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 September 30, 1999
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)
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 October 29, 1999, the registrant had 43,726,367 shares of $.01 par value
common stock outstanding.
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD. AND SUBSIDIARIES
Quarter Ended September 30, 1999
Index
PART I - FINANCIAL INFORMATION:
Page
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition. 3
September 30, 1999 and December 31, 1998
Consolidated Statements of Income and Comprehensive Income 4
Three Months Ended September 30, 1999 and
Three Months Ended September 30, 1998
Consolidated Statements of Income and Comprehensive Income 5
Nine Months Ended September 30, 1999 and
Nine Months Ended September 30, 1998
Consolidated Condensed Statements of Cash Flows ......... 6
Nine Months Ended September 30, 1999 and
Nine Months Ended September 30, 1998
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition............ 15
Liquidity and Capital Resources.......................... 21
Market Risk.............................................. 22
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 1. Legal Proceedings........................................ 24
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 6. Exhibits and Reports on Form 8-K......................... 24
Signatures........................................................ 25
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)
September 30, December 31,
1999 1998
Assets
Current Assets
Cash and cash equivalents $ 43,948 $ 29,298
Marketable securities, at market 7,973 16,275
Accounts receivable 38,018 35,015
Prepaid expenses and other current assets 3,567 2,951
--------- --------
Total current assets 93,506 83,539
Deferred commissions 1,474 2,798
Furniture, equipment and leasehold improvements, net 12,437 8,589
Goodwill and intangible assets, net 563,940 446,657
Long-term investments and other assets 22,557 22,135
--------- --------
Total assets $ 693,914 $563,718
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other accrued liabilities $ 47,724 $ 39,659
Payables to related parties 4,580 3,032
Broker-dealer payable 10,645 9,568
Current portion of long-term debt 814 964
--------- --------
Total current liabilities 63,763 53,223
Deferred taxes, net 51,413 53,446
Long-term debt, net of current portion 1,225 1,718
Convertible subordinated debentures 76,364 76,364
Credit facilities 250,000 140,000
Lease obligations and other long-term liabilities 3,478 4,843
--------- --------
Total liabilities 446,243 329,594
--------- --------
Minority Interest 3,087 2,531
--------- --------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 45,709,313 and 45,172,258 shares issued,
and 43,877,213 and 43,710,458 shares outstanding 457 451
Additional paid-in capital 199,647 195,224
Retained earnings 53,806 44,482
Accumulated other comprehensive income 5,421 3,571
Unearned compensation on restricted stock (1,418) (1,529)
Treasury stock, at cost, 1,832,100 and 1,461,800 shares (13,329) (10,606)
--------- --------
Total stockholders' equity 244,584 231,593
--------- --------
Total liabilities and stockholders' equity $ 693,914 $563,718
========= ========
The accompanying notes are an integral part of these statements.
3
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
1999 1998
Revenues
Investment management fees $ 64,168 $ 49,907
Mutual funds - ancillary fees 7,912 6,779
Other income and fees 1,286 689
--------- --------
Total revenues 73,366 57,375
--------- --------
Operating Expenses
Employment expenses 29,395 22,239
Other operating expenses 17,377 14,026
Depreciation and amortization of
leasehold improvements 1,031 976
Amortization of goodwill and intangible assets 7,992 5,523
Amortization of deferred commissions 339 390
--------- --------
Total operating expenses 56,134 43,154
--------- --------
Operating Income 17,232 14,221
--------- --------
Equity in Earnings of Unconsolidated Affiliates 359 622
--------- --------
Other Expense - Net (120) (308)
--------- --------
Nonrecurring Item (5,900)
--------- --------
Interest (Expense) Income - Net
Interest expense (5,090) (3,978)
Interest income 955 361
--------- --------
Total interest expense - net (4,135) (3,617)
--------- --------
Income to Minority Interest (948) (655)
--------- --------
Income Before Income Taxes 6,488 10,263
Provision for income taxes 2,712 4,517
--------- --------
Net Income 3,776 5,746
Other Comprehensive Income (Loss), Net of Tax
Unrealized gains (losses) on securities
available-for-sale 863 (5,275)
Foreign currency translation adjustment (658)
--------- --------
Total other comprehensive income (loss) 863 (5,933)
--------- --------
Comprehensive Income (Loss) $ 4,639 $ (187)
========= ========
Weighted average shares outstanding
Basic 43,929 44,164
Diluted 54,031 54,000
Earnings per share
Basic $ .09 $ .13
Diluted $ .08 $ .12
The accompanying notes are an integral part of these statements.
4
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
Revenues
Investment management fees $ 182,258 $144,345
Mutual funds - ancillary fees 23,653 19,401
Other income and fees 3,419 2,068
--------- --------
Total revenues 209,330 165,814
--------- --------
Operating Expenses
Employment expenses 85,167 67,259
Other operating expenses 48,601 40,775
Depreciation and amortization of
leasehold improvements 2,875 2,849
Amortization of goodwill and intangible assets 22,297 16,536
Amortization of deferred commissions 1,348 995
--------- --------
Total operating expenses 160,288 128,414
--------- --------
Operating Income 49,042 37,400
--------- --------
Equity in Earnings of Unconsolidated Affiliates 825 2,677
--------- --------
Other Income - Net 578 290
--------- --------
Nonrecurring Item (5,900)
--------- --------
Interest (Expense) Income - Net
Interest expense (13,995) (10,876)
Interest income 2,415 1,228
--------- --------
Total interest expense - net (11,580) (9,648)
--------- --------
Income to Minority Interest (2,534) (1,608)
--------- --------
Income Before Income Taxes 30,431 29,111
Provision for income taxes 13,237 12,809
--------- --------
Net Income 17,194 16,302
Other Comprehensive Income, Net of Tax
Unrealized gains (losses) on securities
available-for-sale 1,850 (7,840)
Foreign currency translation adjustment (1,169)
--------- --------
Total other comprehensive income (loss) 1,850 (9,009)
--------- --------
Comprehensive Income $ 19,044 $ 7,293
========= ========
Net Income $ 17,194 $ 16,302
Series A preferred stock dividends 1,223
--------- --------
Income Available to Common Stockholders $ 17,194 $ 15,079
========= ========
Weighted average shares outstanding
Basic 43,810 44,142
Diluted 53,873 54,116
Earnings per share
Basic $ .39 $ .34
Diluted $ .36 $ .33
The accompanying notes are an integral part of these statements.
