<PAGE>
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 June 30, 1996
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
incorporation or organization) Identification No.)
399 Boylston Street, Boston, Massachusetts 02116
- ------------------------------------------ -----
(Address of principal executive offices) (Zip
Code)
(617) 578-3500
--------------
(Registrant's telephone number, including area code)
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
The issuer is a limited partnership with 37,698,199 Limited Partnership
Interests outstanding on August 14, 1996.
1
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS.
--------------------
Consolidated Balance Sheet as of December
31, 1995 and June 30, 1996 3
Consolidated Statement of Income for the three
and six months ended June 30, 1995 and 1996 4
Consolidated Statement of Cash Flows for the
six months ended June 30, 1995 and 1996 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 1. LEGAL PROCEEDINGS. 14
------------------
ITEM 5. OTHER INFORMATION. 14
-----------------
SIGNATURES
- ---------- 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS.
- ------------------------------
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 34,385 $ 69,527
Accounts receivable 54,403 59,393
Other 11,697 15,767
--------- --------
Total current assets 100,485 144,687
Intangible assets 355,122 364,272
Fixed assets 17,167 17,310
Other assets 48,099 50,345
--------- --------
Total assets $520,873 $576,614
========= ========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current Liabilities:
Accounts payable and other liabilities $ 24,774 $ 29,999
Accrued compensation and benefits 29,541 30,630
Distribution payable 17,950 19,188
-------- --------
Total current liabilities 72,265 79,817
Deferred compensation, benefits and other 17,666 19,712
Notes payable 80,919 115,000
Deferred purchase consideration 41,000 41,000
-------- --------
Total liabilities 211,850 255,529
Commitments and contingent liabilities (note 7)
Partners' capital 309,023 321,085
-------- --------
Total liabilities and partners' capital $520,873 $576,614
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
--------------------------------------
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per unit data, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
- ---------------------------
Management and advisory fees $54,359 $82,717 $106,276 $162,630
Other revenues and interest income 10,392 12,329 19,572 21,741
Gain on partial sale of affiliate - - 4,712 4,988
------- ------- -------- --------
64,751 95,046 130,560 189,359
------- ------- -------- --------
EXPENSES
- ---------------------------
Compensation and benefits 30,003 44,903 58,351 88,339
Restricted unit plan compensation 1,415 1,268 2,942 2,620
Distribution costs 5,660 6,452 10,108 12,684
Amortization of intangibles 2,740 6,081 5,480 11,482
Occupancy and equipment 3,496 4,033 6,680 7,821
Interest expense 1,246 2,156 3,877 4,249
Other 8,589 11,595 15,788 22,671
------- ------- -------- --------
53,149 76,488 103,226 149,866
------- ------- -------- --------
Income before income taxes 11,602 18,558 27,334 39,493
Income tax expense 225 1,208 625 1,829
------- ------- -------- --------
Net income $11,377 $17,350 $ 26,709 $ 37,664
======= ======= ======== ========
Net income per unit $0.40 $0.47 $0.93 $1.00
======= ======= ======== ========
Weighted average units
outstanding 31,990 40,521 31,990 40,453
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
--------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1995 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 26,709 $ 37,664
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of intangibles 5,480 11,482
Restricted unit plan compensation 2,942 2,620
Gain on partial sale of affiliate (4,712) (4,988)
----------- ----------
Sub-total 30,419 46,778
Depreciation and amortization 3,484 2,486
Gain on sale and accretion of discount on securities (3,545) -
Increase in accounts receivable and other assets (10,988) (9,123)
Increase (decrease) in accounts payable and other liabilities (2,189) 5,267
----------- ----------
Net cash provided by operating activities 17,181 45,408
----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (3,281) (2,546)
Acquisition payments, net of cash acquired - (5,885)
Proceeds from sale of U.S. government agency securities 209,551 -
Increase in receivable from securities sale (39,381) -
Proceeds from partial sale of affiliate 4,712 4,988
----------- ----------
Net cash provided by (used in) investing activities 171,601 (3,443)
----------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from senior note borrowing - 110,000
Repayment of promissory notes - (80,919)
Repayment of securities sold under agreement to repurchase (166,870) -
Distributions paid to unitholders (26,872) (35,904)
----------- ----------
Net cash used in financing activities (193,742) (6,823)
----------- ----------
Net increase (decrease) in cash and cash equivalents (4,960) 35,142
Cash and cash equivalents, beginning of period 16,884 34,385
----------- -----------
Cash and cash equivalents, end of period $ 11,924 $ 69,527
=========== ===========
Cash paid during the period for interest $ 3,889 $ 2,529
=========== ===========
Cash paid during the period for income taxes $ 1,118 $ 1,664
=========== ===========
Supplemental disclosure of non-cash transactions:
Increase in intangible assets - $ 14,723
Increase in notes payable - 5,000
Increase in partners' capital - 9,723
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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. (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 the
Partnership filed on Form 10-K for the year ended December 31, 1995. In the
opinion of management, all adjustments, consisting only of normal recurring
accruals, have been made to present fairly the financial statements of the
Partnership at June 30, 1996 and for the three and six month periods ended June
30, 1995 and 1996.
