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 March 31, 2000
PHOENIX INVESTMENT PARTNERS, LTD.
DELAWARE 95-4191764
(State of Incorporation) (I.R.S. Employer Identification No.)
56 Prospect St., Hartford, Connecticut 06115-0480 (860) 403-5000
(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
On April 28, 2000, the registrant had 44,269,184 shares of $.01 par value common
stock outstanding.
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD. AND SUBSIDIARIES
Quarter Ended March 31, 2000
Index
PART I - FINANCIAL INFORMATION:
Page
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition. 3
March 31, 2000 and December 31, 1999
Consolidated Statements of Income........................ 4
Three Months Ended March 31, 2000 and
Three Months Ended March 31, 1999
Consolidated Condensed Statements of Cash Flows ......... 5
Three Months Ended March 31, 2000 and
Three Months Ended March 31, 1999
Notes to Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition............ 12
Liquidity and Capital Resources.......................... 16
Market Risk.............................................. 17
Cautionary Statement under Section 21E of the Securities
Exchange Act of 1934.................................. 17
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings........................................ 18
Item 4. Submission of Matters to a Vote of Security Holders...... 18
Item 6. Exhibits and Reports on Form 8-K......................... 18
Signatures........................................................ 19
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)
March 31, December 31,
2000 1999
Assets
Current Assets
Cash and cash equivalents $ 33,806 $ 42,203
Marketable securities, at market 16,056 7,941
Accounts receivable 47,190 45,658
Prepaid expenses and other current assets 3,260 3,487
--------- --------
Total current assets 100,312 99,289
Deferred commissions 996 1,219
Furniture, equipment and leasehold improvements, net 12,250 12,475
Goodwill and intangible assets, net 548,731 556,534
Long-term investments and other assets 6,215 12,169
--------- --------
Total assets $ 668,504 $681,686
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other accrued liabilities $ 45,483 $ 45,987
Payables to related parties 4,438 4,749
Broker-dealer payable 11,981 13,197
Current portion of long-term debt 1,045 964
--------- --------
Total current liabilities 62,947 64,897
Deferred taxes, net 46,000 45,656
Long-term debt, net of current portion 422 754
Convertible subordinated debentures 76,364 76,364
Credit facilities 215,000 235,000
Lease obligations and other long-term liabilities 3,288 3,759
--------- --------
Total liabilities 404,021 426,430
--------- --------
Minority Interest 1,896 4,255
--------- --------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 46,261,583 and 45,760,201 shares issued,
and 44,226,684 and 43,760,201 shares outstanding 463 458
Additional paid-in capital 203,652 200,410
Retained earnings 70,458 60,737
Unrealized gains on securities available-for-sale 6,359 5,143
Unearned compensation on restricted stock (3,343) (1,029)
Treasury stock, at cost, 2,034,899 and 2,000,000 shares (15,002) (14,718)
--------- --------
Total stockholders' equity 262,587 251,001
--------- --------
Total liabilities and stockholders' equity $ 668,504 $681,686
========= ========
The accompanying notes are an integral part of these statements.
3
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
2000 1999
Revenues
Investment management fees $ 70,790 $ 55,025
Mutual funds - ancillary fees 10,345 7,328
Other income and fees 1,015 966
--------- --------
Total revenues 82,150 63,319
--------- --------
Operating Expenses
Employment expenses 32,761 26,654
Other operating expenses 17,540 14,513
Depreciation and amortization of
leasehold improvements 1,075 904
Amortization of goodwill and intangible assets 7,917 6,314
Amortization of deferred commissions 223 565
--------- --------
Total operating expenses 59,516 48,950
--------- --------
Operating Income 22,634 14,369
--------- --------
Equity in Earnings of Unconsolidated Affiliates (54) 165
--------- --------
Other Income - Net 466 45
--------- --------
Gain on Sale 5,867
--------- --------
Interest (Expense) Income - Net
Interest expense (5,036) (3,786)
Interest income 555 727
--------- --------
Total interest expense - net (4,481) (3,059)
--------- --------
Income to Minority Interest (1,268) (737)
--------- --------
Income Before Income Taxes 23,164 10,783
Provision for income taxes 9,961 4,745
--------- --------
Net Income $ 13,203 $ 6,038
========= ========
Weighted average shares outstanding
Basic 44,055 43,661
Diluted 53,699 53,446
Earnings per share
Basic $ .30 $ .14
Diluted $ .26 $ .13
The accompanying notes are an integral part of these statements.