5
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
Cash Flows from Operating Activities:
Net income $ 17,194 $16,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of
leasehold improvements 2,875 2,849
Amortization of goodwill and intangible assets 22,297 16,536
Amortization of deferred commissions 1,348 995
Income to minority interest 2,534 1,608
Compensation recognized under employee
benefit plans 1,265
Equity in earnings of unconsolidated
affiliates, net of dividends (633) 1,075
Nonrecurring item 5,900
Changes in other operating assets (1,647) (1,510)
Changes in other operating liabilities (3,257) 510
-------- -------
Net cash provided by operating activities 47,876 38,365
-------- -------
Cash Flows from Investing Activities:
Purchase of subsidiaries, net of cash acquired (138,551) (6,647)
Sale (purchase) of marketable securities, net 10,804 (4,840)
Capital expenditures, net (4,375) (1,841)
Distributions to minority interest (1,978) (643)
Purchase of long-term investments (569) (2,335)
Proceeds from long-term investments 489
-------- -------
Net cash used in investing activities (134,180) (16,306)
-------- -------
Cash Flows from Financing Activities:
Proceeds from (repayment of) borrowings, net 109,358 (5,674)
Dividends paid (7,869) (9,472)
Stock repurchases (2,723) (6,541)
Proceeds from issuance of stock 2,362 877
Other financing activities (174)
-------- -------
Net cash provided by (used in) financing activities 100,954 (20,810)
-------- -------
Net increase in cash and cash equivalents 14,650 1,249
Cash and cash equivalents, beginning of period 29,298 21,872
-------- -------
Cash and Cash Equivalents, End of Period $ 43,948 $23,121
======== =======
Supplemental Cash Flow Information:
Interest paid $ 13,549 $10,896
Income taxes paid $ 27,347 $15,565
The accompanying notes are an integral part of these statements.
6
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. Basis of Presentation
The unaudited consolidated financial statements of Phoenix Investment
Partners, Ltd. and Subsidiaries (PXP or the Company) 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, 1998. 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. 131,
"Disclosures about Segments of an Enterprise and Related Information," as of
December 31, 1998. This statement supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," by replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source for reportable
segments. SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. As this pronouncement only addresses
financial statement disclosure, it has no impact on PXP's financial results.
(See Note 6)
3. Acquisition Related Activity
On March 1, 1999, PXP acquired the retail mutual fund and closed-end fund
businesses of the New York City-based Zweig Fund Group (Zweig) for
consideration of approximately $135 million. The agreement provides for an
additional payout of up to $29 million over the next three years, dependent
upon revenue growth of the purchased businesses.
The purchase price for Zweig represents the consideration paid and the direct
costs incurred by PXP related to the purchase. Preliminary analyses have been
performed in order to identify intangible assets and to allocate purchase
price to such assets. Additional information is necessary to complete the
purchase price allocation. The excess of purchase price over the fair value
of acquired net tangible assets of Zweig totaled $135.5 million. Of this
excess purchase price, $78.1 million has been preliminarily allocated to
intangible assets, primarily associated with investment management contracts,
which are being amortized over their estimated useful lives using the
straight-line method. The average estimated useful life of the intangible
assets is approximately 12 years. The remaining excess purchase price of
$57.5 million has been classified as goodwill and is being amortized over 40
years using the straight-line method. Related amortization of $5.7 million
has been expensed for the year to date period ended September 30, 1999.
7
<PAGE>
The following table summarizes the preliminary calculation and allocation of
Zweig's purchase price (in thousands):
Purchase Price:
Consideration paid $135,000
Transaction costs 2,391
--------
Total Purchase Price $137,391
========
Purchase Price Allocation:
Fair value of acquired net assets $ 1,846
Identified intangibles 78,063
Goodwill 57,482
--------
Total Allocation of Purchase Price $137,391
========
4. Pro Forma Results
PXP's financial results for 1999 include the operations of Zweig from March
1, 1999, while both the third quarter and first nine months of 1998 exclude
the operations of Zweig. Management believes that, for comparative purposes,
the most meaningful financial presentation for these periods is on a pro
forma basis.
