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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9215
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United Asset Management Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2714625
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One International Place
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock New York Stock Exchange
($.01 par value)
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was approximately $1.3 billion based on
the last reported sale price of the registrant's common stock on the New York
Stock Exchange composite tape on March 15, 1999.
The number of shares of Common Stock ($.01 par value) outstanding as of
March 15, 1999 was 59,846,730.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of (a) the Annual
Report to Stockholders of the registrant for the year ended December 31, 1998,
and (b) the Proxy Statement of the registrant filed pursuant to Regulation 14A
and sent to stockholders in connection with the Annual Meeting of Stockholders
to be held on May 20, 1999. Such Report and Proxy Statement, except for the
parts therein that have been specifically incorporated herein by reference,
shall not be deemed "filed" as part of this report on Form 10-K.
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PART I
Item 1. Business
General
United Asset Management Corporation (UAM or the Company) is a holding
company organized in December 1980 to acquire and own firms that provide
investment advisory services primarily for institutional clients. The Company's
wholly owned subsidiaries (Affiliated Firms or Firms) operate in one business
segment, that is, as investment advisers, managing both domestic and
international investment portfolios for corporate, government and union benefit
plans, mutual funds, individuals, endowments, and foundations. UAM intends to
continue expanding through the internal growth of its present Affiliated Firms
and through the acquisition or organization of additional firms in the future
(see "Affiliated Firms"). In addition, UAM plans to continue to diversify,
domestically and internationally, with respect to both the classes of assets
managed and client base. While UAM's Affiliated Firms primarily specialize in
the management of U.S. equities, bonds and cash, other asset classes under
management include international securities, real estate and stable value
assets.
Advisory fees based on the assets of pension plans, profit sharing
plans, endowments and foundations provide the largest portion of the Company's
revenues. Such clients are sometimes referred to as "institutional" clients, and
they are generally "tax-exempt" in that the income and any capital gains which
result from their portfolio investments are not taxable to them under present
law. Advisory fees are primarily based on the value of assets under management.
Fee rates typically decline as account size increases. The assets of
institutional clients have generally been growing, with the most rapid growth
achieved by pension and profit sharing plans (sometimes called employee benefit
plans). For the year ended December 31, 1998, no single client of any Affiliated
Firm provided more than 4% of the Company's consolidated revenues. Accordingly,
the loss of any single client would not have a material adverse effect on the
Company's total investment management business.
Each Affiliated Firm operates under its own name, with its own
investment philosophy and approach. Each conducts its own investment analysis,
portfolio selection, marketing and client service. During any given period,
investment results may vary among Firms. Client fees are set by each Firm based
on its own judgment concerning the market for the services it renders. Each Firm
is separately regulated under applicable federal, state or foreign law.
In addition to the Firms' individual efforts, UAM has established
distribution and client service organizations which are available to the
Affiliated Firms to supplement the investment management services they provide.
UAM has also developed an operating partnership concept with the Affiliated
Firms. These are described more fully under "Method of Operation."
UAM has revenue sharing plans with the Affiliated Firms which are
described more fully under "Revenue Sharing." These agreements provide for UAM
to receive increased or decreased revenues from each Affiliated Firm, based on a
percentage of the change in each Firm's revenues from year to year, starting
from a base amount agreed upon in the year of acquisition or at inception. These
arrangements allow each Firm to set its own operating expense budget and
compensation practices, limited by the share of revenues available to the Firm.
1
The Industry
Revenues in the institutional investment management industry are
determined primarily by fees based on assets under management. Therefore, the
principal determinant of growth in the industry is the growth of institutional
assets under management. In management's judgment, the major factors which
influence changes in institutional assets under management are: (a) changes in
the market value of securities; (b) net cash flow into or out of existing
accounts; (c) gains of new or losses of existing accounts by specific firms or
segments of the industry; and (d) the introduction of new products by the
industry or by particular firms.
In general, assets under management in the institutional segments of
the industry have increased steadily. For example, Money Market Directories,
Inc. recorded in its 1999 Directory $5.8 trillion in assets under management in
accounts of employee benefit plans and endowments within the United States as of
mid-1998, which represents an average compound five-year annual growth rate of
13.5% since mid-1993. The 1999 Directory also reported $12.1 trillion of assets
under management as of mid-1998 at investment advisory firms (including branch
offices) within the United States, which represents an average compound
five-year annual growth rate of 21.7% over the corresponding assets since
mid-1993.
The employee benefit plan market includes two principal sectors:
defined benefit and defined contribution plans. More than half of U.S.
retirement plan assets are in defined benefit plans, which assure employees of a
particular level of pension benefits when they retire. The Employee Retirement
Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the
Code) require employers to fund their defined benefit plans sufficiently to
generate the benefits they have promised. However, the Code also discourages
overfunding of defined benefit plans by employers by limiting tax deductions for
contributions to fully funded plans. In management's opinion, high investment
returns experienced in the 1990s have resulted in many defined benefit
retirement plans reaching or exceeding their full funding limits based on
actuarial calculations; therefore, many employers have ceased to contribute
additional cash to the plans. However, if the value of plan assets declines due
to market factors, or if sustained periods of low interest rates cause an
increase in the actuarial value of plan liabilities, employers will generally be
obligated to step up contributions to their defined benefit pension plans. This
counter-cyclical funding pattern for defined benefit plans helps to smooth out
fluctuations in the growth of plan assets under management by firms that provide
investment advisory services to sponsors of defined benefit plans, and
therefore, it helps to moderate fluctuations in the revenues of these investment
managers. Under defined contribution plans, on the other hand, employers may
contribute to their employees' retirement funds on a tax-advantaged basis, but
individual employees generally decide how their plan assets will be invested.
