SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10994
--------------
For the quarterly period ended June 30, 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 July 31, 2000, the registrant had 44,940,505 shares of $.01 par value common
stock outstanding.
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD. AND SUBSIDIARIES
Quarter Ended June 30, 2000
Index
PART I - FINANCIAL INFORMATION:
Page
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition. 3
June 30, 2000 and December 31, 1999
Consolidated Statements of Income........................ 4
Three Months Ended June 30, 2000 and
Three Months Ended June 30, 1999
Consolidated Statements of Income........................ 5
Six Months Ended June 30, 2000 and
Six Months Ended June 30, 1999
Consolidated Condensed Statements of Cash Flows ......... 6
Six Months Ended June 30, 2000 and
Six Months Ended June 30, 1999
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition............ 14
Liquidity and Capital Resources.......................... 20
Market Risk.............................................. 21
Cautionary Statement under Section 21E of the Securities
Exchange Act of 1934.................................. 21
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings........................................ 22
Item 4. Submission of Matters to a Vote of Security Holders...... 22
Item 6. Exhibits and Reports on Form 8-K......................... 23
Signatures........................................................ 23
2
<PAGE>
PART I. Financial Information
Item 1. Consolidated Financial Statements
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Condensed Statements of Financial Condition
(in thousands)
(Unaudited)
June 30, December 31,
2000 1999
Assets
Current Assets
Cash and cash equivalents $ 43,178 $ 42,203
Marketable securities, at market 13,519 7,941
Accounts receivable 51,581 45,658
Prepaid expenses and other current assets 3,213 3,487
--------- --------
Total current assets 111,491 99,289
Deferred commissions 822 1,219
Furniture, equipment and leasehold improvements, net 12,252 12,475
Goodwill and intangible assets, net 532,063 556,534
Long-term investments and other assets 16,016 12,169
--------- --------
Total assets $ 672,644 $681,686
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and other accrued liabilities $ 47,951 $ 45,987
Payables to related parties 3,062 4,749
Broker-dealer payable 12,481 13,197
Current portion of long-term debt 1,062 964
--------- --------
Total current liabilities 64,556 64,897
Deferred taxes, net 43,728 45,656
Long-term debt, net of current portion 225 754
Convertible subordinated debentures 76,244 76,364
Credit facilities 210,000 235,000
Lease obligations and other long-term liabilities 4,494 3,759
--------- --------
Total liabilities 399,247 426,430
--------- --------
Minority Interest 1,092 4,255
--------- --------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 46,417,054 and 45,760,201 shares issued,
and 44,382,155 and 43,760,201 shares outstanding 464 458
Additional paid-in capital 204,786 200,410
Retained earnings 79,733 60,737
Unrealized gains on securities available-for-sale 4,932 5,143
Unearned compensation on restricted stock (2,608) (1,029)
Treasury stock, at cost, 2,034,899 and 2,000,000 shares (15,002) (14,718)
--------- --------
Total stockholders' equity 272,305 251,001
--------- --------
Total liabilities and stockholders' equity $ 672,644 $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 June 30,
2000 1999
Revenues
Investment management fees $ 72,343 $ 63,065
Mutual funds - ancillary fees 9,065 8,244
Other income and fees 1,443 1,336
--------- --------
Total revenues 82,851 72,645
--------- --------
Operating Expenses
Employment expenses 30,894 29,118
Other operating expenses 19,831 16,711
Depreciation and amortization of
leasehold improvements 936 940
Amortization of goodwill and intangible assets 7,956 7,991
Amortization of deferred commissions 174 444
--------- --------
Total operating expenses 59,791 55,204
--------- --------
Operating Income 23,060 17,441
--------- --------
Equity in Earnings of Unconsolidated Affiliates 171 301
--------- --------
Nonrecurring Items 4,500
--------- --------
Gain on Sale 3,005
--------- --------
Other Income - Net 364 653
--------- --------
Interest (Expense) Income - Net
Interest expense (4,730) (5,119)
Interest income 494 733
--------- --------
Total interest expense - net (4,236) (4,386)
--------- --------
Income to Minority Interest (1,508) (849)
--------- --------
Income Before Income Taxes 25,356 13,160
Provision for income taxes 12,578 5,780
--------- --------
Net Income $ 12,778 $ 7,380
========= ========
Weighted average shares outstanding
Basic 44,212 43,839
Diluted 54,283 54,226
Earnings per share
Basic $ .29 $ .17
Diluted $ .25 $ .15
The accompanying notes are an integral part of these statements.