The following financial information for the three months ended September 30,
1999 reflects the actual results for the quarter. The following pro forma
financial information for the nine months ended September 30, 1999 and for
the three and nine months ended September 30, 1998 is derived from the
historical financial statements of PXP and Zweig, and gives effect to the
acquisition of Zweig by PXP assuming the acquisition was effected on January
1, 1998. The pro forma financial information does not necessarily reflect the
actual results that would have been obtained had the acquisition taken effect
on the aforementioned assumed date.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Actual Pro Forma Pro Forma Pro Forma
------- -------- -------- --------
(in thousands, except per share data)
Revenues $73,366 $ 68,473 $216,014 $198,516
------- -------- -------- --------
Employment expenses 29,395 24,871 87,631 75,153
Other operating expenses 18,747 19,204 54,104 54,805
Amortization of goodwill and
intangible assets 7,992 7,992 23,932 23,932
------- -------- ------- -------
Operating income 17,232 16,406 50,347 44,626
Other (expense) income - net (5,661) 376 (4,497) 3,029
Interest expense - net (4,135) (5,456) (12,864) (15,312)
Income to minority interest (948) (655) (2,534) (1,608)
------- -------- ------- -------
Income before income taxes 6,488 10,671 30,452 30,735
Provision for income taxes 2,712 4,781 13,246 13,773
------- -------- ------- -------
Net income $ 3,776 $ 5,890 $17,206 $16,962
======= ======== ======= =======
Earnings per share
Basic $ .09 $ .13 $ .39 $ .36
Diluted $ .08 $ .12 $ .36 $ .34
8
<PAGE>
5. Dividends and Other Capital Transactions
On November 4, 1999, PXP's Board of Directors declared a quarterly dividend
of $.06 per common share payable December 9, 1999, to stockholders of record
on November 26, 1999. PXP intends to continue to pay quarterly cash
dividends, however, future payment of cash dividends by PXP will depend upon
the financial condition, capital requirements, and earnings of PXP.
On April 3, 1998, PXP exchanged 3.2 million shares of Series A Convertible
Exchangeable Preferred Stock (Preferred Stock) for 6% Convertible
Subordinated Debentures (Debentures) due 2015. Each share of outstanding
Preferred Stock, including unpaid and accrued dividends, was exchanged for a
Debenture with a $25.00 face value. Interest on the Debentures for the period
from September 10, 1999 through December 9, 1999 will be payable on December
10, 1999 to registered holders as of November 20, 1999.
As of September 30, 1999, the Company, in accordance with the previously
announced stock repurchase program, had purchased a total of 1,832,100 shares
of PXP common stock at a cost of $13.3 million.
6. Segment Information
PXP has determined that its reportable segments are those based on the method
used for internal reporting, which disaggregates the business by customer
category. PXP's reportable segments are its retail and institutional
investment management lines of business. The retail line primarily serves the
individual investor by acting as advisor to and, in certain instances,
distributor for open-end mutual funds and managed accounts. The institutional
line provides management services primarily to corporate entities, closed-end
funds, structured finance products, and multi-employer retirement funds, as
well as endowment, insurance, and other special purpose funds.
The following tables summarize pertinent financial information relative to
PXP's operations:
Nine Months Ended September 30, 1999 Institu- All
Retail tional Other Total
-------- ------- ------ -------
(in thousands)
Revenues $132,035 $75,720 $ 1,575 $209,330
-------- ------- ------- --------
Employment and
other operating expenses 85,644 50,422 1,925 137,991
Amortization of goodwill
and intangible assets 12,325 9,972 22,297
-------- ------- ------- --------
Operating income (loss) 34,066 15,326 (350) 49,042
Other (expense) income - net (5,973) 456 1,020 (4,497)
Interest expense (6,967) (3,534) (3,494) (13,995)
Interest income 559 186 1,670 2,415
Minority interest (2,534) (2,534)
-------- ------- ------- --------
Income (loss) before income taxes $ 21,685 $ 9,900 $(1,154) $ 30,431
======== ======= ======= ========
(in millions)
Assets under management $ 24,418 $33,627 $ -- $ 58,045
======== ======= ======= ========
9
<PAGE>
Nine Months Ended September 30, 1998 Institu- All
Retail tional Other Total
-------- ------- ------- --------
(in thousands)
Revenues $106,052 $58,187 $ 1,575 $165,814
-------- ------- ------- --------
Employment and
other operating expenses 73,943 37,935 111,878
Amortization of goodwill
and intangible assets 9,461 7,075 16,536
-------- ------- ------- --------
Operating income 22,648 13,177 1,575 37,400
Other (expense) income - net (29) 486 2,510 2,967
Interest expense (7,253) (1,213) (2,410) (10,876)
Interest income 402 107 719 1,228
Minority interest (1,608) (1,608)
-------- ------- ------- --------
Income before income taxes $ 15,768 $10,949 $ 2,394 $ 29,111
======== ======= ======= ========
(in millions)
Assets under management $ 18,225 $29,786 $ -- $ 48,011
======== ======= ======= ========
The "All Other" column represents corporate office revenue and expenses which
are not directly attributable to either line of business.
There are no intersegment revenues. Balance sheet asset information by line
of business is not reported as the information is not produced internally and
is not utilized in managing the business.
7. Comprehensive Income
The components of other comprehensive income, and related tax effects, are as
follows (in thousands):
Three Months Ended September 30, 1999 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
------ -------- -------
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period $1,463 $ (600) $ 863
------ -------- -------
Other comprehensive income $1,463 $ (600) $ 863
====== ======== =======
Nine Months Ended September 30, 1999 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
------ -------- -------
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period $3,136 $ (1,286) $ 1,850
------ -------- -------
Other comprehensive income $3,136 $ (1,286) $ 1,850
====== ======== =======
10
<PAGE>
Three Months Ended September 30, 1998 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
-------- -------- -------
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising
during period $(8,941) $ 3,666 $(5,275)
Foreign currency translation adjustment (1,115) 457 (658)
-------- -------- -------
Other comprehensive loss $(10,056) $ 4,123 $(5,933)
======== ======== =======
Nine Months Ended September 30, 1998 Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
------ -------- -------
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising
during period $(13,288) $ 5,448 $(7,840)
Foreign currency translation adjustment (1,981) 812 (1,169)
-------- -------- -------
Other comprehensive loss $(15,269) $ 6,260 $(9,009)
======== ======== =======
The following tables summarize accumulated other comprehensive income
balances (in thousands):
As of September 30, 1999: Accumulated
Unrealized Other
Gains(Losses) Comprehensive
on Securities Income
-------- ---------
Balance as of December 31, 1998 $ 3,571 $ 3,571
Current period change 1,850 1,850
-------- ---------
Balance as of September 30, 1999 $ 5,421 $ 5,421
======== =========
As of December 31, 1998: Accumulated
Foreign Unrealized Other
Currency Gains(Losses) Comprehensive
Items on Securities Income
-------- -------- ---------
Balance as of December 31, 1997 $ (1,171) $ 11,845 $ 10,674
Current period change 1,171 (8,274) (7,103)
-------- -------- ---------
Balance as of December 31, 1998 $ -- $ 3,571 $ 3,571
======== ======== =========
11
<PAGE>
8. Earnings Per Share
Earnings per share (EPS) is calculated 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. The computation of diluted EPS is similar to
basic EPS, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued, and the numerator is increased for
any related net income effect. Potentially dilutive shares are based on
outstanding stock options and convertible securities.
