<PAGE>
- -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-9468
NEW ENGLAND INVESTMENT COMPANIES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3405992
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
02116
399 BOYLSTON STREET, BOSTON, (ZIP CODE)
MASSACHUSETTS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(617) 578-3500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(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. [X] Yes [_] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [_] Yes [_] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 1994 and September 30, 1995............. 3
Consolidated Statement of Income for the three and nine months ended September 30,
1994 and 1995....................................................................... 4
Consolidated Statement of Cash Flows for the nine months ended September 30, 1994 and
1995................................................................................ 5
Notes to Consolidated Financial Statements............................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 10
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION..................................................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 14
SIGNATURES............................................................................ 15
</TABLE>
2 of 15
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 16,884 $ 40,714
Accounts receivable................................ 28,645 37,586
Accounts receivable--affiliates.................... 12,310 13,678
Other.............................................. 4,756 5,423
-------- --------
Total current assets............................. 62,595 97,401
Intangible assets.................................... 149,123 355,260
Fixed assets......................................... 15,286 17,186
U.S. Government agency securities.................... 203,808 --
Other assets......................................... 47,587 46,360
-------- --------
Total assets..................................... $478,399 $516,207
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses.............. $ 15,488 $ 34,010
Accrued compensation and benefits.................. 19,594 25,205
Distributions payable.............................. 13,436 14,071
Securities sold under agreement to repurchase...... 197,365 --
Note payable....................................... 5,000 --
-------- --------
Total current liabilities........................ 250,883 73,286
Deferred compensation and benefits................... 16,800 17,419
Promissory notes..................................... -- 79,738
Deferred purchase consideration...................... -- 35,000
-------- --------
Total liabilities................................ 267,683 205,443
-------- --------
Partners' capital:
Publicly held limited partners..................... 22,189 35,444
Principal unitholder limited partners.............. 190,832 274,251
General partner.................................... 736 1,069
Unrealized loss on securities...................... (3,041) --
-------- --------
Total partners' capital.......................... 210,716 310,764
-------- --------
Total liabilities and partners' capital.......... $478,399 $516,207
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1994 1995 1994 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Management and advisory fees.......... $51,557 $57,448 $152,524 $165,628
Other revenues........................ 5,490 6,557 15,953 19,141
Interest income and other............. 583 857 1,504 7,862
Gain on partial sale of affiliate..... -- -- 4,746 4,712
--------- --------- -------- --------
57,630 64,862 174,727 197,343
--------- --------- -------- --------
EXPENSES
Compensation and benefits............. 27,434 30,689 81,294 90,299
Restricted unit plan compensation..... 1,643 1,449 5,564 4,391
Distribution costs.................... 5,030 4,665 13,812 14,691
Occupancy and equipment............... 2,297 2,869 7,012 7,828
Amortization of intangibles........... 2,740 2,832 8,221 8,312
Interest expense...................... 32 73 218 3,950
Other................................. 8,019 9,413 23,715 27,666
--------- --------- -------- --------
47,195 51,990 139,836 157,137
--------- --------- -------- --------
Income before income taxes.............. 10,435 12,872 34,891 40,206
Provision for income taxes............ 250 350 800 975
--------- --------- -------- --------
Net income.............................. $10,185 $12,522 $ 34,091 $ 39,231
========= ========= ======== ========
Primary and fully diluted net income per
LP Unit (Note 2)....................... $ .37 $ .43 $ 1.24 $ 1.36
========= ========= ======== ========
Distributions declared per LP Unit...... $ .42 $ .44 $ 1.26 $ 1.30
========= ========= ======== ========
Weighted average LP Units outstanding... 31,990 32,134 31,993 32,038
========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1994 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 34,091 $ 39,231
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets..................... 8,221 8,312
Restricted unit plan compensation..................... 5,564 4,391
Gain on partial sale of affiliate..................... (4,746) (4,712)
-------- ---------
Sub-total............................................ 43,130 47,222
Depreciation and amortization......................... 2,914 3,979
Gain on sale and accretion of discount on U.S. Govern-
ment securities...................................... -- (3,545)