4
<PAGE>
Phoenix Investment Partners, Ltd. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Six Months Ended June 30,
2000 1999
Revenues
Investment management fees $ 143,133 $118,090
Mutual funds - ancillary fees 18,611 15,486
Other income and fees 3,257 2,388
--------- --------
Total revenues 165,001 135,964
--------- --------
Operating Expenses
Employment expenses 63,655 55,772
Other operating expenses 37,371 31,224
Depreciation and amortization of
leasehold improvements 2,011 1,844
Amortization of goodwill and intangible assets 15,873 14,305
Amortization of deferred commissions 397 1,009
--------- --------
Total operating expenses 119,307 104,154
--------- --------
Operating Income 45,694 31,810
--------- --------
Equity in Earnings of Unconsolidated Affiliates 117 466
--------- --------
Nonrecurring Items 4,500
--------- --------
Gain on Sale 8,872
--------- --------
Other Income - Net 830 698
--------- --------
Interest (Expense) Income - Net
Interest expense (9,766) (8,905)
Interest income 1,049 1,460
--------- --------
Total interest expense - net (8,717) (7,445)
--------- --------
Income to Minority Interest (2,776) (1,586)
--------- --------
Income Before Income Taxes 48,520 23,943
Provision for income taxes 22,539 10,525
--------- --------
Net Income $ 25,981 $ 13,418
========= ========
Weighted average shares outstanding
Basic 44,176 43,749
Diluted 53,985 53,658
Earnings per share
Basic $ .59 $ .31
Diluted $ .51 $ .28
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)
Six Months Ended June 30,
2000 1999
Cash Flows from Operating Activities:
Net income $ 25,981 $ 13,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of
leasehold improvements 2,011 1,844
Amortization of goodwill and intangible assets 15,873 14,305
Amortization of deferred commissions 397 1,009
Income to minority interest 2,776 1,586
Compensation recognized under employee
benefit plans 1,375 796
Gain on sale (8,872)
Equity in earnings of unconsolidated
affiliates, net of dividends (72) (274)
Changes in other operating assets (5,237) 484
Changes in other operating liabilities (1,075) (10,357)
-------- -------
Net cash provided by operating activities 33,157 22,811
-------- -------
Cash Flows from Investing Activities:
Purchase of subsidiaries, net of cash acquired (8,616) (138,551)
Proceeds from sale of National-Oilwell, Inc.
common stock 8,872
Proceeds from sale of Cleveland operations 4,985
Capital expenditures, net (2,062) (2,769)
(Purchase) sale of marketable securities, net (159) 543
Purchase of long-term investments (78) (4,515)
Proceeds from long-term investments 490
-------- --------
Net cash provided by (used in) investing activities 2,942 (144,802)
-------- --------
Cash Flows from Financing Activities:
(Repayment of) proceeds from borrowings, net (25,430) 132,868
Dividends paid (6,986) (5,246)
Distributions to minority interest (3,627) (1,978)
Stock repurchases (284) (1,892)
Proceeds from issuance of stock 1,203 2,003
Other financing activities (174)
-------- --------
Net cash (used in) provided by financing activities (35,124) 125,581
-------- --------
Net increase in cash and cash equivalents 975 3,590
Cash and cash equivalents, beginning of period 42,203 29,298
-------- --------
Cash and Cash Equivalents, End of Period $ 43,178 $ 32,888
======== ========
Supplemental Cash Flow Information:
Interest paid $ 8,866 $ 8,799
Income taxes paid $ 14,530 $20,760
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, 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 $136.4
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
$59.1 million has been classified as goodwill and is being amortized over 40
years using the straight-line method. Related amortization of $4.8 million
and $3.2 million has been expensed for the year to date periods ended June
30, 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 $ 1,033
Identified intangibles 77,210
Goodwill 59,148
--------
Total purchase price allocation $137,391
========
The Company is obligated to pay Roger Engemann & Associates, Inc. (REA) an
additional purchase price, based upon growth in REA 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.
7
<PAGE>
3. Pro Forma Results
The Company's financial results for 2000 include the operations of Zweig,
while the first six months of 1999 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 six months ended June 30, 2000
reflects the actual results for the respective period. The pro forma
financial information for the six months ended June 30, 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.
