1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
Commission file number 1-11123
THE JOHN NUVEEN COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3817266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 917-7700
NO CHANGES
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At May 5, 2000 there were 31,286,506 shares of the Company's Common Stock
outstanding, consisting of 6,844,768 shares of Class A Common Stock, $.01 par
value, and 24,441,738 shares of Class B Common Stock, $.01 par value.
2
THE JOHN NUVEEN COMPANY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited),
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited), Three Months Ended March 31, 2000 5
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements
(Unaudited) 7
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1 through Item 6 17
Signatures 18
(2)
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
THE JOHN NUVEEN COMPANY
Consolidated Balance Sheets
Unaudited
(in thousands, except share data)
2000 1999
--------- ---------
ASSETS
Cash and cash equivalents $ 14,881 $ 27,422
Management and distribution fees receivable 93,913 68,884
Other receivables 65,729 54,466
Securities owned (trading account), at market value:
Nuveen defined portfolios 64,269 44,263
Bonds and notes 636 579
Deferred income tax asset, net 4,924 5,826
Furniture, equipment, and leasehold improvements, at cost less accumulated depreciation
and amortization of $30,835 and $29,610, respectively 16,790 14,547
Other investments 83,666 86,725
Goodwill, at cost less accumulated amortization of $20,237 and $18,426, respectively 200,006 198,674
Prepaid expenses and other assets 41,160 39,579
--------- ---------
$ 585,974 $ 540,965
========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Short-term loans $ 2,000 $ --
Accrued compensation and other expenses 29,942 52,421
Deferred compensation 29,369 32,278
Security purchase obligations 10,297 296
Other liabilities 71,104 64,908
--------- ---------
Total liabilities 142,712 149,903
--------- ---------
Redeemable preferred stock, at redemption value; 5,000,000 shares
authorized, 1,800,000 shares issued 45,000 45,000
Minority interest - Rittenhouse Class B stock 32,685 --
--------- ---------
Common stockholders' equity:
Class A Common stock, $.01 par value; 150,000,000 shares
authorized, 14,212,618 shares issued 142 142
Class B Common stock, $.01 par value; 40,000,000 shares
authorized, 24,441,738 shares issued 245 245
Additional paid-in capital 62,835 60,380
Retained earnings 519,856 506,136
Accumulated other comprehensive income 304 189
--------- ---------
583,382 567,092
Less common stock held in treasury, at cost (7,411,300 and 7,591,180 shares, respectively) (217,805) (221,030)
--------- ---------
Total common stockholders' equity 365,577 346,062
--------- ---------
$ 585,974 $ 540,965
========= =========
See accompanying notes to consolidated financial statements.
(3)
4
THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in thousands, except per share data)
Three Months Ended
MARCH 31,
-------------------
2000 1999
---- ----
Operating Revenues:
Investment advisory fees from assets under management $ 75,995 $ 73,041
Underwriting and distribution of investment products 14,448 5,493
Positioning profits 1,165 (198)
Investment banking -- 2,109
Other operating revenue 933 449
-------- --------
Total operating revenues 92,541 80,894
Operating Expenses:
Compensation and benefits 24,254 22,393
Advertising and promotional costs 11,653 5,623
Occupancy and equipment costs 3,512 3,125
Amortization of goodwill and deferred offering costs 2,188 3,471
Travel and entertainment 2,760 2,200
Other operating expenses 7,444 7,268
-------- --------
Total operating expenses 51,811 44,080
Operating Income 40,730 36,814
Non-Operating Income/(Expense) 2,599 1,371
-------- --------
Income before taxes 43,329 38,185
Income taxes 17,223 14,784
-------- --------
Net income $ 26,106 $ 23,401
======== ========
Average common and common equivalent shares outstanding:
Basic 31,170 31,365
======== ========
Diluted 33,609 34,243
======== ========
Earnings per common share:
Basic $ 0.82 $ 0.73
======== ========
Diluted $ 0.78 $ 0.68
======== ========
See accompanying notes to consolidated financial statements.
