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8-K - FORM 8-K - NUVEEN INVESTMENTS INC | c61197e8vk.htm |
EXHIBIT 99.1
NUVEEN INVESTMENTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Consolidated Balance Sheets (Unaudited), September 30, 2010 and December 31, 2009 |
2 | |||
Consolidated Statements of Income (Unaudited), Three and Nine Months
Ended September 30, 2010 and 2009 |
3 | |||
Consolidated Statement of Changes in Shareholders Equity (Unaudited),
Nine Months Ended September 30, 2010 |
4 | |||
Consolidated Statements of Cash Flows (Unaudited), Nine Months Ended September 30, 2010
and 2009 |
5 | |||
Notes to Consolidated Financial Statements (Unaudited) |
6 |
NUVEEN INVESTMENTS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
Unaudited
(in thousands)
Consolidated Balance Sheets
Unaudited
(in thousands)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 286,259 | $ | 290,085 | ||||
Cash and cash equivalents - consolidated variable interest entities |
493,264 | 20,334 | ||||||
Restricted cash for debt retirement |
| 201,745 | ||||||
Management and distribution fees receivable |
113,714 | 109,824 | ||||||
Other receivables |
17,683 | 18,532 | ||||||
Other receivables - consolidated variable interest entities |
55,113 | 11,947 | ||||||
Furniture, equipment, and leasehold improvements, at cost less accumulated depreciation
and amortization of $74,246 and $62,518, respectively |
52,503 | 55,268 | ||||||
Investments |
158,193 | 184,109 | ||||||
Investments - consolidated variable interest entities |
3,452,944 | 369,583 | ||||||
Goodwill |
2,241,945 | 2,239,351 | ||||||
Intangible assets, at cost less accumulated amortization of $195,847 and $143,212, respectively |
3,071,653 | 3,124,288 | ||||||
Current taxes receivable |
26 | 8 | ||||||
Other assets |
18,959 | 25,839 | ||||||
Other assets - consolidated variable interest entities |
3,565 | 3,290 | ||||||
Total assets |
$ | 9,965,821 | $ | 6,654,203 | ||||
LIABILITIES AND EQUITY |
||||||||
Short-term obligations: |
||||||||
Debt |
$ | | $ | 198,417 | ||||
Accounts payable |
16,713 | 16,809 | ||||||
Accrued compensation and other expenses |
144,992 | 142,824 | ||||||
Fair value of open derivatives |
3,107 | 19,885 | ||||||
Other short-term liabilities |
7,725 | 10,537 | ||||||
Other short-term liabilities - consolidated variable interest entities |
224,082 | 25,611 | ||||||
Total short-term obligations |
396,619 | 414,083 | ||||||
Long-term obligations: |
||||||||
Debt |
$ | 3,800,520 | $ | 3,786,414 | ||||
Debt- consolidated variable interest entities |
3,659,295 | 402,748 | ||||||
Fair value of open derivatives |
48,446 | 43,047 | ||||||
Deferred income tax liability, net |
989,109 | 1,014,805 | ||||||
Other long-term liabilities |
25,296 | 24,046 | ||||||
Total long-term obligations |
8,522,666 | 5,271,060 | ||||||
Total liabilities |
8,919,285 | 5,685,143 | ||||||
Equity: |
||||||||
Nuveen Investments shareholders equity: |
||||||||
Additional paid-in capital |
2,864,202 | 2,855,934 | ||||||
Retained earnings/(deficit) |
(1,963,456 | ) | (1,920,815 | ) | ||||
Appropriated retained earnings of consolidated variable interest entities |
126,783 | | ||||||
Accumulated other comprehensive income/(loss) |
6,864 | 9,798 | ||||||
Total Nuveen Investments shareholders equity |
1,034,393 | 944,917 | ||||||
Noncontrolling interest |
12,143 | 24,143 | ||||||
Total equity |
1,046,536 | 969,060 | ||||||
Total liabilities and equity |
$ | 9,965,821 | $ | 6,654,203 | ||||
See accompanying notes to consolidated financial statements.
