SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-13654
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LIBERTY FINANCIAL COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3260640
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
600 Atlantic Avenue, Boston, Massachusetts 02210-2214
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(Address of principal executive offices) (Zip Code)
(617) 722-6000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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. [ X ] Yes [ ] No
There were 48,209,421 shares of the registrant's Common Stock, $.01 par
value, and 216,322 shares of the registrant's Series A Convertible Preferred
Stock, $.01 par value, outstanding as of July 31, 2000.
Exhibit Index - Page 22 Page 1 of 24
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
------ ----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999
Consolidated Income Statements for the Three Months and
Six Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999
Consolidated Statement of Stockholders' Equity for the
Six Months Ended June 30, 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
June 30 December 31
2000 1999
------------ ------------
Unaudited
ASSETS
Assets:
Investments $12,175.4 $12,195.1
Cash and cash equivalents 1,621.2 1,232.6
Accrued investment income 153.4 162.0
Deferred policy acquisition costs 758.9 739.2
Deferred distribution costs 162.3 153.7
Intangible assets 274.4 282.0
Other assets 296.6 244.8
Separate account assets 3,829.2 3,363.1
------------ ------------
$19,271.4 $18,372.5
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder balances $12,018.4 $12,109.6
Notes payable 567.1 552.0
Payable for investments purchased and loaned 1,229.6 754.9
Other liabilities 463.2 453.1
Separate account liabilities 3,780.3 3,301.0
------------ ------------
Total liabilities 18,058.6 17,170.6
------------ ------------
Series A redeemable convertible preferred
stock, par value $.01;
authorized, issued and outstanding
216,322 shares in 2000 and 324,759
shares in 1999 10.8 16.0
------------ ------------
Stockholders' Equity:
Common stock, par value $.01; authorized
100,000,000 shares, issued and outstanding
48,194,921 shares in 2000 and 47,462,995
shares in 1999 0.5 0.5
Additional paid-in capital 934.3 923.0
Retained earnings 468.8 425.2
Accumulated other comprehensive loss (196.4) (158.1)
Unearned compensation (5.2) (4.7)
------------ ------------
Total stockholders' equity 1,202.0 1,185.9
------------ ------------
$19,271.4 $18,372.5
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED INCOME STATEMENTS
(in millions, except per share data)
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Investment income $216.4 $197.1 $422.3 $403.3
Interest credited to policyholders (133.2) (129.4) (260.5) (264.2)
-------- -------- -------- --------
Investment spread 83.2 67.7 161.8 139.1
-------- -------- -------- --------
Net realized investment losses (12.9) (11.6) (16.8) (14.7)
-------- -------- -------- --------
Fee income:
Investment advisory and
administrative fees 71.3 68.2 143.2 134.4
Distribution and service fees 15.1 15.3 30.5 30.0
Transfer agency fees 12.2 12.8 24.9 25.7
Surrender charges and net commissions 9.3 9.0 20.0 17.4
Separate account fees 11.1 7.7 21.8 14.3
-------- -------- -------- --------
Total fee income 119.0 113.0 240.4 221.8
-------- -------- -------- --------
Expenses:
Operating expenses (99.6) (90.5) (201.9) (179.2)
Amortization of deferred policy
acquisition costs (29.8) (22.5) (56.9) (46.7)
Amortization of deferred
distribution costs (10.4) (9.7) (20.6) (19.2)
Amortization of intangible assets (5.1) (5.1) (10.2) (10.1)
Interest expense, net (4.2) (5.3) (8.2) (11.0)
-------- -------- -------- --------
Total expenses (149.1) (133.1) (297.8) (266.2)
-------- -------- -------- --------
Pre-tax income 40.2 36.0 87.6 80.0
Income tax expense (16.1) (12.7) (33.8) (29.3)
-------- -------- -------- --------
Net income $24.1 $23.3 $53.8 $50.7
======== ======== ======== ========
Net income per share - basic $0.50 $0.49 $1.12 $1.08
======== ======== ======== ========
Net income per share - assuming dilution $0.50 $0.49 $1.11 $1.06
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Unaudited
Six Months Ended
June 30
----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $53.8 $50.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39.7 41.3
Interest credited to policyholders 260.5 264.2
Net realized investment losses 16.8 14.7
Net amortization on investments 44.3 39.3
Change in deferred policy acquisition costs (22.9) (10.9)
Net change in other assets and liabilities (43.6) (50.2)
------------ ------------
Net cash provided by operating activities 348.6 349.1
------------ ------------
Cash flows from investing activities:
Investments purchased available for sale (1,821.8) (3,080.4)
Investments sold available for sale 1,609.0 2,529.3
Investments matured available for sale 58.6 159.2
Change in policy loans, net (13.9) (8.3)
Change in mortgage loans, net 1.5 41.7
Other 23.9 (28.6)
------------ ------------
Net cash used in investing activities (142.7) (387.1)
------------ ------------
Cash flows from financing activities:
Withdrawals from policyholder accounts (1,106.5) (962.4)
Deposits to policyholder accounts 754.8 358.0
Securities lending 526.2 570.3
Change in notes payable 15.1 39.5
Exercise of stock options 1.7 2.8
Dividends paid (3.2) (3.2)
Redemption of preferred stock (5.4) 0.0
------------ ------------
Net cash provided by financing activities 182.7 5.0
------------ ------------
Increase (decrease) in cash and cash equivalents 388.6 (33.0)
Cash and cash equivalents at beginning of period 1,232.6 984.1
------------ ------------
Cash and cash equivalents at end of period $1,621.2 $ 951.1
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions)
Unaudited
Accum.