Increase in accounts receivable and other assets...... (9,367) (2,819)
Increase in accounts payable and other liabilities.... 9,705 20,210
-------- ---------
Net cash provided by operations......................... 46,382 65,047
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (6,365) (4,816)
Proceeds from partial sale of affiliate................. 4,746 4,712
Payments for purchase of Harris, net of cash acquired... -- (7,357)
Proceeds from sale of U.S. Government agency securi-
ties................................................... -- 209,551
-------- ---------
Net cash provided by (used in) investing activities..... (1,619) 202,090
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in securities sold under agreement to repur-
chase.................................................. -- (197,365)
Repayment of note payable............................... (2,296) (5,000)
Distributions paid to unitholders....................... (39,671) (40,942)
-------- ---------
Net cash used in financing activities................... (41,967) (243,307)
-------- ---------
Net increase in cash and cash equivalents................. 2,796 23,830
Cash and cash equivalents, beginning of period............ 42,238 16,884
-------- ---------
Cash and cash equivalents, end of period.................. $ 45,034 $ 40,714
======== =========
Cash paid during the period for interest.................. $ 218 $ 3,926
======== =========
Supplemental disclosure of non-cash transactions (Harris
acquisition):
Increase in intangible assets........................... $ -- $ 210,000
Increase in promissory notes............................ -- 79,738
Increase in deferred purchase consideration............. -- 35,000
Increase in partners' capital........................... -- 95,262
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The unaudited consolidated financial statements of New England Investment
Companies, L.P. ("NEIC" or the "Partnership") have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the annual
report of NEIC filed on Form 10-K for the year ended December 31, 1994. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, have been made to present fairly the financial statements of NEIC
as of September 30, 1995 and for the three and nine months ended September 30,
1994 and 1995, respectively.
Certain reclassifications have been made to the 1994 financial statements to
conform with the 1995 presentation.
NOTE 2--NET INCOME PER PUBLICLY HELD LP UNIT
Primary and fully diluted net income per publicly held LP Unit ("LP Unit")
is calculated by adding back to net income the restricted unit plan expense to
arrive at net income available for proportionate allocation. Restricted unit
plan expense is allocated exclusively to New England Mutual Insurance Company
and Reich & Tang, Inc. As a result, LP Units bear no expense of the restricted
unit plan.
Primary and fully diluted net income per LP Unit is computed by dividing net
income available for proportionate allocation by the weighted average number
of LP Units outstanding. Weighted average LP Units includes 5,366,898 of LP
Units issued on September 29, 1995 and 1,647,059 LP Units assumed outstanding
from the related deferred purchase consideration of $35,000,000 assumed in
conjunction with the acquisition of Harris Associates L.P. (see note 3). The
actual deferred purchase consideration will be settled in cash and LP Units,
based on selection by the seller's partners.
The following table presents the calculation of primary and fully diluted
net income per LP Unit:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1994 1995 1994 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net income.............................. $ 10,185 $ 12,522 $ 34,091 $ 39,231
Restricted unit plan compensation....... 1,643 1,449 5,564 4,391
--------- --------- -------- --------
Income available for proportionate allo-
cation................................. $ 11,828 $ 13,971 $ 39,655 $ 43,622
========= ========= ======== ========
Primary and fully diluted net income per
LP Unit................................ $ .37 $ .43 $ 1.24 $ 1.36
========= ========= ======== ========
Weighted average LP Units outstanding... 31,990 32,134 31,993 32,038
========= ========= ======== ========
</TABLE>
6 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACQUISITION OF HARRIS ASSOCIATES L.P.
On September 29, 1995, NEIC purchased substantially all of the assets and
acquired certain liabilities of Harris Associates L.P. ("Harris"), a Chicago-
based investment management company with approximately $7 billion of assets
under management. The purchase price was $175,000,000 payable in 5,366,898 of
newly issued LP Units totaling $95,262,000 and promissory notes due January 10,
1996 (the "Notes") in the aggregate amount of $79,738,000. The LP Unit price of
$17.75 was determined at market value under a formula as set forth in the
Partnership Admission Agreement (the "Agreement"). The Notes are secured by an
$80,000,000 letter of credit. Payment upon maturity is expected to be financed
with a privately placed seven-year financing.
Pursuant to the Agreement, NEIC expects to make a contingent payment on April
2, 1997, also in LP Units, cash or a combination thereof (based on selection by
the seller's partners), as a purchase price adjustment based upon the
performance of Harris' business in 1996. The minimum contingent payment is
expected to approximate $35,000,000 based upon Harris' projected 1995
qualifying revenues as defined in the Agreement.
