in 1997 as a result of the amortization of the
intangible assets and goodwill identified in the preliminary purchase price
allocations of PCC and Seneca.
Amortization of deferred commissions of $.3 million for the three months ended
June 30, 1998, which relates entirely to sales of the Phoenix-Engemann B share
mutual funds, decreased $.9 million (77%) as compared to $1.1 million for the
same period in 1997 as a result of the sale of PXP's then existing deferred
commissions asset (excluding PCC's) in the second quarter of 1997, which
eliminated the amortization charge.
Operating income of $11.9 million for the three months ended June 30, 1998
increased $6.9 million (140%) as compared to $5.0 million for the same period in
1997 as a result of the changes discussed above.
15
<PAGE>
Equity in earnings of unconsolidated affiliates of $1.1 million for the three
months ended June 30, 1998 increased $.5 million (94%) as compared to $.6
million for the same period in 1997. PXP's share of equity earnings from
Greystone Financial Group (GFG) was zero in the second quarter of 1998 compared
to a $.2 million loss in the second quarter of 1997. Income from the investment
in Beutel Goodman & Company Ltd. (BG) increased $.3 million.
Other income - net of less than $.1 million for the three months ended June 30,
1998, remained essentially unchanged as compared to the same period in 1997.
In the second quarter of 1997, a $6.9 million non-recurring gain was recognized
on the sale of the Company's deferred commissions asset, excluding PCC's.
Interest expense - net of $3.5 million for the three months ended June 30, 1998,
which includes $.1 million of net interest income for PCC and Seneca, increased
$3.6 million as compared to net interest income of $.1 million for the same
period in 1997. Interest charges from financing the PCC and Seneca acquisitions
resulted in $2.8 million of additional interest offset, in part, by a decrease
in interest expense of $.2 million due to the elimination of outstanding debt on
a previous credit facility. The exchange of PXP's preferred stock to convertible
debentures in the second quarter of 1998 resulted in $1.1 million of additional
interest expense.
Income to minority interest of $.5 million for the three months ended June 30,
1998 represents the minority shareholders' interest in the equity earnings of
Seneca, which is fully consolidated in the Company's financial statements.
The effective tax rate of 44% for the three months ended June 30, 1998 increased
from 42% for the same period in 1997. This increase represents the effect of
non-deductible goodwill amortization resulting from the PCC acquisition.
As a result of the variances discussed above, net income for the three months
ended June 30, 1998 of $5.1 million decreased $2.2 million (30%) compared to
$7.3 million for the second quarter of 1997.
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997 -
Historical
Revenues for the six months ended June 30, 1998 of $108.4 million, which
includes $39.3 million for PCC and Seneca, increased $39.4 million (57%) from
$69.1 million for the same period in 1997. Excluding the effects of PCC and
Seneca, the Company's revenues for the six months ended June 30, 1998 remained
essentially unchanged compared to the same period in 1997.
Investment management fees of $94.4 million for the six months ended June 30,
1998, which includes $35.5 million for PCC and Seneca, increased $38.8 million
(70%) as compared to $55.7 million for the same period in 1997. Management fees
earned from open-end mutual funds, including institutional mutual funds,
closed-end mutual funds, PHL sponsored variable annuity products, and managed
accounts increased $4.5 million as a result of an increase in average assets
under management. The increase in average assets under management is primarily
the result of investment performance in the first half of 1998. Management fees
earned from managing PHL's general account increased $.6 million as a result of
a $1.5 billion increase in average assets under management offset, in part, by a
change in the fee structure. Institutional accounts management fees decreased
$.7 million primarily due to a decrease in the average blended basis points
earned. Funds under reimbursement, a reduction to revenues, increased $.8
million primarily due to the addition of several new mutual funds in the
latter part of 1997 for which the advisors, subsidiaries of the Company, agreed
to waive or reimburse expenses to the extent they exceeded limits detailed in
the funds' prospectuses.
