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 SEPTEMBER 30, 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 November 3, 2000, there were 31,378,435 shares of the Company's Common
Stock outstanding, consisting of 6,936,697 shares of Class A Common Stock, $.01
par value, and 24,441,738 shares of Class B Common Stock, $.01 par value.
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THE JOHN NUVEEN COMPANY
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited),
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (Unaudited),
Three Months Ended September 30, 2000 and 1999
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited), Nine Months Ended September 30, 2000 5
Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 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 8
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1 through Item 6 17
Signatures 18
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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)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
ASSETS
- ------
Cash and cash equivalents $ 18,182 $ 28,373
Management and distribution fees receivable 101,731 68,884
Other receivables 41,249 54,466
Securities owned (trading account), at market value:
Nuveen defined portfolios 28,669 44,263
Bonds and notes 688 579
Deferred income tax asset, net 4,972 5,826
Furniture, equipment, and leasehold improvements, at cost less accumulated depreciation
and amortization of $32,939 and $29,610, respectively 24,237 14,547
Other investments 73,974 85,774
Goodwill, at cost less accumulated amortization of $23,943 and $18,426, respectively 210,067 198,674
Prepaid expenses and other assets 38,716 39,579
--------- ---------
$ 542,485 $ 540,965
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Security purchase obligations 5,065 296
Accrued compensation and other expenses 35,177 52,421
Deferred compensation 29,445 32,278
Other liabilities 32,418 64,908
--------- ---------
Total liabilities 102,105 149,903
--------- ---------
Redeemable preferred stock, at redemption value; 5,000,000 shares
authorized, 1,800,000 shares issued 45,000 45,000
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 65,459 60,380
Retained earnings 549,565 506,136
Unamortized cost of restricted stock awards (1,030) -
Accumulated other comprehensive income (597) 189
--------- ---------
613,784 567,092
Less common stock held in treasury, at cost (7,265,021 and 7,591,180 shares, respectively) (218,404) (221,030)
--------- ---------
Total common stockholders' equity 395,380 346,062
--------- ---------
$ 542,485 $ 540,965
========= =========
See accompanying notes to consolidated financial statements.
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THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
Operating Revenues:
Investment advisory fees from assets under management $ 79,155 $ 77,480 $ 231,077 $ 226,440
Underwriting and distribution of investment products 7,593 4,949 30,754 16,363
Positioning profits 433 (615) 411 (1,630)
Investment banking - 1,202 - 6,213
Other operating revenue 1,799 555 4,356 1,900
--------- --------- --------- ---------
Total operating revenues 88,980 83,571 266,598 249,286
Operating Expenses:
Compensation and benefits 22,535 23,615 68,751 68,238
Advertising and promotional costs 8,417 7,002 27,155 19,699
Occupancy and equipment costs 2,885 3,207 9,800 9,421
Amortization of goodwill and deferred offering costs 1,887 3,492 5,990 10,477
Travel and entertainment 2,566 1,991 8,376 6,906
Other operating expenses 9,089 9,547 22,986 24,810
--------- --------- --------- ---------
Total operating expenses 47,379 48,854 143,058 139,551
Operating Income 41,601 34,717 123,540 109,735
Non-Operating Income/(Expense) 2,532 5,191 7,577 7,840
--------- --------- --------- ---------
Income before taxes 44,133 39,908 131,117 117,575
Income taxes 17,666 15,756 52,242 46,142
--------- --------- --------- ---------
Net income $ 26,467 $ 24,152 $ 78,875 $ 71,433
========= ========= ========= =========
Average common and common equivalent shares outstanding:
Basic 31,301 31,373 31,247 31,368
========= ========= ========= =========
Diluted 34,121 34,182 33,874 34,258
========= ========= ========= =========
Earnings per common share:
Basic $ 0.83 $ 0.75 $ 2.47 $ 2.22
========= ========= ========= =========
Diluted $ 0.78 $ 0.71 $ 2.33 $ 2.09
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
UNAUDITED
(IN THOUSANDS)
Unamortized
Class A Class B Additional Cost of
Common Common Paid-In Retained Restricted
Stock Stock Capital Earnings Stock Awards
--------- --------- ---------- --------- ------------
Balance at December 31, 1999 $ 142 $ 245 $ 60,380 $ 506,136 $ -
Net income 78,875
Cash dividends paid (29,820)
Issuance of earnout shares 392
Issuance of restricted stock awards 22 (1,091)
Amortization of restricted
stock awards 61
Purchase of treasury stock
Exercise of stock options (5,648)
Other 4,687
--------- --------- --------- --------- ---------
Balance at September 30, 2000 $ 142 $ 245 $ 65,459 $ 549,565 $ (1,030)
Other
Comprehensive Treasury
Income Stock Total
------------- --------- ---------
Balance at December 31, 1999 $ 189 $(221,030) $ 346,062
Net income 78,875
Cash dividends paid (29,820)
Issuance of earnout shares 1,847 2,239
Issuance of restricted stock awards 3,215 2,146
Amortization of restricted
stock awards 61
Purchase of treasury stock (28,697) (28,697)
Exercise of stock options 26,261 20,613
Other (786) 3,901
--------- --------- ---------
Balance at September 30, 2000 $ (597) $(218,404) $ 395,380
See accompanying notes to consolidated financial statements.