Addit'l Other Total
Common Paid-In Retained Comprehen. Unearned Stockholders'
Stock Capital Earnings Loss Compen. Equity
------ ------- -------- ---------- ---------- -------------
Balance,
December 31,
1999 $0.5 $923.0 $425.2 $(158.1) $(4.7) $1,185.9
Common stock
issued for
acquisition 1.8 1.8
Effect of
stock-based
compensation
plans 2.7 (0.5) 2.2
Accretion to
face value
of preferred
stock (0.2) (0.2)
Common stock
dividends 6.8 (9.6) (2.8)
Preferred stock
dividends (0.4) (0.4)
Net income 53.8 53.8
Other comprehensive
loss, net of tax (38.3) (38.3)
------ ------- -------- ---------- ---------- -------------
Balance,
June 30, 2000 $0.5 $934.3 $468.8 $(196.4) $(5.2) $1,202.0
====== ======= ======== ========== ========== =============
See accompanying notes to consolidated financial statements.
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
Unaudited
1. General
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, that management
considers necessary for a fair presentation of the Company's financial
position and results of operations as of and for the interim periods
presented. Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Therefore, these
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements contained in the Company's Form
10-K for the year ended December 31, 1999. The results of operations for the
three months and six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full year. Certain
previously reported amounts have been reclassified to conform with the
current period presentation.
2. Segment Information
The Company is an asset accumulation and management company with two
reportable segments: retirement-oriented insurance (principally annuities)
and asset management. The annuity insurance business is conducted at Keyport
Life Insurance Company ("Keyport"). Keyport generates investment spread
income from the investment portfolio which supports policyholder balances
associated with its fixed and indexed annuity business and its closed block
of single premium whole life insurance. The annuity insurance business also
derives fee income from the administration of fixed, indexed and variable
annuity contracts. The asset management business is conducted at Liberty
Funds Group, an investment advisor (through its subsidiary Colonial
Management Associates), distributor and transfer agent to mutual funds, Stein
Roe & Farnham Incorporated, a diversified investment advisor, Newport Pacific
Management, Inc., an investment advisor to mutual funds and institutional
accounts specializing in Asian equity markets, Crabbe Huson Group, Inc., an
investment advisor to mutual funds and institutional accounts, Progress
Investment Management Company, an investment advisor to institutional
accounts, and Liberty Asset Management Company, an investment advisor to
mutual funds. The asset management business derives fee income from
investment products and services.
The Company's reportable segments offer different products and are each
managed separately. Information by reportable segment is shown below (in
millions):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Statement of Operations Data
Revenues (excluding net realized
investment gains and losses):
Annuity:
Unaffiliated $237.5 $213.3 $463.8 $433.1
Intersegment (4.3) (3.9) (8.1) (6.8)
-------- -------- -------- --------
Total annuity 233.2 209.4 455.7 426.3
-------- -------- -------- --------
Asset management:
Unaffiliated 97.9 96.8 198.9 192.0
Intersegment 4.3 3.9 8.1 6.8
-------- -------- -------- --------
Total asset management 102.2 100.7 207.0 198.8
-------- -------- -------- --------
Total revenues (excluding net
realized investment gains and losses) $335.4 $310.1 $662.7 $625.1
======== ======== ======== ========
<PAGE>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Income before income taxes:
Annuity:
Income before amortization of
intangible assets $50.5 $42.7 $100.7 $84.9
Amortization of intangible assets (0.3) (0.3) (0.6) (0.6)
-------- -------- -------- --------
Subtotal annuity 50.2 42.4 100.1 84.3
-------- -------- -------- --------
Asset management:
Income before amortization of
intangible assets 16.9 21.2 33.9 43.2
Amortization of intangible assets (4.8) (4.8) (9.6) (9.4)
-------- -------- -------- --------
Subtotal asset management 12.1 16.4 24.3 33.8
-------- -------- -------- --------
Other:
Loss before amortization of
intangible assets (9.2) (11.2) (20.0) (23.3)
Amortization of intangible assets 0.0 0.0 0.0 (0.1)
-------- -------- -------- --------
Subtotal other (9.2) (11.2) (20.0) (23.4)
-------- -------- -------- --------
Income before net realized investment
losses and income taxes 53.1 47.6 104.4 94.7
Net realized investment losses (12.9) (11.6) (16.8) (14.7)
-------- -------- -------- --------
Total income before income taxes $40.2 $36.0 $87.6 $80.0
======== ======== ======== ========
3. Investments
Investments were comprised of the following (in millions):
June 30 December 31
2000 1999
----------- ------------
Fixed maturities $10,534.5 $10,516.1
Equity securities 63.5 37.9
Policy loans 613.4 599.5
Other invested assets 964.0 1,041.6
----------- ------------
Total $12,175.4 $12,195.1
=========== ============
The Company's general investment policy is to hold fixed maturity
securities for long-term investment and, accordingly, the Company does not
have a trading portfolio. To provide for maximum portfolio flexibility and
appropriate tax planning, the Company classifies its entire portfolio of
fixed maturity securities as "available for sale" and accordingly carries
such investments at fair value.