The acquisition has been accounted for under the purchase method of
accounting and has resulted in the recording of approximately all of the
consideration as an intangible asset for financial reporting purposes.
The acquisition of Harris is reflected in NEIC's consolidated balance sheet
as of September 30, 1995. The following pro forma unaudited financial
information reflects the combined operating results of NEIC and Harris for the
nine months ended September 30, 1994 and 1995, respectively, as if the
acquisition had occurred on January 1, 1994. The pro forma financial
information is derived from the historical financial statements of NEIC and
Harris. Adjustments have been made to reflect amortization of the intangible
assets, financing costs and the revenue sharing arrangement between NEIC and
Harris. The pro forma financial information does not necessarily reflect the
results of operations that would have been obtained had the acquisition
occurred on the assumed date, nor is the pro forma financial information
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
PRO FORMA PRO FORMA
1994 1995
------------------ ------------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Revenues
Management and advisory fees..... $ 190,098 $ 208,084
Other revenues................... 20,450 29,591
Gain on partial sale of affili-
ate............................. 4,746 4,712
------------------ ------------------
215,294 242,387
------------------ ------------------
Expenses
Compensation and benefits........ 101,011 112,073
Amortization of intangible as-
sets............................ 18,891 18,982
Other............................ 58,782 67,634
------------------ ------------------
178,684 198,689
------------------ ------------------
Income before income taxes......... 36,610 43,698
Provision for income taxes....... 923 1,035
------------------ ------------------
Net income......................... $ 35,687 $ 42,663
================== ==================
Primary and fully diluted net in-
come per LP Unit.................. $ 1.06 $ 1.21
================== ==================
</TABLE>
7 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--TAX CONSIDERATIONS FOR UNITHOLDERS
Management believes that, as a result of the Omnibus Budget Reconciliation
Act of 1993 and a special tax election which NEIC has made, unitholders
purchasing units in the open market after August 10, 1993 will be allocated
current amortization over fifteen years of a substantial portion of the
purchase price of the units. Taking into account the amortization deductions
and other book-tax differences, the Partnership expects that Partnership
distributions will significantly exceed net taxable income allocable to
unitholders for those who purchased units after August 10, 1993. The
amortization deductions represent the amortization over fifteen years of the
portion of each unitholder's purchase price allocated to the intangible assets
of the Partnership qualifying under Code Section 197. Such amortization
deductions will decrease the unitholder's tax basis, and will likely be
recaptured as ordinary income upon disposition of the LP Units. The following
example of this benefit assumes an individual purchased units during December
1994 and held them for the entire three quarters of 1995. This unitholder would
have a convention purchase price as defined in NEIC's Partnership Agreement of
$15.50 of which $14.50 is allocated to Section 197 assets.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
Estimated tax amortization per LP Unit.............. $ .72
Less financial statement amortization per LP Unit... (.26)
-----
Tax benefit for the nine months ended September
30, 1995......................................... $ .46
=====
</TABLE>
The amount of amortization deductions allocated to purchasers depends on a
number of factors. Under federal tax law, a unitholder will be required to pay
tax on his or her allocable share of the Partnership's income regardless of the
amount of distributions made by the Partnership. As individual tax situations
may vary, each prospective purchaser of LP Units is urged to consult his or her
tax advisor. See also Note 5 below. Individual K-1s prepared for each
unitholder identify the specific tax benefit allowable to that unitholder.
NOTE 5--THE PROPOSED MERGER OF NEW ENGLAND MUTUAL AND METROPOLITAN LIFE
New England Mutual recently announced an agreement to merge with Metropolitan
Life Insurance Company ("Metropolitan Life"). This merger is expected to take
place in early 1996. The transfer of New England Mutual's interest in NEIC to
Metropolitan Life incident to the proposed merger could cause a technical
termination and reconstitution of NEIC as a partnership for federal income tax
purposes. The parties have agreed to cooperate to prevent this event from
occurring. Nevertheless, were this to occur, management expects to preserve to
public unitholders the benefits of amortization tax deductions that they would
have enjoyed if the termination had not occurred. Termination, if it occurred,
would have no effect on NEIC continuing its status as a master limited
partnership.