Certain amounts in prior period financial statements have been reclassified to
conform with the 1996 presentation.
NOTE 2 - NET INCOME PER UNIT
- ----------------------------
The calculation of net income per publicly held unit ("net income per unit")
follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
1995 1996 1995 1996
------ ---- ---- ----
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Net income $11,377 $17,350 $26,709 $37,664
Restricted unit plan compensation
and other 1,415 1,493 2,942 2,620
--------- -------- --------- ---------
Income available for allocation $12,792 $18,843 $29,651 $40,284
========= ========= ========= =========
Net income per unit $0.40 $0.47 $ 0.93 $1.00
========= ========= ========= =========
Net income per unit is calculated using the following weighted average units outstanding:
Weighted average actual units
outstanding 31,990 37,657 31,990 37,526
Estimated units assumed outstanding
to settle deferred purchase
consideration:
As reported at December 31, 1995 - 1,941 - 1,941
Estimated increase at June 30, 1996 - 923 - 986
--------- --------- --------- ---------
Weighted average units outstanding 31,990 40,521 31,990 40,453
========= ========= ========= =========
</TABLE>
Weighted average units outstanding include the dilutive effect of 4,055,000
units assumed outstanding from the estimated deferred purchase consideration as
of June 30, 1996 at $23.50 per unit (see note 3). The deferred purchase
consideration will be settled in April 1997 in either units, cash or a
combination thereof based on selection by the seller's partners. Accordingly,
the actual number of units issued could be substantially lower than the units
assumed outstanding in the calculation of net income per unit. As the market
value of units varies prior to the actual payment date, the number of units
assumed outstanding in the calculation of net income per unit will be adjusted
and previously reported net income per unit will be restated, if significant.
The actual units outstanding were 31,979,000 and 37,808,000 at June 30, 1995 and
1996, respectively.
6
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3 - ACQUISITION OF HARRIS ASSOCIATES L.P.
- ----------------------------------------------
On September 29, 1995, the Partnership purchased substantially all of the assets
and acquired certain liabilities of Harris Associates L.P. ("Harris"), a
Chicago-based investment management company.
The pro forma, unaudited financial data shown below for the six months ended
June 30, 1995 gives effect to the Harris acquisition as if it had occurred on
January 1, 1995. Adjustments include the amortization of the intangible assets,
financing costs and compensation expense. Intangible assets consisting of
investment management contracts and goodwill, resulting from the acquisition of
Harris, are being amortized over periods ranging from 9 to 30 years on a
straight line basis. The financial data shown below does not necessarily
reflect the results of operations that would have been obtained had the
acquisition occurred on the assumed date, nor is it necessarily indicative of
the results of the combined entities that may be achieved for any future period.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1995 1996
Pro Forma Actual
----------------- ---------------
(in thousands, except per unit data)
<S> <C> <C>
Revenues $159,428 $189,359
========= ========
Net income $ 30,141 $ 37,664
========= ========
Net income per unit $ 0.82 $ 1.00
======== ========
Weighted average units outstanding 40,453 40,453
======== ========
</TABLE>
NOTE 4 - INVESTMENT IN AFFILIATE
- --------------------------------
The Partnership's limited partner interest in Capital Growth Management Limited
Partnership ("CGM") was 54% and 50% on December 31, 1995 and June 30, 1996,
respectively. The remaining limited partnership interest is owned indirectly by
the management of CGM, who were obligated to apply a defined portion of their
CGM earnings to purchase additional partnership interests from the Partnership
at a pre-determined formula until the Partnership's ownership interest was
reduced to 50%. During the first quarter of 1995 and 1996, gains of $4,712,000
and $4,988,000, respectively, were recorded from the agreed-upon sales of CGM
partnership interests. Management of CGM is no longer required to make further
purchases of partnership interests.