<PAGE>
4. Net Income Per Share
The following table sets forth the computation of net income per
share-basic and net income per share-assuming dilution:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Numerator (in millions)
Net income $24.1 $23.3 $53.8 $50.7
Less: preferred stock dividends (0.2) (0.3) (0.4) (0.5)
---------- ---------- ---------- ----------
Numerator for net income per
share - basic - income available
to common stockholders 23.9 23.0 53.4 50.2
Plus: income impact of assumed
conversions
Preferred stock dividends 0.2 0.3 0.4 0.5
---------- ---------- ---------- ----------
Numerator for net income per
share - assuming dilution -
income available to common
stockholders after assumed
conversions $24.1 $23.3 $53.8 $50.7
Denominator
Denominator for net income
per share - basic -
weighted- average shares 47,741,444 46,591,115 47,556,268 46,464,123
Effect of dilutive securities:
Employee stock options 339,333 673,304 347,816 676,460
Convertible preferred stock 468,824 514,370 491,597 514,370
Common stock issuable as
contingent purchase price 0 35,883 0 25,090
---------- ---------- ---------- ----------
Dilutive potential common shares 808,157 1,223,557 839,413 1,215,920
---------- ---------- ---------- ----------
Denominator for net income
per share - assuming
dilution 48,549,601 47,814,672 48,395,681 47,680,043
========== ========== ========== ==========
Net income per share - basic $0.50 $0.49 $1.12 $1.08
========== ========== ========== ==========
Net income per share - assuming
dilution $0.50 $0.49 $1.11 $1.06
========== ========== ========== ==========
5. Comprehensive Income
Comprehensive income (loss) was comprised of the following (in millions):
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $24.1 23.3 $53.8 $50.7
Other comprehensive loss, net of taxes:
Net unrealized losses on securities (33.8) (38.0) (38.3) (46.5)
Comprehensive income (loss) --------- --------- --------- ---------
$(9.7) $(14.7) $15.5 $4.2
========= ========= ========= =========
6. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement standardizes
the accounting for derivative instruments and the derivative portion of
certain other contracts that have similar characteristics by requiring that
an entity recognize those instruments at fair value. This statement also
requires a new method of accounting for hedging transactions, prescribes the
type of items and transactions that may be hedged, and specifies detailed
criteria to be met to qualify for hedge accounting. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 defers the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Upon adoption, the Company will be required to
record a cumulative effect adjustment to reflect this accounting change. At
this time, the Company has not completed its analysis and evaluation of the
requirements and impact of this statement.
7. Acquisition
On June 12, 2000, the Company announced an agreement to acquire Wanger
Asset Management, L.P. ("Wanger"), a registered investment advisor. This
acquisition is expected to close during the fourth quarter of 2000. Total assets
under management of Wanger as of June 30, 2000 were approximately $9.0 billion.
The purchase price for this transaction is $280.0 million in cash. In addition,
the Company has agreed to make additional payments over the next five years of
up to $170.0 million in cash, contingent upon the attainment of certain earnings
objectives. The purchase price and contingent payments are subject to adjustment
in certain circumstances. This transaction will be accounted for as a purchase.
The Company expects to fund the acquisition of Wanger with $80.0 million of cash
and investments and $200.0 million of debt issued to Liberty Mutual Insurance
Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net Income was $24.1 million or $0.50 per share for the quarter ended June
30, 2000 compared to $23.3 million or $0.49 per share for the quarter ended June
30, 1999. For the first six months of 2000, net income was $53.8 million or
$1.11 per share compared to $50.7 million or $1.06 per share for the first six
months of 1999. These increases resulted largely from higher investment spread
and fee income. In addition, interest expense, net decreased. Partially
offsetting these items were higher operating expenses, amortization expense,
income tax expense and net realized investment losses.
Pre-tax Income was $40.2 million for the quarter ended June 30, 2000 compared
to $36.0 million for the quarter ended June 30, 1999. For the first six months
of 2000, pre-tax income was $87.6 million compared to $80.0 million for the
first six months of 1999. These increases resulted largely from higher
investment spread and fee income. In addition, interest expense, net decreased.
Partially offsetting these items were higher operating expenses, amortization
expense and net realized investment losses.
Investment Spread is the amount by which investment income earned on the
Company's investments exceeds interest credited on policyholder balances.
Investment spread was $83.2 million for the quarter ended June 30, 2000 compared
to $67.7 million for the quarter ended June 30, 1999. The amount by which the
average yield on investments exceeds the average interest credited rate on
policyholder balances is the investment spread percentage. The investment spread
percentage for the quarter ended June 30, 2000 was 2.40% compared to 1.90% for
the quarter ended June 30, 1999. For the first six months of 2000, investment
spread was $161.8 million compared to $139.1 million for the first six months of
1999. The investment spread percentage was 2.34% for the first six months of
2000 compared to 1.95% for the first six months of 1999. These increases in
investment spread percentage resulted primarily from increased yields on average
invested assets, largely relating to returns on investments in private equity
funds.
Investment income was $216.4 million for the quarter ended June 30, 2000
compared to $197.1 million for the quarter ended June 30, 1999. The increase of
$19.3 million in 2000 compared to 1999 includes a $24.1 million increase as a
result of a higher average investment yield, partially offset by a $4.8 million
decrease resulting from a lower level of average invested assets. The 2000
investment income was net of $23.5 million of S&P 500 Index call option
amortization expense related to the Company's equity-indexed annuities compared
to $19.4 million in 1999. The average investment yield was 6.83% for the quarter
ended June 30, 2000 compared to 6.08% for the quarter ended June 30, 1999. For
the first six months of 2000, investment income was $422.3 million compared to
$403.3 million for the first six months of 1999. The increase of $19.0 million
in 2000 compared to 1999 includes a $30.6 million increase as a result of a
higher average investment yield, partially offset by an $11.6 million decrease
resulting from a lower level of average invested assets. The 2000 investment
income was net of $44.6 million of S&P 500 Index call option amortization
expense related to the Company's equity-indexed annuities compared to $38.8
million in 1999. The average investment yield was 6.67% for the first six months
of 2000 compared to 6.20% for the first six months of 1999.
Interest credited to policyholders totaled $133.2 million for the quarter
ended June 30, 2000 compared to $129.4 million for the quarter ended June 30,
1999. The increase of $3.8 million in 2000 compared to 1999 primarily relates to
a $7.8 million increase as a result of a higher average interest credited rate,
partially offset by a $4.0 million decrease as a result of a lower level of
average policyholder balances. Policyholder balances averaged $12.0 billion
(including $9.6 billion of fixed products, consisting of fixed annuities and a
closed block of single premium whole life insurance, and $2.4 billion of
equity-indexed annuities) for the quarter ended June 30, 2000 compared to $12.4
billion (including $10.2 billion of fixed products and $2.2 billion of
equity-indexed annuities) for the quarter ended June 30, 1999. The average
interest credited rate was 4.43% (5.26% on fixed products and 0.85% on
equity-indexed annuities) for the quarter ended June 30, 2000 compared to 4.18%
(4.98% on fixed products and 0.85% on equity-indexed annuities) for the quarter
ended June 30, 1999. Keyport's equity-indexed annuities credit interest to the
policyholder at a "participation rate" equal to a portion (ranging for existing
policies from 25% to 100%) of the change in value of the S&P 500 Index.