4
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended March 31,
2000 1999
Cash Flows from Operating Activities:
Net income $ 13,203 $ 6,038
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of
leasehold improvements 1,075 904
Amortization of goodwill and intangible assets 7,917 6,314
Amortization of deferred commissions 223 565
Income to minority interest 1,268 737
Compensation recognized under employee
benefit plans 603 308
Gain on sale (5,867)
Equity in earnings of unconsolidated
affiliates, net of dividends 98 27
Changes in other operating assets (1,341) (2,403)
Changes in other operating liabilities (2,982) (6,514)
-------- -------
Net cash provided by operating activities 14,197 5,976
-------- -------
Cash Flows from Investing Activities:
Purchase of subsidiaries, net of cash acquired (137,714)
Proceeds from sale of National-Oilwell, Inc.
common stock 5,867
Purchase of marketable securities, net (41) (2,932)
Capital expenditures, net (850) (572)
Purchase of long-term investments (119) (360)
Proceeds from long-term investments 490
-------- --------
Net cash provided by (used in) investing activities 4,857 (141,088)
-------- --------
Cash Flows from Financing Activities:
(Repayment of) proceeds from borrowings, net (20,251) 134,744
Distribution to minority interest (3,627) (1,978)
Dividends paid (3,483) (2,626)
Stock repurchases (284) (1,892)
Proceeds from issuance of stock 194 323
Other financing activities (175)
-------- -------
Net cash (used in) provided by financing activities (27,451) 128,396
-------- -------
Net decrease in cash and cash equivalents (8,397) (6,716)
Cash and cash equivalents, beginning of period 42,203 29,298
-------- -------
Cash and Cash Equivalents, End of Period $ 33,806 $22,582
======== =======
Supplemental Cash Flow Information:
Interest paid $ 4,161 $ 3,387
Income taxes paid $ 5,327 $ 9,996
The accompanying notes are an integral part of these statements.
5
<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, 1999. Reclassifications
have been made, when necessary, to conform the prior period presentation to
the current period presentation.
2. 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 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. The excess of purchase price
over the fair value of acquired net tangible assets of Zweig totaled $136.2
million. Of this excess purchase price, $77.2 million has been 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
$59.0 million has been classified as goodwill and is being amortized over 40
years using the straight-line method. Related amortization of $2.4 million
and $.8 million has been expensed for the year to date periods ended March
31, 2000 and 1999, respectively.
The following table summarizes the 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 $ 1,147
Identified intangibles 77,210
Goodwill 59,034
--------
Total purchase price allocation $137,391
========
6
<PAGE>
3. Pro Forma Results
The Company's financial results for the first quarter of 2000 include the
operations of Zweig, while the first quarter of 1999 financial results
exclude the operations of Zweig for the period from January 1, 1999 through
February 28, 1999. Management believes that, for comparative purposes, the
most meaningful financial presentation for 1999 is on a pro forma basis.
The following financial information for the three months ended March 31, 2000
reflects the actual results for the quarter. The following pro forma
financial information for the three months ended March 31, 1999 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, 1999. 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
March 31,
2000 1999
Actual Pro Forma
------- -------
(in thousands,
except per share data)
Revenues $82,150 $70,002
------- -------
Employment expenses 32,761 29,118
Other operating expenses 18,838 17,293
Amortization of goodwill and
intangible assets 7,917 7,917
------- -------
Operating income 22,634 15,674
Other income - net 6,279 210
Interest expense - net (4,481) (4,343)
Income to minority interest (1,268) (737)
------- -------
Income before income taxes 23,164 10,804
Provision for income taxes 9,961 4,786
------- -------
Net income $13,203 $ 6,018
======= =======
Earnings per share
Basic $ .30 $ .14
Diluted $ .26 $ .13
4. 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. The Company'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.