Defined contribution plans are the fastest growing sector of the employee
benefit plan market.
Competition
The Affiliated Firms compete to manage domestic and international
investment portfolios for corporate, government and union benefit plans, mutual
funds, individuals, endowments, and foundations. Management believes that the
most important factors affecting competition in the investment management
industry are: (1) the abilities and reputations of investment managers; (2)
stability of a firm's workforce, especially of portfolio managers; (3) an
effective marketing force
2
with broad access to channels of distribution; (4) differences in the investment
performance of investment management firms; (5) adherence to particular
investment styles; (6) quality of client service; (7) the development of new
investment strategies; (8) resources to invest in information technologies; and
(9) public recognition of trade names in retail markets.
The Affiliated Firms face many competitors, including public and
private investment advisers, as well as affiliates of securities broker-dealers,
commercial banks, investment banks, and insurance companies. Barriers to entry
are low, and firms in the investment management business are relatively
long-lived.
Institutional clients typically may terminate investment management
contracts without penalty upon 30-days' notice. Mutual funds typically may
terminate investment management contracts without penalty upon 60-days' notice,
and retail clients may redeem investments in mutual funds at any time.
Method of Operation
UAM itself does not manage portfolio investments for clients and does
not provide any investment advisory services to Affiliated Firms and therefore
is not registered as an investment adviser under federal, state or foreign law.
UAM respects the individual character of each Affiliated Firm and seeks to
preserve an environment in which each Firm continues to provide investment
management services which meet the particular needs of the Firm's clients. UAM
provides assistance to the Affiliated Firms in connection with the preparation
of separate company financial statements, tax matters, insurance and maintenance
of a company-wide profit sharing retirement plan. As part of its operating
partnership with its Affiliated Firms, UAM provides support through a series of
marketing and service organizations, and invests with its Firms in areas such as
distribution, new product development, and enhanced marketing and client service
efforts. In addition to promoting this operating partnership, UAM's Operations
Group assists Firms in planning for future growth and management development,
particularly with respect to succession planning. The Company also sponsors
seminars and meetings for executives from each of the Affiliated Firms and from
UAM which serve as forums for sharing business information.
During 1998, the Company expanded its website www.uam.com with new
features including in-depth information on the UAM Funds for individual
investors, an area providing specialized information for financial advisors,
descriptions of the Affiliated Firms with links to their websites, and broader
information on the Company itself. The Company expects this site will play a
major role in its marketing and communication efforts.
In recent years, UAM has established a number of organizations that
augment the marketing and client service capabilities of its Affiliated Firms.
UAM (Japan) Inc. offers the diverse investment management services of
the Affiliated Firms to the Japanese institutional market. UAM (Japan) has a
license to offer fully discretionary investment management services to Japanese
institutional investors.
UAM Investment Services, Inc. provides multi-product and global
capabilities to financial advisors and major financial institutions in the
United States and Europe. It provides a single
3
convenient channel through which clients can utilize the many investment
management products offered by the Affiliated Firms.
UAM Funds, Inc., a series mutual fund, allows Affiliated Firms to open
portfolios to pool client accounts in an efficient, cost-effective manner and to
provide additional investment styles. As of December 31, 1998, 23 of the
Affiliated Firms managed 46 UAM Funds portfolios, and such portfolios held
assets totaling $3.5 billion.
UAM Fund Services, Inc. oversees service providers used by UAM Funds,
Inc. and, upon request, by separate fund families offered by Affiliated Firms.
UAM Trust Company assists Affiliated Firms in establishing commingled
investment pools for their clients. Collective group trusts and other commingled
investment vehicles can fit those situations where neither separately managed
accounts nor mutual funds meet clients' needs.
UAM Shareholder Service Center, Inc. provides telephone servicing and
transfer agent support to UAM mutual fund groups. The center enables Pilgrim
Baxter and other UAM Affiliated Firms to consolidate and enhance shareholder
services and marketing activities.
UAM believes that the professional independence of the Affiliated Firms
and the continuing diversification of investment philosophies and approaches
within the Company are necessary ingredients of UAM's success and that of the
Affiliated Firms. Most key employees of each Affiliated Firm at the time of
acquisition by UAM have continued with their Firm in accordance with employment
agreements executed in connection with each acquisition, have remained on their
Firm's Board of Directors, and have continued to serve as its executive
officers. Each Affiliated Firm's directors and officers are responsible for
reviewing their respective Firm's results, plans and budgets.