(4)
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THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
UNAUDITED
(IN THOUSANDS)
Class A Class B Additional Other
Common Common Paid-In Retained Comprehensive Treasury
Stock Stock Capital Earnings Income Stock Total
----------- ----------- ------------ ----------- ---------------- ------------- -------------
Balance at December 31, 1999 $ 142 $ 245 $ 60,380 $ 506,136 $ 189 (221,030) $ 346,062
Net income 26,106 26,106
Cash dividends paid (9,586) (9,586)
Issuance of earnout shares 392 1,847 2,239
Purchase of treasury stock (11,095) (11,095)
Exercise of stock options (2,536) 10,388 7,852
Other 2,063 (264) 115 2,085 3,999
----------- ----------- ------------ ----------- ---------------- ------------- -------------
Balance at March 31, 2000 $ 142 $ 245 $ 62,835 $ 519,856 $ 304 (217,805) $ 365,577
See accompanying notes to consolidated financial statements.
(5)
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THE JOHN NUVEEN COMPANY
Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Three Months
Ended March 31,
--------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 26,106 $ 23,401
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Deferred income taxes 902 (2,507)
Depreciation of Fixed Assets 1,235 1,274
Amortization of Goodwill 1,810 1,787
Net (increase) decrease in assets:
Temporary invesments arising from remarketing obligations -- 65,955
Management and distribution fees receivable (25,029) (8,985)
Other receivables (11,263) (11)
Nuveen defined portfolios (20,006) (2,489)
Bonds and notes (57) (775)
Prepaid expenses and other assets (1,581) (1,144)
Net increase (decrease) in liabilities:
Accrued compensation and other expenses (22,479) (23,800)
Deferred compensation (2,909) 2,322
Security purchase obligations 10,001 (449)
Other liabilities 6,196 25,290
Other 2,062 374
-------- --------
Net cash provided from operating activities (35,012) 80,243
-------- --------
Cash flows from financing activities:
Net (payments) receipts on short-term borrowings: 2,000 (10,000)
Dividends paid (9,586) (8,704)
Proceeds from stock options exercised 7,852 866
Proceeds from Rittenhouse stock options exercised 32,685 --
Acquisition of treasury stock (11,095) (3,760)
Other -- (109)
-------- --------
Net cash provided from (used for) financing activities 21,856 (21,707)
-------- --------
Cash flows from investing activities:
Purchase of office furniture and equipment (3,477) (625)
Other investments 3,059 291
Other 1,033 (723)
-------- --------
Net cash provided from (used for) investing activities 615 (1,057)
-------- --------
Increase/(decrease) in cash and cash equivalents (12,541) 57,479
Cash and cash equivalents:
Beginning of year 27,422 11,148
-------- --------
End of year $ 14,881 $ 68,627
-------- --------
Supplemental information:
Taxes paid 4,245 1,213
Interest paid 1,781 220
See accompanying notes to consolidated financial statements.
(6)
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THE JOHN NUVEEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The John
Nuveen Company and its wholly owned subsidiaries ("the Company"), and
have been prepared in conformity with generally accepted accounting
principles.
These financial statements rely, in part, on estimates. In the opinion
of management, all necessary adjustments (consisting of normal
recurring accruals) have been reflected for a fair presentation of the
results of operations, financial position and cash flows in the
accompanying unaudited consolidated financial statements. The results
for the period are not necessarily indicative of the results to be
expected for the entire year.
Certain amounts in the prior period financial statements have been
reclassified to correspond to the 2000 presentation. These
reclassifications have no effect on net income or retained earnings as
previously reported for those periods.
NOTE 2 EARNINGS PER COMMON SHARE
The following table sets forth a reconciliation of net income and
common shares used in the basic and diluted earnings per share
computations for the three month period ended March 31, 2000.
- --------------------------------------------------------------------------------------------------
In thousands, For the three months ended
except per share data March 31, 2000 March 31, 1999
- --------------------------------------------------------------------------------------------------
Net Per-share Net Per-share
income Shares amount income Shares amount
- --------------------------------------------------------------------------------------------------
Net income $ 26,106 $ 23,401
Less: Preferred stock dividends (563) (563)
Basic EPS 25,543 31,170 $ .82 22,838 31,365 $ .73
Dilutive effect of:
Deferred stock -- 104 -- 176
Employee stock options -- 685 -- 1,052
Assumed conversion of
preferred stock 563 1,650 563 1,650
-------- -------- -------- --------
Diluted EPS $ 26,106 33,609 $ .78 $ 23,401 34,243 $ .68
- --------------------------------------------------------------------------------------------------
Options to purchase 2,460,624 and 86,500 shares of the Company's common
stock were outstanding at March 31, 2000 and 1999, respectively, but
were not included in the computation of diluted earnings per share
because the options' respective weighted average exercise prices of
$37.69 and $41.57 per share were greater than the average market price
of the Company's common shares during the applicable period.