2
NUVEEN INVESTMENTS, INC. & SUBSIDIARIES
Consolidated Statements of Income
Unaudited
(in thousands)
Consolidated Statements of Income
Unaudited
(in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating revenues: |
||||||||||||||||
Investment advisory fees from assets under management |
$ | 185,798 | $ | 160,187 | $ | 545,381 | $ | 445,634 | ||||||||
Product distribution |
208 | 71 | (184 | ) | 756 | |||||||||||
Performance fees / other revenue |
1,308 | 1,306 | 3,221 | 11,297 | ||||||||||||
Total operating revenues |
187,314 | 161,564 | 548,418 | 457,687 | ||||||||||||
Operating expenses: |
||||||||||||||||
Compensation and benefits |
74,287 | 70,995 | 227,248 | 188,142 | ||||||||||||
Severance |
3,399 | 764 | 9,998 | 7,459 | ||||||||||||
Advertising and promotional costs |
4,686 | 2,513 | 12,082 | 6,619 | ||||||||||||
Occupancy and equipment costs |
8,413 | 9,005 | 25,461 | 25,410 | ||||||||||||
Amortization of intangible assets |
17,545 | 20,302 | 52,635 | 52,722 | ||||||||||||
Travel and entertainment |
2,689 | 2,144 | 8,161 | 6,905 | ||||||||||||
Outside and professional services |
13,183 | 10,096 | 38,205 | 30,710 | ||||||||||||
Other operating expenses |
12,996 | 10,650 | 40,430 | 30,537 | ||||||||||||
Total operating expenses |
137,198 | 126,469 | 414,220 | 348,504 | ||||||||||||
Other income/(expense) |
7,250 | (4,966 | ) | 21,171 | (2,304 | ) | ||||||||||
Other income/(expense) - consolidated variable interest entities |
52,431 | 22,132 | (34,112 | ) | 93,785 | |||||||||||
Total other income/(expense) |
59,681 | 17,166 | (12,941 | ) | 91,481 | |||||||||||
Net interest income/(expense) |
(79,118 | ) | (82,126 | ) | (235,609 | ) | (219,186 | ) | ||||||||
Net interest income/(expense) - consolidated variable interest entities |
21,576 | 7,850 | 73,019 | 19,405 | ||||||||||||
Total net interest income/(expense) |
(57,542 | ) | (74,276 | ) | (162,590 | ) | (199,781 | ) | ||||||||
Income/(loss) before taxes |
52,255 | (22,015 | ) | (41,333 | ) | 883 | ||||||||||
Income tax benefit |
(7,475 | ) | (19,004 | ) | (27,017 | ) | (33,959 | ) | ||||||||
Net income/(loss) |
59,730 | (3,011 | ) | (14,316 | ) | 34,842 | ||||||||||
Less: net income/(loss) attributable to the noncontrolling interests |
65,289 | 386 | 26,873 | 1,098 | ||||||||||||
Net income/(loss) attributable to Nuveen Investments |
$ | (5,559 | ) | $ | (3,397 | ) | $ | (41,189 | ) | $ | 33,744 | |||||
See accompanying notes to consolidated financial statements.
3
NUVEEN INVESTMENTS, INC. & SUBSIDIARIES
Consolidated Statement of Changes in Equity
Unaudited
(in thousands)
Consolidated Statement of Changes in Equity
Unaudited
(in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Retained | Appropriated | Other | |||||||||||||||||||||
Paid-In | Earnings/ | Retained Earnings | Comprehensive | Noncontrolling | ||||||||||||||||||||
Capital | (Deficit) | VIEs | Income/(Loss) | Interests | Total | |||||||||||||||||||
Balance at December 31, 2009 |
$ | 2,855,934 | (1,920,815 | ) | | 9,798 | 24,143 | $ | 969,060 | |||||||||||||||
Change in accounting principle, net of tax |
| (1,004 | ) | 101,594 | (2,550 | ) | | 98,040 | ||||||||||||||||
Net income/(loss) |
| (41,189 | ) | 25,189 | | 1,684 | (14,316 | ) | ||||||||||||||||
Cash dividends paid |
| (448 | ) | | | | (448 | ) | ||||||||||||||||
Amortization of deferred and restricted class A units |
2,382 | | | | | 2,382 | ||||||||||||||||||
Payout of deferred A units and deferred and restricted A units |
(707 | ) | | | | | (707 | ) | ||||||||||||||||
Conversion of right to receive class A units into class A units |
(7 | ) | | | | | (7 | ) | ||||||||||||||||
Vested value of class B units |
15,119 | | | | | 15,119 | ||||||||||||||||||
Amortization of equity interests |
| | | 955 | 955 | |||||||||||||||||||
Other comprehensive income/(loss) |
| | | (384 | ) | | (384 | ) | ||||||||||||||||
Purchase of and other changes to noncontrolling interests |
(8,519 | ) | | | | (14,639 | ) | (23,158 | ) | |||||||||||||||
Balance at September 30, 2010 |
$ | 2,864,202 | (1,963,456 | ) | 126,783 | 6,864 | 12,143 | $ | 1,046,536 | |||||||||||||||
Nine Months | ||||
Ending | ||||
Comprehensive Income/(Loss) (in 000s): | September 30, 2010 | |||
Net income/(loss) |
$(14,316 | ) | ||
Other comprehensive income/(loss): |
||||
Unrealized gains/(losses) on available-for-sale securities, net of tax |
5,809 | |||
Reclassification adjustments for realized (gains)/losses |
(6,422 | ) | ||
Funded status of retirement plans, net of tax |
234 | |||
Foreign currency translation adjustment |
(5 | ) | ||
Subtotal: other comprehensive income/(loss) |
(384 | ) | ||
Comprehensive income/(loss) |
(14,700 | ) | ||
Less: net income/(loss) attributable to noncontrolling interests |
26,873 | |||
Comprehensive loss attributable to Nuveen Investments |
$(41,573 | ) | ||
See accompanying notes to consolidated financial statements.
