<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 September 30, 1997
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. There were 44,311,453 units of limited
partner interest and 110,000 units of general partner interest outstanding on
October 31, 1997.
1
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NEW ENGLAND INVESTMENT COMPANIES, L.P.
Index to Form 10-Q
PART I - FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
Page
----
Item 1. Financial Statements.
--------------------
<S> <C>
Consolidated Balance Sheet as of December 31, 1996
and September 30, 1997 3
Consolidated Statement of Income for the three and nine months
ended September 30, 1996 and 1997 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1996 and 1997 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 2. Changes in Securities. 14
----------------------
Item 4. Submission of Matters to a Vote of Security Holders. 14
----------------------------------------------------
Item 5. Other Information. 14
------------------
Item 6. Exhibits and Reports on Form 8-K. 15
---------------------------------
SIGNATURES 16
- ----------
</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, 1996 September 30, 1997
----------------- ------------------
Assets (unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 49,914 $ 112,728
Accounts receivable 66,430 87,670
Other 6,692 10,037
------------- -------------
Total current assets 123,036 210,435
Intangible assets 527,765 652,098
Fixed assets 19,236 23,238
Other assets 51,621 49,518
------------- -------------
Total assets $ 721,658 $ 935,289
============= =============
Liabilities and Partners' Capital
- ---------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 38,651 $ 52,432
Accrued compensation and benefits 43,612 58,654
Distribution payable 20,084 31,094
Notes payable - 27,600
------------- -------------
Total current liabilities 102,347 169,780
Deferred compensation, benefits and other 28,686 24,581
Notes payable 118,334 273,333
Deferred purchase consideration 144,027 -
------------- -------------
Total liabilities 393,394 467,694
Contingent liabilities (note 3)
Partners' capital 328,264 467,595
------------- -------------
Total liabilities and partners' capital $ 721,658 $935,289
============= =============
</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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
- --------
Management and advisory fees $ 85,370 $135,079 $248,000 $367,583
Other revenues and interest income 9,645 11,783 31,386 33,278
Gain on partial sale of affiliate - - 4,988 -
---------- ---------- ---------- ----------
95,015 146,862 284,374 400,861
---------- ---------- ---------- ----------
Expenses
- --------
Compensation and benefits 46,123 69,672 134,462 196,861
Restricted unit plan compensation 4,894 225 7,514 460
Amortization of intangibles 6,439 9,682 17,921 27,941
Depreciation and amortization 1,278 1,576 3,764 4,788
Occupancy and equipment 2,969 3,694 8,304 10,832
Interest expense 2,239 5,181 6,488 14,001
Other 17,106 29,825 52,461 74,783
---------- ---------- ---------- ----------
81,048 119,855 230,914 329,666
---------- ---------- ---------- ----------
Income before income taxes 13,967 27,007 53,460 71,195
Income tax expense 726 247 2,555 2,573
---------- ---------- ---------- ----------
Net income $ 13,241 $ 26,760 $ 50,905 $ 68,622
========== ========== ========== ==========
Net income per unit $ 0.43 $ 0.61 $ 1.42 $ 1.59
========== ========== ========== ==========
Distributions declared per unit $ 0.53 $ 0.70 $ 1.52 $ 1.89
========== ========== ========== ==========
Weighted average units outstanding 42,125 44,479 41,010 43,552
========== ========== ========== ==========
</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>
Nine Months Ended
September 30,
----------------------
1996 1997
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 50,905 $ 68,622
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangibles 17,921 27,941
Restricted unit plan compensation 7,514 460
Gain on partial sale of affiliate (4,988) -
--------- ---------
Sub-total 71,352 97,023
Depreciation and amortization 3,764 4,788
Increase in accounts receivable and other assets (7,668) (22,386)
Increase in accounts payable and other liabilities 14,312 25,218
--------- ---------
Net cash provided by operating activities 81,760 104,643
--------- ---------
Cash flows from investing activities:
Capital expenditures (4,690) (7,691)
Acquisition payments, net cash acquired (5,885) (44,812)
Proceeds from partial sale of affiliate 4,988 -
--------- ---------
Net cash used in investing activities (5,587) (52,503)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 110,000 160,000
Repayment of notes payable (80,919) (50)
Payment of deferred purchase consideration - (79,635)
Distributions paid to unitholders (55,111) (69,835)
Proceeds from exercise of stock options - 194
--------- ---------
Net cash provided by (used in) financing activities (26,030) 10,674
--------- --------
Net increase in cash and cash equivalents 50,143 62,814
Cash and cash equivalents, beginning of period 34,385 49,914
--------- ---------
Cash and cash equivalents, end of period $ 84,528 $ 112,728
========= =========
Cash paid during the period for interest $ 4,724 $ 10,868
========= =========
Cash period during the period for income taxes $ 2,459 $ 3,066
========= =========
Supplemental disclosure of non-cash
increase in partners' capital $ 9,723 $ 150,400
========= =========
</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, 1996. 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 September 30, 1997 and for the three and nine month periods ended
September 30, 1996 and 1997.
