<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, 2000
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
NVEST, 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 6,602,788 units of limited
partner interest and 110,000 units of general partner interest outstanding at
July 31, 2000.
1 of 26
<PAGE>
NVEST, L.P.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF NVEST, L.P. (THE "PARTNERSHIP")
Balance Sheet as of December 31, 1999 and June 30, 2000 3
Statement of Income for the three and six months ended June 30, 1999 and 2000 4
Statement of Cash Flows for the six months ended June 30, 1999 and 2000 5
Notes to Financial Statements 6
FINANCIAL STATEMENTS OF NVEST COMPANIES, L.P. (THE "OPERATING PARTNERSHIP")
Consolidated Balance Sheet as of December 31, 1999 and June 30, 2000 9
Consolidated Statement of Income for the three and six months ended June 30, 1999
and 2000 10
Consolidated Statement of Cash Flows for the six months ended June 30, 1999
and 2000 11
Notes to Consolidated Financial Statements 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
Nvest, L.P. 16
The Operating Partnership 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES 26
</TABLE>
2 of 26
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NVEST, L.P.
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3 $ 36
Distribution receivable from the Operating Partnership 4,835 3,895
------- -------
Total current assets 4,838 3,931
Investment in the Operating Partnership (Note 5) 61,215 67,195
------- -------
Total assets $66,053 $71,126
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Distribution payable $ 3,956 $ 2,987
Gross income tax payable and accrued expenses 678 607
------- -------
Total current liabilities 4,634 3,594
Contingent liabilities (Note 8)
Partners' capital (6,276,782 units at December 31, 1999
and 6,492,395 at June 30, 2000) 61,419 67,532
------- -------
Total liabilities and partners' capital $66,053 $71,126
======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
3 of 26
<PAGE>
NVEST, L.P.
STATEMENT OF INCOME
(in thousands, except per unit data, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Equity in earnings of the Operating Partnership $ 3,750 $ 3,167 $ 7,717 $ 6,493
Interest income 6 2 45 4
------------ ------------ ------------ ------------
3,756 3,169 7,762 6,497
EXPENSES
Gross income tax and other expenses 833 857 1,753 1,661
------------ ------------ ------------ ------------
Net income $ 2,923 $ 2,312 $ 6,009 $ 4,836
============ ============ ============ ============
Net income per unit (Note 4):
Basic $ 0.46 $ 0.37 $ 0.94 $ 0.77
============ ============ ============ ============
Diluted $ 0.46 $ 0.36 $ 0.94 $ 0.76
============ ============ ============ ============
DISTRIBUTIONS DECLARED PER UNIT:
Regular $ 0.63 $ 0.46 $ 1.26 $ 0.92
Special - - - -
------------ ------------ ------------ ------------
$ 0.63 $ 0.46 $ 1.26 $ 0.92
============ ============ ============ ============
Weighted average units outstanding - diluted (Note 4) 6,401 6,764 6,443 6,534
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
4 of 26
<PAGE>
NVEST, L.P.
STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 6,009 $ 4,836
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of the Operating Partnership (7,717) (6,493)
Distributions received from the Operating Partnership 9,936 8,610
Decrease in gross income tax payable and accrued expenses (2,868) (70)
-------- --------
Net cash provided by operating activities 5,360 6,883
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of units of the Operating Partnership - exercised options - (7,225)
Proceeds from sale of units of the Operating Partnership (Note 7) 5,220 599
-------- --------
Net cash provided by/(used in) investing activities 5,220 (6,626)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to unitholders (8,129) (6,850)
Proceeds from issuance of units - exercised options and other - 7,225
Payment for retirement of units (Note 7) (5,220) (599)
-------- --------
Net cash used in financing activities (13,349) (224)
-------- --------
Net increase/(decrease) in cash and cash equivalents (2,769) 33
Cash and cash equivalents, beginning of period 2,772 3
-------- --------
Cash and cash equivalents, end of period $ 3 $ 36
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION:
Transfer of partners' capital from the Operating Partnership
(Unit Exchanges - Note 3) $ 644 $ 531
======== ========
</TABLE>
See Accompanying Notes to Financial Statements.
5 of 26
<PAGE>
NVEST, L.P.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - ORGANIZATION
Nvest, L.P. ("Nvest") is a publicly traded limited partnership listed on the New
York Stock Exchange. Effective with a restructuring completed on December 31,
1997 (the "Restructuring"), Nvest's business currently is to engage in the
investment advisory business by acting as advising general partner of Nvest
Companies, L.P. (the "Operating Partnership"). The Operating Partnership
operates through investment management firms that offer a broad array of
investment management products and styles across a wide range of asset
categories to institutions, mutual funds and private clients. Nvest's primary
asset at June 30, 2000 was 6,492,395 units of the Operating Partnership,
representing a general partner's interest in the Operating Partnership.
As a result of the Restructuring, Nvest receives distributions from the
Operating Partnership and pays a 3.5% federal gross income tax on its
proportionate share of the gross income of the Operating Partnership. Nvest
expects to distribute to its unitholders substantially all of the distributions
received from the Operating Partnership after accruing the 3.5% federal gross
income tax, any state tax and any other expenses of Nvest.
The general partner of Nvest and the managing general partner of the Operating
Partnership is a wholly owned subsidiary of Metropolitan Life Insurance Company
which, at June 30, 2000, owned approximately 48% of the partnership units of the
Operating Partnership (including those owned indirectly through ownership of
Nvest units).