7
<PAGE>
The following tables summarize pertinent financial information relative to
the Company's operations for the three months ended March 31, 2000 and 1999,
respectively:
March 31, 2000 Institu- All
Retail tional Other* Total
------- --------- ------ --------
(in thousands)
Revenues $52,917 $ 28,708 $ 525 $ 82,150
------- --------- ------ --------
Employment and
other operating expenses 31,831 18,823 945 51,599
Amortization of goodwill
and intangible assets 4,343 3,574 7,917
------- --------- ------ --------
Operating income (loss) 16,743 6,311 (420) 22,634
Other income - net 2 138 6,139 6,279
Interest expense (2,873) (1,682) (481) (5,036)
Interest income 67 68 420 555
Minority interest (1,268) (1,268)
------- --------- ------ --------
Income before income taxes $13,939 $ 3,567 $5,658 $ 23,164
======= ========= ====== ========
(in millions)
Assets under management $29,996 $ 36,033 $ -- $ 66,029
======= ========= ====== ========
March 31, 1999 Institu- All
Retail tional Other* Total
------- --------- ------ --------
(in thousands)
Revenues $40,268 $ 22,526 $ 525 $ 63,319
------- --------- ------ --------
Employment and
other operating expenses 26,383 16,127 126 42,636
Amortization of goodwill
and intangible assets 3,531 2,783 6,314
------- --------- ------ --------
Operating income 10,354 3,616 399 14,369
Other (expense) income - net (93) 142 161 210
Interest expense (1,823) (779) (1,184) (3,786)
Interest income 153 45 529 727
Minority interest (737) (737)
------- --------- ------ --------
Income (loss) before
income taxes $ 8,591 $ 2,287 $ (95) $ 10,783
======= ========= ====== ========
(in millions)
Assets under management $24,778 $ 33,739 $ -- $ 58,517
======= ========= ====== ========
* - The "All Other" column represents corporate office revenue and expenses
which are not directly attributable to a 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.
8
<PAGE>
5. Long-term Debt
At March 31, 2000 and December 31, 1999, PXP had outstanding borrowings of
$200 million under a $200 million Credit Agreement. In addition, at March 31,
2000 and December 31, 1999, PXP had outstanding borrowings of $15 million and
$35 million, respectively, under a separate $175 million Credit Agreement.
Interest rates on both credit agreements are variable. The credit agreements
require no principal repayments prior to maturity. The Company's majority
stockholder, Phoenix Home Life, has guaranteed the obligations, for which it
is paid a .10% guarantee fee on the outstanding balances.
6. Dividends and Other Capital Transactions
On May 11, 2000, the Company's Board of Directors declared a quarterly
dividend of $.08 per common share payable June 15, 2000, to stockholders of
record on June 2, 2000. 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.
Interest on the 6% Convertible Subordinated Debentures for the period from
March 10, 2000 through June 9, 2000 will be payable on June 12, 2000 to
registered holders as of May 19, 2000.
7. Comprehensive Income
The components of comprehensive income, and related tax effects, are as
follows:
Tax
Before (Expense) Net
Tax Benefit of Tax
------- -------- -------
Three Months Ended March 31, 2000 (in thousands)
Net income $23,164 $ (9,961) $13,203
------- -------- -------
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 7,829 (3,210) 4,619
Less: reclassification adjustment for gains
realized in net income (5,867) 2,464 (3,403)
------- -------- -------
Total other comprehensive income 1,962 (746) 1,216
------- -------- -------
Comprehensive income $25,126 $(10,707) $14,419
======= ======== =======
Three Months Ended March 31, 1999
Net income $10,783 $ (4,745) $ 6,038
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 210 (86) 124
------- -------- -------
Comprehensive income $10,993 $ (4,831) $ 6,162
======= ======== =======
9
<PAGE>
8. Gain on Sale
On March 3, 2000, PXP sold 188,260 shares of National-Oilwell, Inc. (NOI)
common stock, included in marketable securities at December 31, 1999, for
$251/2 per share, realizing a gain of $4.8 million. On March 2, 2000, DPI Oil
Service, LP (DPI), an affiliated limited partnership in which PXP holds an
interest, sold a portion of its shares of NOI. The Company's proportionate
share of the proceeds from the sale was $1.1 million, resulting in a total
gain to PXP of $5.9 million from the sale of NOI shares.
On March 13, 2000, DPI distributed its remaining shares of NOI. As a result
of this distribution, PXP received 354,134 shares of NOI, which are included
in marketable securities at March 31, 2000.