Keyport's equity-indexed annuities also provide a full guarantee of principal if
held to term, plus interest at 0.85% annually. For each of the periods
presented, the interest credited to equity-indexed policyholders related to the
participation rate was offset by investment income recognized on the S&P 500
Index call options resulting in a 0.85% net credited rate. For the first six
months of 2000, interest credited to policyholders totaled $260.5 million
compared to $264.2 million for the first six months of 1999. The decrease of
$3.7 million in 2000 compared to 1999 primarily relates to an $8.6 million
decrease resulting from a lower level of average policyholder balances,
partially offset by a $4.9 million increase as a result of a higher average
interest credited rate. Policyholder balances averaged $12.0 billion (including
$9.7 billion of fixed products and $2.3 billion of equity-indexed annuities) for
the first six months of 2000 compared to $12.4 billion (including $10.3 billion
of fixed products and $2.1 billion of equity-indexed annuities) for the first
six months of 1999. The average interest credited rate was 4.33% (5.13% on fixed
products and 0.85% on equity-indexed annuities) for the first six months of 2000
compared to 4.25% (5.00% on fixed products and 0.85% on equity-indexed
annuities) for the first six months of 1999.
Average investments in the Company's general account (computed without giving
effect to Statement of Financial Accounting Standards No. 115), including a
portion of the Company's cash and cash equivalents, were $12.7 billion for the
quarter ended June 30, 2000 compared to $13.0 billion for the quarter ended June
30, 1999. For the first six months of 2000, such average investments were $12.7
billion compared to $13.0 billion for the first six months of 1999. These
decreases were primarily due to net redemptions and transfers to separate
accounts, partially offset by the reinvestment of portfolio earnings for the
twelve months ended June 30, 2000.
Net Realized Investment Losses were $12.9 million for the quarter ended June
30, 2000 compared to $11.6 million for the quarter ended June 30, 1999. For the
first six months of 2000, net realized investment losses were $16.8 million
compared to $14.7 million for the first six months of 1999. The net realized
investment losses in 2000 included losses of $5.4 million for the quarter and
$8.7 million for the six months for certain fixed maturity investments where the
decline in value was determined to be other than temporary.
Investment Advisory and Administrative Fees are based on the market value of
assets managed for mutual funds, private capital management and institutional
investors. Investment advisory and administrative fees were $71.3 million for
the quarter ended June 30, 2000 compared to $68.2 million for the quarter ended
June 30, 1999. For the first six months of 2000, investment advisory and
administrative fees were $143.2 million compared to $134.4 million for the first
six months of 1999. These increases during 2000 compared to 1999 primarily
reflect a higher level of average fee-based assets under management.
Average fee-based assets under management were $52.2 billion for the quarter
ended June 30, 2000 compared to $48.1 billion for the quarter ended June 30,
1999. For the first six months of 2000, average fee-based assets under
management were $51.8 billion compared to $47.8 billion for the first six months
of 1999. These increases during 2000 compared to 1999 resulted from net sales
and market appreciation for the twelve months ended June 30, 2000. Investment
advisory and administrative fees were 0.55% and 0.57% of average fee-based
assets under management for the quarters ended June 30, 2000 and 1999,
respectively. For the first six months of 2000 and 1999, such percentages were
0.55% and 0.56%, respectively.
The amount of fee-based assets under management are affected by product sales
and redemptions and changes in the market values of such assets under
management. Fee-based assets under management and changes in such assets are set
forth in the tables below (in billions).
Fee-Based Assets Under Management
As of June 30
---------------------
2000 1999
---------- ---------
Mutual Funds:
Intermediary-distributed $17.6 $18.3
Direct-marketed 6.5 6.6
Closed-end 2.8 2.4
Variable annuity 2.1 1.8
---------- ---------
29.0 29.1
Private Capital Management 9.5 8.5
Institutional 14.0 11.5
---------- ---------
Total Fee-Based Assets Under Management* $52.5 $49.1
========== =========
--------------
* As of June 30, 2000 and 1999, Keyport's insurance assets of $14.0 billion and
$13.6 billion, respectively, bring total assets under management to $66.5
billion and $62.7 billion, respectively.
<PAGE>
Changes in Fee-Based Assets Under
Management
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Fee-based assets under management -
beginning $53.1 $47.4 $51.4 $47.9
Sales and reinvestments:
Mutual funds 1.6 1.9 3.2 3.7
Private Capital Management 0.5 0.4 0.9 0.6
Institutional 1.3 0.9 2.2 1.5
-------- -------- -------- --------
3.4 3.2 6.3 5.8
-------- -------- -------- --------
Redemptions and withdrawals:
Mutual funds (1.6) (2.0) (3.8) (3.9)
Private Capital Management (0.3) (0.2) (0.5) (0.3)
Institutional (0.6) (0.7) (1.0) (1.6)
-------- -------- -------- --------
(2.5) (2.9) (5.3) (5.8)
-------- -------- -------- --------
Market appreciation (depreciation) (1.5) 1.4 0.1 1.2
-------- -------- -------- --------
Fee-based assets under management -
ending $52.5 $49.1 $52.5 $49.1
======== ======== ======== ========
Distribution and Service Fees are based on the market value of the Company's
intermediary-distributed mutual funds. Distribution fees of 0.75% are generally
earned on the average assets attributable to such funds sold with 12b-1
distribution fees and contingent deferred sales charges and service fees of
0.25% (net of amounts passed on to selling brokers) are generally earned on the
total of such average mutual fund assets. These fees totaled $15.1 million for
the quarter ended June 30, 2000 compared to $15.3 million for the quarter ended
June 30, 1999. For the first six months of 2000, distribution and service fees
were $30.5 million compared to $30.0 million for the first six months of 1999.