NOTE 2 - BASIS OF PRESENTATION
The unaudited financial statements of Nvest 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 Nvest's Annual
Report on Form 10-K for the year ended December 31, 1999. In the opinion of
management, all adjustments, consisting only of normal recurring accruals,
have been made to present fairly the financial statements of Nvest at June
30, 2000 and for the three and six months ended June 30, 1999 and 2000. The
financial statements of Nvest should also be read in conjunction with the
consolidated financial statements of the Operating Partnership included
herein.
NOTE 3 - EXCHANGE OF NVEST COMPANIES, L.P. UNITS FOR NVEST, L.P. UNITS
Each quarter, Nvest provides holders of Operating Partnership units a limited
opportunity to exchange their units for Nvest units, subject to applicable
requirements intended to ensure that the Operating Partnership remains a private
partnership. During the six months ended June 30, 2000, 57,700 Operating
Partnership units were exchanged for an equal number of Nvest units and Nvest
received 57,700 units of the Operating Partnership. On July 3, 2000, an
additional 9,625 Operating Partnership units were exchanged for an equal number
of Nvest units and Nvest received 9,625 units of the Operating Partnership.
Nvest has received irrevocable elections from certain holders of Operating
Partnership units to exchange Operating Partnership units for units of Nvest or
cash at the next quarterly exchange on October 2, 2000. Subject to the terms of
the partnership agreement of the Operating Partnership and to final acceptance
of such elections, holders making such elections would exchange approximately
600,000 units for units of Nvest or cash.
In addition, consistent with federal tax law, the partnership agreement of the
Operating Partnership generally permits holders of units to exchange a "block"
of units at any time. A "block" for this purpose is at least equal to two
percent of the outstanding units of the Operating Partnership, reduced by the
units held by certain parties that are deemed to be affiliated with the
Operating Partnership, including units held by Nvest. Currently, a "block" for
this purpose is approximately 340,000 units.
6 of 26
<PAGE>
NVEST, L.P.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 4 - NET INCOME PER UNIT
The calculation of basic and diluted net income per unit and weighted average
units outstanding follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Net income - for basic calculation $ 2,923 $ 2,312 $ 6,009 $ 4,836
Additional equity in earnings of the Operating
Partnership, net of gross income tax and other
expenses, related to incremental units assumed
outstanding from exercise of options and contingent
units * 10 140 31 132
------------ ------------ ------------ ------------
Net income - for diluted calculation $ 2,933 $ 2,452 $ 6,040 $ 4,968
============ ============ ============ ============
Weighted average units outstanding:
Basic 6,375 6,321 6,405 6,311
Incremental units assumed outstanding
from exercise of unit options * 26 443 38 223
------------ ------------ ------------ ------------
Diluted 6,401 6,764 6,443 6,534
============ ============ ============ ============
Net income per unit:
Basic $ 0.46 $ 0.37 $ 0.94 $ 0.77
============ ============ ============ ============
Diluted $ 0.46 $ 0.36 $ 0.94 $ 0.76
============ ============ ============ ============
</TABLE>
* When an option for a unit of Nvest is exercised, the Operating Partnership
issues a unit to Nvest. This increases Nvest's relative ownership interest in
the Operating Partnership.
NOTE 5 - INVESTMENT IN THE OPERATING PARTNERSHIP
Investment activity in the Operating Partnership for the six months ended June
30, 2000 follows (in thousands):
<TABLE>
<S> <C>
Investment in the Operating Partnership at December 31, 1999 $ 61,215
Investment from exercise of options 7,225
Investment from unit exchanges (Note 3) 531
Sale of units of the Operating Partnership (Note 7) (599)
Equity in earnings of the Operating Partnership 6,493
Distributions declared by the Operating Partnership ($1.20 per unit) (7,670)
--------
Investment in the Operating Partnership at June 30, 2000 $ 67,195
========
</TABLE>
7 of 26
<PAGE>
NVEST, L.P.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 6 - TAX CONSIDERATIONS FOR PUBLIC UNITHOLDERS
For the 2000 tax year, unitholders will receive a K-1 reflecting their share of
taxable income for the period from January 1, 2000 through the proposed
acquisition date. Similar to prior years, the partnership expects to mail this
K-1 to unitholders no later than the first week of March 2001.
Purchasers of Nvest units after August 10, 1993, are allowed an amortization
deduction that reduces the amount of income on which they pay taxes. This
deduction permits such unitholders to amortize a substantial portion of the
price paid for Nvest units over 15 years and reduces the current effective
tax rate on distributions paid by Nvest to unitholders by reducing taxable
income. Amortization deductions will likely be recaptured as ordinary income
if and when the units are sold. The amount of the amortization tax benefit is
explained in detail in Note 7 to the financial statements of Nvest contained
in Nvest's Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE 7 - UNIT REPURCHASE PLAN
On September 16, 1999, the Board of Directors of the general partner of Nvest
and the Operating Partnership extended a plan to repurchase up to one million
limited partnership units of the partnerships through September 30, 2000. The
repurchase plan, which was initiated on September 15, 1998, authorizes the
purchase of units in either the open market or privately negotiated
transactions. In the case of purchases of Nvest units, the Operating Partnership
has made a corresponding purchase at the same cost of Operating Partnership
units from Nvest. During the six months ended June 30, 1999 and 2000,
respectively, 202,273 and 33,000 units were repurchased at a cost of $5,220,000
and $599,000. The 2000 unit repurchases all occurred during the first quarter of
2000. As a result of the proposed acquisition of Nvest by CDC Asset Management,
no further unit repurchases are anticipated.
NOTE 8 - CONTINGENT LIABILITIES
The business units of the Operating Partnership are from time to time subject to
legal proceedings and claims that arise in the course of their businesses. In
the opinion of management, the amount of any ultimate liability with respect to
currently pending actions will not have a material adverse effect on the results
of operations or financial condition of Nvest.