Certain amounts in prior period financial statements have been reclassified to
conform with the 1997 presentation.
NOTE 2 - NET INCOME PER UNIT
- ----------------------------
Net income per publicly held unit ("net income per unit") follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1997 1996 1997
---- ---- ---- ----
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Net income $ 13,241 $ 26,760 $ 50,905 $ 68,622
Restricted unit plan compensation 4,894 225 7,514 460
------------ ---------- ----------- -----------
Income available for allocation $ 18,135 $ 26,985 $ 58,419 $ 69,082
============ ========== =========== ===========
Net income per unit $ 0.43 $ 0.61 $ 1.42 $ 1.59
============ ========== =========== ===========
</TABLE>
Net income per unit is calculated using the following weighted average units
outstanding:
<TABLE>
<S> <C> <C> <C> <C>
Weighted average actual units outstanding 37,818 44,328 37,626 43,501
Incremental units from assumed exercise
of unit options - 151 - 51
Units assumed outstanding to settle
deferred purchase consideration 4,307 - 3,384 -
----------- ---------- ---------- ------------
Weighted average units outstanding 42,125 44,479 41,010 43,552
=========== ========== ========== ============
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The standard
specifies the computation, presentation and disclosure requirements for net
income per unit and is effective for the Partnership's financial statements for
the year ending December 31, 1997. The adoption of the standard is not expected
to have a material effect on the financial statements of the Partnership.
6
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3 - CONTINGENT LIABILITIES
- -------------------------------
The Partnership is subject to legal proceedings and claims which have arisen 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
adversely affect the results of operations or financial condition of the
Partnership.
NOTE 4 - PARTNERSHIP RESTRUCTURING AND TAXATION
- -----------------------------------------------
The Taxpayer Relief Act of 1997, signed into law on August 5, 1997, allows the
Partnership to elect to extend its grandfathered partnership tax status from
year-to-year on an indefinite basis upon payment of an annual 3.5% federal tax
on gross income. On September 16, 1997, the Board of Directors approved a plan
of Restructuring under which the Partnership will make such an election. Were
the Partnership not to make this election, or if it decides in the future not to
pay the 3.5% gross income tax, it would become subject to the regular federal
corporate income tax, with a maximum rate as high as 35% of taxable income.
The plan provides for the Partnership to be restructured in accordance with the
terms of its partnership agreement, which confers broad authority and absolute
discretion on the General Partner to effect (or not to effect) one or more
restructurings ("Restructurings"). Additional information regarding possible
Restructurings is contained under the caption "Possible Future Restructuring of
the Partnership" in Item 1 of the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1996.
