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, 1998
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 12, 1998 there were 31,860,886 shares of the Company's Common Stock
outstanding, consisting of 7,419,148 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited),
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income (Unaudited),
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited), Three Months Ended March 31, 1998 5
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements
(Unaudited) 7
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
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)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
- ------ --------- ------------
Cash $14,095 $8,771
Securities purchased under agreements to resell 11,500 -
Temporary investments arising from remarketing obligations 20,710 97,705
Management and distribution fees receivable 24,326 27,169
Other receivables 11,939 13,548
Securities owned (trading account), at market value:
Nuveen unit trusts 32,984 31,926
Tax-exempt bonds and notes 4,423 572
Deferred income tax asset, net 7,285 7,096
Furniture, equipment, and leasehold improvements, at cost less
accumulated depreciation and amortization of $25,733 and
$24,665, respectively 14,648 14,788
Other investments 40,339 55,339
Goodwill, at cost less accumulated amortization of $5,765 and
$3,956, respectively 207,491 209,300
Prepaid expenses and other assets 26,964 26,018
------- --------
Total assets $416,704 $492,232
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Notes payable $ - $ 15,000
Secured short-term bank loans supporting remarketing obligations - 69,500
Accrued compensation and other expenses 19,425 42,111
Deferred compensation 27,454 27,414
Security purchase obligations 7,611 -
Other liabilities 29,806 20,087
------- --------
Total liabilities 84,296 174,112
------- --------
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 53,710 52,963
Retained earnings 413,983 403,635
Unamortized cost of restricted stock awards (159) (185)
------- --------
467,921 456,800
Less common stock held in treasury, at cost (6,753,305 and 6,871,805
shares, respectively) (180,513) (183,680)
------- --------
Total common stockholders' equity 287,408 273,120
-------- --------
Total liabilites and stockholders' equity $416,704 $492,232
======== ========
See accompanying notes to consolidated financial statements.
(3)
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THE JOHN NUVEEN COMPANY
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
-------- -------
Revenues:
Investment advisory fees from
assets under management $64,461 $50,357
Underwriting and distribution
of investment products 2,494 4,092
Positioning profits (losses) (143) (488)
Investment banking 2,900 2,544
Interest 1,456 3,007
Other 1,301 3,072
------- -------
Total revenues 72,469 62,584
------- -------
Expenses:
Compensation and benefits 20,986 18,679
Advertising and promotional costs 4,902 4,407
Occupancy and equipment costs 3,221 2,837
Amortization of goodwill and deferred offering costs 3,559 2,067
Travel and entertainment 2,147 1,338
Interest 802 568
Other operating expenses 5,199 3,494
------- -------
Total expenses 40,816 33,390
------- -------
Income before taxes 31,653 29,194
Income taxes 12,379 11,392
------- -------
Net income $19,274 $17,802
======= =======
Average common and common equivalent
shares outstanding:
Basic 31,859 33,057
======= =======
Diluted 34,570 35,572
======= =======
Earnings per common share:
Basic $ 0.59 $ 0.52
======= =======
Diluted $ 0.56 $ 0.50
======= =======
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)
UNAMORTIZED
CLASS A CLASS B ADDITIONAL COST OF
COMMON COMMON PAID-IN RETAINED RESTRICTED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK AWARDS STOCK TOTAL
-------- ------- ---------- -------- ------------ -------- -----
Balance at December 31, 1997 $142 $245 $52,963 $403,635 $(185) $(183,680) $273,120
Net income - - - 19,274 - - 19,274
Cash dividends paid - - - (7,892) - - (7,892)
Amortization of restricted
stock awards - - - - 26 - 26
Exercise of stock options - - - (1,034) - 3,167 2,133
Other - - 747 - - - 747
---- ---- ------- -------- ----- --------- --------
Balance at March 31, 1998 $142 $245 $53,710 $413,983 $(159) $(180,513) $287,408
==== ==== ======= ======== ===== ========= ========
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,
---------------------------------
1998 1997
------- --------
Cash flows from operating activities:
Net income $19,274 $17,802
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Deferred income taxes (189) 1,900
Depreciation and amortization 1,068 1,023
Amortization of goodwill 1,809 563
Net decrease :
Investment advisory fee receivable 2,843 426
Interest and dividend receivable 739 240
Accounts receivable, other 1,662 3,212
Net increase (decrease) :
Current taxes payable 10,869 8,540
Accrued compensation and other expenses (22,686) (30,457)
Net change in receivables and payables from/to brokers,
dealers, customers and other assets/other liabilities (2,070) (5,909)
Net (increase) decrease in assets:
Temporary investments arising from remarketing obligations 76,995 4,025
Securities owned (trading account) (4,909) (2,119)
Net increase (decrease) in liabilities:
Secured short-term bank loans (69,500) -
Security purchase obligations 7,611 (1,254)
Deferred compensation 40 3,084
Other 67 139
------- -------
Net cash provided from operating activities 23,623 1,215
------- -------
Cash flows from financing activities:
Notes payable:
Proceeds from revolving credit facility 7,000 -
Repayment of loans (22,000) -
Dividends paid (7,890) (6,926)
Proceeds from stock options exercised 2,014 585
Acquisition of treasury stock - (8,253)
------- -------
Net cash used for financing activities (20,876) (14,594)
------- -------
Cash flows from investing activities:
Payments for purchases of other companies, net of cash received - (16,144)
Purchase of U.S. Treasury securities - (1,326)
Purchases of office furniture and equipment (929) (1,149)
Net decrease in other investments 15,006 214
------- -------
Net cash provided from (used for) investing activities 14,077 (18,405)
------- -------
Increase/(decrease) in cash and cash equivalents 16,824 (31,784)
Cash and cash equivalents:
Beginning of year 8,771 78,348
------- -------
End of period $25,595 $46,564
======= =======
See accompanying notes to consolidated financial statements.
(6)
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THE JOHN NUVEEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
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 1998 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 periods ended March 31, 1998 and
March 31, 1997.
FOR THE QUARTER ENDED
------------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
--------------------------------- -----------------------------
NET PER-SHARE NET PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- ------ --------- ------ ------ ---------
Net income $19,274 $17,802
Less: Preferred stock
dividends (563) (563)
Basic EPS 18,711 31,859 $.59 17,239 33,057 $.52
Dilutive effect of:
Deferred stock - 182 - 175
Employee stock options - 879 - 690
Assumed conversion of
preferred stock 563 1,650 563 1,650
Diluted EPS $19,274 34,570 $.56 $17,802 35,572 $.50
Options to purchase 400,580 and 1,079,500 shares of the Company's common
stock were outstanding at March 31, 1998 and 1997, respectively, but were
not included in the computation of diluted earnings per share because the
option's respective weighted average exercise prices of $36.28 and
$30.00 per share were greater than the average market price of the
Company's common shares during the applicable year.
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, 1998 its
net capital ratio was .62 to 1 and its net capital was $41,300,000,
which is $39,600,000 in excess of the required net capital of
$1,700,000.
(7)
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE JOHN NUVEEN COMPANY
March 31, 1998
DESCRIPTION OF THE BUSINESS
The Company's principal businesses are asset management and related
research; the development, marketing, and distribution of investment
products and services; and municipal and corporate investment banking
services. The Company markets its investment products, including
mutual funds, unit trusts, and managed accounts, through a network of
registered representatives associated with unaffiliated firms
including broker-dealers, commercial banks, affiliates of insurance
providers, financial planners, accountants, consultants and
investment advisers.
The Company's primary business activities generate three principal
sources of revenue: (1) ongoing advisory fees earned on assets under
management, including mutual funds and individually managed accounts;
(2) transaction-based revenue earned upon the distribution of mutual
fund and unit trust products; and, (3) investment banking revenues,
consisting of underwriting and other advisory fees.