The following tables reconcile PXP's basic earnings per share to diluted
earnings per share:
For the Three Months Ended September 30, 1999
Per-Share
Income Shares Amount
------- ------ ------
(in thousands)
Basic EPS
Income available to common
stockholders $ 3,776 43,929 $ .09
======
Effect of Dilutive Securities
Stock options 603
6% convertible debentures 681 9,499
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 4,457 54,031 $ .08
======= ====== ======
For the Nine Months Ended September 30, 1999
Per-Share
Income Shares Amount
-------- ------ ------
(in thousands)
Basic EPS
Income available to common
stockholders $ 17,194 43,810 $ .39
======
Effect of Dilutive Securities
Stock options 564
6% convertible debentures 2,022 9,499
-------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 19,216 53,873 $ .36
======== ====== ======
12
<PAGE>
For the Three Months Ended September 30, 1998
Per-Share
Income Shares Amount
-------- ------ ------
(in thousands)
Basic EPS
Income available to common
stockholders $ 5,746 44,164 $ .13
======
Effect of Dilutive Securities
Stock options 337
6% convertible debentures 681 9,499
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 6,427 54,000 $ .12
======= ====== ======
For the Nine Months Ended September 30, 1998
Per-Share
Income Shares Amount
-------- ------ ------
(in thousands)
Net income $ 16,302
Less: preferred stock dividends 1,223
--------
Basic EPS
Income available to common
stockholders 15,079 44,142 $ .34
======
Effect of Dilutive Securities
Stock options 475
6% convertible debentures 1,333 9,499
Convertible preferred stock 1,223
-------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 17,635 54,116 $ .33
======== ====== ======
9. Nonrecurring Item
A nonrecurring item of $5.9 million, or $.06 per diluted share, resulted from
the Company's decision to reimburse two mutual fund investment portfolios
which had inadvertently sustained losses during the quarter. A claim has been
filed on behalf of the insured parties with their insurance company.
13
<PAGE>
10.Long-term Debt
On March 17, 1999, PXP entered into a five year, $175 million Credit
Agreement with a consortium of banks. At September 30, 1999, PXP had
outstanding borrowings of $50 million under this facility. In addition, PXP
had outstanding borrowings of $200 million and $140 million at September 30,
1999 and December 31, 1998, respectively, under a separate $200 million
credit facility. The Zweig acquisition was financed through borrowings from
these credit facilities. Interest rates on both credit facilities are
variable. The Credit Agreements require no principal repayments prior to
maturity. PXP's majority stockholder, Phoenix Home Life, has guaranteed the
obligations, for which it is paid a .10% guarantee fee on the outstanding
balance.
On March 17, 1999, PXP and the banks amended the financial covenant section
of its existing $200 million Credit Agreement to be consistent with the terms
of the new $175 million Credit Agreement.
14
<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.
PXP currently operates two lines of business: retail and institutional
investment management. The retail line of business provides investment
management services to individuals on a discretionary basis (including
administrative services) with products consisting of open-end mutual funds and
individually managed accounts. Individually managed accounts are primarily
administered through broker-dealer sponsored and distributed wrap programs
offered to high net-worth individuals. The institutional line of business
provides discretionary and non-discretionary investment management services
primarily to corporate entities, closed-end funds, structured finance products,
and multi-employer retirement funds, as well as endowment, insurance, and other
special purpose funds.
The following table summarizes operating revenues, income before income taxes,
and assets under management by line of business as of, and for the nine months
ended, September 30, 1999 and 1998:
Income Before Assets Under
Revenues Income Taxes Management
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands) (in thousands) (in millions)
Retail $132,035 $106,052 $21,685 $15,768 $24,418 $18,225
Institutional 75,720 58,187 9,900 10,949 33,627 29,786
All other * 1,575 1,575 (1,154) 2,394
-------- -------- ------- ------- ------- -------
Total $209,330 $165,814 $30,431 $29,111 $58,045 $48,011
======== ======== ======= ======= ======= =======
* - All other represents corporate office revenue and expenses, which are not
attributed directly to either line of business.
15
<PAGE>
Results of Operations
Assets Under Management
At September 30, 1999, PXP had $58.0 billion of assets under management, an
increase of $4.6 billion from December 31, 1998, and $10.0 billion from
September 30, 1998. The increases from December 31, 1998 and September 30, 1998
are principally the result of: (1) the acquisition of the New York City-based
Zweig Fund Group (Zweig), on March 1, 1999, which increased assets under
management by $3.4 billion as of September 30, 1999, and (2) positive investment
performance. Sales and deposits were offset by withdrawals and redemptions
during the aforementioned periods. The pro forma assets under management at
September 30, 1998 assumes the Zweig assets had been acquired as of that date.