NOTE 3 NET CAPITAL REQUIREMENT
John Nuveen & Co. Incorporated, the Company's wholly owned
broker/dealer subsidiary, is subject to the Securities and Exchange
Commission Rule 15c3-1, the "Uniform Net Capital Rule", which requires
the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, as these terms are defined,
shall not exceed 15 to 1. At March 31, 2000 its net capital ratio was
4.95 to 1 and its net capital was $15,906,000 which is $10,661,000 in
excess of the required net capital of $5,245,000
(7)
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NOTE 4 NOTES PAYABLE
On August 8, 1997 the Company entered into a revolving credit facility with a
group of banks that extends through August 2000. As of March 30, 2000 $160
million is available under this committed credit line.
NOTE 5 COMMITMENTS AND CONTINGENCIES
The Company's broker-dealer subsidiary has received inquiries as part of an
industry wide investigation from NASD Regulation, Inc. regarding the pricing of
government securities sold to escrow accounts to advance refund municipal
issues in connection with the broker-dealer's activities as a municipal
underwriter. Management believes that the Company has established a sufficient
reserve to cover its potential liability relating to such inquiries and that any
additional liability beyond such reserve would not have a material adverse
effect on the Company's financial condition or results of operation. The Company
exited the municipal underwriting business in the third quarter of 1999.
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9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2000
DESCRIPTION OF THE BUSINESS
- ---------------------------
The Company's principal businesses are asset management and related research as
well as the development, marketing, and distribution of investment products and
services that serve the affluent and high-net-worth market segments. The Company
distributes its investment products, including mutual funds, exchange-traded
funds, defined portfolios (unit trusts), and individually managed accounts
through registered representatives associated with unaffiliated firms including
broker-dealers, commercial banks, affiliates of insurance providers, financial
planners, accountants, consultants and investment advisors.
The Company provides consultative services to financial advisors with a primary
focus on managing assets for fee-based customers and structured investment
services for transaction based advisors. The financial advisors supported by the
Company serve affluent and high-net-worth investors.
The Company's primary business activities generate two principal sources of
revenue: (1) ongoing advisory fees earned on assets under management, including
mutual funds, exchange-traded funds, and individually managed accounts; (2)
distribution revenue earned upon the sale of defined portfolio and mutual fund
products.
Sales of the Company's products, and their profitability, are directly affected
by many variables, including investor preferences for equity, fixed-income or
other investments, the availability and attractiveness of competing products,
market performance, changes in interest rates, inflation, and income tax rates
and laws.
Assets under management include equity, fixed-income and floating-rate
portfolios. Municipal securities represented 66% of assets under management in
managed funds and accounts on March 31, 2000, compared with 69% on March 31,
1999.
(9)
10
SUMMARY OF OPERATING RESULTS
The following table compares key operating information of the Company for the
first quarters of 1999 and 2000.
- --------------------------------------------------------------------------------
Financial Results Summary
($ in millions, except per share amounts)
- --------------------------------------------------------------------------------
Quarter ended March 31, 2000 1999 % change
---- ---- --------
Gross sales of investment products $3,177 $3,163 -
Assets under management (1) 59,965 57,315 5
Operating revenues 92.5 80.9 14
Operating expenses 51.8 44.1 17
Pretax operating income 43.3 38.2 13
Net income 26.1 23.4 12
Basic earnings per share .82 .73 12
Diluted earnings per share .78 .68 15
Dividends per share .29 .26 12
- --------------------------------------------------------------------------------
(1) At period end, excludes approximately $11 billion of defined portfolio
product assets under surveillance.
Gross sales of investment products for the first quarter reached approximately
$3.2 billion which was consistent with sales for the first quarter of 1999.
Assets under management increased $2.7 billion to $60.0 billion at March 31,
2000 from $57.3 billion at March 31, 1999.
Operating revenues for the period ended March 31, 2000, increased 14% from the
prior year primarily due to higher advisory fee and distribution revenue.
Advisory fees earned on managed accounts and exchange-traded funds increased due
to higher average assets under management, while distribution revenue increases
were the result of increased sales of both equity and municipal defined
portfolios.
Operating expenses for the first quarter of 2000 increased when compared with
the same quarter of 1999 due to an increase in advertising and promotional costs
and higher salary and benefit costs.
RESULTS OF OPERATIONS
- ---------------------
The following discussion and analysis contains important information that should
be helpful in evaluating the Company's results of operations and financial
condition, and should be read in conjunction with the consolidated financial
statements and related notes.