The profitability of each of these lines of business, and the volume
of sales of the Company's products, are directly affected by many
variables, including investor preferences for equity, fixed-income or
other investments, the availability and attractiveness of competing
products, current and expected changes in interest rate levels, the
rate of inflation, changes or expected changes in income tax rates
and laws, and municipal bond new issue supply.
Assets under management include equities, taxable fixed income and
municipal securities. Municipal assets represent 74% of assets under
management in managed funds and accounts at March 31, 1998 compared
with 98% at March 31, 1997.
MARKET OVERVIEW
Through the first three months of the year, U.S. economic statistics
reflected stronger than anticipated economic activity with
relatively few indications of inflationary pressures. The East Asian
economic and financial problems had a minimal effect on most U.S.
based companies during the first quarter of the year, although the
ultimate impact of the ongoing difficulties is not yet known.
Interest rates remained basically unchanged during the first quarter
and the U.S. equity markets had another impressive quarter, with the
S&P 500 increasing 13.5%.
Consistent with the past few years, significant cash continued to
flow into mutual funds. Equity funds picked up the majority of
inflows, however, the increase in deposits into bond funds that began
in the latter half of 1997 increased in momentum. Equity managed
accounts and equity unit trusts attracted increased cash flows.
Municipal bond
(8)
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funds posted positive net flows (equal to the sum of sales,
reinvestment and exchanges less redemptions), for the first quarter,
as investors began moving to more conservative investments.
Municipal bond new issue volume, which is comprised of new-money
financings, refunding transactions, and issues that have an element
of both new-money and refunding, was $68 billion in the first quarter
of 1998 compared with $40 billion in the same period of 1997.
RECENT EVENT
In January 1998, the Company introduced the Nuveen Rittenhouse Growth
Fund, an equity mutual fund subadvised by Rittenhouse Financial
Services Inc. (Rittenhouse).
Headquartered in Radnor, PA, Rittenhouse is a nationally-known equity
and balanced account manager. They specialize in managing individual
portfolios offered through financial advisers to high net worth
individuals and in providing investment management services to
institutional clients. Rittenhouse's investment strategy focuses on
providing attractive long-term capital appreciation with moderate
risk by purchasing the common stocks of quality, market-leading
companies exhibiting sustained earnings and dividend growth, as well
as investment-grade quality intermediate bonds.
As previously reported, the Company acquired all of the outstanding
stock of Rittenhouse in late August 1997 for $145 million in cash.
The acquisition has been accounted for using the purchase method of
accounting resulting in approximately $143 million of goodwill for
financial reporting purposes which will be amortized against earnings
over approximately 30 years.
(9)
10
The following table compares key operating information of the Company
for the first quarter of 1998 and 1997.
FINANCIAL RESULTS SUMMARY
NUVEEN OPERATING STATISTICS
(in millions except per share amounts)
FOR THE FIRST QUARTER OF
1998 1997 % CHANGE
-------- -------- --------
Gross sales of investment products $ 1,727 $ 493 250%
Assets under management (1) (2) 51,176 36,827 39
Gross revenues 72.5 62.6 16
Operating expenses 40.8 33.4 22
Pretax operating income 31.7 29.2 9
Net income 19.3 17.8 8
Basic earnings per share (3) 0.59 0.52 14
Diluted earnings per share (3) 0.56 0.50 12
Operating cash flows per share (4) 0.70 0.59 19
Dividends per share 0.23 0.21 10
Redeemable preferred stock (2) 45.0 45.0 -
Common stockholders' equity (2) 287.4 321.3 (11)
(1) Excludes unit trusts sponsored by the Company.
(2) At period end.
(3) Computed in accordance with Statement of Financial
Accounting Standards No. 128 Earnings Per Share.