See Note 7 of the Annual Report, which is incorporated herein by
reference, for the Company's segment information.
Revenue Sharing
Most of UAM's Affiliated Firms operate under revenue sharing plans.
Such plans permit each Firm to retain a specified percentage of its revenues
(typically 50-70%) for use by its principals at their discretion in paying
expenses of operations, including salaries and bonuses. The purposes of the
plans are to provide significant ongoing incentives for the principals of the
Affiliated Firms to continue working as they did prior to the sale of their firm
to UAM, to support their autonomy, and to allow UAM to participate in the growth
of revenues of each Affiliated Firm. The plans are designed to allow each Firm's
principals to participate in that Firm's growth in a substantial manner and to
make operating decisions freely within the limits of that portion of the Firm's
revenues which is retained by the Firm. In effect, the portion of its revenues
retained by each Firm that is not used to pay salaries and other operating
expenses is available for payment to the principals and other key employees of
such Firm in the form of bonuses. The portion of Affiliated Firm revenues
retained by the Firms and used to pay salaries and bonuses and to fund operating
expenses is included in the Company's Consolidated Statement of Operations.
4
Under each agreement, when an Affiliated Firm is acquired by UAM, the
base revenues of the Firm are established, and a share of such revenues is
allocated to UAM, with the balance being the acquired Firm's share of revenues.
In addition, agreement is reached on the Firm's and UAM's respective percentage
shares of changes in such Firm's revenues compared to its base revenues. The
Affiliated Firm pays for all of its business expenses out of its share of
revenues. Each year, the amount of the Affiliated Firm's revenues that is paid
to UAM and the amount that is retained by the Firm are adjusted upwards in the
case of growth in such Firm's revenues over its base, or downwards in the case
of decreases in such Firm's revenues below its base, by applying the agreed-upon
percentages to the total increase or decrease in the Firm's revenues. Under most
of the existing revenue sharing agreements, UAM's share of increases above a
Firm's base revenues is between 30% and 50%, and UAM's share of decreases below
a Firm's base revenues is between 50% and 70%. Thus, in any year in which the
Affiliated Firm's revenues increase over its base revenues, the Firm retains a
portion of such additional amounts to use as its principals may decide. The
balance of the increase in the Affiliated Firm's revenues is paid to UAM, in
addition to UAM's share of such Firm's base revenues. In any year in which the
Affiliated Firm's revenues decrease to a level below its base revenues, the
Firm's share of its base revenues is reduced by the Firm's portion of the
decrease, and therefore, the Firm may need to reduce its expenses. Similarly,
the revenue sharing amount paid to UAM will be reduced by UAM's share of any
decline in the Affiliated Firm's revenues below its base.
In addition to revenue sharing with its Affiliated Firms, UAM has
designed incentive programs to further reward business growth through positive
net client cash flow. Incentives awarded under these programs are paid in the
combination of cash, stock options and incentive units.
Affiliated Firms
Each Affiliated Firm conducts its own marketing, client relations,
research, portfolio management and administrative functions. Each Firm sets its
own investment advisory fees and manages its business independently on a
day-to-day basis.
The investment philosophy, style and approach of each Affiliated Firm
are independently determined by it, and these philosophies, styles and
approaches may vary substantially from firm to firm. As a consequence, more than
one Affiliated Firm may be retained by a single client, since many clients
employ multiple investment advisers. The strategies employed and assets selected
by Affiliated Firms are separately chosen by them, with the result that any one
Firm may be bullish on the stock or bond market while another Firm is bearish.
Two of the Affiliated Firms are full-service institutional real estate
investment management firms with $9.8 billion of assets under management at year
end. These Firms invest in real estate properties in the U.S. and overseas for
their U.S. and foreign clients and provide a broad spectrum of real estate
services, including research, acquisition and disposition, financing, and asset
and property management. Another Affiliated Firm, with $10.3 billion of assets
under management at year end, manages stable value asset portfolios such as
guaranteed investment contracts (GICs) and synthetic GICs.
All of these differences, when combined with the separate names and
identities of the various Affiliated Firms may: (1) tend to insulate UAM from
the various cycles of market performance for specific asset classes and
individual Firms; (2) permit more than one Affiliated
5
Firm to serve any single client; and (3) mean that some Affiliated Firms may
attract substantial new business while other Firms may grow more slowly or lose
business.
UAM's Firms manage both domestic and international investment
portfolios for corporate, government and union benefit plans, mutual funds,
individuals, endowments, and foundations. As of December 31, 1998, UAM's Firms
had approximately $201.4 billion under management with an average account size
of $32.3 million. The 20 largest clients of UAM's Affiliated Firms represented
16% of total revenues and the 100 largest clients represented 28%. Additional
information regarding the number of clients and types and amounts of assets
under management is found in the table on page 36 of the Annual Report.
