September 26, 2006
Mr. Amit Pande
Assistant Chief Accountant
Securities and Exchange Commission
100 "F" Street N.E.
Washington, D.C. 20549
Dear Mr. Pande:
Below are our responses to the two comments covered in your letter dated August
7, 2006, with respect to Nuveen Investments' Form 10-K for the year ended
December 31, 2005. Our response to your first comment regarding the format of
our consolidated statement of income also reflects our phone discussion on
August 8, 2006.
CONSOLIDATED STATEMENTS OF INCOME, PAGE 34
1. BASED ON YOUR RESPONSE TO COMMENT 1 OF OUR LETTER DATED MAY 23, 2006, IT
APPEARS TO US THAT YOU DO NOT TRACK COSTS RELATED TO EACH OF YOUR
SEPARATELY PRESENTED REVENUE LINE ITEMS THAT WOULD ENABLE YOU TO READILY
REPORT A SUBSET OF OPERATING EXPENSES AS COST OF SERVICES. WE BELIEVE THAT
YOU FALL WITHIN THE SCOPE OF ARTICLE 5 OF REGULATION S-X AND SHOULD REVISE
YOUR FUTURE FILINGS TO PRESENT COST OF SERVICES AND SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES SEPARATELY, AS REQUIRED BY RULE 5-03 OF REGULATION
S-X. IF YOU BELIEVE THAT PROVIDING THIS INFORMATION WOULD INVOLVE UNDUE
COST AND BURDEN, PLEASE PROVIDE US WITH SUPPORT FOR YOUR DETERMINATION,
INCLUDING YOUR ESTIMATE OF CHANGES THAT WOULD NEED TO BE MADE AND THE TIME
AND RESOURCES INVOLVED.
We respectfully submit that the present format of our Consolidated
Statement of Income is consistent with the requirements of Rules 5-01 and
5-03 of Regulation S-X. In fact, as discussed more fully below, we believe
that the level of detail provided on the face of our income statement
exceeds that required by the SEC's applicable rules and regulations.
Rule 5-03 of Regulation S-X requires that we separately state each
specified class of revenue that is more than 10% of our total revenue. Each
class of revenue specified in Rule 5-03 that is less than 10% of total
revenue may be combined with another class. If items are combined, related
costs and expenses are required to be combined in the same manner.
For the year ended December 31, 2005, 98.6% of our revenues were derived
from investment advisory services. Pursuant to Rule 5-03, the revenues
section of our income statement could be combined into one caption:
investment advisory fees. In order to provide the reader more information
on the nature and composition of our revenues, we elected to divide this
predominant class of our revenue into two sub-classifications: investment
advisory fees from assets under management (base fees) and performance
fees. In addition, rather than combine product distribution (which
represented less than 2% of our revenue) with investment advisory fees we
elected to present this item separately as "Product distribution." Given
that Rule 5-03 would permit us to present revenues in a single line item,
it would also be appropriate to present related operating expenses in a
single combined manner.
With respect to the full presentation of expenses, Rule 5-03 of Regulation
S-X requires that we separately state:
- cost of services
- expenses applicable to other revenue and
- selling, general and administrative expenses.
As nearly all our revenues are derived from advisory services for managed
investment products, the vast majority of our operating expenses are in
support of those services. We estimate that between 85% and 90% of our
operating expenses are direct expenses related to investment advisory
services. These direct expenses include costs associated with salaries and
benefits, occupancy and depreciation. In addition, these direct expenses
include costs related to our sales force. We do not derive advisory fee
revenue directly from the sale of our products. Rather, our revenue is
derived from investment advisory fees earned over time on assets raised by
our sales force. The sales force focuses not only on acquiring new assets,
but also on retaining the existing assets on which we earn investment
advisory fees. Therefore, expenses associated with our sales force should
be considered a direct cost related to our investment advisory fees.
If we strictly followed the guidance in Rule 5-03 of Regulation S-X, our
income statement would contain only two expense line items: cost of
services and selling, general and administrative expenses. However, because
the vast majority of our operating expenses are directly or indirectly
related to supporting our investment advisory services, our accounting
systems do not independently track general and administrative expenses.
Similar to our decision to include more detail on revenues than required,
we have chosen to provide greater detail on the type and amount of expenses
that we incur in operating our business. Accordingly, we divide our
operating expenses into eight separate items, including compensation and
benefits, advertising and promotional costs and occupancy and equipment
costs. Because selling, general and administrative expenses are embedded in
each of these categories, a specific allocation would be heavily dependent
on judgment. Thus, we believe that our more detailed approach to presenting
operating expenses provides investors with more information and a better
understanding of our business.
Rule 5-03 of Regulation S-X also requires that we state separately in the
income statement non-operating income and expense. We currently report
gains and losses on investments and income and expense items that are
non-recurring in nature or one-time items that occurred outside the
ordinary course of our business in a separate line item on the income
statement captioned "other income/(expense)". An explanation of these items
is included in the notes to our financial statements or in the
"Management's Discussion and Analysis" section of our periodic reports.
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We also note that while many of our industry peers have a similar
concentration of revenues and related operating expenses from a single
service line, they also choose to report results in a similarly detailed
manner. This provides the investment community with greater comparability
of operating performance within our industry. We believe our current format
gives the reader the most useful information regarding the expenses related
to operating our business and we supplement this information in the
"Management's Discussion and Analysis" section of our quarterly financial
reports.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE 36
INVESTMENTS, PAGE 37
2. WE NOTE YOUR RESPONSE TO COMMENT 3 OF OUR LETTER DATED MAY 23, 2006. PLEASE
CONFIRM THAT YOU WILL REVISE FUTURE FILINGS TO INCORPORATE EXPANDED
DISCLOSURES RELATED TO CLARIFICATIONS REQUESTED IN OUR COMMENT.
We confirm that in our future filings, we will incorporate expanded disclosures
related to investments in securities that are not currently marketed to
investors -- which we classify as trading and available for sale.
Sincerely,
Peggy Wilson
Sr. Vice President, Finance
cc: Matthew Komar, SEC Staff Accountant
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