Copley serves as investment manager of a number of New England Mutual
separate accounts, holding interests in real estate for third party clients.
The proposed merger may constitute a transfer of these interests in certain
circumstances resulting in the incurrence of additional expenses at the
separate accounts and a possible need to refinance debt relating to certain
properties. Copley is developing a plan to deal with these matters, and NEIC
does not expect any material adverse financial consequences.
8 of 15
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 6--CONTINGENT LIABILITIES
The Washington State Investment Board (the "SIB") filed suit on July 30,
1993 against Copley and New England Mutual alleging that the SIB retirement
funds have lost over $600 million of the $800 million they invested in the
Prentiss Copley Investment Group ("PCIG") and other real estate investments
advised by Copley. Also on July 30, 1993, the State Teachers Retirement System
of Ohio (the "Ohio Board") filed suit against Copley and New England Mutual,
alleging it had lost substantially all the value of its $50 million investment
in PCIG. These suits allege breach of fiduciary duty, breach of contract,
gross negligence and misrepresentation and violation of various state
statutes. The suits seek return of amounts invested together with interest,
disgorgement of fees and profits, and related costs and expenses. Both
plaintiffs have demanded jury trials. The defendants have filed answers to
both suits denying all liability and raising a number of affirmative defenses.
Previous actions raising many of the same issues as the SIB action had been
filed by individuals alleging to be beneficiaries of the Washington State
retirement plans involved in the SIB action. The dismissal of these actions by
the U.S. District Court for the Western District of Washington was appealed by
the plaintiffs to the United States Circuit Court of Appeals for the Ninth
Circuit, which affirmed the District Court's dismissal.
Copley and New England Mutual intend to defend the actions vigorously. New
England Mutual has agreed to indemnify Copley against any and all liability
and expense arising from these suits or out of other claims or actions related
to the SIB retirement funds' or the Ohio Board's investments (and pursuant to
the agreement is currently paying all expenses of the pending actions).
Management believes that significant losses as a result of these suits are
remote and should not have a material adverse effect on the financial
condition, results of operations and cash flows of NEIC. Management has based
its conclusion on its assessment of the merits of the cases, the current
status of the cases, the background of the litigation, and, in light of these
factors, New England Mutual's agreement to indemnify Copley for its expenses
and liabilities, if any.
NOTE 7--INVESTMENT IN AFFILIATE
NEIC held a 58% and 54% limited partner interest in Capital Growth
Management Limited Partnership ("CGM") on December 31, 1994 and September 30,
1995, respectively. The remaining limited partnership interest is owned
indirectly by the management of CGM, who are obligated to apply a defined
portion of their CGM earnings to purchase additional partnership interests
from NEIC at a pre-determined formula until NEIC's ownership interest is
reduced to 50%. Gains recognized in the first quarter of 1994 and 1995 of
$4,746,000 and $4,712,000, respectively, resulted from agreed-upon sales of
CGM partnership interests.
NOTE 8--U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government agency securities with an amortized cost of $207,527,000
were sold during the first half of 1995. Realized gains on the sales of such
securities amounted to $2,024,000. The sales proceeds were used to repay
securities sold under agreement to repurchase.
9 of 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1994
Net income of $12.5 million or $0.43 per LP Unit for the third quarter of
1995 increased $2.3 million (or 16.2% per LP Unit) as compared to net income
of $10.2 million or $0.37 per LP Unit for the third quarter of 1994. The
increase in net income primarily reflects the growth of equity and fixed
income revenues resulting from higher assets under management.
Management and advisory fees of $57.4 million for the third quarter of 1995
increased $5.9 million (or 11.4%) as compared to $51.6 million for the third
quarter of 1994. Strong equity and bond markets combined with growth in new
assets under management over the past year resulted in a $4.8 million (or
18.5%) increase in equity and fixed income institutional revenues for the
third quarter of 1995 as compared to the third quarter of 1994. Mutual fund
revenues grew at 9.8% during the third quarter of 1995 as compared to the
third quarter of 1994. Real estate revenues for the third quarter of 1995 were
essentially the same when compared to the third quarter of 1994.
Other revenues of $6.6 million for the third quarter of 1995 were up $1.1
million as compared to $5.5 million for the third quarter of 1994 primarily as
a result of increased transfer agency revenues.