NOTE 9 - PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP
On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P.,
announced that they had signed a definitive agreement to be acquired by
Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for
$40 per unit, subject to possible downward adjustment (but not below $34 per
unit). This transaction includes all public and private units. The acquisition
is expected to close during the fourth quarter of 2000, and is subject to a
number of approvals and conditions including (1) approval by a majority in
interest of the unitholders of each of Nvest and the Operating Partnership that
are not affiliated with Metropolitan Life Insurance Company, (2) approval by
mutual fund shareholders and other client consents, and (3) other contractual
and regulatory approvals.
8 of 26
<PAGE>
THE OPERATING PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,154 $ 32,760
Management and advisory fees receivable 104,059 94,767
Investment securities 11,038 9,814
Other 12,702 10,262
-------- --------
Total current assets 150,953 147,603
Intangible assets:
Investment advisory contracts 469,365 450,749
Goodwill 128,731 137,667
Fixed assets 44,140 43,938
Other assets 62,784 90,909
-------- --------
Total assets $855,973 $870,866
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $121,529 $105,142
Distribution payable 34,230 26,742
Notes payable 2,600 -
-------- --------
Total current liabilities 158,359 131,884
Deferred compensation, benefits and other 17,945 22,577
Notes payable 270,000 310,000
-------- --------
Total liabilities 446,304 464,461
Contingent liabilities (Note 3)
Partners' capital (44,412,586 units at December 31,
1999 and 44,593,399 units at June 30, 2000) 409,669 406,405
-------- --------
Total liabilities and partners' capital $855,973 $870,866
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
9 of 26
<PAGE>
THE OPERATING PARTNERSHIP
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per unit data, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Management and advisory fees $ 145,282 $ 140,507 $ 293,595 $ 281,967
Other revenues and interest income 14,475 18,343 28,866 36,306
------------ ------------ ------------ ------------
159,757 158,850 322,461 318,273
------------ ------------ ------------ ------------
EXPENSES
Compensation and benefits 78,333 76,540 161,167 155,016
Restricted unit plan compensation 879 234 1,812 428
Amortization of intangibles 10,129 10,689 20,239 21,344
Depreciation and amortization 2,327 3,098 4,635 5,906
Occupancy, equipment and systems 8,648 10,021 17,025 19,252
Interest expense 5,389 5,982 10,695 11,592
Other 27,463 29,479 52,432 57,829
------------ ------------ ------------ ------------
133,168 136,043 268,005 271,367
------------ ------------ ------------ ------------
Income before income taxes 26,589 22,807 54,456 46,906
Income tax expense 1,263 800 2,552 1,662
------------ ------------ ------------ ------------
Net income $ 25,326 $ 22,007 $ 51,904 $ 45,244
============ ============ ============ ============
DISTRIBUTIONS DECLARED PER UNIT:
Regular $ 0.77 $ 0.60 $ 1.54 $ 1.20
Special - - - -
------------ ------------ ------------ ------------
$ 0.77 $ 0.60 $ 1.54 $ 1.20
============ ============ ============ ============
Weighted average units outstanding - diluted 44,576 44,977 44,622 44,765
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
10 of 26
<PAGE>
THE OPERATING PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1999 2000
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,904 $ 45,244
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangibles 20,239 21,344
Restricted unit plan compensation 1,812 428
-------- --------
Subtotal 73,955 67,016
Depreciation and amortization 4,635 5,906
(Increase)/decrease in accounts receivable and other assets (8,966) 9,294
Decrease in accounts payable and other liabilities (17,197) (20,571)
-------- --------
Net cash provided by operating activities 52,427 61,645
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,748) (5,704)
(Increase)/decrease in investment securities/other investments 1,028 (24,418)
Acquisition payments (5,652) (2,848)
-------- --------
Net cash used in investing activities (13,372) (32,970)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to unitholders (68,733) (60,858)
Proceeds from issuance of units - exercised options - 4,988
Payment for retirement of units (5,220) (599)
Proceeds from notes payable 12,230 37,400
-------- --------
Net cash used in financing activities (61,723) (19,069)
-------- --------
Net increase/(decrease) in cash and cash equivalents (22,668) 9,606
Cash and cash equivalents, beginning of period 52,135 23,154
-------- --------
Cash and cash equivalents, end of period $ 29,467 $ 32,760
======== ========
Cash paid during the period for interest $ 11,086 $ 11,180
======== ========
Cash paid during the period for income taxes $ 4,783 $ 1,943
======== ========
Supplemental disclosure of non-cash transactions:
Increase in intangible assets $ - $ 10,250
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
11 of 26
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - ORGANIZATION
Nvest Companies, L.P. (the "Operating Partnership") operates through investment
management firms that offer a broad array of investment management products and
styles across a wide range of asset categories to institutions, mutual funds and
private clients. The business of the Operating Partnership was conducted by
Nvest, L.P. ("Nvest") prior to the Restructuring completed on December 31, 1997.
The general partner of Nvest and the managing general partner of the Operating
Partnership is a wholly owned subsidiary of Metropolitan Life Insurance Company
which, at June 30, 2000, owned approximately 48% of the partnership units of the
Operating Partnership (including those owned indirectly through ownership of
Nvest units).
NOTE 2 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Operating Partnership
should be read in conjunction with Nvest's Annual Report on Form 10-K for the
year ended December 31, 1999. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, have been made to present fairly
the financial statements of the Operating Partnership at June 30, 2000 and for
the three and six months ended June 30, 1999 and 2000.
Certain amounts in prior period financial statements have been reclassified to
conform with the 2000 presentation.