As a percentage of intermediary-distributed average mutual fund assets,
distribution and service fees were approximately 0.35% for the quarters ended
June 30, 2000 and 1999. For the first six months of 2000 and 1999, such
percentages were 0.35% and 0.34%, respectively.
Transfer Agency Fees are based on the market value of assets managed in the
Company's intermediary-distributed, direct-marketed and variable annuity mutual
funds. Such fees were $12.2 million on average assets of $26.3 billion for the
quarter ended June 30, 2000 and $12.8 million on average assets of $26.3 billion
for the quarter ended June 30, 1999. For the first six months of 2000, transfer
agency fees were $24.9 million on average assets of $26.5 billion and $25.7
million on average assets of $26.2 billion for the first six months of 1999. As
a percentage of total average assets under management, transfer agency fees were
approximately 0.19% for the quarters ended June 30, 2000 and 1999. For the first
six months of 2000 and 1999, such percentages were 0.19% and 0.20%,
respectively.
Surrender Charges and Net Commissions are revenues earned on: a) the early
withdrawal of annuity policyholder balances and redemptions of the
intermediary-distributed mutual funds which were sold with 12b-1 distribution
fees and contingent deferred sales charges; b) the distribution of the Company's
intermediary-distributed mutual funds (net of the substantial portion of such
commissions that is passed on to the selling brokers); and c) the sales of
non-proprietary products in the Company's bank marketing businesses (net of
commissions that are paid to the Company's client banks and brokers). Total
surrender charges and net commissions were $9.3 million for the quarter ended
June 30, 2000 compared to $9.0 million for the quarter ended June 30, 1999. For
the first six months of 2000, total surrender charges and net commissions were
$20.0 million compared to $17.4 million for the first six months of 1999.
Surrender charges on fixed and variable annuity withdrawals generally are
assessed at declining rates applied to policyholder withdrawals during the first
five to seven years of the contract; contingent deferred sales charges on mutual
fund redemptions are assessed at declining rates on amounts redeemed generally
during the first six years. Such charges totaled $7.3 million for the quarter
ended June 30, 2000 and $6.0 million for the quarter ended June 30, 1999. For
the first six months of 2000, surrender charges were $14.7 million compared to
$11.5 million for the first six months of 1999. Total annuity withdrawals
represented 16.9% and 15.0% of the total average annuity policyholder and
separate account balances for the quarters ended June 30, 2000 and 1999,
respectively. For the first six months of 2000 and 1999, the corresponding
percentages were 15.9% and 14.0%, respectively. Net commissions were $2.0
million for the quarter ended June 30, 2000 and $3.0 million for the quarter
ended June 30, 1999. For the first six months of 2000, net commissions were $5.3
million compared to $5.9 million for the first six months of 1999.
Separate Account Fees are primarily mortality and expense charges earned on
variable annuity and variable life policyholder balances. In addition, for
certain separate institutional accounts, the difference between investment
income and interest credited on these institutional accounts is included in
separate account fees. These fees, which are primarily based on the market
values of the assets in separate accounts supporting the contracts, were $11.1
million for the quarter ended June 30, 2000 compared to $7.7 million for the
quarter ended June 30, 1999. For the first six months of 2000, separate account
fees were $21.8 million compared to $14.3 million for the first six months of
1999. The increase in separate account fees was due to the increase in separate
account assets in 2000. Such fees represented 1.23% and 1.26% of average
variable annuity, variable life and institutional separate account balances for
the quarters ended June 30, 2000 and 1999, respectively. For the first six
months of 2000 and 1999, such percentages were 1.25% and 1.27%, respectively.
Operating Expenses primarily represent compensation, marketing, and other
general and administrative expenses. These expenses were $99.6 million for the
quarter ended June 30, 2000 compared to $90.5 million for the quarter ended June
30, 1999. For the first six months of 2000, operating expenses were $201.9
million compared to $179.2 million for the first six months of 1999. These
increases during 2000 compared to 1999 were primarily related to the expansion
of investment management capabilities, mutual fund product lines, distribution
and electronic commerce activities. Operating expenses expressed as a percent of
average total assets under management were 0.60% for the quarter ended June 30,
2000 compared to 0.59% for the quarter ended June 30, 1999. For the first six
months of 2000 and 1999, such percentages were 0.62% and 0.59%, respectively.
Amortization of Deferred Policy Acquisition Costs relates to the costs of
acquiring new business, which vary with, and are primarily related to, the
production of new annuity business. Such costs include commissions, costs of
policy issuance and underwriting and selling expenses. Amortization was $29.8
million for the quarter ended June 30, 2000 compared to $22.5 million for the
quarter ended June 30, 1999. For the first six months of 2000, amortization of
deferred policy acquisition costs was $56.9 million compared to $46.7 million
for the first six months of 1999. The increase during 2000 compared to 1999 was
due to the increased profit realized on the in-force business. Amortization
expense represented 31.6% and 29.8% of investment spread and separate account
fees for the quarters ended June 30, 2000 and 1999, respectively. For the first
six months of 2000 and 1999, the corresponding percentages were 31.0% and 30.4%,
respectively.
Amortization of Deferred Distribution Costs relates to the distribution of
mutual fund shares sold with 12b-1 distribution fees and contingent deferred
sales charges. Amortization was $10.4 million for the quarter ended June 30,
2000 compared to $9.7 million for the quarter ended June 30, 1999. For the first
six months of 2000, amortization of deferred distribution costs was $20.6
million compared to $19.2 million for the first six months of 1999.
Amortization of Intangible Assets relates to goodwill and certain
identifiable intangible assets arising from business combinations accounted for
as purchases. Amortization was $5.1 million for the quarters ended June 30, 2000
and 1999. For the first six months of 2000, amortization of intangible assets
was $10.2 million compared to $10.1 million for the first six months of 1999.
