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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15 (d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) SEPTEMBER 29, 1995
NEW ENGLAND INVESTMENT COMPANIES, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 1-9468 13-3405992
(Name or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
399 BOYLSTON STREET, BOSTON, 02116
MASSACHUSETTS (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (617) 578-3500
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ---------------------------------------------
On September 29, 1995 New England Investment Companies, L.P. ("NEIC")
purchased substantially all of the assets and acquired certain liabilities of
Harris Associates L.P. ("Harris"), a Chicago-based investment management
company with approximately $7.1 billion of assets under management.
Founded in 1976, Harris developed institutional, private client and multi-
manager product offerings totaling $3.5 billion in assets under management.
Harris also serves as the investment advisor for the $3.6 billion Oakmark Fund
Group. Harris will continue to operate out of its Chicago office and will
retain its operating independence. Prior to the acquisition, Harris was a
privately held partnership.
NEIC purchased substantially all of the assets and acquired certain
liabilities of Harris for $175.0 million payable in 5,366,898 of newly issued
L.P. units totaling $95.3 million and promissory notes due January 10, 1996
(the "Notes") in the aggregate amount of $79.7 million. The L.P. unit price of
$17.75 was determined at market value under a formula as set forth in the
Partnership Admission Agreement (the "Agreement"). The Notes are secured by an
$80.0 million letter of credit. Payment upon maturity is expected to be
financed with a privately placed seven-year financing.
Pursuant to the Agreement, NEIC expects to make a contingent payment on
April 2, 1997, also in L.P. units, cash or a combination thereof as a purchase
price adjustment based upon the performance of Harris' business in 1996. The
minimum contingent payment is expected to approximate $35.0 million based upon
Harris' projected 1995 qualifying revenues as defined in the Agreement. This
estimated payment will be made in a combination of cash and L.P. units based
on selection by the seller's partners.
The acquisition has been accounted for under the purchase method of
accounting and has resulted in the recording of approximately all of the
consideration as an intangible asset for financial reporting purposes.
2
ITEM 5. OTHER EVENTS.
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Certain Operating Policies
NEIC bases its distribution and other operating policies on operating cash
flow per L.P. unit. Operating cash flow per L.P. unit is defined as net income
per publicly held L.P. unit plus amortization of the intangible assets
associated with acquisitions adjusted for any other significant non-cash
items. Capital gains are not reflected as a component of operating cash flow
per L.P. unit. NEIC generally intends to distribute substantially all of its
operating cash flow per L.P. unit not required for normal business operations,
working capital needs, or growth strategies. The following discussion shows
the pro forma effect of the Harris acquisition on operating cash flow per L.P.
unit for the six months ended June 30, 1995.
The Harris acquisition has resulted in the recording of an intangible asset
of $213.4 million. The resulting amortization, combined with the amortization
that arose from the Reich & Tang combination, is a non-cash expense that will
not affect cash available for distribution to partners. Historical and pro
forma operating cash flow per L.P. unit for the six months ended June 30, 1995
follows:
SIX MONTHS ENDED
JUNE 30, 1995
--------------------
HISTORICAL PRO FORMA
---------- ---------
Net income per publicly held L.P. unit............. $ .93 $ .81
Add amortization of intangible assets.............. .17 .32
Less capital gains................................. (.15) (.12)
------ ------
Operating cash flow per L.P. unit.................. $ .95 $ 1.01(1)
====== ======
Distributions declared per unit.................... $ .86 n/a
====== ======
Weighted average L.P. units outstanding (in
thousands)........................................ 31,990 39,004(1)
====== ======
The above calculation of operating cash flow per L.P. unit should be read in
conjunction with the historical financial statements of NEIC and Harris, and
the notes thereto. Operating cash flow per L.P. unit should not be considered
as an alternative to net income per publicly held L.P. unit or as an
alternative to cash flow provided by operating activities as reported in the
statement of cash flows.
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(1) Pro forma weighted average L.P. units outstanding includes 1,647,000 L.P.
units that are assumed to be issued during 1997 resulting from the
estimated contingent payment due Harris based on its 1996 results.
Excluding the 1,647,000 L.P. units that may be issued resulting from the
contingent payment due Harris, pro forma operating cash flow per L.P. unit
would be $1.06. See the pro forma financial information appearing in Item
7(b) together with supporting notes thereon for additional information.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. PAGE
- ------------------------------------------ ----
(a) Financial statements of businesses acquired.
------------------------------------------------
(i) Consolidated Audited Financial Statements of Harris Associates
L.P. and Subsidiaries as of December 31, 1994, 1993 and 1992..... 7
(ii) Consolidated Unaudited Financial Statements of Harris Associates
L.P. and Subsidiaries as of June 30, 1995 and 1994.............. 19
(b) Pro forma financial information.
------------------------------------
(i) Unaudited Pro Forma Condensed Combined Balance Sheet of New
England Investment Companies, L.P. as of June 30, 1995........... 32
(ii) Unaudited Pro Forma Condensed Combined Statement of Operations
of New England Investment Companies, L.P. for the Six Months
Ended June 30, 1995............................................. 33
(iii) Unaudited Pro Forma Condensed Combined Statement of Operations
of New England Investment Companies, L.P. for the Year Ended
December 31, 1994.............................................. 34
(c) Exhibits.
-------------
2. Amendment No. 1 dated September 27, 1995 to the Partnership
Admission Agreement dated as of June 22, 1995 by and among
New England Investment Companies, L.P., Harris Associates L.P.
and Harris Associates, Inc..................................... 36
28. Financial Statements and Pro Forma financial information
described in Item 7(a) and 7(b).............................. 6
4
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.
October 10, 1995 /s/ G. Neal Ryland
Date: _______________________________ By: _________________________________
G. Neal Ryland
Executive Vice President and
Chief Financial Officer
5
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS PAGE
------------------------------------------ ----
Item 7(a) Financial Statements of Harris Associates L.P. and Subsidiaries
Consolidated Audited Financial Statements as of December 31, 1994, 1993,
and 1992................................................................ 7
Consolidated Unaudited Financial Statements as of June 30, 1995 and
1994.................................................................... 19
Item 7(b) Pro Forma Financial Information--New England Investment
Companies, L.P.
Unaudited Condensed Combined Financial Information....................... 31
Unaudited Condensed Combined Balance Sheet............................... 32
Unaudited Condensed Combined Statement of Operations for the Six Months
Ended June 30, 1995..................................................... 33
Unaudited Condensed Combined Statement of Operations for the Year Ended
December 31, 1994....................................................... 34
Item 7(c) Exhibits
(2) Amendment No. 1 dated September 27, 1995 to the Partnership
Admission Agreement dated as of June 22, 1995 by and among New
England Investment Companies, L.P., Harris Associates L.P. and Harris
Associates, Inc...................................................... 36
6
ITEM 7(A)(I) CONSOLIDATED AUDITED FINANCIAL STATEMENTS OF HARRIS L.P. AND
SUBSIDIARIES AS OF DECEMBER 31, 1994, 1993 AND 1992.
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1993 AND 1992
TOGETHER WITH AUDITORS' REPORT
7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Harris Associates L.P.:
We have audited the accompanying consolidated statement of financial
condition of HARRIS ASSOCIATES L.P. (a Delaware limited partnership) AND
SUBSIDIARIES as of December 31, 1994, 1993 and 1992, and the related
consolidated statements of income, partners' capital and cash flows for each
of the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Hesperus Partners, Ltd. ("Hesperus"), Aurora Limited Partnership
("Aurora"), Perseus Partners Limited Partnership ("Perseus"), Pleiades
Partners L.P. ("Pleiades"), (all Illinois limited partnerships), and Stellar
Partners L.P. ("Stellar") (a Delaware limited partnership). The investments in
these partnerships represent 6%, 43% and 42% of partners' capital and the
equity in earnings represent 2%, 31% and 48% of net income in 1994, 1993 and
1992, respectively. The financial statements of Hesperus, Aurora, Perseus,
Pleiades and Stellar were audited by other auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts
included for such partnerships, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Harris Associates, L.P. and Subsidiaries
as of December 31, 1994, 1993 and 1992 and the results of their operations and
their cash flows for each of the years then ended, in conformity with
generally accepted accounting principles.