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
September 30, June 30, December 31, Sept. 30, Sept. 30,
1999 1999 1998 1998 1998
(in millions)
Retail:
Open-end Mutual Funds $ 15,911 $16,765 $ 14,407 $ 12,474 $ 14,776
Managed Accounts * 8,507 8,586 7,322 5,751 5,751
-------- ------- -------- -------- --------
24,418 25,351 21,729 18,225 20,527
-------- ------- -------- -------- --------
Institutional:
Closed-end Funds 4,566 4,943 3,505 3,433 4,823
Institutional Accounts** 20,171 20,340 19,468 18,035 18,257
PHL General Account 8,890 8,860 8,785 8,318 8,318
-------- ------- -------- -------- --------
33,627 34,143 31,758 29,786 31,398
-------- ------- -------- -------- --------
$ 58,045 $59,494 $ 53,487 $ 48,011 $ 51,925
======== ======= ======== ======== ========
* Managed Accounts represent assets which are individually managed for retail
clients.
** Institutional Accounts include 100% of the assets managed by Seneca Capital
Management (Seneca).
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998 - Historical
- --------------------------------------------------------------------------------
Revenues for the three months ended September 30, 1999 of $73.4 million, which
includes $8.2 million for Zweig, increased $16.0 million (28%) from $57.4
million for the same period in 1998. Excluding the effects of Zweig, the
Company's revenues for the three months ended September 30, 1999 increased $7.8
million (14%) compared to the same period in 1998. Revenues for the retail and
institutional lines of business, including Zweig, increased $9.9 million and
$6.1 million, respectively.
Investment management fees of $64.2 million for the three months ended September
30, 1999, which includes $7.3 million for Zweig, increased $14.3 million (29%)
as compared to $49.9 million for the same period in 1998. Excluding Zweig,
management fees earned by the retail line of business, including managed
accounts and open-end mutual funds, increased $4.7 million due to a $3.2 billion
increase in average assets under management offset, in part, by a decrease in
the fee schedule for certain wrap programs. Excluding Zweig, management fees
earned by the institutional line of business increased $2.3 million primarily as
a result of a $5.9 billion increase in average assets under management. Advisory
accounts contributed $1.4 million to the increase in management fees as a result
of a $.8 billion increase in average assets managed. Structured finance products
offered by PXP in 1999 contributed $.7 million to the increase in management
fees and increased assets under management by $.9 billion. The overall increase
in average assets managed since September 30, 1998 in both the retail and
institutional lines of business is due to investment performance, net asset
flows for both managed accounts and institutional accounts, and the previously
mentioned new structured finance products.
16
<PAGE>
Mutual funds - ancillary fees, a component of the retail line of business, of
$7.9 million for the three months ended September 30, 1999, which includes $.3
million for Zweig, increased $1.1 million (17%) as compared to $6.8 million for
the same period in 1998. Administrative fees and net distributor fees increased
$.3 million and $.2 million, respectively, as a result of an increase in average
assets managed, principally in the Phoenix-Engemann Funds. Fund accounting fees
earned on open-end mutual funds and Phoenix Home Life Mutual Insurance Company
(PHL) sponsored variable products increased $.3 million primarily as a result of
an increase in average assets under management. Shareholder service agent fees
increased $.3 million primarily as a result of an approved change in the fee
structure, which took effect in April 1999.
Other income and fees of $1.3 million for the three months ended September 30,
1999 increased $.6 million (87%) as compared to $.7 million for the same period
in 1998, primarily due to $.5 million of administrative fees earned from the
Zweig closed-end funds.
Operating expenses for the three months ended September 30, 1999 of $56.1
million, which includes $8.0 million for Zweig, increased $13.0 million (30%)
from $43.2 million for the same period in 1998, of which $7.1 million and $4.9
million related to the retail and institutional lines of business, respectively.
Employment expenses of $29.4 million for the three months ended September 30,
1999, which includes $3.0 million for Zweig, increased $7.2 million (32%) as
compared to $22.2 million for the same period in 1998. Incentive compensation
increased by $3.4 million, of which $2.0 million is from certain subsidiaries
who, in accordance with their respective operating agreements, receive increased
compensation directly related to increases in their revenues or earnings. The
remaining $1.4 million includes a $1.0 million increase in sales and performance
based incentive compensation due to improved sales and performance by certain
portfolio managers and research analysts, and a $.4 million increase in
management incentives due to improved operating results. Severance costs of $1.1
million were the result of re-organizational efforts involving the institutional
line of business in August 1999. Amortization of unearned compensation, related
to the issuance of restricted stock grants, increased employment expense by $.4
million. An increase in profit sharing expense increased employment expense by
$.2 million. Savings resulting from the closing of the equity department in
Hartford in April 1999 decreased employment expenses by $1.0 million. An
increase in base compensation expense, primarily as a result of annual salary
adjustments, was offset, in part, by certain other employment expense
reductions.
Other operating expenses of $17.4 million for the three months ended September
30, 1999, which includes $2.4 million for Zweig, increased $3.4 million (24%) as
compared to $14.0 million for the same period in 1998. Computer services
decreased $.5 million, primarily due to lesser reliance on PHL for system
support. The increased use of outside consultants for information systems and
web-site related projects, and the use of marketing and sales consultants in
1999 increased other operating expenses by $.3 million.
Depreciation and amortization of leasehold improvements of $1.0 million for the
three months ended September 30, 1999, which includes $.2 million for Zweig,
remained relatively constant from $1.0 million for the same period in 1998.
Certain fixed assets were fully depreciated after the third quarter of 1998,
reducing depreciation expense in 1999.
Amortization of goodwill and intangible assets of $8.0 million for the three
months ended September 30, 1999 increased $2.5 million (45%) as compared to $5.5
million for the same period in 1998 as a result of the amortization of the
intangible assets and goodwill identified in the preliminary purchase price
allocation of Zweig.