NOTE 3 - CONTINGENT LIABILITIES
The business units of the Operating Partnership are from time to time subject to
legal proceedings and claims which arise in the course of their businesses. In
the opinion of management, the amount of any ultimate liability with respect to
currently pending actions will not have a material adverse effect on the results
of operations or financial condition of the Operating Partnership.
NOTE 4 - UNIT REPURCHASE PLAN
On September 16, 1999, the Board of Directors of the general partner of Nvest
and the Operating Partnership extended a plan to repurchase up to one million
limited partnership units of the partnerships through September 30, 2000. The
repurchase plan, which was initiated on September 15, 1998, authorizes the
purchase of units in either the open market or privately negotiated
transactions. In the case of purchases of Nvest units, the Operating
Partnership has made a corresponding purchase at the same cost of Operating
Partnership units from Nvest. During the six months ended June 30, 1999 and
2000, respectively, 202,273 and 33,000 units were repurchased at a cost of
$5,220,000 and $599,000. The 2000 unit repurchases all occurred during the
first quarter of 2000. As a result of the proposed acquisition of Nvest by
CDC Asset Management, no further unit repurchases are anticipated.
NOTE 5 - NOTES PAYABLE
The Operating Partnership has a $165 million revolving credit agreement, which
expires October 28, 2001. The balance of $40 million outstanding under this
agreement as of June 30, 2000 is classified as long-term notes payable. The
outstanding debt of the Operating Partnership totaled $310 million at June 30,
2000.
12 of 26
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 - PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP
On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P.,
announced that they had signed a definitive agreement to be acquired by
Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for
$40 per unit, subject to possible downward adjustment (but not below $34 per
unit). This transaction includes all public and private units. The acquisition
is expected to close during the fourth quarter of 2000, and is subject to a
number of approvals and conditions including (1) approval by a majority in
interest of the unitholders of each of Nvest and the Operating Partnership that
are not affiliated with Metropolitan Life Insurance Company, (2) approval by
mutual fund shareholders and other client consents, and (3) other contractual
and regulatory approvals.
13 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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. These statements may be identified by
such forward-looking terminology as "expect," "look," "believe," "anticipate,"
"may," "will," or similar statements or variations of such terms. Any
forward-looking statements should be considered in light of the risks and
uncertainties associated with Nvest and the Operating Partnership and their
businesses, economic and market conditions prevailing from time to time, and the
application and interpretation of federal and state tax laws and regulations,
all of which are subject to material changes and which may cause actual results
to vary materially from what had been anticipated. Certain factors that affect
Nvest and the Operating Partnership have been described in Nvest's Annual Report
on Form 10-K for the year ended December 31, 1999, particularly 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, and tax considerations. Readers are encouraged to review these
factors carefully.
In addition, certain statements in this report regarding the merger of Nvest,
L.P. and Nvest Companies, L.P. with CDC Asset Management are based on
management's current expectations or beliefs and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The following factors,
among others, could cause actual results to differ materially from those
described in the forward-looking statements: the inability to obtain, or meet
conditions imposed for, governmental, client and other third party consents and
approvals required in connection with the merger; or the failure of Nvest, L.P.
and Nvest Companies, L.P. unitholders to approve the merger.
GENERAL
At year-end 1997, Nvest completed a restructuring (the "Restructuring") that
included the transfer of its business, assets and liabilities to a newly formed
operating partnership, Nvest Companies, L.P. (the "Operating Partnership"). As a
result of the Restructuring, Nvest's primary asset consists of its economic
interest in the Operating Partnership. Nvest records its investment in the
Operating Partnership under the equity method of accounting based on its
proportionate share of net income of the Operating Partnership. At June 30,
2000, Nvest owned approximately 6.5 million units, or approximately 15% of the
economic interests in the Operating Partnership. As part of the Restructuring,
Nvest elected to retain its partnership tax status in return for paying an
annual 3.5% federal gross income tax on its proportionate share of the gross
income of the Operating Partnership. For further information regarding the
Restructuring, please refer to Nvest's Annual Report on Form 10-K for the year
ended December 31, 1999, particularly the discussion under Item 1,
"Business--1997 Restructuring of the Partnership."
As a result of the Restructuring, Management's Discussion and Analysis includes
two sections. In the first section, the results of Nvest for the three and six
months ended June 30, 2000 are compared to the results for the three and six
months ended June 30, 1999. In the second section, the results of the Operating
Partnership for the three and six months ended June 30, 2000 are compared to the
results for the three and six months ended June 30, 1999.
14 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
PROPOSED ACQUISITION OF NVEST AND THE OPERATING PARTNERSHIP
On June 16, 2000, Nvest and its operating partnership, Nvest Companies, L.P.,
announced that they had signed a definitive agreement to be acquired by
Paris-based CDC Asset Management, an affiliate of Caisse des Depots Group, for
$40 per unit subject to downward adjustment (but not below $34 per unit). This
transaction includes all public and private units.
The acquisition, which is subject to certain client, regulatory and unitholder
approvals, is expected to close during the fourth quarter of 2000. If the
transaction is consummated, all unitholders will be entitled to receive the
applicable unit price in cash without interest for each unit owned. This price
is subject to a downward adjustment if the "Revenue Run-Rate" at the closing (as
defined in the agreement) falls below 90% of the Revenue Run-Rate as of April
30, 2000. The $40 price will be reduced by 1% for each 1% the Revenue Run-Rate
falls below 90% of the April 30 Revenue Run-Rate down to 85% of that amount, and
it will be reduced by 2% for each 1% that the amount falls below 85%, down to a
minimum unit price of $34. As of June 30, 2000, the Revenue Run-Rate is
approximately the same as the base revenue run rate specified in the agreement.