The following table summarizes UAM's asset mix:
Assets Under Management at December 31,
(in millions) 1996 1997 1998
------------- ------------- -------------
U.S. Equities $ 99,814 58% $123,213 63% $127,871 63%
International Securities 21,764 13 27,947 14 28,161 14
U.S. Bonds and Cash 27,266 16 27,164 14 25,999 13
Real Estate 13,909 8 10,515 5 9,302 5
Stable Value 8,274 5 8,650 4 10,060 5
-------- --- -------- --- -------- ---
$171,027 100% $197,489 100% $201,393 100%
======== === ======== === ======== ===
As previously described, each Affiliated Firm is responsible for
marketing its own investment management services. Typically, one or more of the
employees at each Firm are responsible for making initial contact with
prospective clients. Most Firms have brochures describing the Firm, its
principals and its investment approach. These brochures are mailed to
prospective clients, in addition to soliciting clients by telephone and in
person. Once initial contact is made, face-to-face meetings between the
principals of a Firm and the prospective client take place to discuss investment
philosophy, management fees and a variety of other related matters.
UAM's Acquisition Program
Since its inception, UAM has sought to acquire or to establish
institutional investment management firms. Once it acquires or organizes such
firms, UAM seeks to preserve their autonomy by allowing their key employees to
retain control of investment decisions and manage day-to-day operations, while
adding value to the Firm through an operating partnership described below. When
an Affiliated Firm is acquired from employee-stockholders, the former
stockholders receive the added benefits of a more diversified company by virtue
of equity ownership in UAM. After acquisition by UAM, Affiliated Firms continue
to operate under their own firm name, with their own leadership and individual
investment philosophy and approach.
In selecting acquisition candidates, the Company seeks investment
management firms that will enhance the business of existing affiliates, provide
entry to new channels of distribution, or boost UAM's participation in
attractive asset classes that are currently under-represented among its firms.
UAM is interested in companies that have pursued their investment philosophy
with consistency, shown a determination and an ability to grow, and developed a
second generation of
6
money managers and leaders. In addition, UAM has acquired or organized firms at
various stages of development, from start-up to relatively mature firms and has
acquired both employee-owned firms and subsidiaries or divisions of financial
institutions.
UAM has observed that the major reasons that employee-owned firms
consider selling to UAM include: (1) the high value of the firm relative to its
principals' total net worth; (2) the need for liquidity on the part of the
principals; (3) their desire for diversification and a reduction in their
exposure to a single firm's results; (4) their autonomy after acquisition; and
(5) increasingly, the access to channels of distribution provided by UAM's
service firms. Substantially all the key employees of Affiliated Firms continue
to be actively involved in their firms long after their acquisition by UAM.
In purchasing investment management firms, UAM has structured the
transactions to create incentives for key personnel to remain with their firm
after the expiration of their employment agreements. The key employees have
entered into employment and noncompete agreements for terms ranging primarily
from five to 12 years, which also prohibit the employees from competing with
their firm for a substantial period after termination of employment. Most of the
key employees of the Affiliated Firms were stockholders of such firms prior to
their acquisition by UAM. In connection with the purchases, the former
stockholders and/or key employees have typically received consideration in the
form of cash, subordinated notes and warrants to purchase UAM common stock, or
UAM common stock. The subordinated notes, most of which may be used to exercise
the warrants, generally have terms of between five and 10 years. The key
employees of each Affiliated Firm also participate directly, through revenue
sharing, in revenues of their firm and meet the firm's expenses from their share
of these revenues, as described more fully under "Revenue Sharing."
To fund acquisitions, the Company utilizes its existing capital,
together with Operating Cash Flow (net income plus amortization and
depreciation) and borrowings available under its $750,000,000 Reducing Revolving
Credit Agreement (as more fully described in Note 3 of the Company's 1998 Annual
Report to Stockholders (the Annual Report); also see Items 8 and 14 of this Form
10-K). Such borrowings are secured by the stock of the Company's subsidiaries.
Regulation
UAM's domestic investment advisory subsidiaries are registered with and
subject to regulation by the Securities and Exchange Commission (the SEC) under
the Investment Advisers Act of 1940 and, where applicable, under state advisory
laws. The Company's foreign investment advisory affiliates are members of or
subject to certain self-regulatory bodies or other regulatory agencies. The
Company's brokerage subsidiaries are registered as broker-dealers with the SEC
under the Securities Exchange Act of 1934 and, where applicable, under state
securities laws, and are regulated by the SEC, state securities administrators
and the National Association of Securities Dealers, Inc. Four Affiliated Firms
are regulated by the Commodities Futures Trading Commission, and among the
Affiliated Firms are four trust companies which are subject to regulation by the
Office of Comptroller of the Currency or applicable state law.
UAM's domestic investment advisory subsidiaries are subject to ERISA
and its regulations to the extent they are "fiduciaries" under ERISA with
respect to their clients.
7
Registrations, reporting, maintenance of books and records and
compliance procedures required by these laws and regulations are maintained
independently by each UAM subsidiary.
The officers, directors and employees of UAM's Affiliated Firms may
from time to time own securities which are also owned by one or more of their
clients. Each such Firm has internal guidelines and codes of ethics with respect
to individual investments, requires reporting of securities transactions and
restricts certain transactions so as to minimize possible conflicts of interest.
8
UAM's Affiliated Firms as of December 31, 1998 are listed below in the order in
which they were acquired or established.