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THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 78,875 $ 71,433
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Deferred income taxes 1,372 (796)
Depreciation of Fixed Assets 3,339 3,801
Amortization of Goodwill 5,517 5,430
Net (increase) decrease in assets:
Temporary investments arising from remarketing obligations - 66,750
Management and distribution fees receivable (32,847) (22,709)
Other receivables 13,217 (12,379)
Nuveen defined portfolios 15,594 (14,042)
Bonds and notes (109) 1,795
Prepaid expenses and other assets 863 (1,787)
Net increase (decrease) in liabilities:
Accrued compensation and other expenses (17,244) (2,038)
Deferred compensation (2,833) 3,092
Security purchase obligations 4,769 7,830
Other liabilities (32,490) 2,678
Other 4,748 4,595
--------- ---------
Net cash provided from operating activities 42,771 113,653
--------- ---------
Cash flows from financing activities:
Net payments on short-term borrowings - (10,000)
Dividends paid (29,820) (28,021)
Proceeds from stock options exercised 20,613 10,505
Acquisition of treasury stock (28,697) (27,915)
Other - (108)
--------- ---------
Net cash used for financing activities (37,904) (55,539)
--------- ---------
Cash flows from investing activities:
Proceeds from Rittenhouse stock options exercised 32,685 -
Repurchase of Rittenhouse stock (46,454) -
Net purchase of office furniture and equipment (13,029) (2,939)
Other investments 10,496 (6,247)
Other 1,244 (724)
--------- ---------
Net cash used for investing activities (15,058) (9,910)
--------- ---------
Increase/(decrease) in cash and cash equivalents (10,191) 48,204
Cash and cash equivalents:
Beginning of year 28,373 12,126
--------- ---------
End of year $ 18,182 $ 60,330
--------- ---------
Supplemental Information:
Taxes paid $ 44,239 $ 34,008
Interest paid $ 2,660 $ 991
See accompanying notes to consolidated financial statements.
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THE JOHN NUVEEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 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 nine-month
period ended September 30, 2000.
- ------------------------------------------------------------------------------------------------------
In thousands, For the nine months ended
except per share data September 30, 2000 September 30, 1999
- ------------------------------------------------------------------------------------------------------
Net Per-share Net Per-share
income Shares amount income Shares amount
---------------------------------------------------------------
Net income $78,875 $71,433
Less: Preferred stock dividends (1,688) (1,688)
------- -------
Basic EPS 77,187 31,247 $2.47 69,745 31,368 $2.22
Dilutive effect of:
Deferred stock - 95 - 176
Employee stock options - 882 - 1,065
Assumed conversion of
preferred stock 1,688 1,650 1,688 1,650
------- ------ ------- ------
Diluted EPS $78,875 33,874 $2.33 $71,433 34,258 $2.09
- ------------------------------------------------------------------------------------------------------
Options to purchase 16,000 and 399,500 shares of the Company's common stock were
outstanding at September 30, 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 $46.27 and $42.18 per share were greater
than the average market price of the Company's common shares during the
applicable period.
