UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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: 1-9468
NEW ENGLAND INVESTMENT COMPANIES, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3405992
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
399 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip Code)
(617) 578-3500
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(Registrant's telephone number, including area code)
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
The issuer is a limited partnership. There were 42,979,168 units of limited
partner interest and 110,000 units of general partner interest outstanding at
April 30, 1997.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
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PAGE
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ITEM 1. FINANCIAL STATEMENTS.
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Consolidated Balance Sheet as of December 31, 1996
and March 31, 1997 3
Consolidated Statement of Income for the three months
ended March 31, 1996 and 1997 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS. 8
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PART II - OTHER INFORMATION
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ITEM 5. OTHER INFORMATION. 11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 11
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SIGNATURES 12
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
DECEMBER 31, 1996 MARCH 31, 1997
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(unaudited)
ASSETS
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Current assets:
Cash and cash equivalents $ 49,914 $ 29,779
Accounts receivable 66,430 73,404
Other 6,692 9,589
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Total current assets 123,036 112,772
Intangible assets 527,765 612,994
Fixed assets 19,236 21,601
Other assets 51,621 50,120
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Total assets $721,658 $797,487
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LIABILITIES AND PARTNERS' CAPITAL
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Current liabilities:
Accounts payable and accrued expenses $ 38,651 $ 51,955
Accrued compensation and benefits 43,612 32,337
Distribution payable 20,084 23,466
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Total current liabilities 102,347 107,758
Deferred compensation, benefits and other 28,686 22,397
Notes payable 118,334 143,283
Deferred purchase consideration 144,027 144,124
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Total liabilities 393,394 417,562
Contingent liabilities (note 3)
Partners' capital 328,264 379,925
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Total liabilities and partners' capital $721,658 $797,487
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See accompanying Notes to Consolidated Financial Statements.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
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CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per unit data, unaudited)
THREE MONTHS ENDED
MARCH 31,
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1996 1997
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REVENUES
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Management and advisory fees $79,913 $116,109
Other revenues and interest income 9,412 10,688
Gain on partial sale of affiliate 4,988 -
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94,313 126,797
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EXPENSES
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Compensation and benefits 43,436 64,999
Restricted unit plan compensation 1,352 133
Amortization of intangibles 5,401 9,268
Depreciation and amortization 1,204 1,556
Occupancy and equipment 2,584 3,724
Interest expense 2,093 3,878
Other 17,308 21,671
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73,378 105,229
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Income before income taxes 20,935 21,568
Income tax expense 621 1,215
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Net income $20,314 $ 20,353
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Net income per unit $ 0.53 $ 0.48
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Distributions declared per unit $ 0.48 $ 0.58
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Weighted average units outstanding 40,385 43,087
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See accompanying Notes to Consolidated Financial Statements.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
THREE MONTHS ENDED
MARCH 31,
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1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,314 $ 20,353
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangibles 5,401 9,268
Restricted unit plan compensation 1,352 133
Gain on partial sale of affiliate (4,988) -
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Sub-total 22,079 29,754
Depreciation and amortization 1,204 1,556
Increase in accounts receivable and other assets (2,473) (8,370)
Decrease in accounts payable and other liabilities (4,348) (4,260)
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Net cash provided by operating activities 16,462 18,680
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,956) (2,822)
Acquisition payments, net of cash acquired - (41,238)
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Net cash used in investing activities (2,956) (44,060)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 110,000 24,949
Repayment of promissory notes (80,919) -
Distributions paid to unitholders (17,950) (20,084)
Other - 380
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Net cash provided by financing activities 11,131 5,245
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Net increase (decrease) in cash and
cash equivalents 24,637 (20,135)
Cash and cash equivalents, beginning of period 34,385 49,914
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Cash and cash equivalents, end of period $ 59,022 $ 29,779
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Cash paid during the period for interest $ 1,297 $ 2,623
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Cash paid during the period for income taxes $ 356 $ 1,381
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Supplemental disclosure of non-cash
increase in partners' capital $ - $ 54,261
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See accompanying Notes to Consolidated Financial Statements.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
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The unaudited consolidated financial statements of New England Investment
Companies, L.P. (the "Partnership") have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission. These
financial statements should be read in conjunction with the annual report of the
Partnership filed on Form 10-K for the year ended December 31, 1996. In the
opinion of management, all adjustments, consisting only of normal recurring
accruals, have been made to present fairly the financial statements of the
Partnership at March 31, 1997 and for the three month periods ended March 31,
1996 and 1997.