Chicago, Illinois,
February 10, 1995
(except June 9, 1995, as to the
financial statements audited by
others see Note 2, and June 22,
1995, as to subsequent events,
see Note 15)
8
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
ASSETS ---- ---- ----
------
CASH AND CASH EQUIVALENTS.............. $ 27,378,010 $ 73,859,198 $ 36,989,652
RECEIVABLES:
Investment advisory fees............. 2,808,034 4,583,820 956,907
Brokers and dealers (Note 3)......... 22,331,652 25,767,979 125,420,712
Other................................ 2,198,297 3,327,022 1,589,894
SECURITIES OWNED (cost of $141,911,574,
$128,187,343 and $62,586,273 in 1994,
1993 and 1992, respectively):
Corporate bonds and notes............ 76,975,833 61,222,522 11,403,034
Preferred stocks..................... 12,094,742 20,033,638 9,743,875
Common stocks........................ 27,411,424 94,464,728 60,101,563
Warrants and options................. 16,210,610 8,189,266 6,639,829
Other................................ 413,078 352,870 1,460,856
------------ ------------ ------------
133,105,687 184,263,024 89,349,157
INVESTMENTS IN AND ADVANCES TO LIMITED
PARTNERSHIPS (Note 4)................. 405,491,227 364,747,219 202,729,126
DESIGNATED INVESTMENTS (Note 5)........ 5,461,198 5,949,080 2,370,432
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, at cost, net of
accumulated depreciation of
$1,712,518, $1,475,481 and
$1,275,720............................ 446,460 489,066 416,186
OTHER ASSETS........................... 243,740 211,014 235,953
------------ ------------ ------------
Total assets....................... $599,464,305 $663,197,422 $460,058,019
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Loans payable (Note 6)............... $ 24,340,300 $ 10,000,000 $ 11,791,000
Payable to brokers and dealers (Note
3).................................. 4,314,671 9,695,428 2,144,932
Securities sold, not yet purchased
(proceeds of $119,350,901,
$73,518,320 and $120,475,471 in
1994, 1993 and 1992, respectively)
Corporate bonds and notes.......... 373,208 234,769 8,360
Preferred stocks................... 44,909,705 809,758 --
Common stocks...................... 68,101,180 79,226,121 119,133,661
Warrants and options............... 208,348 1,483,311 1,389,649
------------ ------------ ------------
113,592,441 81,753,959 120,531,670
Accounts payable and accrued
expenses............................ 2,184,730 4,367,174 1,090,255
Unearned advisory fees............... 425,043 377,596 264,628
Consolidated Partnerships
Limited partners' contributions re-
ceived in advance.................. 17,915,213 65,854,030 27,417,300
Limited partners' withdrawals pay-
able............................... 120,243,332 25,830,666 9,626,091
------------ ------------ ------------
Total liabilities.................. 283,015,730 197,878,853 172,865,876
LIMITED PARTNERS' INTERESTS IN
CONSOLIDATED PARTNERSHIPS............. 292,937,564 437,021,481 273,324,512
PARTNERS' CAPITAL (Notes 8 and 14)..... 23,511,011 28,297,088 13,867,631
------------ ------------ ------------
Total liabilities and partners'
capital........................... $599,464,305 $663,197,422 $460,058,019
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
9
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
REVENUES:
Fees for account supervision and
investment advisory services (Note
10)............................... $ 47,243,782 $ 28,414,146 $ 17,359,315
Commissions (Note 10).............. 3,047,876 4,566,821 3,670,993
Interest........................... 6,915,137 2,899,872 6,154,208
Dividends.......................... 1,341,710 3,110,670 1,969,153
Net realized and unrealized gains
(losses) on securities owned and
sold, not yet purchased........... (957,516) 38,568,354 19,812,274
Equity in earnings (loss) of lim-
ited partnerships (Note 4)........ (17,065,405) 60,470,405 26,038,715
Other (Note 10).................... 3,850,791 2,639,301 2,837,887
------------ ------------ ------------
Total revenues................... 44,376,375 140,669,569 77,842,545
------------ ------------ ------------
EXPENSES:
Employee and partner compensation
and benefits (Note 11)............ 9,447,833 9,291,564 7,809,208
Clearing fees...................... 744,394 716,358 875,098
Interest........................... 2,988,627 1,574,323 2,834,610
Dividends on short stock........... 855,380 1,054,613 5,203,319
External investment advisory fees.. 1,305,243 2,031,737 295,956
Communications..................... 592,053 408,658 142,958
Occupancy and equipment rental..... 1,471,294 1,315,002 1,204,878
Other.............................. 4,358,980 3,498,571 2,134,661
------------ ------------ ------------
Total expenses................... 21,763,804 19,890,826 20,500,688
------------ ------------ ------------
Income before limited partners'
interest in Consolidated
Partnerships...................... 22,612,571 120,778,743 57,341,857
LIMITED PARTNERS' INTEREST IN (GAIN)
LOSS OF CONSOLIDATED PARTNERSHIPS... 20,393,158 (86,056,438) (36,493,838)
------------ ------------ ------------
Net income....................... $ 43,005,729 $ 34,722,305 $ 20,848,019
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
10
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
BALANCE, beginning of year............ $ 28,297,088 $ 13,867,631 $ 13,454,540
Contributions....................... 429,011 354,236 184,451
Withdrawals......................... (48,220,817) (20,647,084) (20,619,379)
Net income.......................... 43,005,729 34,722,305 20,848,019
------------ ------------ ------------
BALANCE, end of year.................. $ 23,511,011 $ 28,297,088 $ 13,867,631
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
11
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 43,005,729 $ 34,722,305 $ 20,848,019
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation and amortization..... 250,722 214,765 179,543
Equity in (earnings) loss of part-
nerships......................... 17,065,405 (60,470,405) (26,038,715)
Limited partners interest in gain
(loss) of Consolidated Partner-
ships............................ (20,393,158) 86,056,438 36,493,838
Decrease in receivables........... 6,340,838 94,288,692 253,743,119
(Increase) decrease in marketable
securities....................... 51,157,337 (94,913,867) (8,276,034)
(Increase) decrease in designated
investments...................... 487,882 (3,578,648) (835,767)
Increase in investments in and
advances to limited partnerships,
net.............................. (57,809,413) (101,547,688) (4,489,354)
(Increase) decrease in other as-
sets............................. (46,412) 14,484 (6,620)
Increase (decrease) in accounts
payable and accrued expense...... (2,182,444) 3,276,919 (70,532)
Increase (decrease) in payable for
securities sold not yet pur-
chased........................... 31,838,482 (38,777,711) (253,765,049)
Increase (decrease) in unearned
advisory fees.................... 47,447 112,968 (18,815)
Increase (decrease) in payable to
brokers and dealers.............. (5,380,757) 7,550,496 2,144,932
------------ ------------ ------------
Net cash provided by (used in)
operating activities........... 64,381,658 (73,051,252) 19,908,565
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment
and leasehold improvements......... (194,430) (277,190) (141,594)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans................. 95,935,311 113,022,370 130,356,902
Repayments of loans................. (81,595,011) (114,813,370) (181,254,583)
Consolidated Partnerships
Increase (decrease) in limited
partners' interests.............. (123,690,759) 77,640,531 44,108,531
Increase (decrease) in limited
partners' contributions received
in advance....................... (47,938,817) 38,436,730 24,978,204
Increase (decrease) in limited
partners' withdrawals payable.... 94,412,666 16,204,575 (20,427,081)
Capital contributions............... 429,011 354,236 184,451
Capital withdrawals................. (48,220,817) (20,647,084) (20,619,379)
------------ ------------ ------------
Net cash (used in) provided by
financing activities........... (110,668,416) 110,197,988 (22,672,955)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... (46,481,188) 36,869,546 (2,905,984)
CASH AND CASH EQUIVALENTS, beginning
of year.............................. 73,859,198 36,989,652 39,895,636
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 27,378,010 $ 73,859,198 $ 36,989,652
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
12
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of Harris
Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"), of
which HALP is a 99% limited partner. The consolidated financial statements
also include the following entities of which HALP owned the majority voting
interest or over which it exercised significant control: Venus Partners
("Venus"), Hesperus Partners, Ltd. ("Hesperus"), Aurora Limited Partnership
("Aurora"), Perseus Partners Limited Partnership ("Perseus"), Pleiades
Partners L.P. ("Pleiades") and Stellar Partners L.P. ("Stellar"), hereinafter
referred to as the "Consolidated Partnerships". Statement of Financial
Accounting Standards ("SFAS") No. 94, "Consolidation of all Majority-Owned
Subsidiaries," requires that such entities be consolidated (see Note 2). All
intercompany accounts and transactions have been eliminated in consolidation.
HALP and consolidated subsidiaries are hereinafter referred to as "the
Partnership."
Securities owned and securities sold, not yet purchased are valued as
follows: securities that are traded on a national securities exchange or
securities listed on the NASDAQ National Market System are valued at the last
sales price on the exchange or market where primarily traded or listed, or if
no last sale, the mean between the "bid" and "ask" prices.