By definition, the impact of market appreciation and depreciation is excluded
from this calculation. As part of the agreement, the Operating Partnership has
agreed to pay out 80 percent of its operating cash flow in distributions through
the completion of the transaction. The Operating Partnership and, consequently,
Nvest (through its ownership interest in the Operating Partnership), expect to
incur certain costs in obtaining client, regulatory and unitholder approvals for
this transaction. The Operating Partnership's share of the transaction costs,
which will be reflected between July 1, 2000 and the closing date of the
transaction, is expected to range between $3 million and $5 million, and will
reduce operating cash flow.
15 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NVEST, L.P.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------
1999 2000 1999 2000
--------------- ------------ ----------- ---------
(in thousands, except per unit data)
THE OPERATING PARTNERSHIP
<S> <C> <C> <C> <C>
Net income $25,326 $22,007 $51,904 $45,244
Add back restricted unit plan compensation * 879 234 1,812 428
------- ------- ------- -------
Net income available $26,205 $22,241 $53,716 $45,672
======= ======= ======= =======
NVEST, L.P.
Percentage ownership of the Operating Partnership
on a weighted average basis - basic 14.310% 14.236% 14.365% 14.216%
======= ======= ======= =======
Equity in earnings of the Operating Partnership $ 3,750 $ 3,167 $ 7,717 $ 6,493
Gross income tax and other expenses, net 827 855 1,708 1,657
------- ------- ------- -------
Net income $ 2,923 $ 2,312 $ 6,009 $ 4,836
======= ======= ======= =======
Net income per unit - diluted ** $ 0.46 $ 0.36 $ 0.94 $ 0.76
======= ======= ======= =======
Regular distributions declared per unit $ 0.63 $ 0.46 $ 1.26 $ 0.92
======= ======= ======= =======
Weighted average units outstanding - diluted 6,401 6,764 6,443 6,534
======= ======= ======= =======
</TABLE>
* Restricted unit plan compensation is fully allocated to certain limited
partners of the Operating Partnership, and is added back to net income to
determine net income available for allocation.
** Net income per unit - diluted is calculated based on Nvest's percentage
ownership of the Operating Partnership on a diluted basis, which was 14.360% and
15.039% for the three months ended June 30, 1999 and 2000, respectively, and
14.438% and 14.596% for the six months ended June 30, 1999 and 2000,
respectively. See Note 4 of the Notes to Financial Statements of Nvest, L.P. for
the calculation of net income per unit.
General
Nvest derives its net income and cash available for distribution from its
ownership of units in the Operating Partnership. At June 30, 2000, Nvest owned
approximately 6.5 million units of the Operating Partnership, representing an
approximate 15% interest. Each quarter, Nvest distributes to its unitholders
substantially all of the distributions received from the Operating Partnership
after accruing its federal and state tax obligations and miscellaneous operating
expenses. Nvest's major expense is the 3.5% federal gross income tax that is
payable on Nvest's proportionate share of the Operating Partnership's gross
income.
16 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NVEST, L.P. (CONTINUED)
DISTRIBUTIONS TO UNITHOLDERS
On June 20, 2000, the Operating Partnership declared a quarterly distribution of
$0.60 per unit, payable on August 15, 2000. Nvest, in turn, declared a
distribution of $0.46 per unit, with the $0.14 difference consisting primarily
of the tax obligations discussed above. The Operating Partnership has
significant non-cash expenses which allow both it and, therefore, Nvest to
maintain a distribution level in excess of net income. Changes in operating cash
flow of the Operating Partnership directly impact the amount of distributions
that Nvest may pay. As part of the agreement with CDC Asset Management, the
Operating Partnership has agreed to pay out 80 percent of its operating cash
flow through the completion of the transaction. Operating cash flow will be
reduced by approximately $3 million to $5 million of estimated transaction
costs.
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1999
Nvest's net income of $0.36 per unit (diluted) for the three months ended June
30, 2000 decreased $0.10 per unit from $0.46 per unit (diluted) for the three
months ended June 30, 1999. The results reflect lower net income at the
Operating Partnership.
Equity in earnings of the Operating Partnership of $3.2 million for the three
months ended June 30, 2000 was down $0.6 million from $3.8 million for the three
months ended June 30, 1999. Nvest receives a pro rata share of the Operating
Partnership's net income available for allocation based on its equity interest
in the Operating Partnership. The decrease was primarily due to lower net income
at the Operating Partnership combined with a slightly lower equity interest in
the Operating Partnership. Nvest's ownership of the Operating Partnership on a
weighted average basis (basic) declined from 14.310% for the three months ended
June 30, 1999 to 14.236% for the three months ended June 30, 2000, mostly as a
result of the unit repurchase plan. For further information, please see
Management's Discussion and Analysis of the Operating Partnership's results,
below.
Gross income tax and other expenses consist primarily of a 3.5% federal tax on
Nvest's proportionate share of the gross income of the Operating Partnership.
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
Nvest's net income of $0.76 per unit (diluted) for the six months ended June 30,
2000 decreased $0.18 per unit from $0.94 per unit (diluted) for the six months
ended June 30, 1999. The results reflect lower net income at the Operating
Partnership.
Equity in earnings of the Operating Partnership of $6.5 million for the six
months ended June 30, 2000 was down $1.2 million from $7.7 million for the six
months ended June 30, 1999. Nvest receives a pro rata share of the Operating
Partnership's net income available for allocation based on its equity interest
in the Operating Partnership. The decrease was primarily due to lower net income
at the Operating Partnership combined with a slightly lower equity interest in
the Operating Partnership. Nvest's ownership of the Operating Partnership on a
weighted average basis (basic) declined from 14.365% for the six months ended
June 30, 1999 to 14.216% for the six months ended June 30, 2000, mostly as a
result of the unit repurchase plan. For further information, please see
Management's Discussion and Analysis of the Operating Partnership's results,
below.