4
NUVEEN INVESTMENTS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Consolidated Statements of Cash Flows
Unaudited
(in thousands)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income/(loss) |
$ | (14,316 | ) | $ | 34,842 | |||
Adjustments to reconcile net income/(loss) to net cash provided by/(used in)
operating activities: |
||||||||
Net (income)/loss attributable to noncontrolling interests |
(26,873 | ) | (1,098 | ) | ||||
Net (income)/loss attributable to other consolidated variable interest entities |
(13,718 | ) | (113,191 | ) | ||||
Deferred income taxes |
(27,153 | ) | (33,984 | ) | ||||
Depreciation of office property, equipment and leaseholds |
12,453 | 11,212 | ||||||
Loss on sale of fixed assets |
44 | 1,771 | ||||||
Realized (gains)/losses from investments, net of dividends, interest and fees |
(10,989 | ) | (2,651 | ) | ||||
Unrealized (gains)/losses on derivatives |
(11,379 | ) | (142 | ) | ||||
Amortization of intangible assets |
52,635 | 52,722 | ||||||
Amortization of debt related items, net |
14,334 | 8,665 | ||||||
Compensation expense for equity plans |
18,457 | 25,432 | ||||||
Compensation expense for mutual fund incentive program |
26,298 | 12,343 | ||||||
Net loss/(gain) on early retirement of Senior Unsecured Notes- 5% of 2010 |
408 | (4,291 | ) | |||||
Loss due to acceleration of deferred debt items from first lien paydown |
| 3,697 | ||||||
Net (increase) decrease in assets: |
||||||||
Management and distribution fees receivable |
(3,890 | ) | 16,139 | |||||
Other receivables |
849 | (9,855 | ) | |||||
Current taxes receivable |
(18 | ) | 7,698 | |||||
Other assets |
6,880 | (418 | ) | |||||
Net increase (decrease) in liabilities: |
||||||||
Accrued compensation and other expenses |
6,268 | (51,214 | ) | |||||
Accounts payable |
(96 | ) | 2,445 | |||||
Other liabilities |
235 | (10,784 | ) | |||||
Other |
(810 | ) | (483 | ) | ||||
Net cash provided by/(used in) operating activities |
29,619 | (51,145 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from loans and notes payable, net of discount |
| 451,500 | ||||||
Debt issuance costs |
| (29,890 | ) | |||||
Repayment of notes payable |
(199,053 | ) | (215,619 | ) | ||||
Net change in restricted cash: escrow for Senior Notes due 2010 |
201,745 | (222,745 | ) | |||||
Purchase of noncontrolling interests |
(17,872 | ) | (18,132 | ) | ||||
Payment of income allocation to noncontrolling interests |
(1,532 | ) | (2,053 | ) | ||||
Undistributed income allocation for noncontrolling interests |
1,680 | 1,098 | ||||||
Dividends paid |
(448 | ) | (95 | ) | ||||
Payout of deferred A units and deferred & restricted A units |
(707 | ) | (280 | ) | ||||
Other |
(4 | ) | | |||||
Net cash used in financing activities |
(16,191 | ) | (36,216 | ) | ||||
Cash flows from investing activities: |
||||||||
Winslow acquisition |
| (97 | ) | |||||
HydePark acquisition |
(2,594 | ) | (2,692 | ) | ||||
Purchase of office property and equipment |
(9,757 | ) | (7,984 | ) | ||||
Proceeds from sales of investment securities |
7,849 | 27,101 | ||||||
Purchases of investment securities |
(10,771 | ) | (19,662 | ) | ||||
Purchase of securities for mutual fund incentive program |
(2,000 | ) | (52,000 | ) | ||||
Net change in consolidated funds |
(68,387 | ) | 767 | |||||
Other |
24 | 1 | ||||||
Net cash used in investing activities |
(85,636 | ) | (54,566 | ) | ||||
Effect of exchange rates on cash and cash equivalents |
(5 | ) | 4 | |||||
Decrease in cash and cash equivalents |
(72,213 | ) | (141,923 | ) | ||||
Cash and cash equivalents: |
||||||||
Beginning of year |
310,419 | 467,136 | ||||||
Cash of variable interest entities consolidated on January 1, 2010 |
541,317 | | ||||||
End of period |
$ | 779,523 | $ | 325,213 | ||||
Supplemental Information: |
||||||||
Taxes paid |
$ | 181 | $ | 221 | ||||
Interest paid, excluding variable interest entities |
$ | 246,738 | $ | 188,124 |
See accompanying notes to consolidated financial statements.
5
NUVEEN INVESTMENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
Note 1 Basis of Presentation
The unaudited consolidated financial statements presented herein include the accounts of Nuveen
Investments, Inc. (the Company or Nuveen), its majority-owned subsidiaries, and certain funds
which the Company is required to consolidate (further described below), and have been prepared in
conformity with U.S. generally accepted accounting principles (U.S. GAAP). The Financial
Accounting Standards Board (the FASB) Accounting Standards CodificationTM (the
Codification or ASC) is the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities.
The unaudited consolidated financial statements presented herein should be read in conjunction with
the Companys 2009 audited consolidated financial statements and related notes included in Form
10-K.
These financial statements rely, in part, on estimates. Actual results could differ from these
estimates. In the opinion of management, all necessary adjustments (consisting of normal,
recurring accruals) have been reflected for a fair presentation of the results of operations,
financial position and cash flows in the accompanying unaudited consolidated financial statements.
The results for the period are not necessarily indicative of the results to be expected for the
entire year.
Revisions to Previously Filed Consolidated Financial Statements
Certain of the Companys previous consolidated financial statements have been revised. To assess the materiality with respect to these revisions, the Company applied the concepts set forth in Staff Accounting Bulletin 99, Materiality, and determined that the revision made to both the annual and the interim 2009 consolidated financial statements was immaterial. Accordingly, the accompanying consolidated financial statements have been revised to reflect the revision described below, which did not impact total equity, net income/(loss), cash flow or compliance with debt covenants.
Certain of the Companys previous consolidated financial statements have been revised. To assess the materiality with respect to these revisions, the Company applied the concepts set forth in Staff Accounting Bulletin 99, Materiality, and determined that the revision made to both the annual and the interim 2009 consolidated financial statements was immaterial. Accordingly, the accompanying consolidated financial statements have been revised to reflect the revision described below, which did not impact total equity, net income/(loss), cash flow or compliance with debt covenants.