Marketable securities sold, not yet purchased, represent obligations of the
Partnership to deliver a specified security at a future date which will
necessitate purchasing the security at then-prevailing prices.
Investments in limited partnerships are valued at the Investment
Partnership's proportionate interest in the fair value of the underlying net
assets of such limited partnerships determined from their audited financial
statements. The resulting gains and losses are reflected in the accompanying
statements of income.
Securities transactions are accounted for on the trade date (date the order
to buy or sell is executed). Dividend income and expense is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Realized gains and losses from securities transactions are reported on the
first-in, first-out basis.
Assets and liabilities denominated in foreign currencies are translated at
the closing rate of exchange at the end of the period. Transactions during the
period, including purchases and sales of securities, are translated at the
rate of exchange prevailing on the date of the transactions. Forward foreign
currency contracts and foreign currencies are valued at the forward and
current exchange rates, respectively, prevailing on the day of valuation. All
highly liquid investments with a maturity of three months or less at the date
of purchase are considered to be cash equivalents.
Limited partners' contributions received in advance represent amounts
contributed by limited partners in the Consolidated Partnerships prior to
December 31, which are to become effective as of January 1 of the following
year. As of January 1 of the following year, these amounts are classified as
limited partners' interests in Consolidated Partnerships. Limited partners'
withdrawals payable represent limited partners' withdrawals from the
Consolidated Partnerships as of December 31 for those who have given notice
prior to December 31, that they are withdrawing amounts as of year-end.
Depreciation is computed under accelerated methods over estimated useful
lives of 5 to 10 years. Amortization of leasehold improvements is computed
over the lesser of their economic useful lives or the remaining term of the
lease.
13
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
No provision is made for federal income tax purposes since the Partnership's
income is includable in the income tax returns of the individual partners. The
Partnership is subject to an Illinois replacement tax equal to 1 1/2% of net
income, as defined.
2. CONSOLIDATED PARTNERSHIPS:
HALP was the general partner in Venus, a limited partnership which engaged
in "reverse conversion" transactions through early 1993. HALP was the general
partner in Hesperus, a private investment partnership, through December 31,
1993. Also, HALP is currently the general partner in Aurora, Perseus, Pleiades
and Stellar, limited partnerships which trade securities and invest in other
partnerships which trade various financial instruments. Stellar commenced
operations in 1994.
HALP's percentage of capital was approximately 99% of Venus, 3% of Hesperus
and 1% of the other partnerships. HALP received a pro rata allocation of
income or loss in addition to other priority allocations. In certain
instances, the net income of the individual Consolidated Partnerships had to
exceed specified amounts before HALP received such a priority allocation.
The combined condensed financial information of Venus, Hesperus, Aurora,
Perseus, Pleiades and Stellar for each of the three years ended December 31,
1994, 1993 and 1992, are as follows (in thousands of dollars):
1994 1993 1992
---- ---- ----
Assets--
Cash and cash equivalents....................... $ 10,914 $ 64,515 $ 36,573
Receivables..................................... 21,697 26,350 125,755
Securities owned................................ 132,790 184,264 89,349
Investments in and advances to limited partner-
ships.......................................... 405,491 364,747 202,729
Designated investments and other assets......... 5,488 5,973 2,405
-------- -------- --------
Total assets.................................. $576,380 $645,849 $456,811
======== ======== ========
Liabilities--
Loans payable................................... $ 24,340 $ 10,000 $ 3,601
Securities sold, not yet purchased.............. 113,592 81,754 120,532
Other liabilities............................... 5,971 13,299 2,899
Limited partners' contributions received in
advance and withdrawals payable................ 138,159 91,685 37,043
-------- -------- --------
Total liabilities............................. 282,062 196,738 164,075
Partners' capital................................. 294,318 449,111 292,736
-------- -------- --------
Total liabilities and partners' capital....... $576,380 $645,849 $456,811
======== ======== ========
Revenues, including change in unrealized
appreciation (depreciation) of securities........ $(10,159) $105,343 $ 53,944
Expenses, including advisory and administrative
fees to HALP..................................... 9,517 8,732 11,640
-------- -------- --------
Net income (loss)............................. $(19,676) $ 96,611 $ 42,304
======== ======== ========
Carrying value of investments of HALP at December
31............................................... $ 1,380 $ 12,089 $ 19,412
HALP's share of net income exclusive of advisory
and administrative fees paid to HALP............. 716 10,555 6,957
Advisory and administrative (management) fees paid
to HALP.......................................... 3,739 3,690 3,487
======== ======== ========
14
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
3. DUE TO/FROM BROKERS AND DEALERS:
The Partnership conducts its clearing and depository operations for its
trading activities through various brokers pursuant to customary agreements.
Due to/from brokers and dealers includes cash balances with the Partnership's
clearing brokers, net amounts receivable and payable for securities
transactions that have not settled and collateral for a specified percentage
of the value of all marketable securities sold, not yet purchased.
4. INVESTMENTS IN LIMITED PARTNERSHIPS:
The Investment Partnerships have investments in limited partnerships which
engage in various trading strategies. Underlying investments of the limited
partnerships are valued at current market and can include purchases and short
sales of government or government agency securities, corporate stocks and
bonds, commodity futures and forward contracts, options, repurchase and
reverse repurchase agreements, rate caps and rate swaps, commercial paper and
other securities. At December 31, 1994, the Investment Partnerships in the
aggregate had investments in approximately 60 limited partnerships; the
largest investment in any one limited partnership being approximately
$25,000,000.
5. DESIGNATED INVESTMENTS:
One of the Investment Partnerships has invested in certain limited
partnerships, which have allocated, among the partners of such limited
partnerships, a fixed percentage ownership interest in any appreciation or
depreciation and realized gains or losses on disposition of certain
investments, hereinafter referred to as "Designated Investments." Designated
Investments are valued at fair value as determined by the general partners of
such limited partnerships.
Capital consisting of each partner's share of the cost and net unrealized
appreciation or depreciation resulting from designated investments is
segregated within partners' capital of such partnership. The cost of such
investments, as well as related unrealized gains or losses, is not available
for distribution until the investment is sold or otherwise disposed of by the
limited partnership.
6. LINE-OF-CREDIT ARRANGEMENTS:
Certain of the Consolidated Partnerships maintain separate lines of credit
agreements with banks aggregating $59,200,000 at December 31, 1994. Interest
is payable at the prime or corporate base rate, as determined by the bank. The
total borrowings are limited as defined in the agreements, including, among
other things, the borrowings are limited to 33% of the net assets of such
Investment Partnerships. During 1992, HALP had a $20,000,000 line of credit,
the sole purpose of which was to invest in and make advances to Venus. Any
loans thereunder were collateralized by HALP's general partnership interest in
Venus and the guarantee of certain partners of HALP with interest at
approximately 1.5 times the federal funds rate.
The average borrowings on the credit arrangements described above and the
average rate of interest for 1994, 1993 and 1992 were $37,441,000, $23,919,000
and $32,104,000 and 5.6%, 4.6% and 5.1%, respectively.
Interest expense incurred on such lines of credit was $2,157,128, $1,159,932
and $2,069,456 for the years ended December 31, 1994, 1993 and 1992,
respectively.
15
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
7. COMMITMENTS AND CONTINGENCIES:
HALP had a lease for office facilities through 1998 which it renegotiated in
1994. At December 31, 1994, HALP's lease for office facilities requires
minimum annual rental payments, excluding escalations and increases in
operating expenses and taxes, as follows:
Year ending December 31--
1995.......................................................... $ 460,299
1996.......................................................... 517,199
1997.......................................................... 526,237
1998.......................................................... 535,275
1999.......................................................... 544,313
2000 to 2004.................................................. 2,511,067
----------
Total....................................................... $5,094,390
==========
Under the terms of the lease agreements, rental payments for certain periods
were waived. HALP computed an average monthly rental for the entire term of
the lease and charged this amount to rental expense each month. Rental expense
for 1994, 1993 and 1992 was $449,886, $409,174 and $456,998, respectively. The
difference between the average monthly rental and the actual rental payment is
accounted for as deferred rent payable. This difference will be offset in
future years when the actual rental payments exceed the calculated average
monthly rental.
HASLP is an introducing broker and clears all transactions with and for
customers on a fully disclosed basis with another broker-dealer. HASLP
promptly transmits all customer funds and securities to such clearing broker-
dealer. In connection with this arrangement, HASLP is contingently liable for
the payment of securities purchased and the delivery of securities sold by
customers.