NOTE 3 NET CAPITAL REQUIREMENT
Nuveen Investments, 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 September 30, 2000, its net capital
ratio was 2.81 to 1 and its net capital was $18,967,000, which is $15,414,000 in
excess of the required net capital of $3,553,000.
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 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 for advisors to the affluent and high-net-worth market segments. The
Company distributes its investment products, including mutual funds,
exchange-traded funds, defined portfolios, 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 managed 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 and (2)
distribution revenues 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 65% of assets under management in
managed funds and accounts on September 30, 2000, compared with 69% on September
30, 1999.
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SUMMARY OF OPERATING RESULTS
The following table compares key operating information of the Company for the
three-month and nine-month periods ended September 30, 2000 and 1999:
FINANCIAL RESULTS SUMMARY
COMPANY OPERATING STATISTICS
($ in millions except per share amounts)
- ------------------------------------------------------------------------------------------------------
FOR THE THIRD QUARTER OF FOR THE FIRST NINE MONTHS OF
2000 1999 % CHANGE 2000 1999 % CHANGE
---- ---- -------- ---- ---- --------
- ------------------------------------------------------------------------------------------------------
Gross sales of investment products $ 2,371 $ 2,933 (19)% $ 8,292 $10,988 (25)%
- ------------------------------------------------------------------------------------------------------
Assets under management (1)(2) 61,003 58,252 5 61,003 58,252 5
- ------------------------------------------------------------------------------------------------------
Operating revenues 89.0 83.6 6 266.6 249.3 7
- ------------------------------------------------------------------------------------------------------
Operating expenses 47.4 48.9 (3) 143.1 139.6 3
- ------------------------------------------------------------------------------------------------------
Pretax income 44.1 39.9 11 131.1 117.6 11
- ------------------------------------------------------------------------------------------------------
Net income 26.5 24.2 10 78.9 71.4 10
- ------------------------------------------------------------------------------------------------------
Basic earnings per share 0.83 0.75 11 2.47 2.22 11
- ------------------------------------------------------------------------------------------------------
Diluted earnings per share 0.78 0.71 10 2.33 2.09 11
- ------------------------------------------------------------------------------------------------------
Dividends per share 0.32 0.29 10 0.90 0.84 7
- ------------------------------------------------------------------------------------------------------
(1) At period end
(2) Excludes approximately $12 billion of defined portfolio product assets
under surveillance.
Assets under management, operating revenues, net income and diluted earnings per
share were all up for the three-month and nine-month periods ended September 30,
2000.
Gross sales of investment products for the third quarter totaled $2.4 billion.
Excluding one-time sales of exchange-traded funds in 1999, gross sales were up
2% for the quarter and down 3% for the nine-month period ended September 30,
2000. Increased sales of defined portfolio products were more than offset by
declines in managed asset gross sales resulting in the year-to-date sales
decline.
Operating revenues for the quarter ended September 30, 2000 were up 6% versus
the same period of the prior year as higher distribution revenue more than
offset the decrease in revenue due to the sale of the investment banking
business in the third quarter of 1999. Excluding the impact of the investment
banking business, operating revenues increased 8% for the three month period and
10% for the nine-month period ended September 30, 2000 when compared with the
same periods in the previous year. These increases were due to higher advisory
fees and distribution revenue.
Operating expenses for the third quarter of 2000 declined when compared with the
same quarter of 1999 due to the sale of the investment banking business and to a
decrease in amortization expense. Although operating expenses increased 3% for
the nine-month period ended September 30, 2000, as a percent of operating
revenue, operating expenses declined over two percentage points.
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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
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 three-month and nine-month periods
ended September 30, 2000 and 1999 are shown below:
- --------------------------------------------------------------------------------
GROSS INVESTMENT PRODUCT SALES
(in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Managed Assets:
Exchange-Traded Funds $ - $ 606 $ 46 $ 2,465
Mutual Funds 211 347 765 1,197
Managed Accounts 1,397 1,492 4,274 5,783
------- ------- ------- -------
Total Managed Assets 1,608 2,445 5,085 9,445
Defined Portfolios 763 488 3,207 1,543
------- ------- ------- -------
Total $ 2,371 $ 2,933 $ 8,292 $10,988
======= ======= ======= =======
- --------------------------------------------------------------------------------
Excluding the impact of new and leveraged exchange-traded fund sales in 1999,
gross sales declined 3% for the nine-month period ended September 30, 2000, when
compared with the same period in the prior year. This decrease is the result of
a decline in managed asset gross sales, offset by a doubling in sales of defined
portfolio products.