Total advisory fee income earned during any period is directly related to the
market value of the assets managed by the Company. Advisory fee income will
increase with a rise in the level of assets under management. Assets under
management rise with the sale of fund shares, the addition of new managed
(10)
11
accounts or deposits into existing managed accounts, the acquisition of assets
under management from other advisory companies, or through increases in the
value of portfolio investments. Assets under management may also increase as a
result of reinvestment of distributions from funds and accounts, and from
reinvestment of distributions from defined portfolio products sponsored by the
Company into shares of mutual funds. Fee income will decline when managed assets
decline, as would occur when the values of fund portfolio investments decrease
or when mutual fund redemptions or managed account withdrawals exceed sales and
reinvestments.
Distribution revenue is earned as the Company's defined portfolio and mutual
fund products are sold. Distribution revenue will rise and fall with the level
of the Company's sales of these products.
Gross sales of investment products for the first quarters of 2000 and 1999 are
shown below:
GROSS INVESTMENT PRODUCT SALES
(in millions)
Quarter Ended March 31, 2000 1999
------ ------
Managed Assets:
Mutual Funds $ 337 $ 429
Managed Accounts 1,428 2,237
------ ------
Total Managed Assets 1,765 2,666
Defined Portfolios 1,412 497
------ ------
Total $3,177 $3,163
====== ======
Overall, gross sales of the Company's products for the period ended March 31,
2000, were slightly in excess of the same period during the prior year as an
increase in defined portfolio product sales was offset by a decline in managed
asset sales. Net flows (equal to the sum of sales, reinvestment and exchanges
less redemptions) across all products were $1.5 billion in the first quarter of
2000.
Gross sales of defined portfolio products increased 184% for the quarter ended
March 31, 2000, compared with the same quarter of 1999. This increase was
primarily the result of increased sales of equity defined portfolio products
which increased 249%. Sales of municipal defined portfolio products increased
33% over the same period in the prior year.
Gross sales of managed assets decreased 34% during the three-month period ended
March 31, 2000, when compared with the same period in 1999, due to a decrease in
both managed account and mutual fund gross sales and increased redemptions and
withdrawals. Managed account gross sales decreased 36% due to investors shifting
away from large-cap core growth stocks in favor of aggressive growth stocks.
Mutual fund gross sales were down 21%, driven by municipal mutual funds which
were down 44% due to higher interest rates. Offsetting the decline in municipal
fund gross sales was an increase in gross sales of equity and income funds which
were up 31% due to the addition of two new funds, the Nuveen Innovation Fund and
the Nuveen International Growth Fund, in the first quarter of 2000.
(11)
12
The following table summarizes net assets under management:
Net Assets Under Management (1)
(in millions)
March 31, December 31, March 31,
2000 1999 1999
-------- ----------- --------
Managed Assets:
Mutual Funds $11,378 $11,406 $12,077
Exchange-Traded Funds 27,306 26,846 26,104
Managed Accounts 20,718 20,895 18,398
Money Market Funds 563 637 736
------- ------- -------
Total $59,965 $59,784 $57,315
======= ======= =======
(1) Excludes approximately $11 billion of defined portfolio product assets
under surveillance
Assets under management increased 5% from $57.3 billion at March 31, 1999 to
$60.0 billion at March 31, 2000 due to positive net flows throughout 1999 as a
result of strong managed account sales and the issuance of new common
exchange-traded fund and MuniPreferred(TM) shares. Assets under management were
up only slightly from the $59.8 billion at December 31, 1999.
Investment advisory fee income, net of subadvisory fees and expense
reimbursements, from assets managed by the Company is shown in the following
table:
INVESTMENT ADVISORY FEES
(in thousands)
Quarter ended March 31, 2000 1999
-------- --------
Managed Assets:
Mutual Funds $ 13,273 $ 14,255
Exchange-Traded Funds 39,544 39,377
Managed Accounts 23,205 18,605
Money Market Funds (27) 804
-------- --------
Total $ 75,995 $ 73,041
======== ========
Total advisory fees for the quarter ended March 31, 2000, increased $3.0 million
over the comparable period in 1999 as a result of higher levels of average
assets under management. Managed account average assets under management
increased $3.7 billion and exchange-traded fund average assets increased $0.6
billion in the first quarter of 2000 when compared with the first quarter of
1999. Mutual fund average assets declined $1.0 billion during the same period
due to heavy municipal redemptions as a result of higher interest rates. Average
money market fund net assets under management decreased in the first quarter of
2000 due to redemptions, which were driven by relatively low short-term
(12)
13
interest rates and strong competition from sponsors of competing money market
products. The negative level of money market fund advisory fees in the first
quarter of 2000 reflected the effect of significant one-time expense
reimbursements relating to the 1999 reorganization of the money market fund
complex.