(4) Operating cash flows (net income plus amortization and
depreciation) on a per-share basis is calculated under the
same method used for diluted earnings per share and is
presented as an additional measurement of operating
performance, not as a substitute for earnings per share.
SUMMARY OF OPERATING RESULTS
- - Gross revenues for the quarter ended March 31, 1998 increased 16% over
the quarter ended March 31, 1997 primarily due to higher advisory fee
revenues. The increase in advisory fee revenues resulted from a higher
level of average assets under management in funds and accounts due to the
acquisition of managed account assets from Rittenhouse in August 1997, the
sale of funds and accounts throughout 1997 and the first quarter of 1998,
and appreciation in the underlying assets over the same periods. These
increases were partially offset by a decline in interest income earned on
short-term investments as the Company deployed its capital, and a decline
in distribution revenues earned on sales of municipal unit trust products.
- - Operating expenses for the first quarter of 1998 increased over the same
period of the prior year primarily due to goodwill amortization and the
incremental personnel and operating expenses resulting from the
acquisition of Rittenhouse in August 1997.
(10)
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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.
RESULTS OF OPERATIONS
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, which occurs with the sale of fund shares, deposits
into individually managed accounts, the acquisition of assets under
management from other advisory companies, or through increases in the
value of portfolio investments. Sales include shares of new and
existing funds or managed accounts. Assets under management may also
increase as a result of reinvestment of distributions from unit
trusts 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.
Investment advisory fee income, net of subadvisory fees and expense
reimbursements, from assets managed by the Company is shown in the
following table:
NUVEEN MANAGED FUNDS AND ACCOUNTS
INVESTMENT ADVISORY FEES
(in thousands)
QUARTER ENDED MARCH 31,
1998 1997
--------- ---------
Managed Funds:
Mutual Funds $12,276 $10,518
Exchange-Traded Products 39,396 38,292
Money Market Funds 941 999
Managed Accounts (1) 11,848 548
------- -------
Total $64,461 $50,357
======= =======
(1) For the 1998 period, includes advisory fee income earned
on assets managed by Rittenhouse, which was acquired August
31, 1997.
(11)
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The following table summarizes net assets under management:
NUVEEN MANAGED FUNDS AND ACCOUNTS
NET ASSETS UNDER MANAGEMENT (1)
(in millions)
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
----------- ------------ ----------
Managed Funds:
Mutual Funds $11,247 $10,885 $ 9,994
Exchange-Traded Products 26,084 26,117 25,067
Money Market Funds 892 970 1,060
Managed Accounts 12,953 11,622 706
------- ------- -------
Total $51,176 $49,594 $36,827
======= ======= =======
(1) Excludes unit trust assets under surveillance.
Total advisory fees for the first quarter of 1998 increased from the
first quarter of 1997 as a result of higher levels of average assets
under management relating principally to the Rittenhouse acquisition.
Mutual fund assets under management at March 31, 1998 increased 13%
from March 31, 1997. This increase reflects the sales of fund shares
over the periods and appreciation in the underlying value of the
portfolio investments. This increase was partially offset by share
redemptions in the municipal mutual funds. Managed account assets
under management at March 31, 1998 increased $12.2 billion from March
31, 1997 due to the acquisition of $9.1 billion in managed account
assets from Rittenhouse, sales of accounts over the periods and
appreciation in the underlying value of investments. Average money
market net assets under management continued to decrease due to
relatively low short-term interest rates, a strong equity market and
strong competition from sponsors of competing money market products.
Gross sales of investment products for the first quarter of 1998 and
1997 are shown below.
GROSS INVESTMENT PRODUCT SALES
(in millions)
QUARTER ENDED MARCH 31,
1998 1997
--------- --------
Mutual Funds $ 419 $208
Unit Trusts 167 208
Managed Accounts (1) 1,141 77
------ ----
Total $1,727 $493
====== ====
(1) For the 1998 period, includes sales of Rittenhouse
accounts.