8. NET CAPITAL REQUIREMENTS:
As a registered broker-dealer and member of the National Association of
Securities Dealers, Inc., HASLP is subject to the Uniform Net Capital Rule
15c3-1 of the Securities and Exchange Commission ("SEC"). This rule requires
that net capital, as defined, shall be at least the greater of $100,000 or 6-
2/3% of aggregate indebtedness, as defined. Net capital and aggregate
indebtedness change from day to day, but at December 31, 1994, HASLP had
required capital of $100,000 and excess net capital of $158,645. The ratio of
aggregate indebtedness to net capital was .59 to 1. HASLP was in compliance
with the net capital rule at December 31, 1993 and 1992. Under the agreement
with its clearing broker, HASLP is to maintain minimum net capital of
$250,000.
9. EXEMPTION FROM SEC RULE 15C3-3:
HASLP is exempt from the provisions of SEC Rule 15c3-3 because it clears all
customer trades with another broker-dealer on a fully disclosed basis.
10. RELATED PARTIES:
Harris Associates, Inc. ("HAI") is the general partner of HALP and HASLP.
16
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
HALP provides investment advisory and administrative services to Harris
Associates Investment Trust ("HAIT"), a series of mutual funds that utilize
the Oakmark name. Certain of HAIT's officers and trustees are also partners
and employees of HALP. During 1994, 1993 and 1992, HALP received $28,048,203,
$11,289,461 and $613,801, respectively, in fees from HAIT. HASLP received
$272,804, $287,438 and $191,464 in commissions from HAIT during 1994, 1993 and
1992, respectively.
Pursuant to an agreement dated June 30, 1992, certain partners of HALP
withdrew from HALP. In connection with such withdrawal, those partners were
relieved of certain obligations imposed under HALP's Partnership Agreement. As
consideration for being relieved of those obligations, the withdrawing
partners surrendered their partnership units and agreed to pay HALP
approximately $2,500,000 on June 30, 1992, plus additional amounts to be paid
through June 30, 1995. Concurrent with the withdrawal of those partners from
HALP, the investment advisory agreements with The Acorn Fund, Inc. ("Acorn")
and certain other persons were terminated and Acorn and those other persons
entered into new investment advisory agreements with an entity formed by the
withdrawn partners. HALP received $3,384,837, $1,892,432 and $2,739,600 in
1994, 1993 and 1992, respectively, under this agreement. HALP received
$3,377,531 in fees for investment advisory services in the first half of 1992.
11. EMPLOYEE BENEFIT PLAN:
HALP has a profit-sharing plan covering partners and employees.
Contributions to the plan are at the discretion of HALP. HALP funds all
contributions on a current basis. The amounts charged to expense for 1994,
1993 and 1992 were $934,899, $1,035,512 and $879,219, respectively.
12. FORWARD FOREIGN CURRENCY AND FUTURES COMMODITY CONTRACTS:
Certain of the Investment Partnerships, through an advisory account, enter
into forward foreign currency contracts to hedge the currency risks associated
with the purchase of foreign securities. The Investment Partnerships entered
into forward foreign currency contracts to deliver 26,377,000, 11,073,000 and
1,341,000 Canadian dollars in exchange for $19,196,371, $8,419,186 and
$1,056,332 at December 31, 1994, 1993 and 1992, respectively. The unrealized
gain of $391,555, $55,474 and $6,456 at December 31 , 1994, 1993 and 1992,
respectively, is reflected in the accompanying statements of income. The
Investment Partnerships bear the risk of changes in foreign exchange rates and
the risk that the counterparty fails to perform under terms of the contract.
At December 31, 1993 and 1992, Hesperus had sold S&P 500 futures contracts
short with a contractual amount of $24,500,000 and $19,700,000, respectively.
Such contracts were recorded on the trade date and marked to market with the
gain/loss reflected in net realized and unrealized gains (losses) on
securities owned.
13. ADDITIONAL CASH FLOW INFORMATION:
Illinois replacement tax paid was $80,195, $69,780 and $62,781 during 1994,
1993 and 1992, respectively. Interest expense paid was $2,530,716, $1,354,658
and $2,692,935 during 1994, 1993 and 1992, respectively.
14. SUBSEQUENT PARTNERS' CAPITAL WITHDRAWALS:
During the period January 1, 1995, to February 10, 1995, the partners
withdrew capital of $20,404,531.
17
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1994, 1993 AND 1992
15. SUBSEQUENT EVENTS:
On June 22, 1995, New England Investment Companies, L.P. ("NEIC") agreed
with HALP and HAI to acquire certain of the assets and assume certain of the
liabilities of HALP, including its interest in HASLP, in exchange for limited
partnership units of NEIC. It is anticipated that, prior to the closing of the
agreed-upon transaction, the partners of HALP would make substantial capital
withdrawals, leaving HALP with minimal assets.
18
ITEM 7(A)(II) CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS OF HARRIS L.P. AND
SUBSIDIARIES AS OF JUNE 30, 1995 AND 1994
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND 1994
TOGETHER WITH ACCOUNTANTS' REVIEW REPORT
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Harris Associates L.P.:
We have reviewed the accompanying consolidated statements of financial
condition of HARRIS ASSOCIATES L.P. (a Delaware limited partnership) AND
SUBSIDIARIES as of June 30, 1995 and 1994, and the related consolidated
statements of income, partners' capital and cash flows for each of the six-
month periods then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of the Partnership.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above in order for them
to be in conformity with generally accepted accounting principles.
Chicago, Illinois,
August 15, 1995
20
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1995 AND 1994
ASSETS 1995 1994
------ ---- ----
CASH AND CASH EQUIVALENTS............................. $ 11,221,898 $ 22,048,559
RECEIVABLES:
Investment advisory fees............................ 4,317,343 2,683,501
Brokers and dealers (Note 3)........................ 3,323,309 21,974,220
Other............................................... 1,021,165 2,107,105
SECURITIES OWNED (cost of $116,010,732 and
$131,318,413 in 1995 and 1994, respectively)--
Corporate bonds and notes........................... 68,046,472 71,527,535
Government bonds and notes.......................... 2,934,039 --
Preferred stocks.................................... 10,535,095 12,399,931
Common stocks....................................... 17,805,740 18,551,758
Warrants and options................................ 12,570,286 15,919,967
Other............................................... 2,717,876 2,367,790
------------ ------------
114,609,508 120,766,981
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 4).......... 318,049,343 417,370,739
DESIGNATED INVESTMENTS (Note 5)....................... 5,900,978 6,009,660
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at
cost, net of accumulated depreciation of $99,222 and
$85,636, in 1995 and 1994, respectively.............. 760,023 530,279
OTHER ASSETS.......................................... 133,978 127,440
------------ ------------
Total assets...................................... $459,337,545 $593,618,484
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Loans payable (Note 6).............................. $ 18,994,600 $ 41,774,500
Payable to brokers and dealers (Note 3)............. 6,120,720 778,450
Securities sold, not yet purchased (proceeds of
$81,145,914 and $100,755,208 in 1995 and 1994,
respectively)--
Corporate bonds and notes......................... -- 469,666
Governments bonds and notes....................... 671,160 --
Preferred stocks.................................. -- 203,432
Common stocks..................................... 78,008,493 88,207,606
Warrants and options.............................. 191,059 1,283,637
Other............................................. 386,061 --
------------ ------------
79,256,773 90,164,341
Accounts payable and accrued expenses............... 4,103,032 1,867,478
Unearned advisory fees.............................. 419,313 415,812
Consolidated partnerships--
Limited partners' contributions received in ad-
vance............................................ 460,938 5,000,000
Limited partners' withdrawals payable............. 3,196,740 15,571,038
------------ ------------
Total liabilities................................. 112,552,116 155,571,619
LIMITED PARTNERS' INTERESTS IN CONSOLIDATED
PARTNERSHIPS......................................... 335,321,078 426,918,936
PARTNERS' CAPITAL (Notes 8 and 14).................... 11,464,351 11,127,929
------------ ------------
Total liabilities and partners' capital........... $459,337,545 $593,618,484
============ ============
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
21
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
---- ----
REVENUES:
Fees for account supervision and investment advi-
sory services (Note 10) ........................ $ 25,522,182 $ 22,598,462
Commissions (Note 10)............................ 1,555,927 1,662,128
Interest......................................... 3,631,901 2,993,707
Dividends........................................ 1,117,561 553,926
Net realized and unrealized gains (losses) on se-
curities, forwards and futures owned and sold,
not yet purchased............................... 4,720,393 176,496
Equity in earnings (loss) of limited partnerships
(Note 4)........................................ 8,173,204 (16,278,056)
Other (Note 10).................................. 2,001,597 1,775,614
------------ ------------
Total revenues................................. 46,722,765 13,482,277
------------ ------------
EXPENSES:
Employee and partner compensation and benefits
(Note 11)....................................... 4,090,654 4,005,915
Clearing fees.................................... 329,048 403,796
Interest......................................... 1,293,730 1,280,615
Dividends on short stock......................... 772,961 445,643
External investment advisory fees................ 1,359,654 499,698
Communications................................... 321,501 338,349
Occupancy and equipment rental................... 594,264 459,460
Other............................................ 2,211,465 2,246,920
------------ ------------
Total expenses................................. 10,973,277 9,680,396
------------ ------------
Income before limited partners' interest in Con-
solidated Partnerships.......................... 35,749,488 3,801,881
LIMITED PARTNERS' INTEREST IN (GAIN) LOSS OF CON-
SOLIDATED PARTNERSHIPS............................ (12,034,312) 17,137,260
------------ ------------
Net income..................................... $ 23,715,176 $ 20,939,141
============ ============
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
22
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
---- ----
BALANCE, beginning of period........................ $ 23,511,011 $ 28,297,088
Contributions..................................... -- 412,660
Withdrawals....................................... (35,761,836) (38,520,960)
Net income........................................ 23,715,176 20,939,141
------------ ------------
BALANCE, end of period.............................. $ 11,464,351 $ 11,127,929
============ ============
The accompanying accountants' review report and the notes to financial
statements
should be read in conjunction with these statements.