Principal Acquired
Affiliated Firm Location or Organized
- --------------- -------- ------------
Nelson, Benson & Zellmer, Inc. Denver, CO August 1983
Chicago Asset Management Company Chicago, IL October 1983
Colony Capital Management, Inc. Atlanta, GA February 1984
Hellman, Jordan Management Company, Inc. Boston, MA August 1984
Thompson, Siegel & Walmsley, Inc. Richmond, VA December 1984
Sterling Capital Management Company Charlotte, NC December 1984
Analytic Investors, Inc. (1) Los Angeles, CA May 1985
Northern Capital Management, Inc. Madison, WI January 1986
Cooke & Bieler, Inc. Philadelphia, PA February 1986
Fiduciary Management Associates, Inc. Chicago, IL June 1986
Investment Counselors of Maryland, Inc. Baltimore, MD December 1986
Rothschild/Pell Rudman, Inc. Baltimore, MD December 1986
Rice, Hall, James & Associates San Diego, CA May 1987
C. S. McKee & Company, Inc. Pittsburgh, PA August 1987
Hanson Investment Management Company San Rafael, CA August 1987
Barrow, Hanley, Mewhinney & Strauss, Inc. Dallas, TX January 1988
Sirach Capital Management, Inc. Seattle, WA January 1989
Dewey Square Investors Corporation Boston, MA May 1989
The Campbell Group, Inc. Portland, OR May 1989
Cambiar Investors, Inc. Englewood, CO August 1990
First Pacific Advisors, Inc. Los Angeles, CA June 1991
Spectrum Asset Management, Inc. Stamford, CT November 1991
Acadian Asset Management, Inc. Boston, MA February 1992
L&B Realty Advisors, Inc. (2) Dallas, TX June 1992
NWQ Investment Management Company Los Angeles, CA October 1992
Tom Johnson Investment Management, Inc. Oklahoma City, OK December 1992
Pell, Rudman & Co., Inc. Boston, MA March 1993
Heitman Financial LLC (3) Chicago, IL August 1993
Murray Johnstone Limited Glasgow, Scotland November 1993
GSB Investment Management, Inc. Fort Worth, TX December 1993
Dwight Asset Management Company Burlington, VT January 1994
Investment Research Company San Diego, CA February 1994
Suffolk Capital Management, Inc. New York, NY July 1994
UAM (Japan) Inc. (4) Tokyo, Japan October 1994
UAM Investment Services, Inc. Boston, MA January 1995
Provident Investment Counsel Pasadena, CA February 1995
Pilgrim Baxter & Associates, Ltd. Wayne, PA April 1995
Jacobs Asset Management Fort Lauderdale, FL July 1995
UAM Fund Services, Inc. Boston, MA October 1995
OSV Partners Greenwich, CT April 1996
Rogge Global Partners Plc London, England August 1996
Clay Finlay Inc. New York, NY August 1996
J.R. Senecal & Associates Investment Counsel Corp. Richmond Hill, Ontario January 1997
InvestLink Technologies, Inc. New York, NY February 1997
Expertise Asset Management Paris, France May 1997
Pacific Financial Research, Inc. Beverly Hills, CA May 1997
Thomson Horstmann & Bryant, Inc. Saddle Brook, NJ June 1997
Lincluden Management Limited Oakville, Ontario September 1997
Palladyne Asset Management B.V. Amsterdam, The Netherlands December 1997
Integra Capital Management Corporation Toronto, Ontario January 1998
(1) During 1998, Analytic o TSA Global Asset Management, Inc. changed
its name to Analytic Investors, Inc.
(2) During 1998, The L&B Group changed its name to L&B Realty Advisors,
Inc.
(3) During 1998, Heitman Financial Ltd. reorganized as Heitman Financial
LLC.
(4) During 1998, United Asset Management (Japan), Inc. changed its name to
UAM (Japan) Inc.
9
Employees
The UAM holding company has 74 employees, 11 of whom are executive
officers of UAM (see Item 10, Directors and Executive Officers of the
Registrant). Each Affiliated Firm employs its own investment advisory, marketing
and client service, administrative and operations personnel as needed to provide
advisory services to its clients and to maintain necessary records in accordance
with the rules of various regulatory agencies (see "Affiliated Firms" and
"Regulation" on pages 5 and 7, respectively). At December 31, 1998, the Company,
as a whole, employed 2,250 persons. These numbers exclude 298 individuals who
are employed by the property management subsidiary of L&B Realty Advisors, Inc.
and whose total compensation is billed directly to clients of this affiliate.
Available Information
Information about the Company, including copies of its Forms 10-K and
10-Q filed with the Securities and Exchange Commission, may be obtained without
charge by writing to the Company at One International Place, Boston,
Massachusetts 02110 or reviewing its website at www.uam.com. This information
may also be obtained by contacting the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 (1-800-SEC-0330).
Item 2. Properties
UAM's executive offices in Boston, Massachusetts occupy approximately
27,000 square feet under a lease which expires in 2002. Affiliated Firms are
likewise lessees of their respective offices under leases which expire at
various dates.