Six Months Ended June 30,
2000 1999
Actual Pro Forma
(in thousands,
except per share data)
Revenues $165,001 $142,647
-------- --------
Employment expenses 63,655 58,236
Other operating expenses 39,779 35,388
Amortization of goodwill and
intangible assets 15,873 15,908
-------- --------
Operating income 45,694 33,115
Other income - net 14,319 1,164
Interest expense - net (8,717) (8,729)
Income to minority interest (2,776) (1,586)
-------- --------
Income before income taxes 48,520 23,964
Provision for income taxes 22,539 10,566
-------- --------
Net income $ 25,981 $ 13,398
======== ========
Earnings per share
Basic $ .59 $ .31
Diluted $ .51 $ .27
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.
8
<PAGE>
The following tables summarize pertinent financial information relative to
the Company's operations for the six month periods ended June 30, 2000 and
1999:
Insti-
June 30, 2000 Retail tutional All Other Total
-------- -------- ------- --------
(in thousands)
Revenues $105,353 $58,598 $ 1,050 $165,001
-------- ------- ------- --------
Employment and
other operating expenses 63,365 38,304 1,765 103,434
Amortization of goodwill
and intangible assets 8,596 7,277 15,873
-------- ------- ------- --------
Operating income (loss) 33,392 13,017 (715) 45,694
Other income - net 4,511 577 9,231 14,319
Interest expense (5,675) (3,410) (681) (9,766)
Interest income 112 124 813 1,049
Minority interest (2,776) (2,776)
-------- ------- ------- --------
Income before income taxes $ 32,340 $ 7,532 $ 8,648 $ 48,520
======== ======= ======= ========
(in millions)
Assets under management $ 29,031 $31,801 $ -- $ 60,832
======== ======= ======= ========
Insti-
June 30, 1999 Retail tutional All Other Total
-------- -------- ------- --------
(in thousands)
Revenues $ 86,080 $48,834 $ 1,050 $135,964
-------- ------- ------- --------
Employment and
other operating expenses 55,904 33,051 894 89,849
Amortization of goodwill
and intangible assets 7,938 6,367 14,305
-------- ------- ------- --------
Operating income 22,238 9,416 156 31,810
Other (expense) income - net (90) 294 960 1,164
Interest expense (4,520) (2,031) (2,354) (8,905)
Interest income 328 90 1,042 1,460
Minority interest (1,586) (1,586)
-------- ------- ------- --------
Income (loss) before income taxes $ 17,956 $ 6,183 $ (196) $ 23,943
======== ======= ======= ========
(in millions)
Assets under management $ 25,351 $34,143 $ -- $ 59,494
======== ======= ======= ========
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.
9
<PAGE>
5. Long-term Debt
At June 30, 2000 and December 31, 1999, PXP had outstanding borrowings of
$200 million under a $200 million Credit Agreement. In addition, at June 30,
2000 and December 31 1999, PXP had outstanding borrowings of $10 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 August 3, 2000, the Company's Board of Directors declared a quarterly
dividend of $.08 per common share payable September 7, 2000, to stockholders
of record on August 25, 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 June 10,
2000 through September 9, 2000 will be payable on September 11, 2000 to
registered holders as of August 20, 2000.
7. Comprehensive Income
The components of comprehensive income, and related tax effects, are as
follows:
Tax
(Expense) Net
Before Tax Benefit of Tax
---------- -------- -------
Three Months Ended June 30, 2000 (in thousands)
Net income $25,356 $(12,578) $12,778
------- -------- -------
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 586 (240) 346
Less: reclassification adjustment for gains
realized in net income (3,005) 1,232 (1,773)
------- -------- -------
Total other comprehensive income (2,419) 992 (1,427)
------- -------- -------
Comprehensive income $22,937 $(11,586) $11,351
======= ======== =======
Six Months Ended June 30, 2000
Net income $48,520 $(22,539) $25,981
------- -------- -------
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 8,514 (3,491) 5,023
Less: reclassification adjustment for gains
realized in net income (8,872) 3,638 (5,234)
------- -------- -------
Total other comprehensive income (358) 147 (211)
------- -------- -------
Comprehensive income $48,162 $(22,392) $25,770
======= ======== =======
10
<PAGE>
Tax
(Expense) Net
Before Tax Benefit of Tax
---------- -------- -------
Three Months Ended June 30, 1999 (in thousands)
Net income $13,160 $ (5,780) $ 7,380
------- -------- -------
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 1,463 (600) 863
------- --------- -------
Comprehensive income $14,623 $ (6,380) $ 8,243
======= ======== =======
Six Months Ended June 30, 1999
Net income $23,943 $(10,525) $13,418
------- -------- -------
Other comprehensive income:
Net unrealized appreciation on securities
available-for-sale arising during period 1,673 (686) 987
------ -------- -------
Comprehensive income $25,616 $(11,211) $14,405
======= ======== =======
8. Nonrecurring Items
Sale of Cleveland Operations
On June 30, 2000, PXP sold the Cleveland-based operations, which managed and
serviced $3.3 billion of Duff & Phelps Investment Management Co. (DPIM)
advisory assets, to a local management group. PXP received cash and a note
receivable totaling $8.3 million. Additional consideration may be received
based upon future revenue run rates. The transaction, as recorded, did not
have a material impact on the Company's pre-tax results of operations.