7
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 5 - THE PROPOSED MERGER OF NEW ENGLAND MUTUAL AND METROPOLITAN LIFE
- ------------------------------------------------------------------------
In August 1995, New England Mutual Life Insurance Company ("New England
Mutual"), the Partnership's largest investor, announced an agreement to merge
(the "Merger") with the Metropolitan Life Insurance Company ("Metropolitan
Life"), with Metropolitan Life to be the surviving entity. The Merger, which is
subject to regulatory approval, is expected to take place in the third quarter
of 1996. Metropolitan Life is the second largest life insurance company in the
United States in terms of total assets, having assets of over $142 billion (and
adjusted capital of over $8.4 billion) at December 31, 1995. Incident to the
Merger, New England Mutual's ownership interests in the Partnership and the
General Partner will be transferred to Metropolitan Life and Metropolitan Life
will assume the various contractual obligations of New England Mutual to the
Partnership. This transaction will constitute a technical "change of control" of
the Partnership under federal securities law. As a consequence, the investment
management firms of the Partnership have substantially completed the required
process of soliciting the consent of individual investment advisory clients and
the reapproval by mutual fund shareholders of investment management contracts
with the funds they advise.
The Partnership's subsidiary Copley Real Estate Advisors, Inc. ("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 and New England
Mutual have developed a plan to deal with these matters and to protect the
interest of Copley and its clients. The Partnership does not expect any
material adverse financial consequences resulting from this transfer.
The transfer of New England Mutual's interest in the Partnership to Metropolitan
Life incident to the proposed merger is expected to cause a technical
termination and reconstitution of New England Investment Companies, L.P. as a
partnership for federal income tax purposes. Under such circumstances,
management expects to preserve to public unitholders substantially all of the
benefits of amortization tax deductions that they would have enjoyed if the
termination had not occurred. Termination would have no effect on the
Partnership continuing its status as a master limited partnership.
NOTE 6 - TAX CONSIDERATIONS FOR PUBLIC UNITHOLDERS
- ---------------------------------------------------
Management believes that, as a result of the Omnibus Budget Reconciliation Act
of 1993 and a special tax election which the Partnership 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. Following the transfer of New England Mutual's investment
in the Partnership to Metropolitan Life and the expected consequence of a
technical termination of the Partnership for Federal income tax purposes,
management expects to make certain tax elections and adopt certain tax
conventions designed to provide public unitholders with substantially all of the
benefits of tax amortization that they would have enjoyed if the termination had
not occurred. Taking into account amortization deductions with respect to
certain intangible assets (which depend in part on the particular unitholder's
purchase price) 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. Such
amortization deductions will decrease the unitholder's tax basis, and will
likely be recaptured as ordinary income upon disposition of the units.
8
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following example of this benefit assumes an individual purchased units
during December 1995 and held them through June 30, 1996. This unitholder would
have a convention purchase price, as defined in the Partnership Agreement of the
Partnership, of $20.25 of which $19.25 is allocated to Section 197 assets. The
estimated tax benefit for the six months ended June 30, 1996 follows:
<TABLE>
<CAPTION>
<S> <C>
Estimated tax amortization per unit $ 0.71
Less financial statement amortization
per unit (0.28)
--------
Tax benefit for the six months ended
June 30, 1996 $ 0.43
========
</TABLE>
Each year, a Schedule K-1 is sent to each unitholder identifying their
amortization tax benefit. Under federal tax law, a unitholder is required to
pay tax on their 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 units is urged to consult their tax
advisor.
NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES
- -----------------------------------------------
The Washington State Investment Board and the State Teachers Retirement Board of
Ohio each brought suit in July 1993 against New England Mutual and Copley
alleging that they are legally responsible for losses on investments by the PCIG
funds sponsored by Copley. Both actions have now been settled. On June 6, 1996,
the Washington State Investment Board entered into a settlement agreement with
New England Mutual and Copley, performance of which is subject to the proposed
merger of New England Mutual and Metropolitan Life. On August 7, 1996, the State
Teachers Retirement Board of Ohio entered into an agreement with New England
Mutual and Copley for a settlement to take effect on August 30, 1996 or any
later date on which the parties may agree. New England Mutual, and Metropolitan
Life subsequent to the proposed merger, has indemnified Copley against any and
all liability and expenses arising out of the two suits, including the
settlements. Accordingly, the settlements are not expected to have any effect on
the financial condition of the Partnership.