Gross income tax and other expenses consist primarily of a 3.5% federal tax on
Nvest's proportionate share of the gross income of the Operating Partnership.
17 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NVEST, L.P. (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
Nvest distributes to its unitholders substantially all of the distributions
received from the Operating Partnership, after accruing its tax obligations and
miscellaneous operating expenses. To the extent that there are any temporary
cash shortfalls due to the timing of tax payments and the receipt of quarterly
distributions, the Operating Partnership makes short-term loans available to
Nvest.
As discussed above, Nvest has entered into a definitive agreement for CDC Asset
Management to acquire all the outstanding units of Nvest and the Operating
Partnership at $40 per unit, subject to possible downward adjustment (but not
below $34 per unit). This transaction is subject to certain client, regulatory
and unitholder approvals, and is expected to close during the fourth quarter of
this year. Please see the discussion under the "Proposed Acquisition of Nvest
and the Operating Partnership" above.
18 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1999 2000 1999 2000
-------------- --------------- --------------- --------------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Revenues $159,757 $158,850 $322,461 $318,273
-------- -------- -------- --------
Expenses:
Restricted unit plan compensation 879 234 1,812 428
Amortization of intangibles 10,129 10,689 20,239 21,344
Compensation and other expenses 123,423 125,920 248,506 251,257
-------- -------- -------- --------
134,431 136,843 270,557 273,029
-------- -------- -------- --------
Net income $ 25,326 $ 22,007 $ 51,904 $ 45,244
======== ======== ======== ========
Operating cash flow (1) $ 36,334 $ 32,930 $ 73,955 $ 67,016
======== ======== ======== ========
Operating cash flow per unit - diluted (1) $ 0.82 $ 0.73 $ 1.66 $ 1.50
======== ======== ======== ========
Regular distributions declared per unit $ 0.77 $ 0.60 $ 1.54 $ 1.20
======== ======== ======== ========
Weighted average units outstanding - diluted 44,576 44,977 44,622 44,765
======== ======== ======== ========
</TABLE>
Note: (1) Operating cash flow, as defined by Nvest, is equal to net income plus
non-cash charges for amortization of intangibles and restricted unit plan
compensation. Operating cash flow per unit should not be construed as an
alternative to net income per unit of Nvest, L.P. or as an alternative to cash
flow from operating activities as reported in the Consolidated Statement of Cash
Flows. Operating cash flow, as calculated above, may not be consistent with
comparable computations by other companies.
19 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP (CONTINUED)
GENERAL
The Operating Partnership is an investment management firm with approximately
$130 billion in assets under management at June 30, 2000. It operates through
twelve investment management firms and six distribution and service firms to
provide a wide array of investment styles and products to institutional, mutual
fund and private client markets. The Operating Partnership's assets under
management include equity and fixed income securities, money market funds and
real estate.
The Operating Partnership seeks to grow by expanding the investment management
firms' capabilities, expanding marketing efforts and distribution channels, and
selectively pursuing the acquisition of investment management firms. The
Operating Partnership supports its firms' existing businesses and new
initiatives that demonstrate substantial potential for growth in assets under
management by allocating capital and other resources to those businesses and
initiatives. In addition, the Operating Partnership and the investment
management firms identify opportunities for joint marketing efforts, enhanced
distribution of investment products (such as mutual funds) and operational
efficiencies across the organization.
As discussed previously, Nvest and the Operating Partnership announced on
June 16, 2000 that they have entered into a definitive agreement to be
acquired by CDC Asset Management. CDC Asset Management is the investment
management arm of France's Caisse des Depots Group (CDC). Please see the
discussion under the "Proposed Acquisition of Nvest and the Operating
Partnership" above.
REVENUES
The Operating Partnership's revenues derive primarily from management and
advisory fees earned from services provided by the investment management firms.
For institutional and private clients, fees are generally billed quarterly and
are calculated as a percentage of actual assets under management at the
beginning or end of the calendar quarter. For mutual fund clients, fees are
billed monthly and are calculated as a percentage of the fund's average daily
net assets. Changes in assets under management, which can result from changes in
market values of securities, net client inflows or outflows, and acquisitions,
have a major impact on revenues earned by the Operating Partnership. The
Operating Partnership earns additional management and advisory fee revenues as a
result of performance fees and transaction fees. Such fees are generally earned
at the end of the performance contract period or upon completion of specific
transactions, sometimes resulting in periodic fluctuations in the recognition of
such revenues.
INTANGIBLE ASSETS AND AMORTIZATION OF INTANGIBLES
Intangible assets of $588 million represent the excess of the purchase price of
acquisitions over the fair value of the net tangible assets acquired. Intangible
assets, including investment advisory contracts and goodwill, are amortized over
periods ranging from 7 to 30 years. The Operating Partnership periodically
evaluates the estimated remaining lives and the carrying value of intangible
assets to determine whether events and circumstances warrant adjustment.
Projected undiscounted future cash flows of each acquisition are compared to the
recorded values of the related
20 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP (CONTINUED)
intangible assets, factoring in known or expected trends, future prospects
and other relevant information. If the projected future cash flows are less
than the carrying value of the intangible assets, the Operating Partnership
would recognize an impairment loss for the difference between the carrying
amount and the estimated fair value of the intangible assets. At June 30,
2000, there was no impairment of intangible assets.