Presentation of Net Income Attributable to Noncontrolling Interests
Symphony CLO V, Ltd. (Symphony CLO V) is a Cayman Islands exempted company incorporated with
limited liability on February 27, 2007, which commenced operations on December 13, 2007. Although
the Company does not directly hold any ownership interest in Symphony CLO V, because a related
party is considered the primary beneficiary of Symphony CLO V, the Company has been treating
variable interests in Symphony CLO V as its own and has been consolidating this fund into its
financial statements. As the Company has no ownership interest in this CLO investment vehicle, in
previous consolidated financial statements, all gains and losses from Symphony CLO V were recorded
in the Companys financial statements as attributable to other investors through net income/(loss)
attributable to non-controlling interests.
In connection with the Companys implementation of ASC 810 for Variable Interest Entities (VIEs),
the Company determined that the income attributable to Symphony CLO V should not be presented in
current and historical financial statements as attributable to non-controlling interests.
6
The effects of the corrections are presented in the following table:
Three Months Ended | ||||||||
September 30, 2009 | ||||||||
As Previously | As | |||||||
(in thousands) | Reported | Corrected | ||||||
Net income/(loss) |
$ | (3,011 | ) | $ | (3,011 | ) | ||
Net income/(loss) attributable to non-controlling interests |
30,369 | 386 | ||||||
Net income/(loss) attributable to Nuveen |
(33,380 | ) | (3,397 | ) | ||||
Nine Months Ended | ||||||||
September 30, 2009 | ||||||||
As Previously | As | |||||||
(in thousands) | Reported | Corrected | ||||||
Net income/(loss) |
$ | 34,842 | $ | 34,842 | ||||
Net income/(loss) attributable to non-controlling interests |
114,289 | 1,098 | ||||||
Net income/(loss) attributable to Nuveen |
(79,447 | ) | 33,744 | |||||
December 31, 2009 | ||||||||
As Previously | As | |||||||
(in thousands) | Reported | Corrected | ||||||
Total equity |
$ | 969,060 | $ | 969,060 | ||||
Retained earnings |
(1,897,611 | ) | (1,920,815 | ) | ||||
Non-controlling interests |
939 | 24,143 |
Certain Entities Required to be Consolidated
Variable Interest Entities
Effective January 1, 2010, the Company adopted the provisions of a new accounting standard for
VIEs, ASC 810. (Refer to Recent Updates to Authoritative Accounting Literature Consolidation of
VIEs, below, for additional information). As a result of adopting this new standard, the
Companys September 30, 2010 unaudited consolidated balance sheet includes nine newly consolidated
VIEs, which are not included in the Companys December 31, 2009 consolidated balance sheet, as the
Company adopted the provisions of ASC 810 for VIEs, which was effective January 1, 2010,
prospectively. In addition, the Companys unaudited consolidated statement of income for the
nine months ended September 30, 2010 includes the results of these nine newly consolidated VIEs.
As the Company did not consolidate these nine VIEs into its financial results until 2010, the
Companys statement of income for the nine months ended September 30, 2009 does not include these
nine VIEs.
As the Company has elected to fair value the assets and liabilities for all of these nine variable
interest entities, any net income/(loss) from these nine variable interest entities is reflected
in Net income/(loss) attributable to noncontrolling interests on the Companys consolidated
statement of income for the nine months ended September 30, 2010. In addition, the equity for
these nine entities is reflected as Appropriated retained earnings of consolidated variable
interest entities on the Companys September 30, 2010 consolidated balance sheet.
Symphony CLO V
The Company has been consolidating the results of Symphony CLO V into its consolidated financial
statements since November 13, 2007. The Company has performed an analysis of Symphony CLO V under
the updated provisions of ASC
7
810 for VIEs and has determined that it is still required to consolidate Symphony CLO V into its
financial statements. As the Company did not elect to fair value all assets and liabilities for
Symphony CLO V, any net income/(loss) from Symphony CLO V is included in Net income/(loss)
attributable to Nuveen Investments, as discussed in Revisions to Previously Filed Consolidated
Financial Statements Presentation of Net Income Attributable to Noncontrolling Interests, above.
New Funds
The Company is also required to consolidate into its financial results those funds (recently
created product portfolios) in which the Company is either the sole investor or in which the
Company holds a majority investment position. At September 30, 2010 and December 31, 2009, there
is only one such recently created product portfolio which is consolidated in the Companys
financial statements. The Company began consolidating the results of this one fund starting July
1, 2009.
Other
Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications include the separate presentation of Cash and cash equivalents consolidated variable interest entities, Other receivables consolidated variable interest entities, Investments consolidated variable interest entities, Other Assets consolidated variable interest entities, Accrued compensation and other expenses consolidated variable interest entities, Other short-term liabilities consolidated variable interest entities, and Debt- consolidated variable interest entities on the Companys accompanying consolidated balance sheets. On the Companys accompanying consolidated statements of income, these reclassifications include the separate presentation of Net interest income/(expense) consolidated variable interest entities, and Other income/(expense) consolidated variable interest entities.
Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications include the separate presentation of Cash and cash equivalents consolidated variable interest entities, Other receivables consolidated variable interest entities, Investments consolidated variable interest entities, Other Assets consolidated variable interest entities, Accrued compensation and other expenses consolidated variable interest entities, Other short-term liabilities consolidated variable interest entities, and Debt- consolidated variable interest entities on the Companys accompanying consolidated balance sheets. On the Companys accompanying consolidated statements of income, these reclassifications include the separate presentation of Net interest income/(expense) consolidated variable interest entities, and Other income/(expense) consolidated variable interest entities.