The Partnership is subject to other legal proceedings and claims which have been
incurred in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions, if any, will not
materially affect the financial position of the Partnership.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
--------------
GENERAL
- -------
Consolidated summary financial information of New England Investment Companies,
L.P. for the three and six months ended June 30 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1995(1) 1996 1995(1) 1996
----------- ---------- ----------- ----------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 64,751 $95,046 $130,560 $189,359
-------- ------- -------- --------
TOTAL EXPENSES 53,374 77,696 103,851 151,695
-------- ------- ------- --------
NET INCOME $ 11,377 $17,350 $ 26,709 $ 37,664
======== ======= ======== ========
NET INCOME PER UNIT $ 0.40 $ 0.47 $ 0.93 $ 1.00
======== ======= ======== ========
OPERATING CASH FLOW(2) $ 15,532 $24,699 $ 30,419 $ 46,778
======== ======= ======== ========
OPERATING CASH FLOW PER UNIT(2) $ 0.48 $ 0.61 $ 0.95 $ 1.16
======== ======= ======== ========
</TABLE>
(1) Results for the three and six months ended June 30, 1995 do not include
Harris which was acquired on September 29, 1995 using the purchase method of
accounting.
(2) Operating cash flow represents net income adjusted for restricted unit plan
compensation, amortization of intangibles and non-recurring items. Operating
cash flow per public unit ("operating cash flow per unit") should not be
construed as an alternative to net income per unit or cash flow from
operating activities.
10
<PAGE>
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE
- ----------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1995
- --------------------------------
Net income of $17.4 million for the three months ended June 30, 1996
increased $6.0 million as compared to net income of $11.4 million for the three
months ended June 30, 1995. Net income per unit of $0.47 for the three months
ended June 30, 1996 increased $0.07 (or 17.5%) compared to the same quarter last
year due primarily to internal growth as well as the September 29, 1995
acquisition of Harris.
Management and advisory fees of $82.7 million for the three months ended
June 30, 1996 increased $28.3 million as compared to $54.4 million for the same
quarter last year. Included in 1996 results are Harris revenues of $20.5
million. Excluding Harris, revenues increased $7.8 million (or 14%).
Other revenues and interest income of $12.3 million for the three months
ended June 30, 1996 increased $1.9 million as compared to $10.4 million for the
same quarter last year. The increase results from broker dealer fees at Harris
($1.1 million) and interest income from higher cash balances ($0.9 million).
Compensation and benefits of $44.9 million for the three months ended June
30, 1996 increased $14.9 million from the same quarter last year. This expense
includes increased variable compensation of $10.1 million, resulting primarily
from Harris, and higher incentive payments due to subsidiary profitability,
portfolio performance and sales growth. Base compensation and benefits also
increased $4.8 million resulting primarily from Harris.
Distribution costs of $6.5 million for the three months ended June 30, 1996
increased $0.8 million from the same quarter last year due primarily to the
acquisition of Harris.
Amortization of intangibles of $6.1 million for the three months ended June
30, 1996 increased $3.3 million from the same quarter last year due primarily to
the acquisition of Harris.
Interest expense of $2.2 million for the three months ended June 30, 1996
increased $0.9 million from the same quarter last year. The increase is due to
$2.1 million of interest on $110 million in senior notes whereas the results for
1995 included $1.2 million of interest on securities sold under agreements to
repurchase.
Other expenses of $11.6 million for the three months ended June 30, 1996
increased $3.0 million from the same quarter last year. The increase results
primarily from the inclusion of general and administrative expenses at Harris.
See note 7 to these financial statements for information concerning the
settlement of certain litigation related to Copley and New England Mutual and
the indemnification of Copley by New England Mutual.