Interest income and other revenues of $0.9 million for the third quarter of
1995 increased $0.3 million as compared to the third quarter of 1994. The
increase primarily reflects the gain on the sale of deferred sales commissions
balance.
Compensation and benefits of $30.7 million for the third quarter of 1995
increased $3.3 million (or 11.9%) as compared to the third quarter of 1994. A
$1.8 million increase in base compensation and benefits for the third quarter
of 1995 as compared to the third quarter of 1994 is primarily the result of
annual salary increases combined with increased staffing at certain advisory
offices. Variable compensation plans, which are generally based on subsidiary
profitability, portfolio performance and sales growth, accounted for $1.5
million of the increase over the third quarter of 1994.
Distribution costs of $4.7 million for the third quarter of 1995 decreased
$0.4 million as compared to the third quarter of 1994. The decrease results
from lower amortization of deferred sales commissions due to the sale of the
deferred sales commission balance on July 1, 1995.
Other expense of $9.4 million for the third quarter of 1995 increased $1.4
million as compared to the third quarter of 1994. Included in the third
quarter of 1995 are one-time expenses related to certain business ventures and
development efforts.
10 of 15
<PAGE>
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1994
Net income of $39.2 million or $1.36 per LP Unit for the nine months ended
September 30, 1995, increased $5.1 million (or 9.7% per LP Unit) as compared to
net income of $34.1 million or $1.24 per LP Unit for the nine months ended
September 30, 1994. The increase in net income primarily reflects the growth of
equity and fixed income institutional revenues resulting from higher assets
under management.
Management and advisory fees of $165.6 million for the nine months ended
September 30, 1995 were up $13.1 million (or 8.6%) as compared to $152.5
million for the nine months ended September 30, 1994. Strong equity and bond
markets, combined with growth in new assets under management over the past
year, resulted in a $12.9 million (or 17.1%) increase in equity and fixed
income institutional revenues. Mutual fund revenues grew more modestly at 3.3%.
The increase in fees from the equity mutual funds resulting from market growth
of assets was offset by a decline in fees from the money market fund business
when compared to the nine months ended September 30, 1994. Real estate revenues
were down $1.1 million when compared to 1994 due primarily to lower assets
under management resulting from sales.
Other revenues of $19.1 million for the nine months ended September 30, 1995
were up $3.2 million as compared to revenues of $16.0 million for the nine
months ended September 30, 1994. The increase results primarily from higher
transfer agency revenues.
Interest income and other revenues of $7.9 million for the nine months ended
September 30, 1995 increased $6.4 million compared to $1.5 million for the nine
months ended September 30, 1994. Interest income on the U.S. Government agency
securities for the nine months ended September 30, 1995, which were purchased
in November of 1994, totaled $4.5 million and was virtually offset by the $3.9
million increase in interest expense in 1995 to finance the acquisition of
these securities. The balance of the 1995 increase is due to a $2.0 million
gain on the sale of the U.S. Government securities in 1995 which was generally
offset by several one-time expenses.
A gain of $4.7 million on the partial sale of the NEIC's interest in its
affiliate, CGM, was realized during the first quarter of 1995 and 1994,
respectively. These sales transactions are in accordance with an agreement with
management of CGM to increase its ownership interest in CGM.
Compensation and benefits of $90.3 million for the nine months ended
September 30, 1995 was up $9.0 million (or 11.1%) compared to $81.3 million for
the nine months ended September 30, 1994. A $5.6 million increase in base
compensation and benefits in 1995 is primarily the result of annual salary
increases combined with increased staffing at certain advisory offices.
Variable compensation plans, which are generally based on subsidiary
profitability, portfolio performance and sales growth, increased $3.4 million
for the nine months ended September 30, 1995 as compared to the nine months
ended September 30, 1994.
Distribution costs of $14.7 million for the nine months ended September 30,
1995 increased $0.9 million as compared to $13.8 million for the nine months
ended September 30, 1994. The increase results primarily from promotional costs
associated with the launching of a new fund and a new 401(k) marketing
initiative.
Other expenses of $27.7 million for the nine months ended September 30, 1995
increased $4.0 million compared to $23.7 million for the nine months ended
September 30, 1994. The increase in 1995 results are primarily due to one-time
expenses related to certain business ventures and development efforts.