23
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 23,715,176 $ 20,939,141
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization................. 136,638 115,080
Equity in (earnings) loss of partnerships..... (8,173,204) 16,278,056
Limited partners' interest in gain (loss) of
Consolidated Partnerships.................... 12,034,312 (17,137,260)
Decrease in receivables....................... 18,676,164 6,913,995
Decrease in marketable securities............. 13,876,714 63,965,709
Increase in designated investments............ (439,780) (60,580)
(Increase) decrease in investments in limited
partnerships, net............................ 95,615,088 (68,901,576)
Decrease in other assets...................... 64,574 46,089
Increase (decrease) in accounts payable and
accrued expense.............................. 1,918,302 (2,499,697)
Increase (decrease) in securities sold, not
yet purchased................................ (29,716,203) 7,940,716
Increase (decrease) in unearned advisory
fees......................................... (5,730) 38,216
Increase (decrease) in payable to brokers and
dealers...................................... 1,806,049 (8,916,978)
------------- ------------
Net cash provided by operating activities... 129,508,100 18,720,911
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold
improvements................................... (405,011) (118,806)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans............................. 44,636,100 70,601,511
Repayments of loans............................. (49,981,800) (38,827,012)
Consolidated Partnerships--
Increase in limited partners' interests....... 30,349,202 7,034,715
Decrease in limited partners' contributions
received in advance.......................... (17,454,275) (60,854,030)
Increase in limited partners' withdrawals
payable...................................... (117,046,592) (10,259,628)
Capital contributions........................... -- 412,660
Capital withdrawals............................. (35,761,836) (38,520,960)
------------- ------------
Net cash used in financing activities....... (145,259,201) (70,412,744)
------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS............. (16,156,112) (51,810,639)
CASH AND CASH EQUIVALENTS, beginning of period.... 27,378,010 73,859,198
------------- ------------
CASH AND CASH EQUIVALENTS, end of period.......... $ 11,221,898 $ 22,048,559
============= ============
The accompanying accountants' review report and the notes to financial
statements
should be read in conjunction with these statements.
24
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of Harris
Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"), of
which HALP is a 99% limited partner. The consolidated financial statements
also include the following entities over which HALP exercised significant
control as of June 30, 1995 and 1994: Aurora Limited Partnership ("Aurora"),
Perseus Partners Limited Partnership ("Perseus"), Pleiades Partners L.P.
("Pleiades"), Stellar Partners L.P. ("Stellar") and SPA Partners L.P. ("SPA"),
hereinafter referred to as the "Consolidated Partnerships". Statement of
Financial Accounting Standards ("SFAS") No. 94, "Consolidation of All
Majority-Owned Subsidiaries," requires that such entities be consolidated (see
Note 2). All intercompany accounts and transactions have been eliminated in
consolidation. HALP and consolidated subsidiaries are hereinafter referred to
as "the Partnership." See Note 15.
Securities owned and securities sold, not yet purchased are valued as
follows: securities that are traded on a national securities exchange or
securities listed on the NASDAQ National Market System are valued at the last
sales price on the exchange or market where primarily traded or listed, or if
no last sale, the mean between the "bid" and "ask" prices.
Marketable securities sold, not yet purchased, represent obligations of the
Partnership to deliver a specified security at a future date which will
necessitate purchasing the security at then-prevailing prices.
Investments in limited partnerships are valued at the Consolidated
Partnerships' proportionate interest in the fair value of the underlying net
assets of such limited partnerships determined from their financial statements
or other financial data received from such partnerships. The resulting gains
and losses are reflected in the accompanying consolidated statements of
income.
Securities transactions are accounted for on the trade date (date the order
to buy or sell is executed). Dividend income and expense is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Realized gains and losses from securities transactions are reported on the
first-in, first-out basis.
Assets and liabilities denominated in foreign currencies are translated at
the closing rate of exchange at the end of the period. Transactions during the
period, including purchases and sales of securities, are translated at the
rate of exchange prevailing on the date of the transactions. Forward foreign
currency contracts and foreign currencies are valued at the forward and
current exchange rates, respectively, prevailing on the day of valuation.
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
Limited partners' contributions received in advance represent amounts
contributed by limited partners in the Consolidated Partnerships prior to June
30, which are to become effective as of July 1 of the following month. As of
July 1 of the following month, these amounts are classified as limited
partners' interests in Consolidated Partnerships. Limited partners'
withdrawals payable represent limited partners' withdrawals from the
Consolidated Partnerships as of June 30 for those who have given notice prior
to June 30, that they are withdrawing amounts as of June 30.
Depreciation is computed under accelerated methods over estimated useful
lives of 5 to 10 years. Amortization of leasehold improvements is computed
over the lesser of their economic useful lives or the remaining term of the
lease.
25
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1994
No provision is made for federal income tax purposes since the Partnership's
income is includable in the income tax returns of the individual partners. The
Partnership is subject to an Illinois replacement tax equal to 1 1/2% of net
income, as defined.
2. CONSOLIDATED PARTNERSHIPS:
HALP is currently the general partner in Aurora, Perseus, Pleiades, Stellar
and SPA limited partnerships which trade securities and invest in other
partnerships which trade various financial instruments. Stellar commenced
operations in January, 1994, and SPA in January, 1995.
HALP's percentage of capital is approximately 1% of such partnerships. HALP
receives a pro rata allocation of income or loss in addition to other priority
allocations. In certain instances, the net income of the individual
Consolidated Partnerships must exceed specified amounts before HALP receives
such a priority allocation. As this pro rata allocation is determined based
upon calendar year results, HALP has not reflected any such amounts at June
30, 1995 and 1994. At June 30, 1995 and 1994, such amounts are immaterial.
The combined condensed financial information of Aurora, Perseus, Pleiades,
Stellar and SPA as of June 30, 1995 and 1994, and for the six months then
ended, are as follows:
1995 1994
---- ----
Assets--
Cash and cash equivalents........................ $ 5,723,862 $ 16,476,802
Receivables...................................... 4,069,493 22,852,824
Securities owned................................. 114,293,300 120,449,391
Investments in limited partnerships.............. 318,049,343 417,370,739
Designated investments and other assets.......... 5,947,575 6,042,956
------------ ------------
Total assets................................... $448,083,573 $583,192,712
============ ============
Liabilities--
Loans payable.................................... $ 18,994,600 $ 41,774,500
Securities sold, not yet purchased............... 79,256,773 90,164,341
Other liabilities................................ 9,402,120 2,184,978
Limited partners' contributions received in
advance and withdrawals payable................. 3,657,678 20,571,038
------------ ------------
Total liabilities.............................. 111,311,171 154,694,857
Partners' capital.................................. 336,772,402 428,497,855
------------ ------------
Total liabilities and partners' capital........ $448,083,573 $583,192,712
============ ============
Revenues, including change in unrealized
appreciation (depreciation) of securities and gain
(loss) on investments in limited partnerships..... $ 17,421,497 $(12,655,398)
Expenses, including advisory and administrative
fees to HALP...................................... 5,348,048 4,337,988
------------ ------------
Net income (loss).............................. $ 12,073,449 $(16,993,386)
============ ============
Carrying value of investments of HALP at June 30... $ 1,451,324 $ 1,578,919
HALP's share of net income exclusive of advisory
and administrative fees paid to HALP.............. 39,137 143,874
Advisory and administrative (management) fees paid
to HALP........................................... 1,580,410 1,932,201
============ ============
26
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1994
3. DUE TO/FROM BROKERS AND DEALERS:
The Partnership conducts its clearing and depository operations for its
trading activities through various brokers pursuant to customary agreements.