11
<PAGE>
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX
- ------------------------------------------------------------------------------
MONTHS ENDED JUNE 30, 1995
- -------------------------
Net income of $37.7 million for the six months ended June 30, 1996 increased
$11.0 million as compared to net income of $26.7 million for the six months
ended June 30, 1995. Net income per unit of $1.00 for the six months ended June
30, 1996 increased $0.07 (or 7.5%) compared to the same period last year due
primarily to internal growth as well as the September 29, 1995 acquisition of
Harris.
Management and advisory fees of $162.6 million for the six months ended June
30, 1996 increased $56.3 million as compared to $106.3 million for the same
period last year. Included in 1996 results are Harris revenues of $38.9
million. Excluding Harris, revenues increased $17.4 million (or 16%).
Other revenues and interest income of $21.7 million for the six months ended
June 30, 1996 increased $2.1 million from $19.6 million for the same period last
year. The increase results from broker dealer fees at Harris ($2.0 million),
increased interest income from higher cash balances ($1.6 million) and increased
transfer agency and other revenues ($2.0 million) partially offset by gains on
securities sold in the comparable period in 1995.
A $5.0 million gain on the partial sale of the Partnership's interest in its
affiliate, CGM, was realized during the first quarter of 1996 as compared to
$4.7 million for the same period last year. This transaction completes the
agreement with CGM management to reduce the Partnership's ownership interest to
50%.
Compensation and benefits of $88.3 million for the six months ended June 30,
1996 increased $30.0 million compared to the same period last year. This
expense includes increased variable compensation of $19.5 million, resulting
primarily from Harris, and higher incentive payments due to subsidiary
profitability, portfolio performance and sales growth. Base compensation and
benefits also increased $10.5 million primarily from Harris.
Distribution costs of $12.7 million for the six months ended June 30, 1996
increased $2.6 million from the same period last year. The increase results
from higher fees paid to brokers reflective of higher mutual fund assets under
management and Harris of $0.8 million.
Amortization of intangibles of $11.5 million for the six months ended June
30, 1996 increased $6.0 million from the same period last year due primarily to
the acquisition of Harris.
Occupancy and equipment expense of $7.8 million for the six months ended
June 30, 1996 increased $1.1 million from the same period last year due
primarily to the acquisition of Harris.
Interest expense of $4.2 million for the six months ended June 30, 1996
increased $0.4 million from the same period last year. The increase is
primarily due to interest on $110 million of senior notes offset largely by
interest on securities sold under agreements to repurchase which was incurred in
1995.
Other expenses of $22.7 million for the six months ended June 30, 1996
increased $6.9 million from the same period last year. The increase results
from Harris and higher general and administrative expenses associated with
expanded business activities.
12
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Operating cash flow not required for normal business operations and working
capital needs is generally distributed to unitholders each quarter.
Distributions to unitholders are typically declared during the last month of
calendar quarters.
On June 18, 1996, the Board of Directors declared a distribution of $19.2
million or $0.51 per unit payable on August 15, 1996 to unitholders of record on
June 30, 1996. The comparable distribution rate on June 30, 1995 was $0.44.
Cash and cash equivalents at June 30, 1996 of $69.5 million increased $35.1
million as compared to December 31, 1995. The increase primarily reflects $110
million of proceeds from the senior notes of which $80.9 million was used in
January 1996 to repay the promissory notes issued in conjunction with the Harris
acquisition.
In April 1997, there will be an additional payment for the Harris
acquisition financed with units, cash or a combination thereof. The estimated
deferred purchase consideration is based on a multiple of the greater of Harris'
1995 or 1996 revenues.
ASSETS UNDER MANAGEMENT
- -----------------------
Assets under management follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1995 1996
-------- ----------- --------
(in billions)
<S> <C> <C> <C>
Institutions:
Fixed income and equity $44.9 $50.2 $53.6
Real estate assets 6.1 5.9 5.6
Mutual funds 14.6 20.3 22.4
Private accounts and other 2.7 4.6 5.4
----- ----- -----
$68.3 $81.0 $87.0
===== ===== =====
</TABLE>
Assets under management increased $12.7 billion to $81.0 billion at December
31, 1995 from $68.3 billion at June 30, 1995. The increase in assets under
management includes $7.0 billion from the acquisition of Harris on September 29,
1995. At June 30, 1996, assets under management increased $6.0 billion (or
7.4%) to $87.0 billion as compared to $81.0 billion at December 31, 1995,
primarily as a result of growth in institutional accounts and equity mutual
funds, as well as $1.6 billion from the acquisition of Vaughan, Nelson,
Scarborough & McConnell, L.P. on May 9, 1996.