Certain amounts in prior period financial statements have been reclassified to
conform with the 1997 presentation.
NOTE 2 - NET INCOME PER UNIT
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The calculation of net income per publicly held unit ("net income per unit")
follows:
Three Months Ended
March 31,
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1996 1997
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(in thousands,
except per
unit data)
Net income $20,314 $20,353
Restricted unit plan compensation and other 1,127 133
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Income available for allocation $21,441 $20,486
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Net income per unit $0.53 $0.48
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Net income per unit is calculated using the following weighted average units
outstanding:
Weighted average actual units outstanding 37,396 40,456
Units assumed outstanding to settle
deferred purchase consideration 2,989 2,631
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Weighted average units outstanding 40,385 43,087
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For the three month period ended March 31, 1997, weighted average units
outstanding include the dilutive effect of 2,631,537 units assumed outstanding
on January 1, 1997 from the settlement on April 2, 1997 of the $144,124,000
deferred purchase consideration for the Harris acquisition, which was paid by
the issuance of 2,631,537 units valued at $64,489,000 and $79,635,000 in
cash.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The standard
specifies the computation, presentation and disclosure requirements for net
income per unit and is effective for the Partnership's financial statements for
the year ending December 31, 1997. The adoption of the standard is not expected
to have a material effect on the financial statements of the Partnership.
NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES
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The Partnership is subject to legal proceedings and claims which have arisen in
the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions, if any, will not materially
adversely affect the results of operations or financial condition of the
Partnership.
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4 - TAX CONSIDERATIONS FOR PUBLIC UNITHOLDERS
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Under existing tax law, the Partnership would, effective January 1, 1998 (and in
some circumstances earlier), no longer be treated as a partnership for federal
income tax purposes. As a result, the Partnership and the ownership thereof is
expected to be restructured prior to that date in accordance with the terms of
the Partnership Agreement, which confers broad authority and absolute discretion
on the General Partner to effect (or not to effect) a restructuring. See
"Possible Future Restructuring of the Partnership" included in Item 1, and Note
6 of the Notes to the Consolidated Financial Statements of the Partnership
included in Item 8, of the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996.
Note 5 - NOTES PAYABLE (SUBSEQUENT EVENT)
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On April 1, 1997, the Partnership completed the private placement of
$160,000,000 of 7.15% Senior Notes due April 1, 2007. The Notes have an
effective interest rate of 7.29%, including deferred debt issuance costs which
are amortized to interest expense over the term of the Notes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS.
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Any statements in this report that are not historical facts are intended to fall
within the safe harbor for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. Any forward-looking statements should
be considered in light of the risks and uncertainties attendant to the
Partnership and its business, which may cause actual results to vary materially
from what had been anticipated. Certain factors that affect the Partnership
have been described in the Partnership's filings with the Securities and
Exchange Commission, particularly the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1996 (under Item 1, "Business--Forward-Looking
Statements") and include factors such as conditions affecting fee revenues,
reliance on key personnel, competition, regulatory and legal factors, tax
considerations and possible future restructurings. Readers are encouraged to
review these factors carefully.
GENERAL
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The following summary of the consolidated financial information of the
Partnership for the three months ended March 31 shows revenues and net income
before the non-recurring item recognized in the first quarter of 1996 relating
to the sale of a portion of the Partnership's interest in its affiliate, CGM.