Recent Updates to Authoritative Accounting Literature
Consolidation of Variable Interest Entities
In June 2009, the FASB updated the accounting standards related to the consolidation of VIEs (ASC
810 Consolidation). The standard amends the guidance on the determination of a primary
beneficiary of a VIE from a quantitative model to a qualitative model and requires additional
disclosures about an enterprises involvement in VIEs. Under the new qualitative model, the
primary beneficiary must have both the power to direct the activities of the VIE and the
obligation to absorb losses or the right to receive gains that could potentially be significant to
the VIE.
In February 2010, the FASB amended this guidance to defer application of the consolidation
requirements for asset managers, allowing asset managers to continue applying existing rules for
money market funds and other funds that prepare financial statements in accordance with the AICPA
Investment Company Guide (or funds having similar attributes).
For the Company, the new accounting guidance for VIEs was effective on January 1, 2010, and is
being applied prospectively.
Symphony Asset Management, LLC (Symphony), one of the Companys subsidiaries, acts as a
collateral manager for several collateralized loan and debt obligations (CLOs and CDOs).
Under U.S. GAAP, these CLOs and CDOs are considered VIEs. Under the updated accounting standards
related to the consolidation of VIEs, the Company has determined that it is required to
consolidate these CLOs and CDOs.
As the Company did not elect to apply the provisions of ASC 810 for VIEs retrospectively, the
Companys financial statements as of September 30, 2010 and for the nine months ended September
30, 2010 include nine newly consolidated variable interest entities which are not included in the
Companys consolidated balance sheet as of December 31, 2009, nor in the Companys consolidated
statement of income for the nine months ended September 30, 2009. For the nine months ended
September 30, 2010, the change in cash and cash equivalents for the nine newly consolidated
variable interest entities is included in Net change in consolidated funds in the Cash Flows
from Investing Activities section of the Companys consolidated statement of cash flows. Cash
and cash equivalents as of January 1, 2010 for the nine newly consolidated variable interest
entities is reflected as a separate line item in the reconciliation of cash and cash equivalents
from the beginning of the year to September 30, 2010. The change in cash and cash equivalents for
Symphony CLO V is included in Net change in consolidated funds in the Cash Flows from Investing
Activities section of the Companys consolidated statements of cash flows for both the nine
months ended September 30, 2010 as well as the nine months ended September 30, 2009.
8
Upon adoption of this new accounting guidance, the Company recorded a transition adjustment for
the impact upon adoption to reflect the difference between the assets and liabilities of the newly
consolidated entities and the amounts recorded for the Companys interests in these entities prior
to adoption. On January 1, 2010, the Company recorded a net cumulative effect adjustment of ($1.0
million) to retained earnings and $101.6 million to appropriated retained earnings of consolidated
variable interest entities related to the adoption of this new accounting guidance. In addition,
the Company recorded a $3.9 billion increase to assets and a $3.8 billion increase to liabilities
upon adoption of this new accounting guidance. Refer to Note 2, Consolidated Variable Interest
Entities, for additional information related to the application of the amended VIE consolidation
model, including the basis of assets and liabilities for newly consolidated entities, as well the
required disclosures. Also, refer to Certain Entities Required to be Consolidated Symphony CLO
V, above, for the impact to the Companys consolidated financial statements from the adoption of
this new accounting guidance for VIEs to Symphony CLO V.
Fair Value
Another recent update to authoritative accounting literature, Accounting Standards Update (ASU)
Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value
Measurements (ASU 820) was issued by the FASB in January 2010 and which amends ASC 820-10.
This ASU requires new disclosures: (i) of significant transfers in and out of Levels 1 and 2 with
reasons for the transfers; and (ii) activity in Level 3 fair value measurements, includes
purchases, sales, issuances, and settlements on a gross basis. In addition, the reporting entity
should provide fair value measurement disclosures for each class of assets and liabilities, and
disclosures about inputs and valuation techniques used to measure fair value of both recurring and
nonrecurring fair value measurements. This ASU includes conforming amendments to the guidance on
employers disclosures about postretirement benefit plan assets (ASC 715-20). These amendments
change the terminology from major categories of assets to classes of assets and provide a cross
reference to ASC 820-10 on how to determine appropriate class to present fair value disclosures.
This ASU is effective for interim and annual periods beginning after December 15, 2009, except
disclosures about purchases, sales, issuances and settlements in the roll forward of Level 3 fair
value measurements, which are effective for fiscal years beginning after December 15, 2010 and
interim periods within those years. This ASU requires additional disclosures which will not have
an impact on the Companys results of operations or assets.
Note 2 Consolidated Variable Interest Entities
Symphony, one of the Companys subsidiaries, acts as collateral manager of CLOs and CDOs.
Symphony has the most power to direct the activities of the CLOs and CDOs that most significantly
impact the CLOs and CDOs economic performance.
Under the updated accounting standards for consolidation of VIEs, the Company is considered to be
the primary beneficiary of the CLOs and CDOs where Symphony is the collateral manager. The
Company is required to consolidate these CLOs and CDOs into its financial results. The Company
has elected to apply the updated accounting standards for consolidation of VIEs prospectively. As
a result, the Companys financial statements as of and for the nine months ended September 30,
2010 include nine newly consolidated VIEs which are not included in the Companys consolidated
balance sheet as of December 31, 2009, nor in the Companys consolidated statement of income for
the nine months ended September 30, 2009. See also Note 13, Subsequent Events, for CLO / CDO
activity after September 30, 2010.