9. 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 the Company's basic earnings per share to
diluted earnings per share:
Per-Share
Income Shares Amount
------- ------ ------
(in thousands)
For the Three Months Ended March 31, 2000
Basic EPS
Income available to common
stockholders $ 13,203 44,055 $ .30
======
Effect of Dilutive Securities
Stock options 144
6% convertible debentures 674 9,500
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 13,877 53,699 $ .26
======== ====== ======
10
<PAGE>
For the Three Months Ended March 31, 1999
Per-Share
Income Shares Amount
------- ------ ------
(in thousands)
Basic EPS
Income available to common
stockholders $ 6,038 43,661 $ .14
======
Effect of Dilutive Securities
Stock options 285
6% convertible debentures 667 9,500
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 6,705 53,446 $ .13
======= ====== ======
10. Pending Sale
In January 2000, the Company received an expression of interest for the
purchase of the Cleveland-based business of DPIM. In March 2000, a
preliminary agreement as to the terms of the sale was reached. The purchase
price will be based upon revenue run rates at future dates. Although the
transaction has not yet been completed, it is not expected to have a material
impact on the results of operations.
11
<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
managed accounts. Managed accounts include broker-dealer sponsored and
distributed wrap programs and individually managed account investment services
(private client), both of which are 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 three months
ended, March 31, 2000 and 1999:
Income Before Assets Under
Revenues Income Taxes Management
2000 1999 2000 1999 2000 1999
------ ------- ------- ------- ------- -------
(in thousands) (in thousands) (in millions)
Retail $52,917 $40,268 $13,939 $ 8,591 $29,996 $24,778
Institutional 28,708 22,526 3,567 2,287 36,033 33,739
All other * 525 525 5,658 (95)
------- ------- ------- ------- ------- -------
Total $82,150 $63,319 $23,164 $10,783 $66,029 $58,517
======= ======= ======= ======= ======= =======
* - "All other" represents corporate office revenue and expenses, which are not
attributed directly to a line of business.
12
<PAGE>
RESULTS OF OPERATIONS
Assets Under Management
- -----------------------
At March 31, 2000, PXP had $66.0 billion of assets under management, an increase
of $1.4 billion from December 31, 1999, and $7.5 billion from March 31, 1999.
The increase from December 31, 1999 is the result of $2.2 billion of positive
performance, offset by net asset outflows of $.8 billion. The increase from
March 31, 1999 is principally the result of $8.3 billion of positive investment
performance, offset, in part, by net asset outflows of $.5 billion. Since the
revenues of the Company are substantially earned based upon assets under
management, this information is important to an understanding of the business.
March 31, December 31, March 31,
2000 1999 1999
------- -------- --------
(in millions)
Retail:
Open-end Mutual Funds $18,524 $ 18,073 $ 16,658
Managed Accounts * 11,472 10,370 8,120
------- -------- --------
29,996 28,443 24,778
------- -------- --------
Institutional:
Institutional Accounts ** 20,215 20,514 18,574
Structured Finance Products *** 1,282 1,276 927
Closed-end Funds 4,607 4,596 4,726
PHL General Account and
Other PHL Related 9,929 9,772 9,512
------- -------- --------
36,033 36,158 33,739
------- -------- --------
$66,029 $ 64,601 $ 58,517
======= ======== ========
* Managed Accounts represent broker-dealer sponsored and distributed wrap fee
programs and individually managed account investment services, both of which
are offered to high net-worth individuals.
** Institutional Accounts include 100% of the assets managed by Seneca Capital
Management.
*** Structured Finance Products consist of debt and equity securities backed
by an actively managed portfolio of equity or fixed income securities.
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
- --------------------------------------------------------------------------------
1999 - Historical
- -----------------
Revenues for the three months ended March 31, 2000 of $82.1 million, which
includes $7.3 million for the Zweig Fund Group (Zweig), increased $18.8 million
(30%) from $63.3 million, which includes $3.2 million for Zweig (which was
acquired on March 1, 1999), for the same period in 1999. Excluding the effects
of Zweig, the Company's revenues for the three months ended March 31, 2000
increased $14.7 million (24%) compared to the same period in 1999. Revenues for
the retail and institutional lines of business, including Zweig, increased $12.6
million and $6.2 million, respectively.
13
<PAGE>
Investment management fees of $70.8 million for the three months ended March 31,
2000, which includes $6.1 million for Zweig, increased $15.8 million (29%) as
compared to $55.0 million, which includes $2.7 million for Zweig, for the same
period in 1999. Excluding Zweig, management fees earned by the retail and
institutional lines of business increased $8.4 million and $4.0 million,
respectively, due to increases of $5.4 billion and $3.6 billion, respectively,
in average assets under management. Structured finance products contributed $.5
million to the increase in institutional management fees and increased assets
under management by $.4 billion. The overall increase in average assets managed
since March 31, 1999 in each line of business is primarily due to investment
performance. In addition, the retail line of business experienced significant
net asset inflows for managed accounts and Seneca contributed significantly to
asset inflows in the institutional line of business.