Pursuant to the plan of Restructuring approved by the Board of Directors, the
Partnership anticipates that, at year-end 1997, all of the Partnership's
business and assets (consisting principally of the operating firms owned by the
Partnership), subject to all of its liabilities, will be contributed tax free to
an operating partnership, NEIC Operating Partnership, L.P. (the "Operating
Partnership"). In consideration of the asset contribution, the Partnership will
receive the beneficial ownership in the Operating Partnership, consisting of a
number of partnership units of that partnership equal to the number of
outstanding units of the Partnership. As contemplated by the partnership
agreement, certain Partnership unitholders (primarily those who have acquired
Partnership units in exchange for contributions of appreciated investment
management businesses and certain persons providing ongoing services to the
Partnership) may choose to become partners in the Operating Partnership by
exchanging Partnership units with the Partnership for an equal number of units
of the Operating Partnership. Any such unitholders who do not transfer their
ownership to the Operating Partnership and the Partnership's other unitholders
(primarily persons who have acquired their Partnership units for cash in the
public market) will remain partners in the Partnership.
The Partnership will remain publicly traded and will continue to file public
reports with the Securities and Exchange Commission ("SEC"). The Partnership's
business will be its ownership participation in the Operating Partnership. In
this regard, the Partnership will receive proportionate distributions from the
Operating Partnership. The Partnership will pay the 3.5% federal tax on its
proportionate share of the Operating Partnership's gross income, in lieu of
corporate income tax, so long as the Partnership maintains the applicable
election. The Partnership currently expects that it will distribute to its
unitholders substantially all of the distributions received from the Operating
Partnership after payment of the 3.5% federal tax, any state tax, and any other
expenses of the Partnership.
As a result of the unit exchange described above, the Operating Partnership will
have a limited number of partners, including the Partnership. Units of the
Operating Partnership will not be publicly traded, and there will be no market
for such units. Subject to various limitations under federal tax law and
regulations and the terms of the partnership agreements of the Partnership and
the Operating Partnership and a further agreement to be entered into by them,
unitholders of the Operating Partnership would from time to time be permitted to
sell their units in the Operating Partnership to the Partnership for cash or
units of the Partnership. Any such exchange of units would be on a one-for-one
basis, subject to adjustment in the event of changes in the capitalization of
the Partnership, including unit repurchases, or the retention of assets or
incurrence of liabilities in significant amounts. The Operating Partnership is
not expected to pay federal tax on its gross income.
7
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
New England Investment Companies, Inc. ("NEIC, Inc."), the general partner of
the Partnership, will also be the managing general partner of the Operating
Partnership.
Although the Partnership does not yet know its proportionate ownership in the
Operating Partnership, it anticipates that the Partnership will hold a minority
interest in the Operating Partnership. Management currently anticipates that, in
accordance with generally accepted accounting principles, the financial
statements of the Partnership will be presented under the equity method of
accounting and that the complete financial statements of the Operating
Partnership will be presented in conjunction with the financial statements of
the Partnership.
The following sets out the anticipated structure of the Partnership from and
after the Restructuring:
[An organization chart appears here. The organization chart shows that the
Partnership has an ownership interest in the Operating Partnership, which in
turn owns the investment management, distribution and consulting firms
comprising the Operating Partnership. The chart shows that both the Partnership
and the Operating Partnership will have limited partners. It also shows that
NEIC, Inc., the general partner of the Partnership, will be the managing general
partner of the Operating Partnership.]
NOTE 5 - TAX CONSIDERATIONS FOR PUBLIC UNITHOLDERS
- --------------------------------------------------
As a result of the Omnibus Budget Reconciliation Act of 1993 and a special tax
election which the Partnership has made, units purchased in the open market
after August 10, 1993 have been or will be allocated a substantial portion of
the purchase price of the units as amortization over a fifteen year period.