However, due to the inclusion of $8.5 million of non-deductible goodwill in
the basis of the Cleveland operations, the Company recorded a $3.4 million
tax expense.
Insurance Recovery
In the second quarter of 2000, PXP received a $4.5 million insurance recovery
related to a $5.9 million loss recorded in the third quarter of 1999, which
resulted from the Company's decision to reimburse two mutual fund
investment portfolios which had inadvertently sustained losses.
9. 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
first quarter gain to PXP of $5.9 million relating to the sale of NOI shares.
(See Note 11).
11
<PAGE>
On March 13, 2000, DPI distributed its remaining shares of NOI. As a result
of this distribution, PXP received 354,134 shares of NOI common stock.
On June 16, 2000, PXP sold an additional 100,000 shares of NOI for $30.05 per
share, realizing a gain of $3.0 million in the second quarter. As of June 30,
2000 the Company's remaining shares of NOI totaled 254,134, which are
included in marketable securities.
10.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 June 30, 2000
Basic EPS
Income available to common
stockholders $ 12,778 44,212 $ .29
======
Effect of Dilutive Securities
Stock options 586
6% convertible debentures 674 9,485
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 13,452 54,283 $ .25
======== ====== ======
For the Six Months Ended June 30, 2000
Basic EPS
Income available to common
stockholders $ 25,981 44,176 $ .59
======
Effect of Dilutive Securities
Stock options 324
6% convertible debentures 1,348 9,485
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 27,329 53,985 $ .51
======== ====== ======
12
<PAGE>
Per-Share
Income Shares Amount
------ ------ ---------
(in thousands)
For the Three Months Ended June 30, 1999
Basic EPS
Income available to common
stockholders $ 7,380 43,839 $ .17
======
Effect of Dilutive Securities
Stock options 887
6% convertible debentures 674 9,500
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 8,054 54,226 $ .15
======= ====== ======
For the Six Months Ended June 30, 1999
Basic EPS
Income available to common
stockholders $ 13,418 43,749 $ .31
======
Effect of Dilutive Securities
Stock options 409
6% convertible debentures 1,341 9,500
------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 14,759 53,658 $ .28
======== ====== ======
11.Subsequent Events
On July 24, 2000, the Board of Directors of PXP received an offer from
the Company's majority stockholder, Phoenix Home Life Mutual Insurance
Company (PHL) to purchase all of the outstanding shares of PXP not already
owned by PHL for a cash price of $12.50 per share. This offer is being
reviewed by a committee of independent directors of the Company's Board of
Directors.
On August 7, 2000, PXP sold an additional 100,000 shares of NOI common stock
at an average price of $36.72 per share.
13
<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 six months
ended, June 30, 2000 and 1999:
Income Before Assets Under
Revenues Income Taxes Management
---------------- ---------------- --------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
(in thousands) (in thousands) (in millions)
Retail $105,353 $ 86,080 $32,340 $17,956 $29,031 $25,351
Institutional 58,598 48,834 7,532 6,183 31,801 34,143
All other * 1,050 1,050 8,648 (196)
-------- -------- ------- ------- ------- -------
Total $165,001 $135,964 $48,520 $23,943 $60,832 $59,494
======== ======== ======= ======= ======= =======
* - "All other" represents corporate office revenue and expenses, which are not
attributed directly to either line of business.
14
<PAGE>
RESULTS OF OPERATIONS
Assets Under Management
-----------------------
At June 30, 2000, PXP had $60.8 billion of assets under management, a decrease
of $3.8 billion from December 31, 1999, and an increase of $1.3 billion from
June 30, 1999. The decrease from December 31, 1999 is the result of a reduction
of $3.3 billion from the sale of Duff & Phelp's Investment Management Co.'s
(DPIM) Cleveland operations in June 2000, as well as net asset outflows of $1.3
billion, offset by $.8 billion of positive performance. The increase from June
30, 1999 is principally the result of $5.8 billion of positive investment
performance, offset, in part, by $3.3 billion from the sale of DPIM's Cleveland
operations, as well as net asset outflows of $.9 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.