Underwriting and Distribution revenue for the periods ended March 31, 2000 and
1999 is shown in the following table:
UNDERWRITING AND DISTRIBUTION REVENUE
(in thousands)
Quarter ended March 31, 2000 1999
------- -------
Mutual Funds $ 813 $ 682
Defined Portfolios 13,289 4,473
Exchange Traded Funds 346 338
------- -------
Total $14,448 $ 5,493
======= =======
Total underwriting and distribution revenue for the quarter ended March 31,
2000, increased 163% over the comparable period in 1999. Distribution revenue
for the equity defined portfolio products increased by $8.2 million in the first
quarter of 2000 compared with the first quarter of 1999, while distribution
revenue for the longer-term municipal defined portfolio products increased $0.7
million over the same period. Both increases were driven by an increase in gross
sales. Although mutual fund gross sales were down in the first quarter of 2000,
distribution revenue was up 19% when compared with the first quarter of 1999 due
to an increase in the base of assets on which Rule 12b-1 distribution fees are
earned.
POSITIONING PROFITS/(LOSSES)
The Company records positioning profits or losses from changes in the market
value of the inventory of unsold investment products and other securities held
by Nuveen Investments. The Company hedges certain of these holdings against
fluctuations in interest rates using financial futures. The Company recorded net
positioning gains of $1.2 million in the first quarter of 2000, compared with
net losses of $0.2 million recorded during the first quarter of 1999.
INVESTMENT BANKING
On September 17, 1999, the Company completed the sale of its investment banking
business to U.S. Bancorp Piper Jaffray. Correspondingly, there is no revenue
from the investment banking business in the first quarter of 2000. Revenue from
the investment banking business in the first quarter of 1999 totaled $2.1
million.
(13)
14
OPERATING EXPENSES
Operating expenses increased $7.7 million for the quarter ended March 31, 2000,
over the same time period in the prior year. This increase is primarily due to
increased advertising and promotional expenditures, in connection with the new
brand awareness campaign, as well as an increase in salary and benefit costs.
Compensation and related benefits for the period ended March 31, 2000, increased
$1.9 million, or 8%, over the same period in the prior year. This was driven by
increases in both profit sharing and salary costs. Profit sharing expense, which
is derived by a formula as a percentage of pretax operating income, increased as
a result of increased operating income for the year. The increase in salary
costs was driven by new staff additions and annual merit increases.
Advertising and promotional expenditures increased $6.0 million during the first
quarter of 2000 when compared with the first quarter of 1999. This increase is
primarily due to the incremental costs to support the new brand image campaign.
Amortization of goodwill and deferred offering costs decreased $1.3 million for
the period ended March 31, 2000, when compared with the same period of 1999. The
decrease is due to the completion of the amortization period of capitalized
commissions advanced in conjunction with the load-waived offerings of certain
equity and income mutual funds in late 1996 and early 1997.
Occupancy and equipment, travel and entertainment, and other operating expenses
increased $1.1 million or 9% for the quarter ended March 31, 2000, when compared
with the same quarter in the prior year.
NON-OPERATING INCOME/(EXPENSE)
Included in non-operating income/(expense) is net interest income/(expense) and
other miscellaneous non-operating revenue/(expense).
Interest and dividend revenue for the first quarter was flat to the first
quarter of 1999, while interest expense increased $0.9 million over the same
period. This increase was primarily the result of an increase in interest
expense associated with deferred compensation.
CAPITAL RESOURCES, LIQUIDITY
AND FINANCIAL CONDITION
- -----------------------
The Company's principal businesses are not capital intensive and, historically,
the Company has met its liquidity requirements through cash flow generated by
the Company's operations. In addition, the Company's broker-dealer subsidiary
occasionally utilizes available, uncommitted lines of credit, which approximate
$300 million, to satisfy periodic, short-term liquidity needs. As of March 31,
2000, $2 million of borrowings were outstanding on these uncommitted lines of
credit. Additionally, in August 1997, the Company entered into a committed,
three-year revolving credit facility with a group of banks to ensure an ongoing
liquidity source for general corporate purposes including acquisitions. As of
March 31, 2000, there was $160 million available and there was no outstanding
balance under the committed credit line.