Overall, gross sales of the Company's products for the three month
period ended March 31, 1998 increased 250% over the same period of
the prior year. Net sales increased $1.0 million, or 381%, for the
first quarter of 1998 over the first quarter of
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1997. Increased concern regarding volatility in the equity markets
resulted in an increase in the Company's municipal mutual fund sales
in the first quarter of 1998 as investors turned to more conservative
investments. Municipal mutual fund redemptions in the first quarter
of 1998 were also 17% lower than the same period of the prior year.
Sales of the Company's equity mutual funds also increased over the
prior year with the introduction in January 1998 of the new growth
fund subadvised by Rittenhouse. Distribution revenue earned on the
municipal mutual fund sales declined, however, compared to the prior
year. This decrease is primarily the result of the inclusion, for the
1997 period only, of 12b-1 fees earned in January 1997 under Flagship's
former mutual fund pricing structure. On February 1, 1997 the Flagship
and Nuveen municipal funds merged and adopted pricing structures more
similar to the Nuveen funds. Additionally, commissions paid by the Company
on municipal mutual funds sales in excess of $1.0 million have increased
over the prior year.
The decrease in unit trust sales of the Company is primarily the
result of lower municipal unit trust sales, offset by sales of equity,
corporate and treasury unit trusts introduced in May 1997. As such,
distribution revenue for the municipal trusts is lower in the first
quarter of 1998 compared with the first quarter of 1997, partially
offset by positive distribution revenue earned on the equity,
corporate and treasury unit trusts.
Sales of managed accounts increased during the first quarter of 1998
when compared to the same period of 1997 as Rittenhouse's managed
account business was combined with the Company's on August 31, 1997.
Sales of Nuveen's municipal managed accounts increased 124% when
compared to the same period of the prior year. Sales of managed
accounts do not impact the Company's underwriting and distribution
revenue as there are no transaction-based revenues associated with
those products.
The Company records positioning profits or losses from changes in the
market value of investment products and securities held temporarily.
The Company hedges certain of these holdings against fluctuations in
interest rates using financial futures. During the first quarter of
1998, the Company realized net positioning losses of $0.1 million
compared to losses of $0.5 million during the first quarter of 1997.
Investment banking revenues include both new issue underwriting
profits and fee income earned from various financial advisory
activities. Investment banking revenues increased in the first
quarter of 1998 over the same period in 1997 from $2.5 million to
$2.9 million due to an increase in both negotiated underwritings and
financial advisory activity.
Interest and dividend revenue declined 52% or $1.6 million when
comparing the three month period ended March 31, 1998 with the same
period of the prior year as cash balances were deployed in the last
three quarters of 1997 for the acquisition of Rittenhouse, for
repurchases of a portion of the Company's outstanding common shares
and for investments in new products.
Operating expenses increased 22% in the first quarter of 1998 over
the first quarter of 1997. This increase is due to the inclusion of
Rittenhouse in the 1998 results. When comparing the Company's
expenses excluding Rittenhouse for the same periods, the increase in
expenses is only 1%.
(13)
14
Compensation and related benefits for the first quarter ended March
31, 1998 increased 12% over the same period of the prior year. This
increase is the result of the inclusion of approximately 90
Rittenhouse employees in the first quarter of 1998. Compensation
expenses for the first three months of 1998 for Nuveen, excluding
Rittenhouse, decreased 4% over the same period of 1997. This
decrease is due to a reduction of approximately 40 Nuveen employees.
Advertising and promotional expenditures increased for the first
three months of 1998 when compared to the same period of 1997
primarily due to the inclusion of Rittenhouse advertising and
promotional expenditures.
The increase in amortization of goodwill and deferred offering costs
when comparing the first quarter of 1998 with the first quarter of
1997 also relates to the acquisition of Rittenhouse. The Company
recorded $1.2 million of Rittenhouse-related goodwill amortization
expense in the first quarter of 1998. The Company is amortizing the
goodwill associated with Rittenhouse over approximately 30 years.