The Company has experienced higher than anticipated redemptions of assets under
management at an acquired company, which at June 30, 2000 had goodwill and other
intangible assets of $82.1 million. Although the Company has determined that
there is no impairment of goodwill and other intangible assets at this time, if
the higher level of redemptions were to continue and sales were not to increase,
the Company's estimate of related future cash flows may change, resulting in the
need to record an impairment loss.
Interest Expense, Net was $4.2 million for the quarter ended June 30, 2000
compared to $5.3 million for the quarter ended June 30, 1999. For the first six
months of 2000, interest expense, net was $8.2 million compared to $11.0 million
for the first six months of 1999. Interest expense primarily consists of
interest on notes payable and interest on the Liberty Funds Group revolving
credit facility which is utilized to finance deferred sales commissions paid in
connection with the distribution of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges. Interest expense was
net of interest income of $5.9 million and $3.8 million for the quarters ended
June 30, 2000 and 1999, respectively. For the first six months of 2000 and 1999,
interest expense was net of interest income of $11.7 million and $6.9 million,
respectively.
Income Tax Expense was $16.1 million or 40.0% of pre-tax income for the
quarter ended June 30, 2000 compared to $12.7 million, or 35.3% of pre-tax
income for the quarter ended June 30, 1999. For the first six months of 2000,
income tax expense was $33.8 million or 38.6% of pre-tax income compared to
$29.3 million or 36.6% of pre-tax income for the first six months of 1999.
Financial Condition
Stockholders' Equity was $1.20 billion as of June 30, 2000 compared to $1.19
billion as of December 31, 1999. Net income for the first six months of 2000 was
$53.8 million and cash dividends on the Company's preferred and common stock
totaled $3.2 million. Common stock totaling $1.7 million was issued in
connection with the exercise of stock options. An increase in accumulated other
comprehensive loss, which consists of net unrealized investment losses, net of
adjustments to deferred policy acquisition costs and income taxes, during the
period decreased stockholders' equity by $38.3 million.
Book Value Per Share amounted to $24.94 at June 30, 2000 compared to $24.99
at December 31, 1999. Excluding net unrealized losses on investments, book value
per share amounted to $29.02 at June 30, 2000 and $28.32 at December 31, 1999.
As of June 30, 2000, there were 48.2 million common shares outstanding compared
to 47.5 million shares as of December 31, 1999.
Investments not including cash and cash equivalents, totaled $12.2 billion at
June 30, 2000 and December 31, 1999.
The Company manages the majority of its invested assets internally. The
Company's general investment policy is to hold fixed maturity securities for
long-term investment and, accordingly, the Company does not have a trading
portfolio. To provide for maximum portfolio flexibility and appropriate tax
planning, the Company classifies its entire portfolio of fixed maturity
securities as "available for sale" and accordingly carries such investments at
fair value. The Company's total investments at June 30, 2000 and December 31,
1999 reflected net unrealized losses of $343.7 million and $318.6 million,
respectively.
Approximately $11.2 billion, or 80.2%, of the Company's general account and
certain separate account investments at June 30, 2000, were rated by Standard &
Poor's Corporation, Moody's Investors Service or under comparable statutory
rating guidelines established by the National Association of Insurance
Commissioners ("NAIC"). At June 30, 2000, the carrying value of investments in
below investment grade securities represented $1.2 billion or 8.5% of general
account investments, including cash and cash equivalents in the Company's
annuity operations, and certain separate account investments. Below investment
grade securities generally provide higher yields and involve greater risks than
investment grade securities because their issuers typically are more highly
leveraged and more vulnerable to adverse economic conditions than investment
grade issuers. In addition, the trading market for these securities may be more
limited than for investment grade securities.
The Company routinely reviews its portfolio of investment securities. The
Company identifies monthly any investments that require additional monitoring,
and carefully reviews the carrying value of such investments at least quarterly
to determine whether specific investments should be placed on a nonaccrual basis
and to determine declines in value that may be other than temporary. In making
these reviews, the Company principally considers the adequacy of collateral (if
any), compliance with contractual covenants, the borrower's recent financial
performance, news reports, and other externally generated information concerning
the borrower's affairs. In the case of publicly traded fixed maturity
securities, management also considers market value quotations if available. As
of June 30, 2000 and December 31, 1999, the carrying value of fixed maturity
securities that were non-income producing was $28.3 million and $22.6 million,
respectively.
Derivatives
As a component of its investment strategy and to reduce its exposure to
interest rate risk, the Company utilizes interest rate and total return swap
agreements to match assets more closely to liabilities. Interest rate swap
agreements are agreements to exchange with a counterparty interest rate payments
of differing character (e.g., fixed-rate payments exchanged for variable-rate
payments) based on an underlying principal balance (notional principal) to hedge
against interest rate changes. The Company currently utilizes interest rate swap
agreements to reduce asset duration and to better match interest earned on
longer-term fixed-rate assets with interest credited to policyholders. A total
return swap agreement is an agreement to exchange payments based upon an
underlying notional balance and changes in variable rate and total return
indices. The Company utilizes total return swap agreements to hedge its
obligations related to certain separate account liabilities. The Company had 61
and 67 outstanding swap agreements with an aggregate notional principal amount
of $2.9 billion and $3.4 billion as of June 30, 2000 and December 31, 1999,
respectively.