Taking into account such amortization tax benefits (which depend in part on the
particular unitholder's purchase price), Partnership distributions are expected
to significantly exceed net taxable income for units purchased after August 10,
1993. Amortization deductions will decrease the unitholder's tax basis of such
units, and will likely be recaptured as ordinary income upon disposition of the
units. Assuming a unit was purchased during December 1996 and is held through
December 31, 1997, this unit would have a convention purchase price, as defined
in the Partnership Agreement of the Partnership, of $24.25 of which
approximately $22.25 is allocated to Section 197 assets. Accordingly, the
estimated amortization tax benefit would be $1.48 per unit, or an income tax
savings of $0.59 per unit assuming a 40% combined federal and state income tax
rate, for the year ended December 31, 1997.
Each year, a Schedule K-1 is sent to each unitholder identifying their
amortization tax benefit, if applicable. 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.
8
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 - NOTES PAYABLE
- ----------------------
On April 1, 1997, the Partnership completed the private placement of
$160,000,000 of 7.15% Senior Notes due April 1, 2007. The Senior Notes have an
effective interest rate of 7.29%, including deferred debt issuance costs which
are amortized to interest expense over the term of the Notes. On July 9, 1997
the Partnership issued a short-term note payable of $22,650,000 at 5.91% due
January 30, 1998 in connection with an acquisition.
NOTE 7 - EQUITY INCENTIVE PLAN
- ------------------------------
On August 25, 1997, the unitholders approved the Partnership's 1997 Equity
Incentive Plan (the "Incentive Plan"). Under the Incentive Plan, 6,000,000 units
were approved for issuance under the terms of the Plan. In addition to options
to acquire units (including units of the Operating Partnership following a
Restructuring; see Note 4), any of the following incentives may be awarded to
participants under the Incentive Plan: unit appreciation rights ("SARs");
restricted units; unrestricted units; awards entitling the recipient to delivery
in the future of units or other securities; securities which are convertible
into or exchangeable for units and cash bonuses. These awards may be conditioned
in whole or in part on the satisfaction of specified performance criteria. The
exercise price of options granted under the Incentive Plan may not be less than
the fair market value of the underlying units on the date of grant. No awards
will be granted under the Incentive Plan after June 16, 2007 (although awards
granted prior to that day may continue thereafter). The Incentive Plan is
intended to qualify for exemption under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. On September 9, 1997, 3,060,000
options were granted to certain employees of the Partnership. Such options vest
January 1, 2004, or beginning January 1, 2000, depending upon the attainment of
certain unit market values of the Partnership, or ratably over a five year
period ending January 1, 2002.
Following the Restructuring described in Note 4, the Partnership's incentive
plans are expected to become plans of the Operating Partnership.
NOTE 8 - ACQUISITION
- --------------------
On July 9, 1997, the Partnership acquired certain assets and assumed certain
liabilities of Snyder Capital Management, Inc., a San Francisco-based investment
advisor with $1.1 billion in equity assets under management. Snyder Capital
Management specializes in bottom-up, value-oriented, small cap investing. The
acquisition has been accounted for under the purchase method of accounting.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
Any statements in this report that are not historical facts are intended to fall
within the safe harbor for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. Any forward-looking statements should
be considered in light of the risks and uncertainties attendant to the
Partnership and its business, which may cause actual results to vary materially
from what had been anticipated. Certain factors that affect the Partnership have
been described in the Partnership's filings with the Securities and Exchange
Commission, particularly the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1996 (under Item 1, "Business--Forward-Looking
Statements") and include factors such as conditions affecting fee revenues,
reliance on key personnel, competition, regulatory and legal factors, tax
considerations and possible future restructurings. Readers are encouraged to
review these factors carefully. The descriptions of the planned Restructuring
(see Note 4 of the Notes to Consolidated Financial Statements) and the potential
financial consequences of the Restructuring and of certain alternatives thereto
(see Note 4 and Capital Resources and Liquidity, below) constitute forward-
looking statements.