17
<PAGE>
Amortization of deferred commissions, a component of the retail line of
business, of $.4 million for the three months ended September 30, 1999 and 1998
is the result of Pasadena Capital Corporation's deferred commissions asset
established prior to February 1, 1998 which continues to be amortized.
Operating income of $17.2 million for the three months ended September 30, 1999
increased $3.0 million (21%) as compared to $14.2 million for the same period in
1998 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $.4 million for the three
months ended September 30, 1999 decreased $.3 million (42%) as compared to $.6
million for the same period in 1998. PXP sold its investment in Beutel, Goodman
& Company, Ltd. (BG) in the fourth quarter of 1998. PXP's share of BG's income
in the third quarter of 1998 was $.6 million. Equity earnings from PXP's
investments in Inverness/Phoenix Capital LLC (IPC) and Inverness/Phoenix
Partners LP (IPP) increased by $.3 million.
Other expense - net of $.1 million for the three months ended September 30, 1999
decreased $.2 million as compared to a $.3 million net expense for the same
period in 1998, primarily as a result of an increase in unrealized gains earned
on marketable securities.
Non-recurring item of $5.9 million for the three months ended September 30, 1999
resulted from the decision to reimburse two investment portfolios which
inadvertently sustained losses during the quarter.
Interest expense - net of $4.1 million for the three months ended September 30,
1999, which includes net interest income of less than $.1 million for Zweig,
increased $.5 million (14%) as compared to $3.6 million for the same period in
1998. An increase of $1.9 million is due to additional interest charges
resulting from the financing of the Zweig acquisition. A decrease of $.8 million
is due to a lower average outstanding principal balance on other debt and a
decrease in the average interest rate as compared to the same period in 1998.
Interest on a note receivable related to the sale of BG resulted in income of
$.2 million. Other interest and dividend income increased by $.3 million.
Income to minority interest of $.9 million and $.7 million for the three months
ended September 30, 1999 and 1998, respectively, represents the minority
shareholders' interest in the equity earnings of Seneca, which is fully
consolidated in the Company's financial statements.
Net income for the three months ended September 30, 1999 of $3.8 million
reflects a decrease of $2.0 million (34%) from the $5.7 million for the third
quarter of 1998, resulting from the changes discussed above. The effective tax
rate of 41.8% for the three months ended September 30, 1999 decreased compared
to 44.0% for the same period in 1998 due to the effect of certain provision to
tax return items.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended
September 30, 1998 - Historical
- --------------------------------------------------------------------------------
Revenues for the nine months ended September 30, 1999 of $209.3 million, which
includes $20.1 million for Zweig, increased $43.5 million (26%) from $165.8
million for the same period in 1998. Excluding the effects of Zweig, the
Company's revenues for the nine months ended September 30, 1999 increased $23.4
million (14%) compared to the same period in 1998. Revenues for the retail and
institutional lines of business, including Zweig, increased $26.0 million and
$17.5 million, respectively.
18
<PAGE>
Investment management fees of $182.3 million for the nine months ended September
30, 1999, which includes $17.5 million for Zweig, increased $37.9 million (26%)
as compared to $144.3 million for the same period in 1998. Excluding Zweig,
management fees earned from the retail line of business, including managed
accounts and open-end mutual funds, increased $11.6 million primarily due to a
$2.7 billion increase in average assets under management offset, in part, by a
decrease in the fee schedule for certain wrap programs. Excluding Zweig,
management fees earned from the institutional line of business increased $8.7
million primarily as a result of a $3.4 billion increase in average assets under
management. Advisory accounts contributed $6.1 million to the increase in
management fees as a result of a $1.3 billion increase in average assets
managed. Structured finance products offered by PXP in 1999 contributed $1.3
million to the increase in management fees and increased assets under management
by $1.2 billion. The overall increase in average assets managed in both the
retail and institutional lines of business is due to investment performance and
the previously mentioned new structured finance products.
Mutual funds - ancillary fees, a component of the retail line of business, of
$23.7 million for the nine months ended September 30, 1999, which includes $1.2
million for Zweig, increased $4.3 million (22%) as compared to $19.4 million for
the same period in 1998. Administrative fees and net distributor fees increased
$.9 million and $.7 million, respectively, as a result of an increase in average
assets managed, principally in the Phoenix-Engemann Funds. Fund accounting fees
earned on open-end mutual funds and PHL sponsored variable products increased
$1.1 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 in order to reimburse Phoenix Equity Planning Corporation (PEPCO), a
wholly-owned subsidiary of PXP, for additional administrative costs related to
the out-sourcing of substantially all of PEPCO's fund accounting operations in
the first quarter of 1998. Shareholder service agent fees increased $.7 million
primarily as a result of an approved change in the fee structure, which took
effect in April 1999.
Other income and fees of $3.4 million for the nine months ended September 30,
1999 increased $1.4 million (65%) as compared to $2.1 million for the same
period in 1998, primarily due to fees earned administering the Zweig closed-end
funds and other income earned by Zweig.
Operating expenses for the nine months ended September 30, 1999 of $160.3
million, which includes $18.3 million for Zweig, increased $31.9 million (25%)
from $128.4 million for the same period in 1998, of which $14.6 million and
$15.4 million related to the retail and institutional lines of business,
respectively.