Cost assigned to contracts and goodwill acquired is amortized as an operating
expense. It does not, however, require the use of cash and, therefore, it is
added back to net income along with restricted unit plan compensation to arrive
at operating cash flow available for distribution.
DISTRIBUTION POLICY
The Operating Partnership generally distributes to its unitholders operating
cash flow not required for normal business operations and working capital needs,
including support of its growth strategy and the repurchase of units. Operating
cash flow is defined as net income plus non-cash charges for amortization of
intangibles and restricted unit plan compensation. During the first six months
of 2000, the Operating Partnership declared regular distributions of $1.20 per
unit, compared to $1.54 per unit for the first six months of 1999.
The Operating Partnership's policy is to pay quarterly regular distributions,
supplemented by periodic special distributions or increases in the regular
distribution rate, depending on operating results. As part of the agreement with
CDC Asset Management, the Operating Partnership has agreed to pay out 80 percent
of its operating cash flow through the completion of the transaction. Operating
cash flow will be reduced by approximately $3 million to $5 million of estimated
transaction costs.
ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
DEC 31, JUNE 30, DEC. 31, JUNE 30,
1998 1999 1999 2000
------- ------- -------- --------
<S> <C> <C> <C> <C>
CLIENT TYPE (IN BILLIONS);
Separate Accounts
Third Party Institutional $ 83 $ 85 $ 85 $ 85
Private Accounts 12 11 11 10
MetLife General Account 4 4 1 -
------- -------- -------- --------
99 100 97 95
------- -------- -------- --------
Mutual Funds
Equity 21 20 19 17
Fixed Income/Money Market 15 16 17 18
------- -------- -------- --------
36 36 36 35
------- -------- ------- --------
$ 135 $ 136 $ 133 $ 130
======= ======== ======= ========
ASSET CLASS (IN BILLIONS):
Equity $ 61 $ 61 $ 59 $ 51
Fixed Income 58 59 57 61
Money Market 10 10 11 12
Real Estate 6 6 6 6
------- -------- ------- --------
$ 135 $ 136 $ 133 $ 130
======= ======== ======= ========
</TABLE>
Assets under management were $130 billion as of June 30, 2000. This compares to
$136 billion as of June 30, 1999 and $134 billion as of March 31, 2000.
21 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP (CONTINUED)
The Operating Partnership continued to experience an overall shift in assets
from equity assets to fixed income assets during the first six months of
2000. Assets under management declined $3 billion from $133 billion at
year-end, with $3.7 billion in net outflows, offset partially by market
appreciation. Nvest's net outflows occurred almost entirely during the first
four months of 2000, and included the outflows from value equity products.
Also, in April, MetLife assumed management of the remaining $500 million in
fixed income general account assets that had been managed by Nvest firms as
part of MetLife's plan to demutualize in May 2000. Outflows at The Oakmark
Family of Funds leveled off during the second quarter, and institutional
fixed income accounts continued to attract new assets.
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1999
Net income of $22.0 million for the three months ended June 30, 2000 declined
$3.3 million from $25.3 million for the three months ended June 30, 1999. The
decrease was primarily a result of lower management and advisory fee revenues,
due to lower average assets under management and a shift in asset mix from
equity assets to lower fee fixed income and money market assets. This decrease
in management and advisory fees was partially offset by lower compensation
expense.
Management and advisory fees of $140.5 million for the three months ended June
30, 2000 decreased $4.8 million from $145.3 million for the three months ended
June 30, 1999, primarily as a result of a decline in assets under management in
mid to large cap value style equity products. Partially offsetting this decline
were increased revenues from real estate transaction fees, risk-adjusted equity
products and small cap value products on the institutional side; and growth
funds, money market funds and fixed income funds on the mutual fund side.
Other revenues and interest income of $18.3 million for the three months ended
June 30, 2000 increased $3.8 million from $14.5 million for the three months
ended June 30, 1999. The increase resulted primarily from an increase in client
servicing fees, primarily transfer agency fees, which are largely offset by an
increase in servicing expenses.
Compensation and benefits of $76.5 million for the three months ended June
30, 2000 declined $1.8 million from $78.3 million for the three months ended
June 30, 1999. Base compensation increased $2.5 million primarily as a result
of annual salary increases. Variable compensation, which results from
subsidiary incentive payments based on profitability, investment portfolio
performance, new business sales and participation in the subsidiaries' growth
in revenues and profits, declined $4.3 million. Variable compensation as a
percentage of total compensation declined from 48% for the second quarter of
1999 to 44% for the second quarter of 2000. The variable compensation plans
reward the subsidiaries for growth in their business, but also require them
to share in the impact of declines. In this way, the variable compensation
plans act to reduce fluctuations in the Operating Partnership's profitability.
Occupancy, equipment and systems expense of $10.0 million for the three months
ended June 30, 2000 increased $1.4 million from $8.6 million for the three
months ended June 30, 1999 due to lease renewals at higher rates and costs
associated with expanded business activities.
Other expense of $29.5 million for the three months ended June 30, 2000
increased $2.0 million from $27.5 million for the three months ended June 30,
1999, primarily as a result of increases related to the transfer agent business,
as well as increases in professional fees and marketing expenses.
22 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP (CONTINUED)
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
Net income of $45.2 million for the six months ended June 30, 2000 declined $6.7
million from $51.9 million for the six months ended June 30, 1999. The decrease
was primarily a result of lower management and advisory fee revenues, due to
lower average assets under management and a shift in asset mix from equity
assets to lower-fee fixed income and money market assets. This decrease in
management and advisory fees was partially offset by lower compensation expense.