16
<PAGE>
Mutual funds - ancillary fees of $12.6 million for the six months ended June 30,
1998, which includes $3.6 million for PCC, increased $1.5 million (13%) as
compared to $11.2 million for the same period in 1997. Fund accounting fees
earned on open-end mutual funds and PHL sponsored variable annuity products
increased $.7 million primarily as a result of an increase in average assets
under management and an approved change in the fee structure. This change was
implemented to reimburse PEPCO for additional administrative costs related to
the out-sourcing of substantially all of PXP's fund accounting operations in the
first quarter of 1997. Net distributor fees decreased $2.5 million primarily as
a result of the sale of the then existing deferred commissions asset (excluding
PCC's) in June of 1997. Shareholder service agent fees decreased $.3 million as
a result of a decline in mutual fund shareholder accounts.
Other income and fees of $1.4 million for the six months ended June 30, 1998,
which includes $.3 million of CDSC income from the Phoenix-Engemann B share
mutual funds, decreased $.8 million (38%) as compared to $2.2 million for the
same period in 1997, primarily due to reduced CDSC income resulting from the
sale of the Company's deferred commissions asset.
Employment expenses of $45.0 million for the six months ended June 30, 1998,
which includes $13.3 million for PCC and Seneca, increased $14.3 million (46%)
as compared to $30.8 million for the same period in 1997. Incentive compensation
increased $1.8 million resulting from improved performance by several portfolio
managers and research analysts, as well as an increase in sales-based and
management incentives. The resignation and retirement of two key executives
in the first half of 1997, decreased employment expenses in the first six months
of 1998 by $.6 million. Annual salary adjustments were offset, in part, by a
reduction in the average number of employees as compared to the same period
in the prior year.
Other operating expenses of $26.4 million for the six months ended June 30,
1998, which includes $5.0 million for PCC and Seneca, increased $9.3 million
(55%) as compared to $17.1 million for the same period in 1997. Other operating
expenses increased $2.0 million as a result of payments to a third party
administrator related to the out-sourcing of substantially all of PXP's fund
accounting operations in the first quarter of 1998. Other administrative
expenses increased $1.6 million as a result of additional administrative costs
incurred on behalf of PCC and Seneca, a portion of which are recovered by
administrative fees earned on the Phoenix-Engemann Funds. The use of
consultants, primarily for information technology purposes, increased other
operating expenses by $.8 million. PXP recorded a one-time loss of $.6 million
in the second quarter of 1997 relating to the sub-lease of certain office space.
Restructuring charges of $.4 million for the six months ended June 30, 1998 are
the result of the Company's decision to out-source substantially all of its fund
accounting operations effective in the first quarter of 1998.
Depreciation and amortization of leasehold improvements of $1.9 million for the
six months ended June 30, 1998, which includes $.3 million for PCC and Seneca,
increased $.6 million (50%) from $1.2 million for the same period in 1997 as a
result of capital assets purchased since June, 1997.
Amortization of goodwill and intangible assets of $11.0 million for the six
months ended June 30, 1998 increased $6.3 million (133%) as compared to $4.7
million for the same period in 1997 as a result of the amortization of the
intangible assets and goodwill identified in the preliminary purchase price
allocations of PCC and Seneca.
Amortization of deferred commissions of $.6 million for the six months ended
June 30, 1998, which relates entirely to the Phoenix-Engemann B share mutual
funds, decreased $2.2 million (79%) as compared to $2.8 million for the same
period in 1997 primarily as a result of the sale of PXP's then existing deferred
commissions asset (excluding PCC's) in the second quarter of 1997, which
eliminated the amortization charge.
Operating income of $23.2 million for the six months ended June 30, 1998
increased $10.7 million (86%) as compared to $12.4 million for the same period
in 1997 as a result of the changes discussed above.
17
<PAGE>
Equity in earnings of unconsolidated affiliates of $2.1 million for the six
months ended June 30, 1998 increased $2.4 million as compared to $(.4) million
for the same period in 1997. PXP recorded a $1.5 million loss in 1997 related to
the liquidation of Windy City CBO Partners, L.P. (WCCBO) in early 1997. PXP's
share of equity earnings fr om GFG was zero for the six months ended June 30,
1998 compared to a $.5 million loss for the six months ended June 30, 1997.