The CLOs and CDOs are Special Purpose Vehicles (SPV) collateralized by a pool of assets,
primarily syndicated loans and may have limited exposure in high-yield bonds. Multiple tranches
of securities are issued by a CLO and/or a CDO, offering investors various credit risk
characteristics. The notes issued by the CLOs and CDOs are non-recourse to the Company. The
CLOs and CDOs note holders have recourse only to the assets of the CLO and CDO. The assets that
collateralize these notes and are held in these SPVs cannot be used by the Company. Scheduled and
unscheduled (for subordinated notes) interest payments are based on the performance of the CLOs
and CDOs collateral pool. The Company generally earns management fees from the CLOs and CDOs
based on the underlying assets and, in certain instances, may also receive performance-based fees.
In the normal course of business, the Company has invested in certain CLOs and CDOs, generally
taking an insignificant portion of the unrated, subordinated debt.
The following tables reflect the impact of consolidated VIEs on the Companys consolidated balance
sheet as of September 30, 2010 and the consolidated statement of income for the nine months ended
September 30, 2010 (in 000s):
9
Consolidated | ||||||||||||||||
Before | Variable Interest | |||||||||||||||
Consolidation | Entities | Eliminations | Total | |||||||||||||
Total assets |
$ | 5,965,148 | 4,004,886 | (4,213 | ) | $ | 9,965,821 | |||||||||
Total liabilities |
5,035,909 | 3,887,589 | (4,213 | ) | 8,919,285 | |||||||||||
Total Nuveen Investments equity |
917,096 | 117,297 | - | 1,034,393 | ||||||||||||
Noncontrolling interests |
12,143 | - | - | 12,143 | ||||||||||||
Total liabilities and equity |
5,965,148 | 4,004,886 | (4,213 | ) | 9,965,821 | |||||||||||
Total operating revenues |
$ | 548,418 | - | - | $ | 548,418 | ||||||||||
Total operating (expenses) |
(414,220 | ) | - | - | (414,220 | ) | ||||||||||
Other income/(expense) |
21,171 | - | - | 21,171 | ||||||||||||
Other income/(expense) - VIEs |
- | (34,112 | ) | - | (34,112 | ) | ||||||||||
Net interest income/(expense) |
(235,609 | ) | - | - | (235,609 | ) | ||||||||||
Net interest income/(expense) - VIEs |
- | 73,019 | - | 73,019 | ||||||||||||
Pre-tax income/(loss) |
(80,240 | ) | 38,907 | - | (41,333 | ) | ||||||||||
Income tax expense/(benefit) |
(27,017 | ) | - | - | (27,017 | ) | ||||||||||
Net income/(loss) |
(53,223 | ) | 38,907 | - | (14,316 | ) | ||||||||||
Net income/(loss) attributable
to noncontrolling interests |
1,684 | 25,189 | - | 26,873 | ||||||||||||
Net income/(loss) attributable
to Nuveen Investments |
$ | (54,907 | ) | 13,718 | - | $ | (41,189 | ) |
The Company has elected the fair value option with the consolidation standards issued June
2009 for the financial assets and liabilities of the CLOs and CDOs consolidated on January 1, 2010.
Management believes that the use of the fair value option eliminates certain timing differences
and better matches the changes in fair value of assets and liabilities related to the CLOs and
CDOs. The fair value option had not been elected for the historically consolidated Symphony CLO V,
and therefore the debt of this entity remains at original basis (par).
The following table presents the balances of investments and debt held by consolidated investment
entities at September 30, 2010 and December 31, 2009 measured at fair value (in 000s):
September 30, 2010 | ||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Assets |
||||||||||||||||||||||
Investments (all consolidated VIEs) |
||||||||||||||||||||||
Corporate debt securities |
- | $ | 93,966 | - | $ | 93,966 | ||||||||||||||||
Common stocks |
- | 11,199 | 412 | 11,611 | ||||||||||||||||||
Other structured investments |
- | - | 32,212 | 32,212 | ||||||||||||||||||
Syndicated loans |
- | 3,315,155 | - | 3,315,155 | ||||||||||||||||||
Total investments |
- | $ | 3,420,320 | $ | 32,624 | $ | 3,452,944 | |||||||||||||||
Liabilities |
||||||||||||||||||||||
Debt (all consolidated VIEs except CLO V) |
- | - | $ | 3,256,355 | $ | 3,256,355 | ||||||||||||||||
10
December 31, 2009 | ||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Assets |
||||||||||||||||||||||
Investments |
||||||||||||||||||||||
Corporate debt securities |
- | $ | 7,757 | - | $ | 7,757 | ||||||||||||||||
Common stocks |
- | - | - | - | ||||||||||||||||||
Other structured investments |
- | 9,445 | - | 9,445 | ||||||||||||||||||
Syndicated loans |
- | 352,381 | - | 352,381 | ||||||||||||||||||
Total investments |
- | $ | 369,583 | - | $ | 369,583 | ||||||||||||||||
The following table provides a summary of changes in Level 3 assets and liabilities measured at
fair value as of September 30, 2010:
Assets | Liabilities | |||||||||||||||||||||
Other | ||||||||||||||||||||||
Common | Structured | Syndicated | ||||||||||||||||||||
Stock | Investments | Loans | Debt | |||||||||||||||||||
Balance, January 1 |
$ | - | $ | - | $ | - | $ | - | ||||||||||||||
Cumulative effect of accounting change |
823 | 34,604 | 180 | (3,176,944 | ) | |||||||||||||||||
Total gains/(losses) included in net income |
363 | (2,392 | ) | - | (77,411 | ) | ||||||||||||||||
Purchases, sales, issuances and settlements, net |
(673 | ) | - | (180 | ) | (2,000 | ) | |||||||||||||||
Transfers out of Level 3 |
(101 | ) | - | - | - | |||||||||||||||||
Balance, September 30 |
$ | 412 | $ | 32,212 | $ | - | $ | (3,256,355 | ) | |||||||||||||
For the consolidated CLOs and CDOs, the carrying value of receivables, other assets and other
liabilities approximates fair value, as the nature of these assets and liabilities have
historically been short term and the receivables have been collectible. The fair value of these
assets and liabilities is classified as Level 1. The fair value of syndicated loans is obtained
from nationally recognized pricing services and is classified as Level 2 and 3. The fair value of
the CLOs and CDOs debt is valued using a discounted cash flow methodology. Inputs used to
determine the expected cash flows include assumptions about default rates, interest rates,
prepayments, and recovery rates of the CLOs and CDOs underlying assets. Given the significance
of the unobservable inputs into this fair value measurement, the CLO and CDO debt is classified as
Level 3. Refer to Note 3, Fair Value Measurements, for a description of the Companys
determination of the fair value of investments.