THREE MONTHS ENDED
MARCH 31,
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1996 1997
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(in thousands,
except per unit data)
TOTAL REVENUES BEFORE NON-RECURRING ITEM $89,325 $126,797
TOTAL EXPENSES 73,999 106,444
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NET INCOME BEFORE NON-RECURRING ITEM 15,326 20,353
NON-RECURRING ITEM - GAIN ON PARTIAL SALE OF AFFILIATE 4,988 -
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NET INCOME $20,314 $ 20,353
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NET INCOME PER UNIT $ 0.53 $ 0.48
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DISTRIBUTIONS DECLARED PER UNIT $ 0.48 $ 0.58
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OPERATING CASH FLOW/1/ $22,079 $ 29,754
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OPERATING CASH FLOW PER UNIT/1/ $ 0.55 $ 0.69
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WEIGHTED AVERAGE UNITS OUTSTANDING 40,385 43,087
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1. Operating cash flow represents net income adjusted for restricted unit plan
compensation, amortization of intangibles and non-recurring items. Operating
cash flow per public unit ("operating cash flow per unit") should not be
construed as an alternative to net income per unit or cash flow from
operating activities.
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STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE
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THREE MONTHS ENDED MARCH 31, 1996
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Net income of $20.4 million or $0.48 per unit for the three months ended March
31, 1997 represents an increase of $5.1 million from the $15.3 million of net
income before non-recurring item or $0.41 per unit for the three months ended
March 31, 1996. The increase primarily reflects higher revenues due to increases
in assets under management from both internal growth and acquisitions. Net
income for the three months ended March 31, 1997 was $20.4 million or $0.48 per
unit compared to net income of $20.3 million or $0.53 per unit for the same
quarter last year.
Total revenues of $126.8 million for the three months ended March 31, 1997
represents an increase of $37.5 million (or 42%) from the $89.3 million of total
revenues before non-recurring item for the same quarter last year. Included in
1997 total revenues are revenues from acquisitions made after March 31, 1996 of
$18.0 million. Excluding acquisitions, revenues increased $19.5 million (or 22%)
primarily reflecting growth in assets under management. Total revenues in 1997
also include a $6 million gain on a transaction in the Partnership's real estate
management subsidiary, which was substantially offset by a charge for
contractual employment obligations and additional costs associated with a
business combination in the same subsidiary.
A $5.0 million non-recurring gain on the partial sale of the Partnership's
interest in its affiliate, Capital Growth Management Limited Partnership
("CGM"), was realized during the first quarter of 1996, completing the agreement
to reduce the Partnership's ownership interest to 50%.
Compensation and benefits of $65.0 million for the three months ended March 31,
1997 increased $21.6 million compared to the same quarter last year and
consisted of 53% base compensation and 47% variable compensation. The increase
in base compensation and benefits resulted primarily from acquisitions. The
increase in variable compensation of $12.8 million resulted from acquisitions
and higher incentive payments based on subsidiary profitability, portfolio
performance and sales growth.
Restricted unit plan expense of $0.1 million for the three months ended March
31, 1997 represented a decrease of $1.2 million from the same quarter last year,
reflecting the immediate vesting of substantially all restricted units in August
1996 effective with the merger of New England Mutual Life Insurance Company with
Metropolitan Life Insurance Company.
Amortization of intangibles of $9.3 million for the three months ended March 31,
1997 increased $3.9 million from the same quarter last year due to acquisitions.
Interest expense of $3.9 million for 1997 increased $1.8 million from the same
quarter last year, reflecting interest related to the financing of acquisitions.
Other expense of $21.7 million for the three months ended March 31, 1997
increased $4.4 million from the same period last year. The increase results from
higher general and administrative expenses, primarily associated with
acquisitions.
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CAPITAL RESOURCES AND LIQUIDITY
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Operating cash flow not required for normal business operations and working
capital needs or growth strategies is generally distributed to unitholders each
quarter. Distributions to unitholders are typically declared during the last
month of calendar quarters. On March 18, 1997, the Partnership declared a
regular distribution of $0.53 per unit and a special distribution of $0.05 per
unit as compared to the $0.48 regular distribution declared for the first
quarter of 1996. The Partnership has the ability to make distributions
in excess of net income due to non-cash amortization expense. For the three
months ended March 31, 1997, distributions paid to unitholders were $20.1
million as compared to $18.0 million for the same quarter last year.