Due to/from brokers and dealers includes cash balances with the Partnership's
clearing brokers, net amounts receivable and payable for securities
transactions that have not settled and collateral for a specified percentage
of the value of all marketable securities sold, not yet purchased.
4. INVESTMENTS IN LIMITED PARTNERSHIPS:
The Consolidated Partnerships have investments in limited partnerships which
engage in various trading strategies. Underlying investments of the limited
partnerships are valued at current market and can include purchases and short
sales of government or government agency securities, corporate stocks and
bonds, commodity futures and forward contracts, options, repurchase and
reverse repurchase agreements, rate caps and rate swaps, commercial paper and
other securities. At June 30, 1995 and 1994, the Consolidated Partnerships in
the aggregate had investments in 63 and 60 limited partnerships, respectively;
the largest investment in any one limited partnership being $15,188,622 and
$24,560,440, respectively.
5. DESIGNATED INVESTMENTS:
One of the Consolidated Partnerships has invested in certain limited
partnerships, which have allocated, among the partners of such limited
partnerships, a fixed percentage ownership interest in any appreciation or
depreciation and realized gains or losses on disposition of certain
investments, hereinafter referred to as "Designated Investments." Designated
Investments are valued at fair value as determined by the general partners of
such limited partnerships.
Capital consisting of each partner's share of the cost and net unrealized
appreciation or depreciation resulting from designated investments is
segregated within partners' capital of such partnership. The cost of such
investments, as well as related unrealized gains or losses, is not available
for distribution until the investment is sold or otherwise disposed of by the
limited partnership.
6. LINE-OF-CREDIT ARRANGEMENTS:
Certain of the Consolidated Partnerships maintain separate lines of credit
agreements with banks aggregating $71,200,000 at June 30, 1995. Interest is
payable at the prime or corporate base rate, as determined by the bank. The
total borrowings are limited as defined in the agreements, including, among
other things, that borrowings are limited to 33% of the net assets of such
Consolidated Partnerships.
The average month-end borrowings on the credit arrangements described above
and the average rate of interest for 1995 and 1994 were $14,977,417 and
$36,020,167 and 7.4% and 5.0%, respectively.
Interest expense incurred on such lines of credit was $516,107 and $870,235
for the six months ended June 30, 1995 and 1994, respectively.
7. COMMITMENTS AND CONTINGENCIES:
HALP had a lease for office facilities through 1998 which it renegotiated in
1994. At June 30, 1995, HALP's lease for office facilities requires minimum
annual rental payments, excluding escalations and increases in operating
expenses and taxes, as follows:
27
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1994
Six months ending December 31, 1995............................ $ 230,000
Year ending December 31--
1996......................................................... 517,000
1997......................................................... 526,000
1998......................................................... 535,000
1999......................................................... 544,000
2000 to 2004................................................. 2,511,000
----------
Total...................................................... $4,863,000
==========
Under the terms of the lease agreements, rental payments for certain periods
were waived. HALP computed an average monthly rental for the entire term of
the lease and charged this amount to rental expense each month. Rental expense
for the six months ended June 30, 1995 and 1994, was $160,504 and $249,632,
respectively. The difference between the average monthly rental and the actual
rental payment is accounted for as deferred rent payable. This difference will
be offset in future years when the actual rental payments exceed the
calculated average monthly rental.
HASLP is an introducing broker and clears all transactions with and for
customers on a fully disclosed basis with another broker-dealer. HASLP
promptly transmits all customer funds and securities to such clearing broker-
dealer. In connection with this arrangement, HASLP is contingently liable for
the payment of securities purchased and the delivery of securities sold by
customers.
8. NET CAPITAL REQUIREMENTS:
As a registered broker-dealer and member of the National Association of
Securities Dealers, Inc., HASLP is subject to the Uniform Net Capital Rule
15c3-1 of the Securities and Exchange Commission ("SEC"). This rule requires
that net capital, as defined, shall be at least the greater of $100,000 or 6
2/3% of aggregate indebtedness, as defined. Net capital and aggregate
indebtedness change from day to day, but at June 30, 1995, HASLP had required
capital of $100,000 and excess net capital of $154,269. The ratio of aggregate
indebtedness to net capital was less than 1 to 1. HASLP was in compliance with
the net capital rule at June 30, 1994. Under the agreement with its clearing
broker, HASLP is to maintain minimum net capital of $250,000.
9. EXEMPTION FROM SEC RULE 15C3-3:
HASLP is exempt from the provisions of SEC Rule 15c3-3 because it clears all
customer trades with another broker-dealer on a fully disclosed basis.
10. RELATED PARTIES:
Harris Associates, Inc. ("HAI") is the general partner of HALP and HASLP.
HALP provides investment advisory and administrative services to Harris
Associates Investment Trust ("HAIT"), a series of mutual funds that utilize
the Oakmark name. Certain of HAIT's officers and trustees are also partners
and employees of HALP. During the six months ended June 30, 1995 and 1994,
HALP received $14,579,196 and $13,693,992, respectively, in fees from HAIT.
HASLP received $128,354 and $102,697 in commissions from HAIT through June 30,
1995 and 1994, respectively.
28
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1995 AND 1994
Pursuant to an agreement dated June 30, 1992, certain partners of HALP
withdrew from HALP. In connection with such withdrawal, those partners were
relieved of certain obligations imposed under HALP's Partnership Agreement. As
consideration for being relieved of those obligations, the withdrawing
partners surrendered their partnership units and agreed to pay HALP
approximately $2,500,000 on June 30, 1992, plus additional amounts to be paid
for the period through June 30, 1995. Concurrent with the withdrawal of those
partners from HALP, the investment advisory agreements with The Acorn Fund,
Inc. ("Acorn") and certain other persons were terminated and Acorn and those
other persons entered into new investment advisory agreements with an entity
formed by the withdrawn partners. HALP received $1,724,291 and $1,605,779 in
the six months ended June 30, 1995 and 1994, respectively, under this
agreement.
11. EMPLOYEE BENEFIT PLAN:
HALP has a profit-sharing plan covering partners and employees.
Contributions to the plan are at the discretion of HALP. HALP funds all
contributions on a current basis. The amounts charged to expense for the six
months ended June 30, 1995 and 1994, were $475,917 and $454,739, respectively.
12. FORWARD FOREIGN CURRENCY CONTRACTS:
Certain of the Consolidated Partnerships, through an advisory account, enter
into forward foreign currency contracts to hedge the currency risks associated
with the purchase of foreign securities. The Consolidated Partnerships entered
into forward foreign currency contracts to deliver 8,985,000 and 33,773,000
Canadian dollars in exchange for $6,298,038 and $24,817,849, at June 30, 1995
and 1994, respectively. The unrealized gain (loss) of $(216,987) and $487,618
at June 30, 1995 and 1994, respectively, is reflected in the accompanying
consolidated statements of income. The Consolidated Partnerships bear the risk
of changes in foreign exchange rates and the risk that the counterparty fails
to perform under terms of the contract.
13. ADDITIONAL CASH FLOW INFORMATION:
Illinois replacement tax paid was $51,000 and $75,000 during the six months
ended June 30, 1995 and 1994, respectively. Interest expense paid was
$1,047,430 and $1,279,869 during the six months ended June 30, 1995 and 1994,
respectively.
14. SUBSEQUENT PARTNERS' CAPITAL WITHDRAWALS:
During the period July 1, 1995, to August 15, 1995, the partners withdrew
capital of $854,861.
15. SUBSEQUENT EVENTS:
On June 22, 1995, New England Investment Companies, L.P. ("NEIC") agreed
with HALP and HAI to acquire certain of the assets and assume certain of the
liabilities of HALP, including its interest in HASLP, in exchange for limited
partnership units of NEIC. It is anticipated that, prior to the closing of the
agreed-upon transaction, the partners of HALP would make substantial capital
withdrawals, leaving HALP with minimal assets.