Mutual funds - ancillary fees, a component of the retail line of business, of
$10.3 million for the three months ended March 31, 2000, which includes $.9
million for Zweig, increased $3.0 million (41%) as compared to $7.3 million,
which includes $.3 million for Zweig, for the same period in 1999.
Administrative fees increased $.4 million as a result of an increase in average
assets managed offset, in part, by a reduction in the fee rate. Net distributor
fees increased $.4 million 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 $.4 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 $1.0 million for the three months ended March 31, 2000
remained constant as compared to the same period in 1999.
Operating expenses for the three months ended March 31, 2000 of $59.5 million,
which includes $5.5 million for Zweig, increased $10.6 million (22%) from $48.9
million, which includes $2.6 million for Zweig, for the same period in 1999, of
which $6.3 million and $3.5 million related to the retail and institutional
lines of business, respectively.
Employment expenses of $32.8 million for the three months ended March 31, 2000,
which includes $.9 million for Zweig, increased $6.1 million (23%) as compared
to $26.7 million, which includes $.8 million for Zweig, for the same period in
1999. Incentive compensation increased by $5.1 million, of which $3.4 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 $1.7 million includes a $1.1 million
increase in sales and performance based incentive compensation due to improved
sales and performance by certain portfolio managers and research analysts, and a
$.3 million increase in management incentives due to improved operating results.
Profit sharing expense increased employment expense by $.9 million. Amortization
of unearned compensation, related to the issuance of restricted stock grants,
increased employment expense by $.3 million. Savings resulting from the closing
of the equity department in Hartford in April 1999 decreased employment expenses
by $.7 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.
14
<PAGE>
Other operating expenses of $17.5 million for the three months ended March 31,
2000, which includes $2.0 million for Zweig, increased $3.0 million (21%) as
compared to $14.5 million, which includes $1.0 million for Zweig, for the same
period in 1999. Commissions and finders fees increased $.4 million due to
increased sales. Increases in professional fees and outside services were offset
by decreases in computer services, as a result of the completion of the
Company's Year 2000 project. Expenses related to open-end mutual funds, for
which PXP is reimbursed through administrative and fund accounting fees,
increased $.4 million. Various other less significant year over year variances
increased other operating expenses by $.6 million.
Depreciation and amortization of leasehold improvements of $1.1 million, which
includes $.2 million for Zweig, for the three months ended March 31, 2000
remained relatively constant from $.9 million, which includes $.1 million for
Zweig, for the same period in 1999.
Amortization of goodwill and intangible assets of $7.9 million for the three
months ended March 31, 2000 increased $1.6 million (25%) as compared to $6.3
million for the same period in 1999 as a result of the amortization of the
intangible assets and goodwill identified in the purchase price allocation of
Zweig.
Amortization of deferred commissions, a component of the retail line of
business, of $.2 million for the three months ended March 31, 2000 decreased $.3
million (60%) as compared to $.6 million for the same period in 1999 as a result
of a decrease in Pasadena Capital Corporation's (PCC) deferred commissions asset
established prior to February 1, 1998, which continues to be amortized.
Operating income of $22.6 million for the three months ended March 31, 2000
increased $8.3 million (58%) as compared to $14.4 million for the same period in
1999 as a result of the changes discussed above.
Gain on sale of $5.9 million is the result of the sale of National-Oilwell, Inc.
(NOI) common stock shares, which were held in marketable securities as of
December 31, 1999, and the Company's proportionate share of the sale of NOI
shares by DPI Oil Service LP, in which PXP has a partnership interest.
Equity in earnings of unconsolidated affiliates of $(54) thousand for the three
months ended March 31, 2000 decreased $.3 million as compared to $.2 million for
the same period in 1999 primarily due to a net decrease in equity earnings from
certain PXP limited partnership investments.
Other income - net of $.5 million for the three months ended March 31, 2000
increased $.4 million as compared to $45 thousand for the same period in 1999,
primarily as a result of an increase in unrealized gains earned on marketable
securities held for trading purposes.
Interest expense - net of $4.5 million for the three months ended March 31, 2000
increased $1.4 million (46%) as compared to $3.1 million for the same period in
1999 of which $1.0 million is due to additional interest charges resulting from
the financing of the Zweig acquisition and $.3 million is due to an increase in
the average interest rate paid on outstanding debt as compared to the same
period in 1999.