With respect to the Company's equity-indexed annuities and certain separate
account liabilities, the Company buys call options, futures and certain total
return swap agreements on the S&P 500 Index to hedge its obligations to provide
returns based upon this index. The Company had call options with a carrying
value of $489.0 million and $701.1 million as of June 30, 2000 and December 31,
1999, respectively. The Company had total return swap agreements with a carrying
value of $29.9 million and $37.8 million as of June 30, 2000 and December 31,
1999, respectively.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap, cap and
call option agreements is counterparty non-performance. The Company believes
that the counterparties to its swap, cap and call option agreements are
financially responsible and that the counterparty risk associated with these
transactions is minimal. Futures contracts trade on organized exchanges and
therefore have minimal credit risk. In addition, swap and cap agreements have
interest rate risk and call options, futures and certain total return swap
agreements have stock market risk. These swap and cap agreements hedge
fixed-rate assets and the Company expects that any interest rate movements that
adversely affect the market value of swap and cap agreements would be offset by
changes in the market values of such fixed rate assets. However, there can be no
assurance that these hedges will be effective in offsetting the potential
adverse effects of changes in interest rates. Similarly, the call options,
futures and certain total return swap agreements hedge the Company's obligations
to provide returns on equity-indexed annuities and certain separate liabilities
based upon the S&P 500 Index, and the Company believes that any stock market
movements that adversely affect the market value of S&P 500 Index call options,
futures and certain total return swap agreements would be substantially offset
by a reduction in policyholder and certain separate account liabilities.
However, there can be no assurance that these hedges will be effective in
offsetting the potentially adverse effects of changes in S&P 500 Index levels.
The Company's profitability could be adversely affected if the value of its swap
and cap agreements increase less than (or decrease more than) the change in the
market value of its fixed rate assets and/or if the value of its S&P 500 Index
call options, futures and certain total return swap agreements increase less
than (or decrease more than) the value of the guarantees made to equity-indexed
and certain separate account policyholders.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement standardizes the
accounting for derivative instruments and the derivative portion of certain
other contracts that have similar characteristics by requiring that an entity
recognize those instruments at fair value. This statement also requires a new
method of accounting for hedging transactions, prescribes the type of items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting. In June 1999, the FASB issued SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. Upon
adoption, the Company will be required to record a cumulative effect adjustment
to reflect this accounting change. At this time, the Company has not completed
its analysis and evaluation of the requirements and the impact of this
statement.
Acquisition
On June 12, 2000, the Company announced an agreement to acquire Wanger
Asset Management, L.P. ("Wanger"), a registered investment advisor. This
acquisition is expected to close during the fourth quarter of 2000. Total assets
under management of Wanger as of June 30, 2000 were approximately $9.0 billion.
The purchase price for this transaction is $280.0 million in cash. In addition,
the Company has agreed to make additional payments over the next five years of
up to $170.0 million in cash, contingent upon the attainment of certain earnings
objectives. The purchase price and contingent payments are subject to adjustment
in certain circumstances. This transaction will be accounted for as a purchase.
Liquidity
The Company is a holding company whose liquidity needs include the following:
(i) operating expenses; (ii) debt service; (iii) dividends on preferred stock
and common stock; (iv) acquisitions; and (v) working capital where needed by its
operating subsidiaries. The Company's principal sources of cash are dividends
from its operating subsidiaries, and, in the case of funding for acquisitions
and certain long-term capital needs of its subsidiaries, long-term borrowings
and offerings of preferred and common stock.
The Company has a $150.0 million revolving credit facility (the "Facility"),
established in April 1999 which is utilized to finance sales commissions paid in
connection with the distribution of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges. This five year Facility
is secured by such 12b-1 distribution fees and contingent deferred sales
charges. Interest accrues on the outstanding borrowings under the Facility at a
rate determined by sales of highly rated commercial paper backed in part by the
security interest in such fees and charges. At June 30, 2000, the interest paid
on borrowings under the Facility was at the rate of 6.66% per annum.
Current Rhode Island insurance law applicable to Keyport permits the payment
of dividends or distributions, which, together with dividends and distributions
paid during the preceding 12 months, do not exceed the lesser of (i) 10% of
Keyport's statutory surplus as of the preceding December 31 or (ii) Keyport's
statutory net gain from operations for the preceding fiscal year. Any proposed
dividend in excess of this amount is called an "extraordinary dividend" and may
not be paid until it is approved by the Commissioner of Insurance of the State
of Rhode Island. As of June 30, 2000, the amount of dividends that Keyport could
pay without such approval was $47.8 million. Future regulatory changes and
credit agreements may create additional limitations on the ability of the
Company's subsidiaries to pay dividends.
Based upon the historical cash flow of the Company, the Company's current
financial condition and the Company's expectation that there will not be a
material adverse change in the results of operations of the Company and its
subsidiaries during the next twelve months, the Company believes that cash flow
provided by operating activities over this period will provide sufficient
liquidity for the Company to meet its working capital, capital investment and
other operational cash needs, its debt service obligations, its obligations to
pay dividends on the preferred stock and its intentions to pay dividends on the
common stock. The Company may require external sources of liquidity in order to
finance material acquisitions where the purchase price is not paid in equity.
The Company expects to fund the acquisition of Wanger with $80.0 million of cash
and investments and $200.0 million of debt issued to Liberty Mutual Insurance
Company.
Each of the Company's business segments has its own liquidity needs and
financial resources. In the Company's annuity insurance operations, liquidity
needs and financial resources pertain to the management of the general account
assets and policyholder balances. In the Company's asset management business,
liquidity needs and financial resources pertain to the investment management and
distribution of mutual funds, private capital management and institutional
accounts. The Company expects that, based upon their historical cash flow and
current prospects, these operating subsidiaries will be able to meet their
liquidity needs from internal sources and, in the case of Liberty Funds Group,
from its credit facility used to finance sales of mutual fund shares sold with
12b-1 distribution fees and contingent deferred sales charges.
Keyport uses cash for the payment of annuity and life insurance benefits,
operating expenses and policy acquisition costs, and the purchase of
investments. Keyport generates cash from annuity premiums and deposits, net
investment income, and from the sales and maturities of fixed investments.