Under a new advisory agreement entered into with the Oakmark Funds (as HAIT)
the investment advisory fees have been reduced from 1% of net assets under
management to 1% for the first $2.5 billion, .95% on the next $1.25 billion,
.90% on the next $1.25 billion and .85% on net assets in excess of $5 billion
for Oakmark Fund. The annual rate of fee for Oakmark International will be 1%
on the first $2.5 billion, .95% on the next
29
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
JUNE 30, 1995 AND 1994
$2.5 billion and .90% on net assets in excess of $5 billion. Had the new
advisory agreement been in effect in 1994, the fees received in the six-months
ended June 30, 1995 and 1994, would have remained the same.
In July, 1995, the Partnership Agreements of each of the Consolidated
Partnerships (Aurora, Perseus, Pleiades, Stellar and SPA) were amended. The
amendments were such that they reduced the amount of control that HALP
exercised over each of the Consolidated Partnerships. Although the
accompanying financial statements have been prepared, including the
Consolidated Partnerships, these amendments are such that had they been in
effect as of June 30, 1995, the consolidated financial statements of HALP
would have reflected such entities on the equity basis of accounting rather
than on a full consolidation basis and only HASLP would have been
consolidated.
The consolidated financial statements of HALP and HASLP without
consolidating Aurora, Perseus, Pleiades, Stellar and SPA at June 30, 1995 and
1994, and for each of the six months then ended are as follows:
1995 1994
---- ----
Assets--
Cash and cash equivalents............................ $ 5,498,036 $ 5,571,757
Receivables.......................................... 4,874,547 4,234,646
U.S. Government securities and commercial paper...... 316,208 317,590
Investments in Aurora, Perseus, Pleiades, Stellar and
SPA................................................. 1,451,324 1,578,919
Other assets......................................... 847,401 624,423
----------- -----------
Total assets....................................... $12,987,516 $12,327,335
=========== ===========
Liabilities--
Accounts payable and accrued expenses................ 1,103,852 783,594
Unearned advisory fees............................... 419,313 415,812
----------- -----------
Total liabilities.................................. 1,523,165 1,199,406
Partners' capital...................................... 11,464,351 11,127,929
----------- -----------
Total liabilities and partners' capital............ $12,987,516 $12,327,335
=========== ===========
Revenues--
Fees for account supervisor and investment advisory
services............................................ $27,102,592 $24,530,663
Commissions.......................................... 1,555,927 1,662,128
Interest............................................. 193,119 102,447
Dividends............................................ 36,431 4,757
Equity in earnings of limited partnerships........... 39,137 143,874
Other................................................ 1,993,609 1,769,882
----------- -----------
Total revenues..................................... 30,920,815 28,213,751
Expenses--
Employee and partner compensation and benefits....... 4,090,654 4,005,915
Clearing fees........................................ 329,048 403,796
Communications....................................... 321,501 338,349
Occupancy and equipment rental....................... 594,264 459,460
Other................................................ 1,870,172 2,067,090
----------- -----------
Total expenses..................................... 7,205,639 7,274,610
----------- -----------
Net income......................................... $23,715,176 $20,939,141
=========== ===========
30
ITEM 7(B) PRO FORMA FINANCIAL INFORMATION OF NEW ENGLAND INVESTMENT COMPANIES,
L.P.
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
as of and for the six months ended June 30, 1995 and for the year ended
December 31, 1994 is based on the historical financial statements of NEIC
included in its 1994 Annual Report on Form 10-K and the June 30, 1995
Quarterly Report on Form 10-Q, and the historical financial statements of
Harris as of June 30, 1995, the six months ended June 30, 1995 and the year
ended December 31, 1994. The pro forma financial information gives effect to
the purchase of substantially all of the assets and the acquisition of certain
liabilities of Harris, as described in the Partnership Admission Agreement
dated June 22, 1995 and the amendment thereto dated September 27, 1995
(together, the "Agreement").
The pro forma Balance Sheet as of June 30, 1995 has been prepared as though
the acquisition of Harris had taken place on June 30, 1995 and the pro forma
Statements of Operations for the six months ended June 30, 1995 and the year
ended December 31, 1994 have been prepared as though the acquisition had taken
place as of January 1, 1994. These pro forma financial statements and notes
thereto should be read in conjunction with the historical financial statements
of NEIC and Harris as described above.
NEIC purchased substantially all of the assets and acquired certain
liabilities of Harris for $175.0 million payable in 5,366,898 of newly issued
L.P. units totaling $95.3 million and promissory notes due January 10, 1996
(the "Notes") in the aggregate amount of $79.7 million. The L.P. unit price of
$17.75 was determined at market value under a formula as set forth in the
Agreement. The Notes are secured by an $80.0 million letter of credit. Payment
upon maturity is expected to be financed with a privately placed seven-year
financing.
Pursuant to the Agreement, NEIC expects to make a contingent payment on
April 2, 1997, also in L.P. units, cash or a combination thereof as a purchase
price adjustment based upon the performance of Harris' business in 1996. The
minimum contingent payment is expected to approximate $35.0 million based upon
Harris' projected 1995 qualifying revenues as defined in the Agreement. This
estimated payment will be made in a combination of cash and L.P. units based
on selection by the seller's partners.
The pro forma financial information does not necessarily reflect the results
that would have been obtained had the acquisition occurred on the assumed
dates, nor is the pro forma financial information necessarily indicative of
the results of the combined entities that may be achieved for any future
period.
31
ITEM 7(B)(I) UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF NEW
ENGLAND INVESTMENT COMPANIES, L.P. AS OF JUNE 30, 1995
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)
HARRIS BALANCE SHEET
-------------------------------- OTHER
PRO FORMA ADJUSTED PRO FORMA PRO FORMA
NEIC HARRIS ADJUSTMENTS(A) HARRIS SUBTOTAL ADJUSTMENTS COMBINED
---- ------ -------------- -------- -------- ----------- ---------
ASSETS
------
Current Assets:
Cash and cash
equivalents........... $ 11,924 $ 11,222 $ (8,726) $2,496 $ 14,420 $ 14,420
Accounts receivable and
other................. 49,822 8,661 (8,214) 447 50,269 50,269
Receivable from
securities sale....... 39,381 39,381 39,381
Securities held for
trading............... 114,610 (114,610)
-------- -------- --------- ------ -------- --------
Total current assets... 101,127 134,493 (131,550) 2,943 104,070 104,070
Prepaid pension costs... 17,658 17,658 17,658
Net fixed assets........ 16,104 760 317 1,077 17,181 17,181
Intangible assets....... 144,543 144,543 $213,417 (b) 357,960
Investment in limited
partnerships........... 318,049 (316,649) 1,400 1,400 1,400
Other noncurrent
assets................. 35,826 6,035 (5,669) 366 36,192 950 (f) 37,142
-------- -------- --------- ------ -------- -------- --------
Total assets........... $315,258 $459,337 $(453,551) $5,786 $321,044 $214,367 $535,411
======== ======== ========= ====== ======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Accounts payable and
accrued expenses...... $ 38,017 $ 14,300 $ (11,997) $2,303 $ 40,320 $ 5,850 (b)(f) $ 46,170
Distributions payable.. 14,071 14,071 14,071
Securities sold under
agreement to
repurchase............ 30,495 30,495 30,495
Securities sold not yet
purchased............. 79,257 (79,257)
Loan payable........... 18,995 (16,995) 2,000 2,000 2,000
-------- -------- --------- ------ -------- -------- --------
Total current
liabilities........... 82,583 112,552 (108,249) 4,303 86,886 5,850 92,736
Deferred compensation,
benefits and other..... 16,678 16,678 16,678
Promissory notes........ 79,738 (d) 79,738
Deferred purchase
consideration.......... 35,000 (e) 35,000
-------- -------- --------- ------ -------- -------- --------
Total liabilities...... 99,261 112,552 (108,249) 4,303 103,564 120,588 224,152
-------- -------- --------- ------ -------- -------- --------
Limited partners'
interest in
consolidated
partnerships........... 335,321 (335,321)
Total partners' capital
-- NEIC................ 215,997 215,997 95,262 (c) 311,259
-- Harris........ 11,464 (9,981) 1,483 1,483 (1,483)(g)
-------- -------- --------- ------ -------- -------- --------
Total liabilities and
partners' capital...... $315,258 $459,337 $(453,551) $5,786 $321,044 $214,367 $535,411
======== ======== ========= ====== ======== ======== ========
See accompanying notes to pro forma condensed combined financial information.