General
- -------
Consolidated financial information of the Partnership for the three and nine
months ended September 30 follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1997 1996 1997
---- ---- ---- ----
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Total revenues $ 95,015 $146,862 $284,374 $400,861
Total expenses 81,774 120,102 233,469 332,239
----------- ------------ ------------ ------------
Net income $ 13,241 $ 26,760 $ 50,905 $ 68,622
=========== ============ ============ ============
Net income per unit $ 0.43 $ 0.61 $ 1.42 $ 1.59
=========== ============ ============ ============
Distributions declared per unit $ 0.53 $ 0.70 $ 1.52 $ 1.89
=========== ============ ============ ============
Operating cash flow/1/ $ 24,574 $ 36,667 $ 71,352 $ 97,023
=========== ============ ============ ============
Operating cash flow per unit/1/ $ 0.58 $ 0.82 $ 1.74 $ 2.23
=========== ============ ============ ============
Weighted average units outstanding 42,125 44,479 41,010 43,552
=========== ============ ============ ============
</TABLE>
1. Operating cash flow represents net income adjusted for amortization of
intangibles, restricted unit plan compensation 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 September 30, 1997 Compared to
- -----------------------------------------------------------------------------
the Three Months Ended September 30, 1996
- -----------------------------------------
Net income of $26.8 million or $0.61 per unit for the three months ended
September 30, 1997 increased $13.6 million from net income of $13.2 million or
$0.43 per unit for the three months ended September 30, 1996. The increases
primarily reflect higher revenues due to increases in assets under management
from both internal growth and acquisitions.
Total revenues of $146.9 million for the three months ended September 30, 1997
increased $51.9 million (or 55%) from total revenues of $95.0 million for the
same quarter last year. The increase primarily reflects increases in assets
under management from both internal growth and acquisitions. Additionally, the
increase in equity assets under management, with higher investment management
fees compared to fixed income assets, contributed to the growth in revenues.
Compensation and benefits of $69.7 million for the three months ended September
30, 1997 increased $23.5 million compared to the same quarter last year and
consisted of 53% base compensation and 47% variable compensation. The increase
in variable compensation of $12 million resulted from subsidiary incentive
payments based on profitability, portfolio performance and sales growth. The
increase in base compensation of $11 million resulted primarily from new
affiliates which were not included in 1996 results.
Restricted unit plan compensation expense of $0.2 million for the three months
ended September 30, 1997 decreased $4.7 million from the same quarter last year,
reflecting the vesting of substantially all restricted units in August 1996 in
accordance with the terms of the plan.
Amortization of intangibles of $9.7 million for the three months ended September
30, 1997 increased $3.2 million from the same quarter last year due to
acquisitions.
Interest expense of $5.2 million for 1997 increased $2.9 million from the same
quarter last year, primarily reflecting the $160.0 million of notes payable
issued on April 1, 1997 for the financing of acquisitions.
Other expense of $29.8 million for the three months ended September 30, 1997
increased $12.7 million from the same quarter last year. The increase results
from higher general and administrative expenses associated with expanded
business activities and acquisitions.
11
<PAGE>
Statement of Income for the Nine Months Ended September 30, 1997 Compared to the
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 1996
- ------------------------------------
Net income of $68.6 million or $1.59 per unit for the nine months ended
September 30, 1997 increased $17.7 million from $50.9 million or $1.42 per unit
for the nine months ended September 30, 1996. The increases primarily reflect
higher revenues due to increases in assets under management from both internal
growth and acquisitions.
Total revenues of $400.9 million for the nine months ended September 30, 1997
increased $116.5 million (or 41%) from total revenues of $284.4 million for the
same period last year. The increase primarily reflects increases in assets under
management from both internal growth and acquisitions. Additionally, the
increase in equity assets under management, with higher investment management
fees compared to fixed income assets, contributed to the growth in revenues. A
$5.0 million non-recurring gain on the partial sale of the Partnership's
interest in its affiliate, Capital Growth Management Limited Partnership, was
realized during the first quarter of 1996, completing the agreement to reduce
the Partnership's ownership interest to 50%.