June 30, March 31, December 31, June 30,
2000 2000 1999 1999
------- -------- -------- --------
(in millions)
Retail:
Open-end Mutual Funds $ 17,561 $ 18,524 $ 18,073 $ 16,765
Managed Accounts * 11,470 11,472 10,370 8,586
-------- -------- -------- --------
29,031 29,996 28,443 25,351
-------- -------- -------- --------
Institutional:
Institutional Accounts ** 15,933 20,215 20,514 19,030
Structured Finance Products *** 1,673 1,282 1,276 674
Closed-end Funds 4,545 4,607 4,596 4,943
PHL General Account
Other PHL Related 9,650 9,929 9,772 9,496
-------- -------- -------- --------
31,801 36,033 36,158 34,143
-------- -------- -------- --------
$ 60,832 $ 66,029 $ 64,601 $ 59,494
======== ======== ======== ========
* 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 June 30, 2000 Compared with Three Months Ended June 30, 1999
-------------------------------------------------------------------------------
- Historical
------------
Revenues for the three months ended June 30, 2000 of $82.9 million increased
$10.2 million (14%) from $72.6 million for the same period in 1999. Revenues for
the retail and institutional lines of business increased $6.6 million and $3.6
million, respectively.
15
<PAGE>
Investment management fees of $72.3 million for the three months ended June 30,
2000 increased $9.3 million (15%) as compared to $63.1 million for the same
period in 1999. Management fees earned by the retail and institutional lines of
business increased $5.9 million and $3.4 million, respectively, due to increases
of $4.3 billion and $2.4 billion, respectively, in average assets under
management. The overall increase in average assets managed since June 30, 1999
in each line of business is primarily due to investment performance. In
addition, the retail line of business experienced asset inflows for managed
accounts of $1.6 billion since June 30, 1999, offset by net outflows of $1.4
billion from other retail products. The institutional line of business
experienced $3.6 billion of asset outflows offset by net asset inflows of $1.6
billion from Seneca and $1.0 billion from structured finance products.
Mutual funds - ancillary fees, a component of the retail line of business, of
$9.1 million for the three months ended June 30, 2000, increased $.8 million
(10%) as compared to $8.2 million for the same period in 1999. Net distributor
fees and administrative fees increased $.5 million and $.1 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 $.2 million primarily as a result of an increase in average
assets under management. Effective July 1, 2000, the the Trustees of the
Phoenix-Engemann Funds voted to replace the administrative fee with a structure
by which those funds will reimburse PXP for the separate charges that were
previously covered by the administrative fee (e.g. transfer agent, fund
accounting, printing, etc.).
Other income and fees of $1.4 million for the three months ended June 30, 2000
increased $.1 million (8%) as compared to $1.3 million for the same period in
1999 due to a $.4 million increase in commission income offset, in part, by a
$.2 million decrease in the net fees earned administering the Zweig closed-end
funds.
Operating expenses for the three months ended June 30, 2000 of $59.8 million
increased $4.6 million (8%) from $55.2 million for the same period in 1999, of
which $1.9 million and $2.7 million related to the retail and institutional
lines of business, respectively.
Employment expenses of $30.9 million for the three months ended June 30, 2000
increased $1.8 million (6%) as compared to $29.1 million for the same period in
1999. Incentive compensation increased by $3.4 million, of which $3.1 million is
from certain subsidiaries that, in accordance with their respective operating
agreements, receive increased compensation directly related to increases in
their revenues or earnings. Savings resulting from the closing of the equity
department in Hartford in April 1999 decreased employment expenses by $2.1
million in the second quarter of 2000. Profit sharing expense decreased by $.3
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 $19.8 million for the three months ended June 30,
2000 increased $3.1 million (19%) as compared to $16.7 million for the same
period in 1999. Rent expense increased $1.0 million due to a one-time charge
related to a DPIM sublease transaction. Professional fees increased $.3 million,
as a result of various legal matters. Expenses related to open-end mutual funds,
for which PXP is reimbursed through administrative and fund accounting fees,
increased $.2 million. An increase in outside services of $.5 million, primarily
the result of increased use of consultants for various Company initiatives, was
offset by decreases in computer services, primarily resulting from the
completion of the Company's Year 2000 project and a decreased reliance on PHL's
mainframe systems. Various other individually less significant year over year
variances increased other operating expenses by $1.6 million.
Depreciation and amortization of leasehold improvements was $.9 million for both
of the three month periods ended June 30, 2000 and 1999.
16
<PAGE>
Amortization of goodwill and intangible assets was $8.0 million for both of the
three month periods ended June 30, 2000 and 1999.