32
ITEM 7(B)(II) UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF
NEW ENGLAND INVESTMENT COMPANIES, L.P. FOR THE SIX MONTHS ENDED JUNE
30, 1995
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA)
HARRIS STATEMENT OF OPERATIONS
--------------------------------- OTHER
PRO FORMA ADJUSTED PRO FORMA PRO FORMA
NEIC HARRIS ADJUSTMENTS(A) HARRIS SUBTOTAL ADJUSTMENTS COMBINED
---- ------ -------------- -------- -------- ----------- ---------
Revenues:
Management and advisory
fees.................. $105,505 $ 25,522 $ 1,580 $27,102 $132,607 $132,607
Other revenues......... 22,264 21,201 (19,107) 2,094 24,358 24,358
Gain on partial sale of
affiliate............. 4,712 4,712 4,712
-------- -------- -------- ------- -------- --------
132,481 46,723 (17,527) 29,196 161,677 161,677
-------- -------- -------- ------- -------- --------
Expenses:
Compensation and
benefits.............. 59,610 4,090 4,090 63,700 $ 10,020(h) 73,720
Restricted unit plan
compensation.......... 2,942 2,942 2,942
Amortization of
intangibles........... 5,480 5,480 7,114(b) 12,594
Other.................. 37,115 6,832 (3,768) 3,064 40,179 2,910(d) 43,089
-------- -------- -------- ------- -------- -------- --------
105,147 10,922 (3,768) 7,154 112,301 20,044 132,345
-------- -------- -------- ------- -------- -------- --------
Income before income
taxes and before
minority interest...... 27,334 35,801 (13,759) 22,042 49,376 (20,044) 29,332
Limited partners'
minority interest in
consolidated
partnerships' gain..... (12,034) 12,034
-------- -------- -------- ------- -------- -------- --------
Income before taxes..... 27,334 23,767 (1,725) 22,042 49,376 (20,044) 29,332
Provision for income
taxes.................. 625 51 51 676 676
-------- -------- -------- ------- -------- -------- --------
Net income.............. $ 26,709 $ 23,716 $ (1,725) $21,991 $ 48,700 $(20,044) $ 28,656
======== ======== ======== ======= ======== ======== ========
Net income.............. $ 26,709 $ 28,656
Restricted unit plan
compensation........... 2,942 2,942
-------- --------
Income available for
proportionate
allocation............. $ 29,651 $ 31,598
======== ========
Income allocated to:
Public limited
partners.............. $ 3,102 $ 2,713
Principal unitholders-
limited partners...... 23,505 25,854
General partner........ 102 89
-------- --------
$26,709 $ 28,656
======== ========
Primary and fully
diluted income per
publicly held L.P.
Unit................... $ 0.93 $ 0.81
======== ========
Weighted average partner
units outstanding:
Public limited
partners.............. 3,349 3,349 3,349
Principal unitholders-
limited partners...... 28,531 28,531 7,014(c)(e) 35,545
General partner........ 110 110 110
-------- -------- -------- --------
31,990 31,990 7,014 39,004
======== ======== ======== ========
See accompanying notes to pro forma condensed combined financial information.
33
ITEM 7(B)(III) UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
OF NEW ENGLAND INVESTMENT COMPANIES, L.P. FOR THE YEAR ENDED
DECEMBER 31, 1994
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER UNIT DATA)
HARRIS STATEMENT OF OPERATIONS
-------------------------------- OTHER
PRO FORMA ADJUSTED PRO FORMA PRO FORMA
NEIC HARRIS ADJUSTMENTS(A) HARRIS SUBTOTAL ADJUSTMENTS COMBINED
---- ------ -------------- -------- -------- ----------- ---------
Revenues:
Management and advisory
fees.................. $199,488 $47,244 $ 3,739 $50,983 $250,471 $250,471
Other revenues......... 29,800 (2,867) 6,744 3,877 33,677 33,677
Gain on partial sale of
affiliate............. 4,746 4,746 4,746
-------- ------- -------- ------- -------- --------
234,034 44,377 10,483 54,860 288,894 288,894
-------- ------- -------- ------- -------- --------
Expenses:
Compensation and
benefits.............. 108,286 9,448 9,448 117,734 $ 17,128(h) 134,862
Restricted unit plan
compensation.......... 7,187 7,187 7,187
Amortization of
intangibles........... 10,961 10,961 14,228(b) 25,189
Mutual fund charge..... 15,300 15,300 15,300
Other.................. 62,275 12,152 (6,522) 5,630 67,905 5,820(d) 73,725
-------- ------- -------- ------- -------- -------- --------
204,009 21,600 (6,522) 15,078 219,087 37,176 256,263
-------- ------- -------- ------- -------- -------- --------
Income before income
taxes and before
minority interest...... 30,025 22,777 17,005 39,782 69,807 (37,176) 32,631
Limited partners'
minority interest in
consolidated
partnerships' loss..... 20,393 (20,393)
-------- ------- -------- ------- -------- -------- --------
Income before taxes..... 30,025 43,170 (3,388) 39,782 69,807 (37,176) 32,631
Provision for income
taxes.................. 1,100 164 (3) 161 1,261 1,261
-------- ------- -------- ------- -------- -------- --------
Net income.............. $ 28,925 $43,006 $ (3,385) $39,621 $ 68,546 $(37,176) $ 31,370
======== ======= ======== ======= ======== ======== ========
Net income.............. $ 28,925 $ 31,370
Restricted unit plan
compensation........... 7,187 7,187
-------- --------
Income available for
proportionate
allocation............. $ 36,112 $ 38,557
======== ========
Income allocated to:
Public limited
partners.............. $ 3,437 $ 3,010
Principal unitholders-
limited partners...... 25,363 28,251
General partner........ 125 109
-------- --------
$ 28,925 $ 31,370
======== ========
Primary and fully
diluted income per
publicly held L.P.
Unit................... $ 1.13 $ 0.99
======== ========
Weighted average partner
units outstanding:
Public limited
partners.............. 3,045 3,045 3,045
Principal unitholders-
limited partners...... 28,837 28,837 7,014(c)(e) 35,851
General partner........ 110 110 110
-------- -------- -------- --------
31,992 31,992 7,014 39,006
======== ======== ======== ========
See accompanying notes to pro forma condensed combined financial information.
34
ITEM 7(B) PRO FORMA INFORMATION FOR NEW ENGLAND INVESTMENTS COMPANIES, L.P.
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
PRO FORMA ADJUSTMENTS
Pro Forma Adjustments
---------------------
(a) Certain pro forma adjustments have been made to Harris' historical
balance sheet and statements of operations as follows:
(i) to present Harris' limited partnership investments under the equity
method of accounting (previously the partnerships did not allow Harris to
be replaced as general partner and therefore the equity method was not
available; the partnership agreements were amended to allow this result in
July 1995),
(ii) to reflect the purchase of substantially all of the assets and the
assumption of certain liabilities of Harris at September 29, 1995, and
(iii) to exclude certain non-recurring revenues.
(b) The intangible asset of approximately $213.4 million arising from the
acquisition of Harris represents the excess of the purchase price over the net
tangible assets acquired. The intangible asset includes the initial purchase
price of Harris of $175.0 million, the minimum estimated contingent payment of
$35.0 million, described in (e) below, $4.9 million of acquisition related
costs, less the net tangible assets acquired of $1.5 million. Amortization of
the intangible asset is based on an estimated life of 15 years, pending the
results of a valuation study which is in process.
(c) L.P. units totaling $95.3 million or 5,366,898 L.P. units at $17.75 per
L.P. unit were issued on September 29, 1995 based on the $175.0 million
initial payment less the $79.7 million of promissory notes described in (d)
below. The L.P. unit price of $17.75 was determined at market value under a
formula as set forth in the Agreement. These L.P. units have been included in
the calculation of pro forma earnings per unit.
(d) Promissory notes totaling $79.7 million were issued by NEIC to certain
Harris partners and mature in January 1996. At that time, the Notes are
expected to be paid from the proceeds of a privately placed financing with a
seven-year maturity. The pro forma statements of operations reflect an assumed
interest expense at the all-in rate of 7.30% for the anticipated privately
placed financing.
(e) The minimum estimated contingent payment of $35.0 million, based upon
the performance of Harris' business in 1996, has been recorded as deferred
purchase consideration. Pro forma earnings per unit assumes that all the
partners will elect to receive their 1997 contingent payment in L.P. units.
Based on the closing unit price of $21.25 at September 29, 1995, an additional
1,647,000 L.P. units are presumed to be issued in 1997.
(f) Deferred financing charges totaling $950,000 related to the anticipated
privately placed financing, described in (d) above, have been recorded as a
non-current asset and will be amortized using the level yield method over the
seven-year term of the financing.
(g) Harris' partners' capital of $1.5 million is eliminated in
consolidation.
(h) Compensation expense has been adjusted based on the terms of the
Agreement.
35