Income from the investment in BG increased $.5 million.
Other income - net of $.6 million for the six months ended June 30, 1998, which
includes $.4 million for PCC and Seneca, increased $.8 million as compared to
$(.2) million for the same period in 1997.
In the second quarter of 1997, a $6.9 million non-recurring gain was recognized
on the sale of the Company's deferred commissions asset, excluding PCC's.
Interest expense - net of $6.0 million for the six months ended June 30, 1998,
which includes $.2 million for PCC and Seneca, increased $6.2 million as
compared to net interest income of $.2 million for the same period in 1997.
Interest charges from financing the PCC and Seneca acquisitions resulted in $5.8
million of additional interest offset, in part, by a decrease in interest
expense of $.4 million due to the elimination of outstanding debt on a previous
credit facility.The exchange of PXP's preferred stock for convertible debentures
in the second quarter of 1998 resulted in $1.1 million of additional interest
expense.
Income to minority interest of $1.0 million for the six months ended June 30,
1998 represents the minority shareholders' interest in the equity earnings of
Seneca, which is fully consolidated in the Company's financial statements.
The effective tax rate of 44% for the six months ended June 30, 1998 increased
from 42% for the same period in 1997. This increase represents the effect of
non-deductible goodwill amortization resulting from the PCC acquisition.
As a result of the variances discussed above, net income for the six months
ended June 30, 1998 of $10.6 million decreased $.5 million (5%) compared to
$11.1 million for the six months ended June 30, 1997.
Three Months Ended June 30, 1998 Compared with Pro Forma Three Months Ended June
30, 1997
(see Note 3)
Revenues of $56.0 million for the three months ended June 30, 1998 increased
$7.0 million (14%) as compared to pro forma $48.9 million for the same period in
1997.
Investment management fees of $48.8 million for the three months ended June 30,
1998 increased $8.2 million (20%) from pro forma $40.6 million for the same
period in 1997. Management fees earned from open-end mutual funds, including
institutional mutual funds, increased $2.5 million, of which $2.1 million is due
to an increase in average assets under management primarily as a result of
investment performance in the second quarter of 1998. The remaining increase is
primarily due to a change in the asset mix. Management fees earned from
closed-end mutual funds, PHL sponsored variable annuity products, and managed
accounts increased $3.9 million primarily as a result of an increase in average
assets under management. Management fees earned from managing PHL's general
account increased $.3 million as a result of a $1.5 billion increase in average
assets under management offset, in part, by a change in the fee structure.
Institutional accounts management fees increased $1.6 million as a result of a
change in asset mix, as well as an increase in average assets under management.
The addition of several new mutual funds in the latter part of 1997 for which
the advisors, subsidiaries of the Company, agreed to waive or reimburse expenses
to the extent they exceeded limits detailed in the funds' prospectuses,
decreased revenues by $.3 million.
18
<PAGE>
Mutual funds - ancillary fees of $6.5 million for the three months ended June
30, 1998 decreased $.9 million (12%) from pro forma $7.4 million for the same
period in 1997. Net distributor fees decreased $1.0 million due the sale of the
deferred commissions asset in the second quarter of 1997 offset, in part, by
fees earned from the Phoenix-Engemann Funds. Fund accounting fees earned on
open-end mutual funds and PHL sponsored variable annuity products increased $.3
million primarily as a result of an increase in average assets under management
and an approved change in the fee structure. This change was implemented to
reimburse PEPCO for additional administrative costs related to the out-sourcing
of substantially all of PXP's fund accounting operations in the first quarter of
1998. Shareholder service agent fees decreased $.3 million as a result of a
decline in mutual fund shareholder accounts.
Other income and fees of $.7 million for the three months ended June 30, 1998
decreased $.2 million (22%) from pro forma $.9 million for the same period in
1997, primarily as a result of reduced CDSC income resulting from the sale of
the Company's then existing deferred commissions asset (excluding PCC's) in June
1997.