Item 3. Legal Proceedings
The Company and certain of the Company's subsidiaries are subject to
legal proceedings arising in the ordinary course of business. On the basis of
information presently available and advice received from legal counsel, it is
the opinion of management that the disposition or ultimate determination of such
legal proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
During the fourth quarter of 1998, UAM issued an aggregate of 424,568
shares of its Common Stock, $.01 par value, in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the Act), to certain executives of its
subsidiaries upon the exercise of warrants originally issued in connection with
the acquisition of such subsidiaries by UAM. The exercise prices of the warrants
ranged from $16.50 to $19.50 per share.
10
As of March 15, 1999, there were 398 stockholders of record. The
balance of the information required by this item is incorporated herein by
reference to the "Common Stock Information" on page 59 of the Annual Report.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference to the "Eleven-Year Review" on pages 42 and 43 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated herein by
reference to the "Management's Discussion and Analysis" on pages 37 through 41
of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposures are in the areas of
interest-rate risk, foreign currency exchange-rate risk, and equity-price risk.
The Company's exposure to interest-rate risk arises from variable-rate and
fixed-rate debt arrangements entered into for other-than-trading purposes. To
mitigate the risks associated with increases in interest rates, the Company has
entered into and plans to continue to enter into interest-rate protection
agreements. The agreements outstanding as of December 31, 1998 extend up to
three years and limit interest rates to an average of 8.5%. Tabular information
with respect to these interest-rate protection agreements has not been presented
as the financial statement impact of such agreements is not considered material.
The table below summarizes the Company's market risks associated with debt
obligations as of December 31, 1998. The Company had $287,000,000 outstanding
under its $750,000,000 Reducing Revolving Credit Agreement (the Credit
Agreement) as of December 31, 1998. Interest rates available for amounts
outstanding under the Credit Agreement are currently: prime, 1.5% over LIBOR or
a money market bid option. The recorded cost of the Senior Notes and Credit
Agreement approximates fair value. Due to the unique nature of each of the
subordinated debt instruments issued as consideration for businesses acquired,
an assessment of current fair value is not practicable. Effective interest rates
shown in the table for subordinated debt instruments is a weighted-average of
fixed interest rates attaching to notes having the particular expected year of
maturity. The Company intends to finance subordinated debt that becomes due
which has not been tendered in connection with the exercise of warrants by
utilizing its Credit Agreement. As such, the $10,657,000 of subordinated notes
due in 1999 have been included in the payments due in 2003, the year the line of
credit expires.
11
Expected Year of Maturity
------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
------------------------------------------------------------------------------------
Fixed-Rate Subordinated Debt - 5,107,000 90,936,000 57,699,000 1,404,000 37,037,000
Effective interest rate - 6.39% 6.33% 6.46% 6.50% 6.13%
Fixed-Rate Senior Notes - 25,000,000 25,000,000 25,000,000 25,000,000 50,000,000
Effective interest rate - 8.92% 8.92% 8.92% 8.92% 8.92%
Fixed-Rate Senior Notes - - - - - 250,000,000
Effective interest rate - - - - - 8.61%
Variable-Rate Senior Debt - - - - 298,178,000 -
Effective interest rate - - - - 7.11% -
The Company also has exposure to foreign currency exchange-rate fluctuations for
the cash flows received from its foreign affiliates. This risk is mitigated by
the fact that the operations of its subsidiaries, most of which are located in
the U.K. or Canada, are conducted in their respective local currencies. In
addition, any cash remitted by the foreign affiliates occurs shortly after the
related accounts receivable have been collected, further mitigating this risk.
Currently, the Company does not engage in foreign currency hedging activities as
it does not believe that its foreign currency exchange rate risk is material.
The Company also has equity-price risk as more fully described in the "Industry"
section on page two. This risk is somewhat mitigated by the Company's practice
of participating in revenue sharing with its affiliates. See page four for a
discussion of "Revenue Sharing." The Company does not use any market-rate
sensitive instruments for trading purposes or otherwise to protect against this
risk.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference to the "Selected Quarterly Financial Data" on page 59 of the Annual
Report, "Consolidated Financial Statements" and "Notes to the Consolidated
Financial Statements" on pages 44 through 57 of the Annual Report, and the
"Report of Independent Accountants" on page 58 of the Annual Report. (See also
the "Financial Statement Schedule" filed under Item 14 of this Form 10-K.)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference to the sections entitled "Election of Directors," "Executive
Officers," and "Proxy Statement - Section 16(a) Beneficial Ownership Reporting
Compliance" included in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1999 (the "Proxy Statement").