(14)
15
Options to purchase 399,088 shares of Rittenhouse non-voting Class B common
stock were exercised on March 22, 2000 under the Rittenhouse Financial Services,
Inc. 1997 Equity Incentive Award Plan. Rittenhouse accounted for these options
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees". As a result of this exercise, the Company has recorded $32.5 million
of minority interest on its balance sheet. The minority interest will remain in
place as long as the stock is outstanding. In the event that the stock is
repurchased any purchase price in excess of the exercise price will be added to
the goodwill associated with the Company's acquisition of Rittenhouse.
At March 31, 2000, the Company held in its treasury 7,411,300 shares of common
stock acquired in open market transactions and in transactions with its Class B
shareholder, The St. Paul Companies, Inc. As part of an ongoing repurchase
program, the Company is authorized to purchase approximately 0.9 million
additional shares.
During the first quarter of 2000, the Company paid out dividends on common
shares totaling $9.0 million and on preferred shares totaling $0.6 million.
The Company's broker-dealer subsidiary is subject to requirements of the
Securities and Exchange Commission relating to liquidity and capital standards
(See Notes to Consolidated Financial Statements).
Management believes that cash provided from operations and borrowings available
under its uncommitted and committed credit facilities will provide the Company
with sufficient liquidity to meet its operating needs for the foreseeable
future.
INFLATION
The Company's assets are, to a large extent, liquid in nature and therefore not
significantly affected by inflation. However, inflation may result in increases
in the Company's expenses, such as employee compensation, advertising and
promotional costs, and office occupancy costs. To the extent inflation, or the
expectation thereof, results in rising interest rates or has other adverse
effects upon the securities markets and on the value of financial instruments,
it may adversely affect the Company's financial condition and results of
operations. A substantial decline in the value of fixed-income or equity
investments could adversely affect the net asset value of funds managed by the
Company, which in turn would result in a decline in investment advisory fee
income.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company or information included
in its filings with the SEC (including this report on Form 10-Q) may contain
statements which are not historical facts but are forward-looking statements
reflecting management's expectations and opinions. The Company's actual future
results may differ significantly from those anticipated in any forward-looking
statements due to numerous factors. These include, but are not limited to, the
effects of the substantial competition that the Company, like all market
participants, faces in the investment management business, including competition
for continued access to the brokerage firm's retail distribution systems, the
Company's reliance on revenues from investment management contracts which are
renewed annually according to their terms, burdensome regulatory developments,
recent accounting pronouncements, and unforeseen developments in litigation. The
Company undertakes no responsibility to update publicly or revise any
forward-looking statements.
(15)
16
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARCH 31, 2000
The Company is exposed to market risk from changes in interest rates which may
adversely affect its results of operations and financial condition. The Company
is exposed to interest rates primarily in its fixed-income defined portfolio
inventory and seeks to minimize the risks from these interest rate fluctuations
through the use of derivative financial instruments. The Company does not use
derivative financial instruments for trading or other speculative purposes and
is not party to any leveraged financial instruments.
The Company regularly purchases and holds for resale municipal securities and
defined portfolio units. The level of inventory maintained by the Company will
fluctuate daily and is dependent upon the need to maintain municipal inventory
for future defined portfolios, and the need to maintain defined portfolio
inventory to support ongoing sales. To minimize interest rate risk on securities
held by the Company, the Company utilizes futures contracts.
The Company invests in short-term debt instruments, classified as Securities
Purchased Under Agreements to Resell. The investments are treated as
collateralized financing transactions and are carried at the amounts at which
they will be subsequently resold, including accrued interest. The Company also
invests in certain Company-sponsored equity, senior-loan and fixed-income mutual
funds.
The Company manages risk by restricting the use of derivative financial
instruments to hedging activities and by limiting potential interest rate
exposure. The Company does not believe that the effect of any reasonably likely
near-term changes in interest rates would be material to the Company's financial
position, results of operations or cash flows.
(16)
17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are included herein:
(27) Financial Data Schedule
b) Report on Form 8-K. None.
(17)
18
SIGNATURE
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.
THE JOHN NUVEEN COMPANY
(Registrant)
DATE: May 10, 2000 By /s/ John P. Amboian
----------------------
John P. Amboian
President
DATE: May 10, 2000 By /s/ Margaret E. Wilson
-------------------------
Margaret E. Wilson
Senior Vice President of Finance
(Principal Accounting Officer)
(18)