Gross sales of defined portfolio products increased 108% for the nine-month
period ended September 30, 2000, when compared with the same period in 1999.
Sales of equity defined portfolio products increased 154% over this period
fueled by strong technology sector portfolio sales in the first quarter and
sales of the Peroni Mid-Year 2000 Growth
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Trust which exceeded $570 million in sales during the second and third quarters.
Sales of municipal defined portfolio products increased 22% during the
nine-month period ended September 30, 2000 when compared with the same period in
the prior year.
Gross sales of managed assets decreased 27% (excluding the impact of one-time
exchange-traded fund sales in 1999) during the nine-month period ended September
30, 2000, when compared with the same period in 1999. This decrease is due to a
decrease in both managed account and mutual fund gross sales. Managed account
gross sales, primarily in the first six months of 2000, decreased due to
investors' shifting away from large-cap core growth stocks in favor of
aggressive growth stocks. Mutual fund gross sales were down 36%, driven by
municipal mutual funds which were down 55% due to higher interest rates.
Offsetting the decline in municipal fund gross sales was an increase in gross
sales of equity funds, which were up 12% due to the addition of two new funds,
the Nuveen Innovation Fund and the Nuveen International Growth Fund, in the
first quarter of 2000.
The following table summarizes net assets under management:
- --------------------------------------------------------------------------------
NET ASSETS UNDER MANAGEMENT (1)
(in millions)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2000 1999 1999
---- ---- ----
Managed Assets:
Managed Accounts $21,661 $20,895 $18,754
Mutual Funds 11,292 11,406 11,663
Exchange-Traded Funds 27,575 26,846 27,210
Money Market Funds 475 637 625
------- ------- -------
Total $61,003 $59,784 $58,252
======= ======= =======
(1) Excludes approximately $12 billion of defined portfolio product assets
under surveillance
- --------------------------------------------------------------------------------
Assets under management increased from $58.3 billion at September 30, 1999, to
$61.0 billion at September 30, 2000. Although market conditions were volatile in
the first nine-months of 2000, assets under management were up 2% from the $59.8
billion at December 31, 1999.
Investment advisory fee income, net of sub-advisory fees and expense
reimbursements, from assets managed by the Company is shown in the following
table:
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- --------------------------------------------------------------------------------
MANAGED ASSETS
INVESTMENT ADVISORY FEES
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Mutual Funds $ 13,600 $ 14,555 $ 39,212 $ 43,024
Exchange-Traded Products 41,365 41,242 121,183 120,768
Managed Accounts 23,740 21,189 69,851 60,722
Money Market Funds 450 494 831 1,926
-------- -------- -------- --------
Total $ 79,155 $ 77,480 $231,077 $226,440
======== ======== ======== ========
- --------------------------------------------------------------------------------
Total advisory fees for the nine-month period ended September 30, 2000,
increased $4.6 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 $3.0 billion and exchange-traded fund average assets were
up $0.3 billion during the first nine months of 2000 when compared with the
first nine months of 1999. Mutual fund average assets declined $0.9 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 nine months of 2000 due to redemptions, which were driven by
relatively low short-term interest rates and strong competition from sponsors of
competing money market products.
Underwriting and Distribution revenue for the three-month and nine-month periods
ended September 30, 2000 and 1999 is shown in the following table:
- --------------------------------------------------------------------------------
UNDERWRITING AND DISTRIBUTION REVENUE
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Mutual Funds $ 897 $ 317 $ 2,716 $ 1,457
Defined Portfolios 6,366 4,153 27,022 13,280
MuniPreffered(TM) 330 401 1,016 1,114
Exchange-Traded Products - 78 - 512
-------- -------- -------- --------
Total $ 7,593 $ 4,949 $ 30,754 $ 16,363
======== ======== ======== ========
- --------------------------------------------------------------------------------
Total underwriting and distribution revenue for the nine-month period ended
September 30, 2000, doubled when compared with the comparable period in 1999.