The Company used a third-party provider to assist in the determination of the fair value of debt.
The model used by the third party provider considered the assumptions participants in a
hypothetical market would make to reflect an exit price. The model also assumed that the CLOs and
CDOs would continue to maturity.
11
The following table presents the fair value and unpaid principal balance of assets and liabilities
carried at fair value under the fair value option as of September 30, 2010:
(in millions) | |||||||
Investments in syndicated loans, corporate debt and
structured investments |
|||||||
Unpaid principal balance |
$ | 3,685 | |||||
Excess estimated unpaid principal over fair value |
244 | ||||||
Fair value |
$ | 3,441 | |||||
Fair value of assets with accruals more than 90 days past
due or with non-accrual status |
39 | ||||||
Difference between fair value and unpaid principal of assets
in the above category |
30 | ||||||
(in millions) | |||||||
Debt (excludes Symphony CLO V debt, which is not carried at
fair value) |
|||||||
Unpaid principal balance |
$ | 3,560 | |||||
Excess estimated unpaid principal over fair value |
304 | ||||||
Fair value |
$ | 3,256 | |||||
Interest income from loans, bonds and structured investments is recorded in net interest/(expense)
consolidated variable interest entities. Gains and losses related to changes in the fair value
of investments, gains and losses on sales of investments, and other investment income/(expense) are
recorded in other income/(expense) consolidated variable interest entities. Interest expense on
debt is recorded in net interest income/(expense) consolidated variable interest entities and
debt expense with gains and losses related to changes in the fair value of debt recorded in other
income/(expense) consolidated variable investment entities.
Total gains and losses recognized in net income for the nine months ended September 30, 2010 from
fair value changes of financial assets and liabilities for which the fair value option was elected
were $71.2 million in net gains comprised of $149.2 million in unrealized gains and $78.0 million
in realized losses on the assets, and $93.2 million in unrealized losses on debt fair value
valuation.
Debt of all consolidated investment entities and the stated interest rates as of September 30, 2010
were as follows (in millions):
Weighted Average | ||||||||||||
Carrying Value | Stated Interest Rate | |||||||||||
Debt of consolidated variable interest entities
due 2015 2021 (exclusive of revolver) |
$ | 3,137 | 1.52 | % | ||||||||
Floating rate revolving credit borrowings due 2015 |
347 | 0.87 | % | |||||||||
Floating rate revolving credit borrowings due 2019 |
135 | 0.65 | % | |||||||||
Floating rate revolving credit borrowings due 2020 |
40 | 0.59 | % | |||||||||
Total |
$ | 3,659 | ||||||||||
The debt of the consolidated variable interest entities have floating interest rates. The stated
interest rate of the debt of consolidated variable interest entities is a weighted average rate
based on the principal and stated interest rate according to the terms of each CLO and/or CDO
structure, which range from 0.59% to 1.52%. These rates exclude the subordinated debt, which do
not have stated interest rates. The carrying value of the debt of the consolidated variable
interest entities represents the fair value of the aggregate debt as of September 30, 2010, except
for CLO V which carries its debt at original basis. The fair value of the debt of all consolidated
variable interest entities was $3.6 billion as of September 30, 2010.
12
As of September 30, 2010, future maturities (the par value) of the debt for all VIEs were as
follows:
(in millions) | |||||||
2011 |
- | ||||||
2012 |
- | ||||||
2013 |
- | ||||||
2014 |
- | ||||||
2015 |
$ | 542 | |||||
Thereafter |
3,442 | ||||||
Total future maturities |
$ | 3,984 | |||||
Note 3 Fair Value Measurements
FASB ASC 820-10 establishes a fair value hierarchy that prioritizes information used to develop
those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data (for example, the reporting entitys own
data). FASB ASC 820-10 requires that fair value measurements be separately disclosed by level
within the fair value hierarchy in order to distinguish between market participant assumptions
based on market data obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own
assumptions about market participant assumptions (unobservable inputs classified within Level 3 of
the hierarchy). Specifically:
| Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date. |
||
| Level 2 - inputs to the valuation methodology other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly or indirectly,
through corroboration with observable market data (market-corroborated inputs). |
||
| Level 3 - inputs to the valuation methodology that are unobservable inputs for the
asset or liability that is, inputs that reflect the reporting entitys own assumptions
about the assumptions market participants would use in pricing the asset or liability
(including assumptions about risk) developed based on the best information available in
the circumstances. |
In instances where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value hierarchy within which
the entire fair value measurement falls is based on the lowest level input that is significant to
the fair value measurement in its entirety. The Companys assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The Company did not elect to apply the fair value provisions to any qualifying non-financial
assets and liabilities. As a result, the application of FASB ASC 820-10 to the Companys
non-financial assets did not have any impact on the Companys consolidated results of operations
or financial position.