13
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
Reference is made to the description of the legal actions by the Washington
State Investment Board and the State Teachers Retirement System of Ohio against
New England Mutual and Copley, contained in the Partnership's Form 10-K for the
year ended December 31, 1995. Both actions have now been settled. On June 6,
1996, the Washington State Investment Board entered into a settlement agreement
with New England Mutual and Copley, performance of which is subject to the
proposed merger of New England Mutual and Metropolitan Life. On August 7, 1996,
the State Teachers Retirement Board of Ohio entered into an agreement with New
England Mutual and Copley for a settlement to take effect on August 30, 1996 or
any later date on which the parties may agree. New England Mutual, and
Metropolitan Life subsequent to the proposed merger, has indemnified Copley
against any and all liability and expenses arising out of the two suits,
including the settlements. Accordingly, the settlements are not expected to have
any effect on the financial condition of the Partnership.
On June 7, 1996, the California Ironworkers Field Pension Trust, and several
related trusts (the "Trusts"), filed suit against the Partnership's subsidiary,
Loomis, Sayles & Company, L.P. ("Loomis Sayles") in the U.S. District Court
for the Central District of California (Western Division) alleging violation of
investment guidelines and breach of fiduciary duty under ERISA with respect to
the purchase of certain securities for the account of the Trusts. The suit
seeks money damages in excess of $20 million representing lost principal,
together with amounts representing loss of investment income and punitive
damages. Loomis believes that it has meritorious defenses and intends to
vigorously contest both allegations of liability and damages. NEIC management
believes that this claim will not have a material adverse effect on NEIC's
financial condition.
ITEM 5. OTHER INFORMATION
- -------------------------
CERTAIN OPERATING POLICIES
The Partnership intends to distribute to unitholders substantially all of its
operating cash flow not required for normal business operations and working
capital needs, including support of the Partnership's growth strategy.
Management defines operating cash flow per unit as net income adjusted for
restricted unit plan compensation, amortization of intangibles and non-recurring
items.
The following calculation of operating cash flow per unit should be read in
conjunction with the financial statements of the Partnership filed on Form 10-K.
Operating cash flow per unit should not be construed as an alternative to net
income per unit or cash flow from operating activities. Operating cash flow for
the six months ended June 30 follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
1995 1996
-----------------------------------------
Per Unit Amount Per Unit Amount
--------- -------- --------- --------
<S> <C> <C> <C> <C>
(in thousands, except per unit data)
Income available for allocation $ 0.93 $29,651 $ 1.00 $40,284
Less non-recurring items (0.15) (4,712) (0.12) (4,988)
------- ------- ------- --------
Sub-total 0.78 24,939 0.88 35,296
Add amortization of intangibles(1) 0.17 5,480 0.28 11,482
------- ------- ------- -------
Operating cash flow $ 0.95 $30,419 $ 1.16 $46,778
====== ======= ====== =======
Distributions declared $ 0.86 $ 0.99
====== ======
Weighted average units outstanding 31,990 40,453
====== ======
</TABLE>
________________________
(1) Amortization of intangibles is a non-cash expense and does not reduce
amounts available for cash distributions to unitholders.
14
<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
/s/ G. Neal Ryland August 14, 1996
- ---------------------------------------- -------------------
G. Neal Ryland Date
Executive Vice President, Chief Financial
Officer and Treasurer
/s/ Stephen D. Martino August 14, 1996
- ------------------------------------ -------------------
Stephen D. Martino Date
Senior Vice President and Controller
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 69,527
<SECURITIES> 0
<RECEIVABLES> 59,393
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 144,687
<PP&E> 17,310
<DEPRECIATION> 0
<TOTAL-ASSETS> 576,614
<CURRENT-LIABILITIES> 79,817
<BONDS> 115,000
0
0
<COMMON> 0
<OTHER-SE> 321,085
<TOTAL-LIABILITY-AND-EQUITY> 576,614
<SALES> 0
<TOTAL-REVENUES> 189,359
<CGS> 0
<TOTAL-COSTS> 145,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,249
<INCOME-PRETAX> 39,493
<INCOME-TAX> 1,829
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,664
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