Distribution revenue for the equity defined portfolio products increased by
$11.8 million for this period, while distribution revenue for the longer-term
municipal defined portfolio products increased
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$2.1 million. Both increases were driven by increases in gross sales. Although
mutual fund gross sales were down for the first nine months of 2000,
distribution revenue increased when compared with the first nine months of 1999
due to a decline in commissions paid on high dollar value trades and 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. At times, the Company hedges certain of its fixed-income
based holdings against fluctuations in interest rates using financial futures.
Positioning gains of $0.4 million were recorded in the first nine months of
2000. This compares to positioning losses of $1.6 million recorded during the
first nine months 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 2000. Revenue from the investment
banking business in the first nine months of 1999 totaled $6.2 million.
OPERATING EXPENSES
Operating expenses increased $3.5 million for the nine-month period ended
September 30, 2000, when compared with the same time period in the prior year.
This increase is primarily due to a $7.5 million increase in advertising and
promotional expenditures, in connection with the Company's new brand awareness
campaign. Although operating expenses increased for the nine-month period, as a
percent of operating revenue, operating expenses declined over two percentage
points.
Compensation and related benefits for the nine-month period ended September 30,
2000, increased $0.5 million, or 1%, over the same period in the prior year.
This was driven by increases in headcount driven by new staff additions and
annual merit increases. These increases were offset by declines due to the sale
of the investment banking business in the third quarter of 1999.
Amortization of goodwill and deferred offering costs decreased $4.5 million for
the nine-month period ended September 30, 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
were flat for the nine-month period ended September 30, 2000, when compared with
the same period in the prior year.
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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 nine months of 2000 was up $0.7
million compared with the first nine months of 1999, while interest expense
increased $0.1 million over the same period.
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 September
30, 2000, no borrowings were outstanding on these uncommitted lines of credit.
Additionally, in August 2000, the Company entered into a $250 million committed
line of credit with a group of banks to ensure an ongoing liquidity source for
general corporate purposes including acquisitions. The new committed line is
divided into two equal facilities, one of which has a three-year term, the other
is renewable in 364-days. As of September 30, 2000, there was no outstanding
balance under the committed credit line.
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 recorded $32.7 million of
minority interest on its balance sheet. The stock was repurchased on September
29, 2000 eliminating the minority interest position. Purchase price in excess of
the exercise price was added to goodwill and is being amortized over the same
period as the goodwill associated with the Company's acquisition of Rittenhouse.
At September 30, 2000, the Company held in its treasury 7,265,021 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 0.5
million additional shares.
During the first nine months of 2000, the Company paid out dividends on common
shares totaling $28.1 million and on preferred shares totaling $1.7 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.
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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.
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PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SEPTEMBER 30, 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 as well as equity 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 will
at times utilize futures contracts.
The level of equity units in inventory tends to be immaterial when compared to
municipal holdings. However, there is price risk associated with changes in the
market. Our goal is to hold equity inventory for no more than one business day,
therefore limiting our exposure to adverse changes in price.
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.
The Company has looked at the adoption of FAS 133 and does not expect the impact
of the adoption to be material, as all of the Company's futures contracts are
marked to market.
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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:
3.1(a) Certificate of Designations, Preferences and Rights of
Cumulative Convertible Preferred Stock (Par Value $0.01
Per Share) of The John Nuveen Company.
10.20 364 Day Revolving Credit Agreement, dated as of
August 10, 2000, among The John Nuveen Company,
Nuveen Investments and Bank of America, N.A., et. al.
10.21 Three Year Revolving Credit Agreement, dated as of
August 10, 2000, among The John Nuveen Company,
Nuveen Investments and Bank Of America, N.A., et. al.
27 Financial Data Schedule
b) Report on Form 8-K. None
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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: November 9, 2000 By /s/ John P. Amboian
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John P. Amboian
President
DATE: November 9, 2000 By /s/ Margaret E. Wilson
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Margaret E. Wilson
Senior Vice President of Finance
(Principal Accounting Officer)
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