Amortization of deferred commissions, a component of the retail line of
business, of $.2 million for the three months ended June 30, 2000 decreased $.3
million (61%) as compared to $.4 million for the same period in 1999 as a result
of a decrease in Roger Engemann & Associates (REA) deferred commissions asset
established prior to February 1, 1998, which continues to be amortized.
Operating income of $23.1 million for the three months ended June 30, 2000
increased $5.6 million (32%) as compared to $17.4 million for the same period in
1999 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $.2 million for the three
months ended June 30, 2000 decreased $.1 million (43%) as compared to $.3
million for the same period in 1999 due to a net decrease in equity earnings
from certain PXP limited partnership investments.
Nonrecurring items of $4.5 million related to an insurance recovery resulting
from the Company's decision to reimburse $5.9 million to two mutual fund
investment portfolios, which had inadvertently sustained losses in the third
quarter of 1999. The sale of DPIM's Cleveland operations had no effect on
pre-tax earnings in the second quarter of 2000.
Gain on sale of $3.0 million is the result of the sale of 100,000 shares of
National-Oilwell, Inc. (NOI) common stock, which were distributed to PXP in
March 2000 from a joint venture investment.
Other income - net of $.4 million for the three months ended June 30, 2000
decreased $.3 million (44%) as compared to $.7 million for the same period in
1999, due to various insignificant year over year decreases.
Interest expense - net of $4.2 million for the three months ended June 30, 2000
decreased $.2 million (3%) as compared to $4.4 million for the same period in
1999. A $25 million decrease in the outstanding balance on the credit facilities
offset, in part, by an increase in the average interest rate charged on those
borrowings, decreased interest expense by $.3 million. The repayment of an
interest-bearing promissory note in 1999, decreased interest income by $.2
million.
Income to minority interest of $1.5 million and $.8 million for the three months
ended June 30, 2000 and 1999, 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 June 30, 2000 of $12.8 million reflects an
increase of $5.4 million (73%) from $7.4 million for the second quarter of 1999,
resulting from the changes discussed above. The effective tax rate of 49.6% for
the three months ended June 30, 2000 increased 5.7% from 43.9% for the three
months ended June 30, 1999. This increase is primarily the result of the sale of
DPIM's Cleveland operations in June 2000, for which there was a $3.4 million tax
expense resulting from related goodwill included in the basis of the disposed
operations. A tax liability, related to a portfolio-loss reimbursement recorded
in the third quarter of 1999, was released as a result of a related insurance
recovery in June 2000, which decreased the effective tax rate for the three
months ended June 30, 2000.
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999 -
--------------------------------------------------------------------------------
Historical
----------
Revenues for the six months ended June 30, 2000 of $165.0 million, which
includes $13.7 million for Zweig, increased $29.0 million (21%) from $136.0
million for the same period in 1999, which includes $12.0 million for Zweig.
Revenues for the retail and institutional lines of business increased $19.3
million and $9.8 million, respectively.
17
<PAGE>
Investment management fees of $143.1 million for the six months ended June 30,
2000, which includes $11.7 million for Zweig, increased $25.0 million (21%) as
compared to $118.1 million for the same period in 1999, which includes $10.3
million for Zweig. Excluding Zweig, management fees earned by the retail and
institutional lines of business increased $15.9 million and $7.7 million,
respectively, due to increases of $5.2 billion and $2.5 billion, respectively,
in average assets under management. The overall increase in average assets
managed since June 30, 1999 in each line of business is primarily due to
investment performance. In addition, the retail line of business experienced
asset inflows for managed accounts of $1.6 billion since June 30, 1999, offset
by net outflows of $1.4 billion from other retail products. The institutional
line of business experienced $3.6 billion of asset outflows offset by net asset
inflows of $1.6 billion from Seneca and $1.0 billion from structured finance
products.
Mutual funds - ancillary fees, a component of the retail line of business, of
$18.6 million for the six months ended June 30, 2000, which includes $1.1
million for Zweig, increased $3.1 million (20%) as compared to $15.5 million for
the same period in 1999, which includes $.6 million for Zweig. Administrative
fees increased $.6 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
$1.1 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 $.2 million primarily as a result of an approved change in
the fee structure, which took effect in April 1999. Effective July 1, 2000, the
the Trustees of the Phoenix-Engemann Funds voted to replace the administrative
fee with a structure by which those funds will reimburse PXP for the separate
charges that were previously covered by the administrative fee (e.g. transfer
agent, fund accounting, printing, etc.).