Employment expenses of $85.2 million for the nine months ended September 30,
1999, which includes $6.6 million for Zweig, increased $17.9 million (27%) as
compared to $67.3 million for the same period in 1998. Incentive compensation
increased by $8.0 million, of which $5.2 million is from certain subsidiaries
who, in accordance with their respective operating agreements, receive increased
compensation directly related to increases in their revenues or earnings. The
remaining $2.8 million includes a $1.0 million increase in sales and performance
based incentive compensation due to improved sales and performance by certain
portfolio managers and research analysts, and a $1.8 million increase in
management incentives due to improved operating results. Severance costs of $1.1
million resulting from the closing of the equity department in Hartford in April
1999 were offset by $1.7 million of subsequent savings. Additional severance
costs of $1.1 million were the result of re-organizational efforts involving the
institutional line of business in August 1999 and were offset by $.3 million of
subsequent savings. Amortization of unearned compensation, related to the
issuance of restricted stock grants, increased employment expense by $1.3
million. A decrease of $.5 million resulted from the out-sourcing of
substantially all of PXP's fund accounting operations in the first quarter of
1998. An increase in profit sharing expense increased employment expense by $.7
million. An increase in base compensation expense of $1.8 million, primarily as
a result of annual salary adjustments, was offset, in part, by certain other
employment expense reductions.
19
<PAGE>
Other operating expenses of $48.6 million for the nine months ended September
30, 1999, which includes $5.6 million for Zweig, increased $7.8 million (19%) as
compared to $40.8 million for the same period in 1998. Payments to a third party
administrator, relating to the out-sourcing of substantially all of PXP's fund
accounting operations in the first quarter of 1998, increased other operating
expenses in the retail line of business by $1.9 million. Commissions and finders
fees increased by $.5 million due to increased mutual fund sales. Computer
services decreased by $.4 million, due to lesser reliance on PHL for system
support. In addition, the first nine months of 1998 included $.4 million of
non-recurring charges related to the out-sourcing of substantially all of PXP's
fund accounting operations.
Depreciation and amortization of leasehold improvements of $2.9 million for the
nine months ended September 30, 1999, which includes $.4 million for Zweig,
remained relatively constant from $2.8 million for the same period in 1998.
Certain fixed assets were fully depreciated after the third quarter of 1998,
reducing depreciation expense in the current year.
Amortization of goodwill and intangible assets of $22.3 million for the nine
months ended September 30, 1999 increased $5.8 million (35%) as compared to
$16.5 million for the same period in 1998 as a result of the amortization of the
intangible assets and goodwill identified in the preliminary purchase price
allocation of Zweig.
Amortization of deferred commissions, a component of the retail line of
business, of $1.3 million for the nine months ended September 30, 1999 increased
$.3 million (35%) as compared to $1.0 million for the same period in 1998 due to
increased redemptions of Class B mutual fund shares. Pasadena Capital
Corporation's deferred commissions asset established prior to February 1, 1998
continues to be amortized.
Operating income of $49.0 million for the nine months ended September 30, 1999
increased $11.6 million (31%) as compared to $37.4 million for the same period
in 1998 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $.8 million for the nine
months ended September 30, 1999 decreased $1.9 million (69%) as compared to $2.7
million for the same period in 1998. PXP sold its investment in BG in the fourth
quarter of 1998. PXP's share of BG's income for the nine months ended September
30, 1998 was $2.6 million. Equity earnings from PXP's investments in IPC and IPP
increased $.7 million primarily as a result of IPC's recognition of a fee from a
significant second quarter transaction.
Other income - net of $.6 million for the nine months ended September 30, 1999
increased $.3 million (99%) as compared to $.3 million for the same period in
1998. PXP recorded a loss of $.1 million in 1999 related to its investment in
Greystone compared to a $.3 million loss recorded in1998.
Non-recurring item of $5.9 million for the nine months ended September 30, 1999
resulted from the decision to reimburse two investment portfolios for losses
inadvertently sustained during the third quarter.
Interest expense - net of $11.6 million for the nine months ended September 30,
1999, which includes net interest income of $.1 million for Zweig, increased
$1.9 million (20%) as compared to $9.6 million for the same period in 1998. The
exchange of PXP's preferred stock for convertible subordinated debentures in
April 1998 resulted in additional interest expense of $1.2 million in 1999,
while eliminating PXP's preferred stock dividend. An increase of $4.5 million is
due to additional interest charges resulting from the financing of the Zweig
acquisition. A decrease of $2.6 million is primarily due to a lower average
outstanding principal balance on other debt and a decrease in the average
interest rate as compared to the same period in 1998. Other interest and
dividend income increased $.4 million. Interest on a note receivable related to
the sale of BG resulted in income of $.7 million.
Income to minority interest of $2.5 million and $1.6 million for the nine months
ended September 30, 1999 and 1998, respectively, represents the minority
shareholders' interest in the equity earnings of Seneca, which is fully
consolidated in the Company's financial statements.
20
<PAGE>
Net income for the nine months ended September 30, 1999 of $17.2 million
increased $.9 million (5%) from the $16.3 million for the same period in 1998,
resulting from the changes discussed above. The effective tax rate decreased to
43.5% for the nine months ended September 30, 1999 compared to 44.0% for the
same period in 1998 due to the effect of certain provision to tax return items.
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998 - Pro Forma (see Note 4)
- --------------------------------------------------------------------------------
Except for the items noted below, the pro forma variances for the three months
ended September 30, 1999 compared to the same period in 1998 are substantially
the same as historical.
Investment management fees of $64.2 million for the three months ended September
30, 1999 increased $5.0 million (9%) from $59.1 million for the same pro forma
period in 1998. In addition to the historical variances noted above, Zweig
investment management fees decreased $1.9 million due to a $.7 billion decrease
in assets under management resulting from the net effect of performance and
asset outflows.
Net income of $3.8 million for the three months ended September 30, 1999
decreased $2.1 million (36%) as compared to $5.9 million for the same pro forma
period in 1998, resulting from the effects of the changes discussed above. The
effective tax rate decreased to 41.8% for the three months ended September 30,
1999 from 44.8% for the same pro forma period in 1998 due to the effect of
certain provision to tax return items.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended
September 30, 1998 - Pro Forma (see Note 4)
- --------------------------------------------------------------------------------
Except for the items noted below, the pro forma variances for the nine months
ended September 30, 1999 compared to the same period in 1998 are substantially
the same as historical.