Annuity premiums, maturing investments and net investment income have
historically been sufficient to meet Keyport's cash requirements. Keyport
monitors cash and cash equivalents in an effort to maintain sufficient liquidity
and has strategies in place to maintain sufficient liquidity in changing
interest rate environments. Consistent with the nature of its obligations,
Keyport has invested a substantial amount of its general account assets in
readily marketable securities. As of June 30, 2000, $11.2 billion, or 78.2%, of
Keyport's general account and certain separate account investments are
considered readily marketable.
To the extent that unanticipated surrenders cause Keyport to sell for
liquidity purposes a material amount of securities prior to their maturity, such
surrenders could have a material adverse effect on the Company. Although no
assurances can be given, Keyport believes that liquidity to fund anticipated
withdrawals would be available through incoming cash flow and the sale of
short-term or floating-rate investments, thereby precluding the sale of fixed
maturity investments in a potentially unfavorable market. In addition, the
Company's fixed-rate products incorporate surrender charges to encourage
persistency and to make the cost of its policyholder balances more predictable.
Approximately 75.0% of the Company's fixed annuity policyholder balances were
subject to surrender charges or restrictions as of June 30, 2000.
Effects of Inflation
Inflation has not had a material effect on the Company's consolidated results
of operations to date. The Company manages its investment portfolio in part to
reduce its exposure to interest rate fluctuations. In general, the market value
of the Company's fixed maturity portfolio increases or decreases in inverse
relationship with fluctuations in interest rates, and the Company's net
investment income increases or decreases in direct relationship with interest
rate changes. For example, if interest rates decline, the Company's fixed
maturity investments generally will increase in market value, while net
investment income will decrease as fixed maturity investments mature or are sold
and the proceeds are reinvested at reduced rates. Inflation may result in
increased operating expenses that may not be readily recoverable in the prices
of the services charged by the Company.
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Investors
are cautioned that all statements not based on historical fact, trend analyses
and other information contained in this report or in any of the Company's
filings under Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), relative to the markets for the Company's products and trends
in the Company's operations or financial results, as well as other statements
including words such as "anticipate", "believe", "plan", "estimate", "expect",
"intend" and other similar expressions, constitute forward-looking statements
under the Reform Act. These forward-looking statements are made based on current
expectations and assumptions and are subject to known and unknown risks,
uncertainties and other factors, many of which are beyond the Company's control,
that may cause actual results to be materially different from those expressed or
implied by the forward-looking statements. Such factors include, among other
things: (1) general economic conditions and market factors, such as prevailing
interest rate levels, stock market performance and fluctuations in the market
for retirement-oriented savings products and investment management products,
which may adversely affect the ability of the Company to sell its products and
services and the market value of the Company's investments and assets under
management and, therefore, the portion of its revenues that are based on a
percentage of assets under management; (2) the Company's ability to manage
effectively its investment spread (i.e. the amount by which investment income
exceeds interest credited to annuity and life insurance policyholders) as a
result of changes in interest rates and crediting rates to policyholders, market
conditions and other factors (the Company's results of operations and financial
condition are significantly dependent on the Company's ability to manage
effectively its investment spread); (3) levels of surrenders, withdrawals and
net redemptions of the Company's retirement-oriented insurance products and
investment management products; (4) relationships with investment management
clients, including levels of assets under management; (5) the ability of the
Company to manage effectively certain risks with respect to its investment
portfolio, including risks relating to holding below investment grade securities
and the ability to dispose of illiquid and/or restricted securities at desired
times and prices, and the ability to manage and hedge against interest rate
changes through asset/liability management techniques; (6) competition in the
sale of the Company's products and services, including the Company's ability to
establish and maintain relationships with distributors of its products; (7)
changes in financial ratings of Keyport or those of its competitors; (8) the
Company's ability to attract and retain key employees, including senior
officers, portfolio managers and sales executives; (9) the impact of and
compliance by the Company with existing and future regulation, including
restrictions on the ability of certain subsidiaries to pay dividends and any
obligations of the Company under any guaranty fund assessment laws; (10) changes
in applicable tax laws which may affect the relative tax advantages and
attractiveness of some of the Company's products; (11) the result of any
litigation or legal proceedings involving the Company; (12) changes in generally
accepted accounting principles and the impact of accounting principles and
pronouncements on the Company's financial condition and results of operations;
(13) changes in the Company's senior debt ratings; (14) changes in operating
expense levels; (15) acquisition risks, including risks that the acquisition of
Wanger Asset Management, L.P. will not close or that, if it closes, the
acquisition and integration of Wanger will not be as successful as anticipated;
and (16) the other risk factors or uncertainties contained from time to time in
any document incorporated by reference in this report or otherwise filed by the
Company under the Exchange Act. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements and
no assurances can be given that the estimates and expectations reflected in such
statements will be achieved.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes during the first six months of 2000 in
the Company's market risks or in the methods which the Company uses to manage
such risks, which are described in the Company's Form 10-K for the year ended
December 31, 1999.
Part II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 8, 2000. The following
matters were submitted to a vote of the shareholders at the Annual Meeting with
the following results:
1. Election of the following individuals as directors of the Company for a
term of three years:
Common Stock Series A Preferred Stock
--------------------- ------------------------
For Withheld For Withheld
---- -------- ---- --------
Michael J. Babcock 46,526,145 97,913 444,454 14,061
Gary L. Countryman 44,715,971 1,908,087 444,454 14,061
John P. Hamill 46,525,445 98,613 444,454 14,061
Marian L. Heard 46,504,116 119,942 444,454 14,061
No other matters were submitted to the shareholders for a vote.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statement re Computation of Ratios
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30,
2000.
<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.
LIBERTY FINANCIAL COMPANIES, INC.
/s/ J. Andy Hilbert
-------------------------------------
J. Andy Hilbert
(Duly Authorized Officer and
Chief Financial Officer)
Date: August 11, 2000
<PAGE>
Exhibit Index
Exhibit No. Description Page
----------- ----------- ----
12 Statement re Computation of Ratios
27 Financial Data Schedule