Compensation and benefits of $196.9 million for the nine months ended September
30, 1997 increased $62.4 million compared to the same period last year and
consisted of 53% base compensation and 47% variable compensation. The increase
in variable compensation of $33 million resulted from subsidiary incentive
payments based on profitability, portfolio performance and sales growth. The $29
million increase in base compensation resulted primarily from new affiliates
which were not included in 1996 results.
Restricted unit plan compensation expense of $0.5 million for the nine months
ended September 30, 1997 decreased $7.0 million from the same period last year,
reflecting the vesting of substantially all restricted units in August 1996 in
accordance with the terms of the plan.
Amortization of intangibles of $27.9 million for the nine months ended September
30, 1997 increased $10.0 million from the same period last year due to
acquisitions.
Interest expense of $14.0 million for the nine months ended September 30, 1997
increased $7.5 million from the same period last year reflecting the $160.0
million of notes payable issued on April 1, 1997 for the financing of
acquisitions.
Other expense of $74.8 million for the nine months ended September 30, 1997
increased $22.3 million from the same period last year. The increase results
from higher general and administrative expenses associated with expanded
business activities and acquisitions.
12
<PAGE>
Capital Resources and Liquidity
- -------------------------------
Operating cash flow not required for normal business operations and working
capital needs, including support of the Partnership's growth strategy, is
generally distributed to unitholders each quarter. Distributions to unitholders
are typically declared during the last month of calendar quarters. On September
16, 1997, the Partnership declared a regular distribution of $0.53 per unit and
a special distribution of $0.17 per unit as compared to the $0.53 regular
distribution declared for the third quarter of 1996. The Partnership has the
ability to make distributions in excess of net income due to its non-cash
amortization expense. For the nine months ended September 30, 1997, total
distributions paid to unitholders were $69.8 million as compared to $55.1
million for the same period last year.
Cash and cash equivalents at September 30, 1997 of $112.7 million increased
$62.8 million from December 31, 1996. The increase resulted from the proceeds of
the issuance of $160.0 million of 7.15% Senior Notes due April 1, 2007, reduced
by the $79.6 million additional cash payment made in connection with the 1995
acquisition of Harris Associates and a $43.0 million payment for the acquisition
of Jurika & Voyles. Additionally, approximately 6 million units were issued for
acquisitions and settlement of the Harris Associates deferred purchase
obligation. Higher net income and amortization of intangibles also contributed
to the increase in cash and cash equivalents.
The Partnership has contingent payment obligations resulting from certain
acquisitions that depend upon the attainment of revenue targets through 2000.
Such obligations are not expected to have a material impact on the capital
resources of the Partnership.
The Partnership plans to implement a Restructuring and its operations will be
subject to a 3.5% federal tax on gross income beginning in 1998 (see Note 4 of
Notes to Consolidated Financial Statements). According to an analysis of the
results of operations for the first nine months of 1997, the 3.5% federal gross
income tax would have reduced distributable cash flow per unit of the
Partnership after the Restructuring (representing distributions received from
the Operating Partnership less the gross income tax expense) for such nine month
period by approximately 16%.
The Partnership had $185 million of available lines of credit at September 30,
1997.
Assets Under Management
- -----------------------
A summary of assets under management follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1996 1997
---- ---- ----
<S> <C> <C> <C>
By Client Type (in billions):
Institutional $ 57 $ 66 $ 77
Mutual funds 23 25 32
Private accounts and other 5 9 12
------ ------ ------
$ 85 $ 100 $ 121
====== ====== ======
<CAPTION>
September 30, December 31, September 30,
1996 1996 1997
---- ---- ----
<S> <C> <C> <C>
By Asset Class:
Equity 40% 42% 47%
Fixed Income 46 43 41
Money Market 10 8 7
Real Estate 4 7 5
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
At September 30, 1997, assets under management of $121 billion increased $21
billion (or 21%) as compared to $100 billion at December 31, 1996, resulting
primarily from growth in equity mutual funds, and fixed income and equity
institutional accounts.