12
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to the sections entitled "Executive Compensation - Summary
Compensation Table," "Executive Compensation - Stock Options," "Executive
Compensation - Compensation Committee Report," "Performance Graph,"
"Compensation Committee Interlocks and Insider Participation," and "Governance
of the Company - Compensation of Directors" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the section entitled "Ownership of UAM's Common Stock" in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section entitled "Governance of the Company - Related
Transactions" in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of United Asset
Management Corporation and report of independent accountants, included
on pages 44 through 58 of the Annual Report, are incorporated herein by
reference as a part of this Form 10-K:
Page(s) in the
Title Annual Report
----- -------------
Report of Independent Accountants. 58
Consolidated Balance Sheet as of December 31, 1998
and 1997. 44
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1998. 45
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1998. 46
Consolidated Statement of Changes in Stockholders'
Equity for each of the three years in the period ended
December 31, 1998. 47
Notes to Consolidated Financial Statements. 48-57
13
2. Financial Statement Schedule
The following consolidated financial statement schedule and report of
independent accountants are filed as a part of this Form 10-K and are
on the following pages:
Page
----
Report of Independent Accountants on Financial F-1
Statement Schedule.
Schedule VIII Valuation and Qualifying Accounts for F-2
each of the three years in the period
ended December 31, 1998.
All other schedules have been omitted since they are not required, not
applicable or the information is in the Financial Statements or Notes
thereto.
3. Exhibits
Exhibit
Number Title
------ -----
(1) 3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
(2) 4.1 Specimen Certificate of Common Stock, $.01 par value,
of the Registrant.
(3) 4.2 Agreement to furnish copies of subordinated debt instruments to
the Commission.
9.0 Not applicable.
(4) 10.1 $750,000,000 Amended and Restated Credit Agreement dated as of
April 29, 1998.
(4) 10.2 Undertaking to Furnish Copies of Omitted Exhibits and Schedules to
$750,000,000 Amended and Restated Credit Agreement dated as of
April 29, 1998.
(5) 10.3 Amendment No. 1 to Amended and Restated Credit Agreement dated
as of August 12, 1998.
10.4 Amendment No. 2 and Waiver to Amended and Restated Credit
Agreement dated as of December 30, 1998.
14
10.5 Amendment No. 3 and Waiver to Amended and Restated Credit
Agreement dated as of January 29, 1999.
(6) 10.6 Note Purchase Agreement dated as of August 1, 1995.
(7) 10.7 First Amendment dated as of June 23, 1998 to Note Purchase
Agreement dated as of August 1, 1995.
(5) 10.8 $250,000,000 Note Purchase Agreement dated as of August 12, 1998.
(5) 10.9 Undertaking to Furnish Copies of Omitted Exhibits and Schedules to
$250,000,000 Note Purchase Agreement dated as of August 12, 1998.
(8) 10.10 United Asset Management Corporation Profit Sharing and 401(k)
Plan dated as of May 11, 1989 and Amended and Restated as of
November 26, 1990.
(9) 10.11 Revised First Amendment to United Asset Management Corporation
Profit Sharing and 401(k) Plan effective as of January 1, 1992.
(9) 10.12 Second Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1993.
(1) 10.13 Third Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1994.
(10) 10.14 Fourth Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1995.
10.15 United Asset Management Corporation Amended and Restated
1994 Stock Option Plan (as further Amended and Restated as of
December 29, 1998).
10.16 United Asset Management Corporation Stock Option Deferral Plan
effective December 29, 1998.
(10) 10.17 United Asset Management Corporation Deferred Compensation Plan
effective January 1, 1994.
(11) 10.18 First Amendment to United Asset Management Corporation
Deferred Compensation Plan effective July 1, 1997.
(12) 10.19 Consulting Agreement Between United Asset Management
Corporation and David I. Russell dated as of January 1, 1993.
(13) 10.20 First Amendment to Consulting Agreement between United
Asset Management Corporation and David I. Russell dated
as of June 17, 1996.
15
(4) 10.21 Employment Agreement between United Asset Management
Corporation and Charles E. Haldeman, Jr. dated March 1, 1998.
11.1 Calculation of Earnings (Loss) Per Share.
12.0 Not applicable.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1998.
16.0 Not applicable.
18.0 Not applicable.
21.1 Subsidiaries of the Registrant.
22.0 Not applicable.
23.1 Consent of Independent Accountants.
24.0 Not applicable.
27.1 Financial Data Schedules.
99.1 Risk Factors.
Notes to Exhibit Listing
------------------------
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form S-1 as filed with the
Commission and which became effective on August 22, 1986, and
incorporated herein by reference (Registration No. 33-6874).
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1998, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1995, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1998, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated herein by reference.
16
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997, and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, and incorporated herein by reference.
Location of Documents Pertaining to Executive Compensation Plans and
Arrangements:
(1) United Asset Management Corporation Amended and Restated 1994 Stock
Option Plan (as further Amended and Restated as of December 29, 1998),
Exhibit 10.15 to this Form 10-K.
(2) United Asset Management Corporation Stock Option Deferral Plan effective
December 29, 1998, Exhibit 10.16 to this Form 10-K.
(3) United Asset Management Corporation Deferred Compensation Plan effective
January 1, 1994, Exhibit 10.17 to this Form 10-K.
(4) First Amendment to United Asset Management Corporation Deferred
Compensation Plan effective July 1, 1997, Exhibit 10.18 to this Form 10-K.
(5) Consulting Agreement between United Asset Management Corporation and
David I. Russell dated as of January 1, 1993 - Form 10-K for fiscal year ended
December 31, 1992, Exhibit 10.19 to this Form 10-K.