11 of 15
<PAGE>
ASSETS UNDER MANAGEMENT
At September 30, 1995, NEIC had $78.3 billion of assets under management, an
increase of $16.7 billion (or 27%) as compared to September 30, 1994. The
Harris acquisition on September 29, 1995 contributed $7.0 billion of this
increase, including $3.6 billion of mutual funds, $1.7 billion in
institutional fixed income and equity, and $1.7 billion in private accounts.
Excluding the Harris acquisition and institutional real estate, assets under
management were up 20% compared to September 30, 1994. Since September 30,
1994, there has been a 6.3% increase in the bond market, as measured by the
Merrill Lynch Government Corporate Bond Index and a 26% increase in the stock
market, as measured by the S&P 500 Index.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1994 1995
------------- ------------ -------------
(IN BILLIONS)
<S> <C> <C> <C>
Institutional fixed income and equi-
ty.................................. $38.6 $39.3 $48.8
Mutual funds......................... 13.3 12.8 19.1
Private accounts and other........... 2.7 2.6 4.4
Institutional real estate............ 7.0 6.6 6.0
----- ----- -----
Totals............................. $61.6 $61.3 $78.3
===== ===== =====
</TABLE>
CAPITAL RESOURCES AND LIQUIDITY
Operating cash flow of the Partnership not required for normal business
operations, working capital needs or growth strategies is generally
distributed to unitholders each quarter. Distributions are typically declared
during the last month of the calendar quarter to which the distribution
relates. On September 19, 1995, the Board of Directors of NEIC declared a
distribution of $14.1 million or $0.44 per LP Unit payable on November 15,
1995 to unitholders of record on September 30, 1995.
Cash and cash equivalents at September 30, 1995 totaled $40.7 million, an
increase of $23.8 million as compared to December 31, 1994. The increase
reflects the proceeds from the sale of the deferred sales commissions and the
sale of U.S. Government agency securities, the proceeds of which were also
used to satisfy the balance of securities sold under agreement to repurchase.
An additional $20.0 million was available from the unused $20.0 million bank
line of credit. The $5.0 million note payable at December 31, 1994 borrowed
under this line of credit was repaid during January 1995.
Net cash provided by operations of $65.0 million in 1995 increased $18.6
million from the $46.4 million provided in 1994. The increase was primarily
the result of the sale of deferred sales commissions, combined with the
increase in accounts payable and other liabilities of $10.5 million due
primarily to the Harris acquisition.
NEIC acquired the assets and certain liabilities of Harris on September 29,
1995 for an initial payment of $175.0 million paid in $79.7 million of
promissory notes, $95.3 million of newly issued LP Units and an additional
payment estimated to be $35.0 million in April 1997. The $79.7 million in
promissory notes mature in January 1996. Payment is expected to be financed
with a privately placed seven-year financing with an all-in rate of
approximately 7.3% based on current market conditions.
NEIC's subsidiary, Copley, and New England Mutual have been named in the
litigation described in Note 6 to the accompanying financial statements.
Management believes that significant losses as a result of these suits are
remote and should not have a material adverse effect on the financial
condition, results of operations and cash flows of NEIC. Management has based
its conclusion on its assessment of the merits of the cases, the current
status of the cases, the background of the litigation, and, in light of these
factors, New England Mutual's agreement to indemnify Copley for its expenses
and liability, if any.
12 of 15
<PAGE>
PART II.--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
CERTAIN OPERATING POLICIES
NEIC bases its distribution and other operating policies on operating cash
flow per LP Unit. Management defines operating cash flow per LP Unit as net
income per LP Unit plus amortization of the intangible assets associated with
acquisitions adjusted for any other significant non-cash items. Capital gains
are not reflected as a component of operating cash flow per LP Unit. NEIC
generally intends to distribute substantially all of its operating cash flow
per LP Unit not required for normal business operations, working capital needs
or growth strategies.