Investment management fees - pro forma of $187.8 million for the nine months
ended September 30, 1999 increased $16.2 million (9%) from $171.6 million for
the same period in 1998. In addition to the historical variances noted above,
Zweig investment management fees decreased $4.2 million due to a $.4 billion
decrease in assets under management resulting from the net effect of performance
and asset outflows.
Net income - pro forma of $17.2 million for the nine months ended September 30,
1999 increased $.2 million (1%) as compared to $17.0 million for the same period
in 1998, resulting from the changes discussed above. The effective tax rate
decreased to 43.5% for the nine months ended September 30, 1999 from 44.8% for
the same period in 1998 due to the effect of certain provision to tax return
items.
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 flow. 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 current capital structure, as of October 29, 1999, includes 43.7
million shares of common stock outstanding and $76.4 million of 6% Convertible
Subordinated Debentures with a principal value of $25.00 per debenture. The
current dividend rate on common stock is $.06 per share per quarter. If the
dividend rate remains constant for 1999, the total annual dividend on common
stock would be $10.5 million based upon shares outstanding at October 31, 1999.
The total annual interest expense on the debentures based upon debentures
outstanding at October 31, 1999, at an interest rate of 6%, would be $4.6
million.
21
<PAGE>
The Company has two five-year credit facilities, totaling $375 million, with no
required principal repayments prior to maturity ($200 million matures in August
2002 and $175 million matures in March 2004). The outstanding obligations under
the credit facilities at September 30, 1999 totaled $250 million with an average
interest rate of approximately 5.9%. The credit agreements contain 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 September 30, 1999, the Company was in
compliance with all covenants contained in the credit agreements. The Company
believes that funds from operations and amounts available under the credit
facilities will provide adequate liquidity for the foreseeable future.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
Market Risk
The Company is exposed to the impact of interest rate changes and changes in the
market value of its investments and assets managed. The Company does not have
any derivative investments and, as of the fourth quarter of 1998, is no longer
exposed to foreign currency fluctuations.
The Company's exposure to changes in interest rates is limited to borrowings
under two five-year credit agreements, which have variable interest rates. The
average interest rate on the credit agreements in the first nine months of 1999
and for all of 1998 was approximately 5.6% and 6.0%, respectively. In addition,
the Company has Convertible Subordinated Debentures bearing interest at 6%. At
September 30, 1999, the Company estimated that the fair value of the Convertible
Subordinated Debentures approximated market value.
The Company invests excess cash in marketable securities, which consist of
mutual fund investments, of which the Company is the advisor, publicly traded
securities, and U.S. Government obligations. The fair value of these investments
approximated market value at September 30, 1999.
The Company's revenues are largely driven by the market value of its assets
under management and is therefore exposed to fluctuations in market prices.
Management fees earned on managed accounts and certain institutional accounts
(approximately 40% of total assets under management), for any given quarter, are
based on the market value of the portfolio on the last day of the preceding
quarter. Any significant increase or decline in the market value of assets
managed on the last day of a quarter would result in a corresponding increase or
decrease in revenues for the following three months.
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. In addition, other non-business
specific systems such as security alarms, elevators, telephones, etc. are
subject to malfunction due to their dependence upon computers or computer chips
for proper operation.
Based upon Company assessments, the Company determined that it was required to
modify or replace portions of its software so that its computer systems would
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. 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 would have a material impact on the
operations of the Company. As such, the Company created a Year 2000 Project
Office to address the Year 2000 Issue.
22
<PAGE>
The Company initiated formal communications with all of its software vendors,
service providers and information providers to determine the extent to which the
Company was vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. The Company has determined the compliance status of mission
critical third party products and has completed upgrades to their claimed
compliant versions where needed. 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, if the systems of other companies on which the Company's
systems rely are not converted in a timely fashion, or are not converted at all,
or are converted in a manner that is incompatible with the Company's systems,
the Company's operations and financial results could be adversely affected.
The Company is utilizing internal resources to reprogram, or replace, and test
the software for Year 2000 modifications. The assessment, inventory and
remediation phases of the project have been completed. As of October 31, 1999,
the Company has completed its testing of mission critical systems. Contingency
plans for the Company, including all of its money management partners, have been
completed as of October 31, 1999 and ongoing testing will continue during the
remainder of 1999 where appropriate. The Project Office continues to evaluate
the status of the Company's critical vendors and will conduct testing in the
fourth quarter as needed. The total cost of the Year 2000 project is estimated
at $5.3 million and is being funded through operating cash flows. These costs,
primarily from internal resources, are being expensed as incurred. To date, the
Company has incurred approximately $4.5 million related to its Year 2000
project. 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.
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 and 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 prove to
be accurate 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. Attention is also directed to other risk factors set forth in
documents filed by the Company with the Securities and Exchange Commission.
23
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
With regard to the litigation between PXP and the former members of
Associated Surplus Dealers, as outlined in PXP's 1998 Annual Report on
Form 10-K, in April 1999 the court transferred the case to its docket
for complex cases. A trial date has been set for March 2000.
Item 4. Submission of Matters to a Vote of Security Holders
No items submitted.
Item 6. Exhibits and Reports on Form 8-K
No items submitted.
24
<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.
November 12, 1999 /s/ Philip R. McLoughlin
-----------------------------------------
Philip R. McLoughlin, Chairman and
Chief Executive Officer
November 12, 1999 /s/ William R. Moyer
-----------------------------------------
William R. Moyer, Chief Financial Officer
25
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 43,948
<SECURITIES> 7,973
<RECEIVABLES> 38,018
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0
0
<COMMON> 457
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<EPS-BASIC> .39
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</TABLE>