Employment expenses of $22.3 million for the three months ended June 30, 1998
remained unchanged from the same pro forma period in 1997. Incentive
compensation increased by $.9 million resulting from improved performance by
several portfolio managers and research analysts, as well as an increase in
certain management and subsidiary profit and revenue based incentive programs.
The retirement of a key executive in the second quarter of 1997 decreased
employment expenses by $.1 million. Annual salary adjustments were offset, in
part, by a reduction in the average number of employees during the second
quarter of 1998 as compared to the same period in the prior year.
Other operating expenses of $16.3 million for the three months ended June 30,
1998 increased $1.8 million (13%) as compared to pro forma $14.5 million for the
same period in 1997. Amortization of deferred commissions decreased $1.9 million
as a result of the sale of the Company's deferred commissions asset, excluding
PCC's, in June 1997. Other operating expenses increased $1.7 million as a
result of charges paid to a third party administrator related to the
out-sourcing of substantially all of PXP's fund accounting operations in the
first quarter of 1998. Other operating expenses increased $1.2 million as a
result of additional administrative costs incurred on behalf of PCC and Seneca,
a portion of which are recovered by administrative fees earned on the
Phoenix-Engemann Funds. The use of consultants, primarily for information
technology purposes, increased other operating expenses by $.6 million.
Restructuring charges increased $.2 million also as a result of the out-sourcing
of substantially all of PXP's fund accounting operations. Depreciation and
amortization of leasehold improvements increased by $.4 million, as a result of
additional capital assets purchases since June, 1997. PXP recorded a one-time
loss of $.6 million in the second quarter of 1997 relating to the sub-lease of
certain office space.
Amortization of goodwill and intangibles of $5.5 million for the three months
ended June 30, 1998 was the same as pro forma 1997.
Other income - net of $1.2 million for the three months ended June 30, 1998
decreased $11.3 million as compared to pro forma $12.5 million for the same
period in 1997. A $6.9 million non-recurring gain was recognized on the sale of
the Company's deferred commissions asset, excluding PCC's, in the second quarter
of 1997. A non-recurring gain of $5.0 million was realized in the second quarter
of 1997 by PCC from the sale of its investment in its own mutual funds. Equity
income from the Company's investment in BG increased $.3 million. PXP's share of
equity earnings from GFG was zero in the second quarter of 1998 compared to a
$.2 million loss in the first quarter of 1997.
Interest expense - net of $3.5 million for the three months ended June 30, 1998
increased $.9 million (34%) as compared to pro forma $2.6 million for the same
period in 1997 primarily from the exchange of PXP's preferred stock for
convertible debentures in the second quarter of 1998, which contributed $1.1
million to interest expense. Interest expense decreased $.2 million due to the
elimination of outstanding debt on a previous credit facility.
19
<PAGE>
Income to minority interest of $.5 million for the three months ended June 30,
1998 increased $.3 million (210%) as compared to pro forma $.2 million for the
same period in 1997 as a result of Seneca's increased earnings.
Net income of $5.1 million for the three months ended June 30, 1998 decreased
$4.5 million (47%) as compared to pro forma $9.6 million for the same period in
1997, as a result of the above. The effective tax rate increased to 44% for the
three months ended June 30, 1998 from 42% for the same period in 1997.
Non-recurring gains of $11.9 million in the second quarter of 1997 reduced the
effective tax rate for that quarter.
Six Months Ended June 30, 1998 Compared with Pro Forma Six Months Ended June 30,
1997
(see Note 3)
Revenues of $108.4 million for the six months ended June 30, 1998 increased $7.4
million (7%) as compared to pro forma $101.1 million for the same period in
1997.
Investment management fees of $94.4 million for the six months ended June 30,
1998 increased $10.7 million (13%) from pro forma $83.8 million for the same
period in 1997. Management fees earned on open-end mutual funds, including
institutional mutual funds, closed-end mutual funds, PHL's general account,
PHL sponsored variable annuity products, and managed accounts, increased
approximately $10.4 million due to increased average assets under management.