13
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
- ------------------------------
During the quarter ended September 30, 1997, the Registrant issued or sold an
aggregate of 1,358,118 units in connection with: complete or partial payment of
the purchase price in business acquisitions; employment arrangements entered
into in connection with prior business acquisitions; and incentive awards of
restricted units to executives. In each case, the units were issued or sold to
either a limited number of sophisticated sellers or executives of the acquired
businesses or executives of the Registrant or a subsidiary in transactions that
were exempt from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended (the "Securities Act") and the rules contained in Regulation
D thereunder. The dates of issuance and the number of units issued were as
follows: July 9, 1997 - 975,006 units; July 31, 1997 - 350,612 units; and
September 9, 1997 - 32,500 units. The Registrant in all cases received non-cash
consideration for the issuance or sale, consisting of either assets of an
acquired business or services, in negotiated amounts, or as otherwise authorized
by the Board of Directors or the Compensation Committee of the General Partner
of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
On August 25, 1997, the Registrant held a Special Meeting of Unitholders to
consider the adoption of the Registrant's 1997 Equity Incentive Plan. At the
meeting, unitholders voted the units held by them as follows: 35,820,564 units
in favor; 389,269 units against; and 175,235 units abstained. There were no
broker nonvotes.
Item 5. Other Information.
- -------------------------
Certain Operating Policies
The Partnership currently distributes to unitholders 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 as net income adjusted for amortization of intangibles, restricted unit
plan compensation and non-recurring items. Management does not consider capital
gains as part of operating cash flow.
The following calculation of operating cash flow per unit should be read in
conjunction with the consolidated financial statements of the Partnership and
the notes thereto, filed on Form 10-K for the year ended December 31, 1996.
Operating cash flow for the nine months ended September 30 follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------
1996 1997
---------------------------------- ----------------------------
Per Unit Amount Per Unit Amount
-------- ------ -------- ------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Income available for allocation $ 1.42 $ 58,419 $ 1.59 $ 69,082
Less non-recurring item (0.12) (4,988) - -
------------ ------------- ----------- -----------
Sub-total 1.30 53,431 1.59 69,082
Add amortization of intangibles/1/ 0.44 17,921 0.64 27,941
------------ ------------- ----------- -----------
Operating cash flow/2/ $ 1.74 $ 71,352 $ 2.23 $ 97,023
============ ============= =========== ===========
Distributions declared $ 1.52 $ 1.89
============ ===========
Weighted average units outstanding 41,010 43,552
============= ===========
</TABLE>
1. Amortization of intangibles is a non-cash expense and does not reduce amounts
available for cash distributions to unitholders.
2. Operating cash flow per unit should not be construed as an alternative to net
income per unit or cash flow from operating activities.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
- ------------
10.1 1997 Equity Incentive Plan - Incorporated by reference to Annex A to the
Registrant's Proxy Statement dated July 23, 1997.
27. Financial Data Schedule.
(b) Reports on Form 8-K
- -----------------------
None.
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
/s/ G. Neal Ryland November 5, 1997
- ------------------------------------------ -----------------------
G. Neal Ryland Date
Executive Vice President and
Chief Financial Officer
/s/ Stephen D. Martino November 5, 1997
- ------------------------------------------ -----------------------
Stephen D. Martino Date
Senior Vice President and Controller
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 112,728
<SECURITIES> 0
<RECEIVABLES> 87,670
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 210,435
<PP&E> 23,238
<DEPRECIATION> 0
<TOTAL-ASSETS> 935,289
<CURRENT-LIABILITIES> 169,780
<BONDS> 273,333
0
0
<COMMON> 0
<OTHER-SE> 467,595
<TOTAL-LIABILITY-AND-EQUITY> 935,289
<SALES> 0
<TOTAL-REVENUES> 400,861
<CGS> 0
<TOTAL-COSTS> 315,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,001
<INCOME-PRETAX> 71,195
<INCOME-TAX> 2,573
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,622
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