(6) First Amendment to Consulting Agreement between United Asset Management
Corporation and David I. Russell dated as of June 17, 1996, Exhibit 10.20
to this Form 10-K.
(7) Employment Agreement between United Asset Management Corporation and
Charles E. Haldeman, Jr. dated March 1, 1998, Exhibit 10.21 to this Form
10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of the fiscal year covered by this report.
17
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 22, 1999 UNITED ASSET MANAGEMENT CORPORATION
-----------------------------------
(Registrant)
By /s/ Norton H. Reamer By /s/ William H. Park
----------------------------- -----------------------------------
Norton H. Reamer William H. Park
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
/s/ Norton H. Reamer
- -----------------------------------------
(Norton H. Reamer) Director March 22, 1999
/s/ Charles E. Haldeman, Jr.
- -----------------------------------------
(Charles E. Haldeman, Jr.) Director March 22, 1999
/s/ Harold J. Baxter
- -----------------------------------------
(Harold J. Baxter) Director March 22, 1999
/s/ Francis Finlay
- -----------------------------------------
(Francis Finlay) Director March 22, 1999
/s/ Robert J. Greenebaum
- -----------------------------------------
(Robert J. Greenebaum) Director March 22, 1999
/s/ Beverly L. Hamilton
- -----------------------------------------
(Beverly L. Hamilton) Director March 22, 1999
/s/ George E. Handtmann, III
- -----------------------------------------
(George E. Handtmann, III) Director March 22, 1999
/s/ Bryant M. Hanley, Jr.
- -----------------------------------------
(Bryant M. Hanley, Jr.) Director March 22, 1999
/s/ Jay O. Light
- -----------------------------------------
(Jay O. Light) Director March 22, 1999
/s/ David I. Russell
- -----------------------------------------
(David I. Russell) Director March 22, 1999
/s/ Philip Scaturro
- -----------------------------------------
(Philip Scaturro) Director March 22, 1999
/s/ John A. Shane
- -----------------------------------------
(John A. Shane) Director March 22, 1999
/s/ Barbara S. Thomas
- -----------------------------------------
(Barbara S. Thomas) Director March 22, 1999
18
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors
of United Asset Management Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 3, 1999 appearing on page 58 of the 1998 Annual Report to
Stockholders of United Asset Management Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 3, 1999
F-1
SCHEDULE VIII
UNITED ASSET MANAGEMENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Cost Assigned
to Contracts Acquired
-------------------------------------------
Weighted
Range of Average
Estimated Estimated
Remaining Remaining
Lives Lives Beginning Additions Ending
Firm (in years) (in years) Balance and Other Balance
- ---- ---------- ---------- ------- --------- -------
1996
- ----
HFL 2-20 13 $ 220,416 $ - $ 220,416
PBA 4-16 14 104,605 12,528 117,133
PIC 2-22 16 347,307 (167) 347,140
All Others 1-18 5 748,984 (6,216) 742,768
------------ ---------- ------------
$1,421,312 $ 6,145 $1,427,457
============ ========== ============
1997
- ----
PBA 3-15 13 $ 117,133 $ - $ 117,133
PFR 15 15 - 128,391 128,391
PIC 1-21 15 347,140 69,021 416,161
All Others 1-17 6 963,184 (98,610) 864,574
------------ ---------- ------------
$1,427,457 $ 98,802 $1,526,259
============ ========== ============
1998
- ----
PBA 2-14 12 $ 117,133 $ - $ 117,133
PFR 14 14 128,391 34 128,425
PIC 1-20 14 416,161 (1,828) 414,333
All Others 1-16 6 864,574 5,971 870,545
------------ ---------- ------------
$1,526,259 $ 4,177 $1,530,436
============ ========== ============
Accumulated Amortization
------------------------------------------------------
Ending
Tax
Charged to Balance
Beginning Operations Ending In Excess
Firm Balance and Other Balance of Book
- ---- ------- --------- ------- -------
1996
- ----
HFL $ 15,820 $ 14,712 $ 30,532 $ 2,621
PBA 4,293 6,601 10,894 1,129
PIC 16,309 19,591 35,900 9,102
All Others 329,214 61,031 390,245 91,650
---------- ----------- ---------- ----------
$365,636 $ 101,935 $467,571 $104,502
========== =========== ========== ==========
1997
- ----
PBA $ 10,894 $ 7,375 $ 18,269 $ 510
PFR - 4,725 4,725 979
PIC 35,900 19,596 55,496 12,885
All Others 420,777 8,820 429,597 (53,137)
---------- ----------- ---------- ----------
$467,571 $ 40,516 $508,087 $(38,763)
========== =========== ========== ==========
1998
- ----
PBA $ 18,269 $ 7,351 $ 25,620 $ 409
PFR 4,725 8,018 12,743 1,517
PIC 55,496 23,807 79,303 16,707
All Others 429,597 51,358 480,955 (60,044)
---------- ----------- ---------- ----------
$508,087 $ 90,534 $598,621 $(41,411)
========== =========== ========== ==========
Certain reclassifications have been made to the accounts to conform with the
current year's presentation.