Management and advisory fees of $282.0 million for the six months ended June 30,
2000 decreased $11.6 million from $293.6 million for the six months ended June
30, 1999, primarily as a result of a decline in assets under management in mid
to large cap value style equity products. Partially offsetting this decline were
growth in revenues from risk-adjusted equity products and small cap value
products on the institutional side; and growth funds, money market funds, and
fixed income funds on the mutual fund side.
Other revenues and interest income of $36.3 million for the six months ended
June 30, 2000 increased $7.4 million from $28.9 million for the six months ended
June 30, 1999. The increase resulted primarily from an increase in client
servicing fees, primarily transfer agency fees, which are largely offset by an
increase in servicing expenses.
Compensation and benefits of $155.0 million for the six months ended June 30,
2000 declined $6.2 million from $161.2 million for the six months ended June
30, 1999. Base compensation increased $6.2 million primarily as a result of
annual salary increases. Variable compensation, which results from subsidiary
incentive payments based on profitability, investment portfolio performance,
new business sales and participation in the subsidiaries' growth in revenues
and profits, declined $12.4 million. Variable compensation as a percentage of
total compensation declined from 49% for the first six months of 1999 to 43%
for the first six months of 2000. The variable compensation plans reward the
subsidiaries for growth in their business, but also require them to share in
the impact of declines. In this way, the variable compensation plans act to
reduce fluctuations in the Operating Partnership's profitability.
Occupancy, equipment and systems expense of $19.3 million for the six months
ended June 30, 2000 increased $2.3 million from $17.0 million for the six months
ended June 30, 1999 due to lease renewals at higher rates and costs associated
with expanded business activities.
Other expense of $57.8 million for the six months ended June 30, 2000 increased
$5.4 million from $52.4 million for the six months ended June 30, 1999,
primarily as a result of increases related to the transfer agent business and
higher sales to intermediaries distributing money market mutual fund products,
as well as increases in professional fees and marketing expenses.
CAPITAL RESOURCES AND LIQUIDITY
Operating cash flow not required for normal business operations and working
capital needs, including support of the Operating Partnership's growth strategy
and the repurchase of units, is generally distributed to unitholders each
quarter. Distributions to unitholders are typically declared during the last
month of calendar quarters. The Operating Partnership has the ability to make
distributions in excess of net income due to its non-cash amortization expense.
The Board of Directors set the regular distribution rate at $0.60 per unit in
December of 1999, to be adjusted periodically or supplemented by special
distributions, depending upon operating results. On June 20, 2000, the Operating
Partnership declared a regular distribution of $0.60 per unit, payable on August
15, 2000, to unitholders of record on June 30, 2000. As part of the agreement
with CDC Asset Management, the Operating
23 of 26
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THE OPERATING PARTNERSHIP (CONTINUED)
Partnership has agreed to pay out 80 percent of its operating cash flow in
distributions through the completion of the transaction, which is expected to
occur during the fourth quarter of 2000. The Operating Partnership declared
distributions of $1.20 per unit for the first six months of 2000, which
approximated 80 percent of its operating cash flow. Operating cash flow will be
reduced by approximately $3 million to $5 million of estimated transaction costs
related to the proposed acquisition.
The Operating Partnership has a $165 million revolving credit agreement, which
expires October 28, 2001. The balance of $40 million outstanding under this
agreement as of June 30, 2000 is classified as long-term. In addition, the
Operating Partnership has a $20 million line of credit, all of which was
available as of June 30, 2000.
As of June 30, 2000, the Operating Partnership estimates that $49 million in
cash and/or units may be paid to the sellers of certain firms previously
acquired. Such amounts would be paid over a seven-year period following the
respective closing dates through December 31, 2006, depending upon the
attainment of certain post-closing revenue and profit levels. A total of $10
million of this amount has been accrued as of June 30, 2000, and will be paid
during the third quarter of 2000 in a combination of cash and units.
Substantially all of the contingent consideration, if paid, is expected to be
accounted for as additional purchase price.
PART I. ITEM. 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to Item 7A of Nvest's Annual Report on Form 10-K for the year ended
December 31, 1999.
24 of 26
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2.1 Agreement and Plan of Merger by and among Nvest, L.P., Nvest Companies,
L.P., Nvest Corporation, CDC Finance, CDC Asset Management, CDCAM North
America Corporation, CDCAM Partnership, L.P., and CDCAM Partnership II,
L.P. (incorporated by reference to Exhibit 2.1 of Registrant's Current
Report on Form 8-K as filed with the Commission on June 20, 2000).
27 Financial Data Schedule.
99.1 Press Release of Nvest, L.P. dated June 16, 2000 (incorporated by
reference to Exhibit 99.1 of Registrant's Current Report on Form 8-K as
filed with the Commission on June 20, 2000).
(B) REPORTS ON FORM 8-K
On June 20, 2000, Nvest, L.P. (the "Partnership") filed a Current Report on Form
8-K regarding an Agreement and Plan of Merger by and among Nvest, Nvest
Companies, L.P., Nvest Corporation, CDC Finance, CDC Asset Management, CDCAM
North America Corporation, CDCAM Partnership, L.P. and CDCAM Partnership II,
L.P. The agreement and a press release regarding such agreement were filed as
exhibits to the Form 8-K.
25 of 26
<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.
NVEST, L.P.
Registrant
/s/ G. NEAL RYLAND AUGUST 9, 2000
------------------------------------ --------------------
G. Neal Ryland Date
Executive Vice President and
Chief Financial Officer
/s/ DUNCAN B.E. WILKINSON AUGUST 9, 2000
------------------------------------ --------------------
Duncan B.E. Wilkinson Date
Senior Vice President and
Controller
26 of 26