The Harris acquisition has resulted in the recording of an intangible asset
of $213.4 million. The resulting amortization, combined with the amortization
that arose from the Reich & Tang combination, is a non-cash expense that will
not affect cash available for distribution to partners. Historical and pro
forma operating cash flow per LP Unit for the nine months ended September 30,
1995 giving effect to the Harris acquisition follows (in thousands, except per
unit data):
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
HISTORICAL PRO FORMA
----------- -----------
PER L.P. UNIT AMOUNT PER L.P. UNIT AMOUNT
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Income available for
proportionate allocation....... $ 1.36 $43,622 $ 1.21 $47,054
Add amortization of intangible
assets......................... .26 8,312 .48 18,983
Less capital gains.............. (.15) (4,712) (.12) (4,712)
------ ------- ------ -------
Operating cash flow............. $ 1.47 $47,222 $ 1.57(1) $61,325
====== ======= ====== =======
Distributions declared.......... $ 1.30 n/a
====== ======
Weighted average LP Units
outstanding.................... 32,038 39,000(1)
====== ======
</TABLE>
The above calculation of operating cash flow per LP Unit should be read in
conjunction with the historical financial statements of NEIC and Harris, and
the notes thereto. Operating cash flow per LP Unit should not be considered as
an alternative to net income per LP Unit or as an alternative to cash flow
provided by operating activities as reported in the statement of cash flows.
- --------
(1) Pro forma weighted average LP Units outstanding includes 1,647,059 LP
Units that are assumed to be issued during 1997 resulting from the
estimated contingent payment due Harris based on its 1996 results.
Excluding the 1,647,059 LP Units that may be issued resulting from the
contingent payment due Harris, pro forma operating cash flow per LP Unit
would be $1.64 per LP Unit. See the pro forma financial information
appearing herein in Item 1, Note 3 to the consolidated financial
statements, for additional information.
THE PROPOSED MERGER OF NEW ENGLAND MUTUAL AND METROPOLITAN LIFE
NEIC does not expect that the proposed merger described in Note 5 to the
accompanying financial statements will result in a change in the management,
policies or strategies of NEIC. It is likely that after the merger, the Board
of Directors of New England Investment Companies, Inc., the general partner of
NEIC, would include a simple majority of members designated by Metropolitan
Life.
13 of 15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
FORM 8-K FILINGS
On August 17, 1995, NEIC filed a Form 8-K dated August 16, 1995. The Form 8-
K included as an exhibit a press release which announced New England Mutual's
board approval of an agreement to merge into Metropolitan Life Insurance
Company.
On October 10, 1995, NEIC filed a Form 8-K dated September 29, 1995 with the
Securities and Exchange Commission. The Form 8-K reported the purchase of
substantially all of the assets and the assumption of certain liabilities of
Harris by NEIC. Financial statements filed as part of this Form 8-K included
those of the businesses acquired and the pro forma financial information of
the combined entities as follows:
(a) Financial statements of businesses acquired.
(i) Consolidated Audited Financial Statements of Harris Associates L.P.
and Subsidiaries as of December 31, 1994, 1993 and 1992.
(ii) Consolidated Unaudited Financial Statements of Harris Associates
L.P. and Subsidiaries as of June 30, 1995 and 1994.
(b) Pro forma financial information.
(i) Unaudited Pro Forma Condensed Combined Balance Sheet of New England
Investment Companies, L.P. as of June 30, 1995.
(ii) Unaudited Pro Forma Condensed Combined Statement of Operations of
New England Investment Companies, L.P. for the Six Months Ended June 30,
1995.
(iii) Unaudited Pro Forma Condensed Combined Statement of Operations of
New England Investment Companies, L.P. for the Year Ended December 31,
1994.
On November 9, 1995, NEIC filed a Form 8-K dated November 8, 1995 with the
Securities and Exchange Commission. The Form 8-K reported the audited balance
sheet and notes thereon of New England Investment Companies, Inc. at December
31, 1993 and 1994 and certain management contracts entered into by NEIC.
14 of 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
New England Investment Companies, L.P.
--------------------------------------
Registrant
Date: November 13, 1995 By: /s/ G. Neal Ryland
------------------------------- ----------------------------------
G. Neal Ryland
Executive Vice President and
Chief Financial Officer
15 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 40,714
<SECURITIES> 0
<RECEIVABLES> 51,264
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,401
<PP&E> 17,186
<DEPRECIATION> 0
<TOTAL-ASSETS> 516,207
<CURRENT-LIABILITIES> 73,286
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 310,764
<TOTAL-LIABILITY-AND-EQUITY> 516,207
<SALES> 0
<TOTAL-REVENUES> 197,343
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,950
<INCOME-PRETAX> 40,206
<INCOME-TAX> 975
<INCOME-CONTINUING> 39,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,231
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