The increase in average assets under management is primarily the result of
investment performance in the first half of 1998. Management fees earned
from institutional accounts increased $1.9 million due to increased assets under
management offset, in part, by a $.7 million decrease due to a decrease in the
average blended basis points earned. Funds under reimbursement, a reduction to
revenues, increased $.8 million primarily due to the addition of several new
mutual funds in the latter part of 1997 for which the advisors, subsidiaries
of the Company, agreed to waive or reimburse expenses to the extent they
exceeded limits detailed in the funds' prospectuses.
Mutual funds - ancillary fees of $12.6 million for the six months ended June 30,
1998 decreased $2.2 million (15%) from pro forma $14.8 million for the same
period in 1997. Net distributor fees decreased $2.6 million due to the sale of
the deferred commissions asset (excluding PCC's) offset, in part, by fees
earned from the Phoenix-Engemann Funds. Fund accounting fees earned on open-end
mutual funds and PHL sponsored variable annuity products increased $.7 million
primarily as a result of an increase in average assets under management and an
approved change in the fee structure. This change was implemented to
reimburse PEPCO for additional administrative costs related to the out-sourcing
of substantially all of PXP's fund accounting operations. Shareholder service
agent fees decreased $.5 million as a result of a decline in mutual fund
shareholder accounts.
Other income and fees of $1.4 million for the six months ended June 30, 1998
decreased $1.1 million (44%) from pro forma $2.5 million for the same period in
1997, primarily as a result of the sale of the Company's then existing deferred
commissions asset in June 1997.
Employment expenses of $45.0 million for the six months ended June 30, 1998
increased $1.7 million (4%) as compared to pro forma $43.3 million for the same
period in 1997. Incentive compensation increased $1.8 million resulting from
improved performance by several portfolio managers and research analysts, as
well as an increase in certain management and subsidiary profit and revenue
based incentive programs. The resignation and retirement of two key executives
in the first half of 1997, decreased employment expenses by $.6 million. Annual
salary adjustments were offset, in part, by a reduction in the average number of
employees as compared to the same period in the prior year.
20
<PAGE>
Other operating expenses of $29.2 million for the six months ended June 30, 1998
decreased $.5 million (2%) as compared to pro forma $29.7 million for the same
period in 1997. Amortization of deferred commissions decreased $2.8 million as a
result of the sale of the Company's then existing deferred commissions asset,
excluding PCC's, in June 1997. The use of consultants, primarily for information
technology purposes, increased other operating expenses by $.8 million. Other
operating expenses increased by $2.0 million as a result of payments to a third
party administrator related to the out-sourcing of substantially all of PXP's
fund accounting operations in the first quarter of 1998. The Company incurred
$.4 million in restructuring charges as a result of this out-sourcing.
Depreciation and amortization of leasehold improvements increased by $.2
million. PXP recorded a one-time loss of $.6 million in the second quarter
of 1997 relating to the sub-lease of certain office space.
Amortization of goodwill and intangibles of $11.0 million for the six months
ended June 30, 1998 was the same as pro forma 1997.
Other income - net of $2.7 million for the six months ended June 30, 1998
decreased $8.7 million (76%) as compared to pro forma $11.4 million for the same
period in 1997. A $6.9 million non-recurring gain was recognized on the sale of
the Company's deferred commissions asset, excluding PCC's, in the second quarter
of 1997. A non-recurring gain of $5.0 million was realized in the second quarter
of 1997 by PCC from the sale of its investment in its own mutual funds. Equity
income from the Company's investment in BG increased $.5 million. PXP recorded a
$1.5 million loss in 1997 related to the liquidation of WCCBO in early 1997.
PXP's share of equity earnings from GFG was zero for the six months ended June
30, 1998 compared to a $.5 million loss for the six months ended June 30, 1997.
Interest expense - net of $6.0 million for the six months ended June 30, 1998
increased $.7 million (13%) as compared to pro forma $5.4 million for the same
period in 1997 primarily from the exchange of PXP's preferred stock for
convertible debentures in the second quarter of 1998, which resulted in $1.1
million of additional interest expense. Interest expense decreased $.4 million
due to the elimination of outstanding debt on a previous credit facility.