Other income and fees of $3.3 million for the six months ended June 30, 2000,
which includes $.9 million for Zweig, increased $.9 million (36%) as compared to
$2.4 million for the same period in 1999, which includes $1.1 million for Zweig,
primarily due to an increase in commission income.
Operating expenses for the six months ended June 30, 2000 of $119.3 million,
which includes $10.5 million for Zweig, increased $15.2 million (15%) from
$104.2 million for the same period in 1999, which includes $10.4 million for
Zweig. Operating expenses for the retail and institutional lines of business
increased $8.1 million and $6.2 million, respectively.
Employment expenses of $63.7 million for the six months ended June 30, 2000,
which includes $1.7 million for Zweig, increased $7.9 million (14%) as compared
to $55.8 million for the same period in 1999, which includes $3.7 million for
Zweig. Incentive compensation increased by $8.6 million, of which $6.5 million
is from certain subsidiaries that, in accordance with their operating
agreements, receive increased compensation directly related to increases in
their revenues or earnings. Other sales based incentive compensation increased
$1.5 million. Profit sharing expense increased employment expense by $.6
million. Amortization of unearned compensation, related to the issuance of
restricted stock grants, increased employment expense by $.6 million. Savings
resulting from the closing of the equity department in Hartford in April 1999
decreased employment expenses by $3.0 million for the six months ended June 30,
2000. 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 $37.4 million for the six months ended June 30,
2000, which includes $3.6 million for Zweig, increased $6.1 million (20%) as
compared to $31.2 million for the same period in 1999, which includes $3.2
million for Zweig. Rent expense increased $1.0 million due to a one-time charge
related to a DPIM sublease transaction. Commissions and finders fees increased
$.5 million due to increased sales. Professional fees increased $.5 million, as
a result of various legal matters. Expenses related to open-end mutual funds,
for which PXP is reimbursed through administrative and fund accounting fees,
increased $.8 million. An increase in outside services of $.7 million, a result
of the increased use of consultants for various Company initiatives, was offset
by decreases in computer services, primarily resulting from the completion of
the Company's Year 2000 project and a decreased reliance on PHL's mainframe
systems. Various other less significant year over year variances increased other
operating expenses by $2.9 million.
18
<PAGE>
Depreciation and amortization of leasehold improvements of $2.0 million for the
six months ended June 30, 2000, which includes $.4 million for Zweig, remained
relatively constant from $1.8 million for the same period in 1999, which
includes $.3 million for Zweig.
Amortization of goodwill and intangible assets of $15.9 million for the six
months ended June 30, 2000 increased $1.6 million (11%) as compared to $14.3
million for the same period in 1999 as a result of the Zweig purchase, which was
completed on March 1, 1999.
Amortization of deferred commissions, a component of the retail line of
business, of $.4 million for the six months ended June 30, 2000 decreased $.6
million (61%) as compared to $1.0 million for the same period in 1999 as a
result of a decrease in REA's deferred commissions asset established prior to
February 1, 1998, which continues to be amortized.
Operating income of $45.7 million for the six months ended June 30, 2000
increased $13.9 million (44%) as compared to $31.8 million for the same period
in 1999 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $.1 million for the six
months ended June 30, 2000 decreased $.3 million (75%) as compared to $.5
million for the same period in 1999 primarily due to a net decrease in equity
earnings from certain PXP limited partnership investments.
Nonrecurring items of $4.5 million related entirely to an insurance recovery
related to the Company's decision to reimburse $5.9 million to two mutual fund
investment portfolios, which had inadvertently sustained losses in the third
quarter of 1999.
Gain on sale of $8.9 million is the result of the sale of National-Oilwell, Inc.
(NOI) common stock either directly or through an entity in which PXP has a
partnership interest.
Other income - net of $.8 million for the six months ended June 30, 2000
increased $.1 million (19%) as compared to $.7 million for the same period in
1999.
Interest expense - net of $8.7 million for the six months ended June 30, 2000
increased $1.3 million (17%) as compared to $7.4 million for the same period in
1999 of which $.8 million is due to additional interest charges resulting from
the financing of the Zweig acquisition offset, in part, by a $65 million
reduction in principal since June 30, 1999. The repayment of an interest-bearing
promissory note in 1999, decreased interest income by $.5 million.