Income to minority interest, a component of the institutional line of business,
of $1.3 million and $.7 million for the three months ended March 31, 2000 and
1999, respectively, represents the minority shareholders' interest in the equity
earnings of Seneca Capital Management, which is fully consolidated in the
Company's financial statements.
Net income for the three months ended March 31, 2000 of $13.2 million reflects
an increase of $7.2 million from $6.0 million for the first quarter of 1999,
resulting from the changes discussed above. The effective tax rate of 43.0% for
the three months ended March 31, 2000 decreased compared to 44.0% for the same
period in 1999 due to increased pre-tax earnings, thereby reducing the effect of
permanent differences on the rate.
15
<PAGE>
Three Months Ended March 31, 2000 Compared with Pro Forma Three Months Ended
- --------------------------------------------------------------------------------
March 31, 1999 (see Note 4)
- ---------------------------
Except for the items noted below, the pro forma variances for the three months
ended March 31, 2000 compared to the same period in 1999 are substantially the
same as historical.
Investment management fees of $70.8 million for the three months ended March 31,
2000 increased $10.2 million (17%) from $60.5 million for the same pro forma
period in 1999. In addition to the historical variances noted above, Zweig
investment management fees decreased $2.1 million due to a $.6 billion decrease
in assets under management resulting primarily from net asset outflows.
Net income of $13.2 million for the three months ended March 31, 2000 increased
$7.2 million as compared to $6.0 million for the same pro forma period in 1999,
resulting from the effects of the changes discussed above.
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 April 28, 2000, includes 44.3
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 $.08 per share per quarter. If the
dividend rate remains constant for 2000, the total annual dividend on common
stock would be $14.2 million based upon shares outstanding at April 28, 2000.
The total annual interest expense on the debentures based upon debentures
outstanding at April 28, 2000, at an interest rate of 6%, would be $4.6 million.
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 March 31, 2000 totaled $215 million with an average
interest rate of approximately 6.5%. 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 March 31, 2000, 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.
The Company is obligated to pay PCC an additional purchase price, based upon
growth in PCC management fee revenues, to be paid out on the third, fourth and
fifth anniversaries of the transaction and could be a total of $50 million, if
paid in 2000, or up to a maximum of $66 million, if paid thereafter. These
payments will be funded principally through the use of the credit facilities.
The Company has commitments, expiring June 1, 2000, with unrelated third parties
whereby the third parties fund commissions paid by the Company upon the sale of
Class B share mutual funds. Management expects to enter into similar financing
effective after June 1, 2000. However, if the Company is not successful in
securing refinancing, then the Company will be required to fund these
commissions using operating cashflows.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
16
<PAGE>
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 has no exposure 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 three months of 2000
and for all of 1999 was approximately 6.5% and 6.0%, respectively. In addition,
the Company has Convertible Subordinated Debentures bearing interest at 6%. At
March 31, 2000, 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 March 31, 2000.
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 35% 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.
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. 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.
17
<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 the Company's 1999 Annual
Report on Form 10-K, a trial date has been set for October 2, 2000.
With regard to the arbitration proceeding commenced by a former
employee, PXP has responded to the claims and intends to vigorously
defend the case. An arbitrator has not yet been appointed and no
hearing dates have as yet been scheduled.
Item 4. Submission of Matters to a Vote of Security Holders
No items submitted.
Item 6. Exhibits and Reports on Form 8-K
None.
18
<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.
May 12, 2000 /s/ Philip R. McLoughlin
-----------------------------------------
Philip R. McLoughlin, Chairman and
Chief Executive Officer
May 12, 2000 /s/ William R. Moyer
-----------------------------------------
William R. Moyer, Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 33,806
<SECURITIES> 16,056
<RECEIVABLES> 47,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,312
<PP&E> 27,033
<DEPRECIATION> 14,783
<TOTAL-ASSETS> 668,504
<CURRENT-LIABILITIES> 62,947
<BONDS> 76,364
0
0
<COMMON> 463
<OTHER-SE> 262,124
<TOTAL-LIABILITY-AND-EQUITY> 668,504
<SALES> 0
<TOTAL-REVENUES> 88,429
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 60,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,481
<INCOME-PRETAX> 23,164
<INCOME-TAX> 9,961
<INCOME-CONTINUING> 13,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,203
<EPS-BASIC> .30
<EPS-DILUTED> .26
</TABLE>