Income to minority interest of $1.0 million for the six months ended June 30,
1998 increased $.5 million (117%) as compared to pro forma $.4 million for the
same period in 1997 as a result of Seneca's increased earnings.
Net income of $10.6 million for the six months ended June 30, 1998 decreased
$2.2 million (17%) as compared to pro forma $12.8 million for the same period in
1997 as a result of the above. The effective tax rate increased to 44% for the
six months ended June 30, 1998 from 43% for the same period in 1997.
Non-recurring gains of $11.9 million in the second quarter of 1997 reduced the
effective tax rate in 1997.
Liquidity and Capital Resources
The Company's business is not considered to be capital intensive. Working
capital requirements for the Company have historically been provided by
operating cash flows. It is expected that such cash flows will continue to serve
as the principal source of working capital for the Company for the near future.
The Company's assets are primarily liquid in nature and are not significantly
affected by inflation. The effects of inflation may result in increased employee
compensation, occupancy costs, and promotional costs. An increase in interest
rates or a substantial decline in the value of fixed income or equity securities
which causes a significant decline in the net asset value of the funds managed
by the Company would adversely affect the Company's financial condition and
results of operations.
21
<PAGE>
The Company's current capital structure, as of August 10, 1998, includes 44.2
million shares of common stock and $76.4 million of 6% Convertible Subordinated
Debentures with a principal value of $25.00 per debenture. The current quarterly
dividend rate on common stock is $.06 per share. If the dividend rate remains
constant for 1998, the total annual dividend on common stock would be
approximately $10.6 million based upon shares outstanding at June 30, 1998. The
total annual interest expense on the debentures based upon debentures
outstanding at June 30, 1998, at an interest rate of 6%, would be $4.6 million.
The Company has an agreement with a consortium of banks providing for a $200
million five year credit facility, with no required principal repayments prior
to maturity in August 2002. The outstanding obligation under the credit facility
at June 30, 1998 was $180 million. An interest rate of approximately 6.0% was in
effect on this borrowing as of June 30, 1998. The credit agreement contains
financial and operating covenants 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. At June 30,
1998, the Company was in compliance with all covenants contained in the credit
agreement. The Company believes that funds from operations and amounts available
under the credit facility will provide adequate liquidity for the foreseeable
future.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of a company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based upon Company assessments, it has been determined that the Company will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will be mitigated. It is anticipated that such
modifications and conversions will be completed on a timely basis. The failure
of computer programs to recognize the year 2000 could have a negative impact on,
but is not limited to, the handling of securities trades, the pricing of
securities and the servicing of client accounts. If such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company.
The Company has initiated formal communications with all of its software
vendors, service providers and information providers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 Issue. The Company's total Year 2000 project cost and
estimate to complete include the estimated costs and time associated with the
impact of a third party's Year 2000 Issue, and are based on presently available
information. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
The Company will utilize internal resources to reprogram, or replace, and test
the software for Year 2000 modifications. Certain systems are already in the
process of being converted due to previous Company initiatives. The Company
plans to complete the reprogramming phase of the Year 2000 project by December
31, 1998 and the testing phase by June 30, 1999. The total cost of the Year 2000
project is estimated at $5.5 million and is being funded through operating cash
flows, which will be expensed as incurred over the next two years. To date, the
Company has incurred approximately $1.0 million related to the assessment of its
Year 2000 project, and the development of a Year 2000 plan, remediation and
testing. The total cost to the Company to become Year 2000 compliant is not
expected to have a material impact on the Company's results of operations.
22
<PAGE>
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
Cautionary Statement Under Section 21E of the Securities Exchange Act of 1934
This quarterly report contains forward looking statements that involve risks and
uncertainties including, but not limited to, the following: The Company's
performance is highly dependent on the amount of assets under management, which
may decrease for a variety of reasons including changes in interest rates and
adverse economic conditions; the Company's performance is very sensitive to
changes in interest rates, which may increase from current levels; the Company's
performance is affected by the demand for and the market acceptance of the
Company's products and services; the Company's business is extremely competitive
with several competitors being substantially larger than the Company; and the
Company's performance may be impacted by changes in the performance of financial
markets and general economic conditions. The costs involved to complete the Year
2000 modifications are based on management's best estimates, which were derived
based upon assumptions relative to future events including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. The
potential problems related to the Year 2000 Issue could affect the ability to
provide advisory services for the Company's products. Accordingly, actual
results may differ materially from those set forth in the forward looking
statements.