Income to minority interest of $2.8 million and $1.6 million for the six months
ended June 30, 2000 and 1999, 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 six months ended June 30, 2000 of $26.0 million reflects an
increase of $12.6 million (94%) from $13.4 million for the second quarter of
1999, resulting primarily from the changes discussed above. The effective tax
rate of 46.5% for the six months ended June 30, 2000 increased 2.5% from 44.0%
for the three months ended June 30, 1999. This increase is primarily the result
of the sale of DPIM's Cleveland operations in June 2000, for which there was
a $3.4 million tax expense resulting from related goodwill included in the basis
of the disposed operations. A tax liability, related to a portfolio-loss
reimbursement recorded in the third quarter of 1999, was released as a result of
a related insurance recovery in June 2000, which decreased the effective tax
rate for the six months ended June 30, 2000.
19
<PAGE>
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999 -
--------------------------------------------------------------------------------
Pro Forma (see Note 3)
----------------------
Except for the items noted below, the variances for the six months ended June
30, 2000 compared to the same pro forma period in 1999 are substantially the
same as historical.
Investment management fees of $143.1 million for the six months ended June 30,
2000 increased $19.5 million (16%) from $123.6 million for the same pro forma
period in 1999. In addition to the historical variances noted above, Zweig
investment management fees decreased $4.1 million of due to a $.7 billion
decrease in average assets under management resulting from the net effect of
asset outflows and performance.
Net income of $26.0 million for the six months ended June 30, 2000 increased
$12.6 million (94%) as compared to $13.4 million for the same pro forma period
in 1999, resulting from the changes discussed above. The effective tax rate
increased to 46.5% for the six months ended June 30, 2000 from 44.0% for the
same pro forma period in 1999, resulting entirely from the historical variances
noted 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 July 31, 2000, includes 44.9
million shares of common stock outstanding and $75.0 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 $14.4 million based upon shares outstanding at July 31, 2000. The
total annual interest expense on the debentures based upon debentures
outstanding at July 31, 2000, at an interest rate of 6%, would be $4.5 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 June 30, 2000 were $210 million with an average
interest rate of approximately 6.7%. 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 June 30, 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
facility will provide adequate liquidity for the foreseeable future.
The Company is obligated to pay REA an additional purchase price, based upon
growth in REA 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 September 30, 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 October 1, 2000. However, if the Company is not
successful in securing refinancing, it will be necessary to fund these
commissions using operating cashflows.
20
<PAGE>
The Company has secured two letters of credit, totaling $4.2 million with the
Bank of Montreal in June 2000, which will expire on September 30, 2000. PHL has
guaranteed these lines of credit for which PXP will pay an annual guarantee fee.
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 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 half of 2000 and for
all of 1999 was approximately 6.75% and 6.0%, respectively. In addition, the
Company has Convertible Subordinated Debentures bearing interest at 6%. At June
30, 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 June 30, 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.
21
<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.
The arbitration between PXP and its former president, as described in
the Company's 1999 Annual Report on Form 10-K, has been tentatively
scheduled for a hearing on November 27, 2000.
On July 25, 2000, five separate class action lawsuits were filed in the
Delaware Chancery Court against PXP, Phoenix Home Life Mutual Insurance
Company (PHL) and each of the Directors of PXP, seeking to enjoin the
consummation of the proposed acquisition by PHL of the outstanding
common stock of PXP not already owned by PHL.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the registrant was held May 11,
2000 for the election of directors.
(b) The following persons were re-elected Directors of the registrant and
each continued to hold office after the meeting.
John T. Anderson Philip R. McLoughlin
Glen D. Churchill James M. Oates
Robert W. Fiondella Donna F. Tuttle
Michael E. Haylon Ferdinand L.J. Verdonck
Marilyn E. LaMarche David A. Williams
(c) One matter was voted upon:
The results of the election of directors are as follows:
Candidate: For: Against/Withheld: Abstain/Non-vote:
John T. Anderson 40,817,154 0 171,326
Glen D. Churchill 40,837,764 0 150,716
Robert W. Fiondella 40,838,687 0 149,793
Michael E. Haylon 40,837,898 0 150,582
Marilyn E. LaMarche 40,838,153 0 150,327
Philip R. McLoughlin 40,797,618 0 190,862
James M. Oates 40,818,708 0 169,772
Donna F. Tuttle 40,838,477 0 150,003
Ferdinand L.J. Verdonck 40,838,698 0 149,782
David A. Williams 40,838,367 0 150,113
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
No items submitted.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Phoenix Investment Partners, Ltd.
August 14, 2000 /s/ Philip R. McLoughlin
----------------------------------
Philip R. McLoughlin, Chairman and
Chief Executive Officer
August 14, 2000 /s/ William R. Moyer
-----------------------------------------
William R. Moyer, Chief Financial Officer
23