Occupancy and equipment, travel and entertainment, and other
operating expenses increased $2.9 million for the three month period
ended March 31, 1998 compared to the same period of the prior year
primarily due to the addition of the Rittenhouse operations.
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. The Company's
broker/dealer subsidiary occasionally utilizes available, uncommitted
lines of credit, which exceed $400 million, to satisfy additional
periodic, short-term liquidity requirements generally for the purpose
of carrying variable rate demand obligations (VRDOs). Additionally,
in August 1997, the Company entered into a $200 million committed,
three-year revolving credit facility with a group of banks to ensure
an ongoing liquidity source for general corporate purposes including
corporate acquisitions.
On August 31, 1997, the Company acquired Rittenhouse, a
nationally-known equity and balanced account manager, for a cash
purchase price of $145 million. To finance the transaction the
Company used $95 million of cash on hand and, for the remainder,
utilized the aforementioned committed credit line. As of March 31,
1998, there was no outstanding balance due on the committed credit
line.
At March 31, 1998, the Company held in its treasury 6,753,305 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 ongoing stock repurchase programs. In February
1997, the Board of Directors authorized the purchase of 3.5 million
shares. At March 31, 1998, the Company has 1,696,074 shares
remaining to be purchased under the February 1997 repurchase program.
During the first quarter of 1998, the Company paid out dividends on
common shares totaling $7.3 million and on preferred shares totaling
$.6 million.
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15
The Company is remarketing agent for various issuers of VRDOs with an
aggregate principal value in excess of $1.8 billion at March 31,
1998. Although remarketing agents, including the Company, are only
obligated to use their best efforts in locating purchasers for the
VRDOs, they frequently repurchase VRDOs for resale to other buyers
within a few days. During temporary periods of imbalance between
supply and demand for VRDOs, the Company may hold larger than average
balances of such obligations for resale. Substantially all VRDOs for
which the Company is remarketing agent are secured by letters of
credit obtained by the issuer from top-rated third-party providers,
including major commercial banks and insurance companies. At March
31, 1998, and December 31, 1997, the Company held $21 million and $98
million, respectively, of VRDOs, which are classified in its
consolidated balance sheets as "Temporary Investments Arising from
Remarketing Obligations". The Company's average daily inventory of
VRDOs was $21 million during the first three months of 1998 and $32
million during 1997.
To minimize interest rate risk on fixed-income unit trust inventories
and securities held by the Company, the Company entered into futures
contracts during the first quarter of 1998 and expects to continue to
do so. Additionally, the Company's investment banking group will, on
occasion, act as financial adviser, broker, or underwriter to
municipal or other issuers with respect to transactions such as
interest rate swaps and forward delivery transactions.
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, 1998, its net
capital ratio was .62 to 1 and its net capital was $41.3 million
which is $39.6 million in excess of the required net capital of $1.7
million.
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.
OTHER MATTERS
YEAR 2000
Like many others, the Company could be adversely affected if the
computer systems used by the Company or by the Company's service
providers do not properly process and calculate date-related
information and data from and after January 1, 2000. The Company has
taken steps that are designed to ensure, to the best of its
abilities, that the Company is Year 2000 compliant with respect to
the computer systems it uses. The Company has also obtained
assurances that reasonable efforts are being taken by its service
providers to address this global issue. A Year 2000 problem
experienced by a service provider could adversely affect the
Company's business.
(15)
16
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.
(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 14, 1998 By /s/ John P. Amboian
-----------------------
John P. Amboian
Executive Vice President and
Chief Financial Officer
DATE: May 14, 1998 By /s/ Margaret E. Wilson
--------------------------
Margaret E. Wilson
Vice President of Finance and
Corporate Controller
(Principal Accounting Officer)