Cash and cash equivalents at March 31, 1997 of $29.8 million decreased $20.1
million from December 31, 1996. The reduction resulted from the $43.0 million
payment for the acquisition of Jurika & Voyles and the payment of variable
compensation which is accrued throughout the year of $11.3 million. Cash
reductions were offset in part by $25.0 million of borrowings made by the
Partnership during the first quarter of 1997 under available lines of credit.
On April 2, 1997, an additional payment of $144.1 million was made relating to
the Harris acquisition. The payment was made by issuing 2,631,537 units and
paying $79.6 million in cash (see Note 2 of Notes to Consolidated Financial
Statements). The cash portion of this payment was funded from the proceeds of
the issuance of $160.0 million, 7.15% Senior Notes due April 1, 2007.
The Partnership has various contingent purchase payment obligations, depending
upon the attainment of certain revenue targets through 1999, resulting from the
acquisitions of Aldrich, Eastman & Waltch, L.P. and Jurika & Voyles, Inc. Such
obligations are not expected to have a material impact on the capital resources
of the Partnership.
The Partnership's had $185 million in lines of credit of which $148 million was
available at March 31, 1997.
ASSETS UNDER MANAGEMENT
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A summary of assets under management follows (in billions):
March 31, December 31, March 31,
1996 1996 1997
--------- ------------ ---------
Institutional $ 57 $ 66 $ 67
Mutual funds 22 25 27
Private accounts and other 5 9 9
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$ 84 $ 100 $ 103
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At March 31, 1997, assets under management were $103 billion, an
increase of $3 billion (or 3%) as compared to $100 billion at December 31, 1996.
This increase resulted primarily from growth in equity mutual funds.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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CERTAIN OPERATING POLICIES
The Partnership currently distributes to unitholders operating cash flow not
required for normal business operations and working capital needs, including
support of the Partnership's growth strategy. Management defines operating cash
flow as net income adjusted for restricted unit plan compensation, amortization
of intangible assets and non-recurring items. Management does not consider
capital gains as part of operating cash flow.
The following calculation of operating cash flow per unit should be read in
conjunction with the consolidated financial statements of the Partnership and
the notes thereto, filed on Form 10-K for the year ended December 31, 1996.
Operating cash flow for the three months ended March 31 follows:
Three Months Ended March 31,
----------------------------------------
1996 1997
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Per Unit Amount Per Unit Amount
--------- -------- -------- -------
(in thousands, except per unit data)
Income available for allocation $ 0.53 $21,441 $0.48 $20,486
Less non-recurring items (0.12) (4,988) - -
-------- ------- ----- -------
Sub-total 0.41 16,453 0.48 20,486
Add amortization of intangibles/1/ 0.14 5,626 0.21 9,268
-------- ------- ----- -------
Operating cash flow $ 0.55 $22,079 $0.69 $29,754
======== ======= ===== =======
Distributions declared $ 0.48 $0.58
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Weighted average units outstanding 40,385 43,087
======= =======
1. Amortization of intangibles is a non-cash expense and does not reduce
amounts available for cash distributions to unitholders.
Operating cash flow per unit should not be construed as an alternative to net
income per unit or cash flow from operating activities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
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4. Form of Note Purchase Agreement dated as of March 25, 1997, between the
Partnership and the purchasers of the Partnership's 7.15% Senior Notes due April
1, 2007, including the form of Senior Note issued pursuant thereto.
(b) Reports on Form 8-K
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On January 3, 1997, the Partnership filed a Current Report on Form 8-K to
report the consummation of the acquisition of assets of Jurika & Voyles, Inc.,
effective January 1, 1997.
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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.
New England Investment Companies, L.P.
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Registrant
/s/ G. Neal Ryland May 14, 1997
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G. Neal Ryland Date
Executive Vice President and
Chief Financial Officer
/s/ Stephen D. Martino May 14, 1997
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Stephen D. Martino Date
Senior Vice President and Controller
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