23
<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 7,
1998 for the election of directors and approval of amendment to the
registrant's Certificate of Incorporation to change the corporate name
to Phoenix Investment Partners, Ltd.
(b) The following persons were re-elected Directors of the registrant and
each continued to hold office after the meeting.
John T. Anderson Edward P. Lyons
Clyde E. Bartter Philip R. McLoughlin
Richard H. Booth James M. Oates
Glen D. Churchill Calvin J. Pedersen
Robert W. Fiondella Donna F. Tuttle
Michael E. Haylon Ferdinand L. Verdonck
Marilyn E. LaMarche David A. Williams
(c) Two matters were voted upon:
The results of the election of directors are as follows:
Candidate: For: Against/Withheld Abstain/Non-vote:
John T. Anderson 40,924,415 79,977 0
Clyde E. Bartter 40,935,098 69,294 0
Richard H. Booth 40,939,285 65,107 0
Glen D. Churchill 40,936,760 67,632 0
Robert W. Fiondella 40,939,265 65,127 0
Michael E. Haylon 40,939,285 65,107 0
Marilyn E. LaMarche 40,924,440 79,952 0
Edward P. Lyons 40,935,540 68,852 0
Philip R. McLoughlin 40,934,595 69,797 0
James M. Oates 40,939,285 65,107 0
Calvin J. Pedersen 40,929,098 75,294 0
Donna F. Tuttle 40,939,285 65,107 0
Ferdinand L. Verdonck 40,926,940 77,452 0
David A. Williams 40,926,915 77,477 0
The results of the proposal to amend the registrant's Certificate of
Incorporation to change the corporate name are as follows:
For: 40,935,859
Against/Withheld: 53,162
Abstain/Non-vote: 15,371
On the basis of the vote, the amendment to the Certificate of
Incorporation was approved.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of these reports:
1. Exhibits
3(c) Certificate of Amendment to the Certificate of Incorporation
dated as of May 11, 1998 changing the registrant's name from
`Phoenix Duff & Phelps Corporation' to `Phoenix Investment
Partners, Ltd.'.
(b) Reports on Form 8-K.
No items filed.
25
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Phoenix Investment Partners, Ltd.
August 11, 1998 /s/ Philip R. McLoughlin
------------------------
Philip R. McLoughlin, Chairman and
Chief Executive Officer
August 11, 1998 /s/ William R. Moyer
--------------------
William R. Moyer, Chief Financial Officer
26
<PAGE>
Exhibit 3(c)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PHOENIX DUFF & PHELPS CORPORATION
Phoenix Duff & Phelps Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation at a meeting duly
called and held on February 5, 1998 adopted a resolution setting forth a
proposed amendment of the Restated Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing that said
amendment be submitted to the stockholders of the Corporation for their approval
at the 1998 annual meeting of stockholders. The effect of said amendment would
be to cause Article First of the Certificate of Incorporation of the Corporation
to be amended to read in its entirety as follows:
"First: The name of the corporation is Phoenix Investment Partners, Ltd.
(hereinafter the "Corporation")."
SECOND: That thereafter the 1998 annual meeting of stockholders of the
Corporation was duly called and held on May 7, 1998 upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware at
which meeting the necessary number of shares as required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That said amendment shall become effective at 12:01 a.m. Eastern
Time on May 11, 1998.
IN WITNESS WHEREOF, the Corporation has caused the Certificate of
Amendment to be executed by its duly authorized officer, as of the 7th day of
May, 1998.
ATTEST: PHOENIX DUFF & PHELPS CORPORATION
By: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
Thomas N. Steenburg Philip R. McLoughlin
Vice President & Counsel Chief Executive Officer
27
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