13
The following table presents information about the Companys fair value measurements at
September 30, 2010 and December 31, 2009 (in 000s):
Fair Value Measurements at September 30, 2010 Using | ||||||||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||||||||
Active Markets | Observable | Unobservable | ||||||||||||||||||||
Total | for Identical | Inputs | Inputs | |||||||||||||||||||
Description | September 30, 2010 | Assets (Level 1)(a) | (Level 2)(a) | (Level 3) | ||||||||||||||||||
Assets |
||||||||||||||||||||||
Available-for-sale securities: |
||||||||||||||||||||||
Equity Separately Managed Accounts (SMAs) |
$ | 37,981 | $ | 37,981 | - | - | ||||||||||||||||
Fixed Income SMAs |
1,813 | - | 1,813 | - | ||||||||||||||||||
Equity Funds |
62,797 | 62,791 | 6 | - | ||||||||||||||||||
Fixed Income Funds |
26,183 | 26,183 | - | - | ||||||||||||||||||
Auction Rate Preferred |
9,880 | - | - | 9,880 | ||||||||||||||||||
Other |
56 | 29 | - | 27 | ||||||||||||||||||
Total available-for-sale securities |
$ | 138,710 | $ | 126,984 | $ | 1,819 | $ | 9,907 | ||||||||||||||
Underlying investments from consolidated fund |
11,777 | - | 11,777 | - | ||||||||||||||||||
Other investments |
7,706 | - | 6,614 | 1,092 | ||||||||||||||||||
Total |
$ | 158,193 | $ | 126,984 | $ | 20,210 | $ | 10,999 | ||||||||||||||
Liabilities |
||||||||||||||||||||||
Derivative financial instruments |
$ | (51,553 | ) | - | - | $ | (51,553 | ) | ||||||||||||||
(a) There were no significant transfers to or from Levels 1 and 2 during the period ended
September 30, 2010.
|
||||||||||||||||||||||
Fair Value Measurements at December 31, 2009 Using | ||||||||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||||||||
Active Markets | Observable | Unobservable | ||||||||||||||||||||
Total | for Identical | Inputs | Inputs | |||||||||||||||||||
Description | December 31, 2009 | Assets (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
Assets |
||||||||||||||||||||||
Available-for-sale securities: |
||||||||||||||||||||||
Equity Separately Managed Accounts (SMAs) |
$ | 38,959 | $ | 38,959 | - | - | ||||||||||||||||
Fixed Income SMAs |
1,646 | - | 1,646 | - | ||||||||||||||||||
Symphony CLOs and CDOs |
7,833 | - | - | 7,833 | ||||||||||||||||||
Equity Funds |
77,650 | 76,877 | 773 | - | ||||||||||||||||||
Fixed Income Funds |
30,684 | 30,684 | - | - | ||||||||||||||||||
Auction Rate Preferred |
9,880 | - | - | 9,880 | ||||||||||||||||||
Other |
57 | 29 | - | 28 | ||||||||||||||||||
Total available-for-sale securities |
$ | 166,709 | $ | 146,549 | $ | 2,419 | $ | 17,741 | ||||||||||||||
Underlying investments from consolidated fund |
10,967 | - | 10,967 | - | ||||||||||||||||||
Other investments |
6,433 | - | 6,332 | 101 | ||||||||||||||||||
Total |
$ | 184,109 | $ | 146,549 | $ | 19,718 | $ | 17,842 | ||||||||||||||
Liabilities |
||||||||||||||||||||||
Derivative financial instruments |
$ | (62,932 | ) | - | - | $ | (62,932 | ) | ||||||||||||||
14
The following table presents a rollforward of fair value measurements considered to be Level
3 (in 000s):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Available-for- | Derivative | |||||||||||||||||||||
Sale | Other | Financial | ||||||||||||||||||||
Securities | Investments | Instruments | Total | |||||||||||||||||||
Beginning balance (as of June 30, 2010) |
$ | 9,907 | $ | 100 | $ | (55,642 | ) | $ | (45,635 | ) | ||||||||||||
Total gains or losses (realized/unrealized) |
- | (8 | ) | 4,089 | 4,081 | |||||||||||||||||
Included in earnings |
- | (8 | ) | 4,089 | 4,081 | |||||||||||||||||
Included in other comprehensive income |
- | - | - | - | ||||||||||||||||||
Purchases |
- | 1,000 | - | 1,000 | ||||||||||||||||||
Sales |
- | - | - | - | ||||||||||||||||||
Transfers into Level 3 |
- | - | - | - | ||||||||||||||||||
Transfers out of Level 3 due to
consolidation of variable interest
entities |
- | - | - | - | ||||||||||||||||||
Ending balance (as of September 30, 2010) |
$ | 9,907 | $ | 1,092 | $ | (51,553 | ) | $ | (40,554 | ) | ||||||||||||
Available-for- | Derivative | |||||||||||||||||||||
Sale | Other | Financial | ||||||||||||||||||||
Securities | Investments | Instruments | Total | |||||||||||||||||||
Beginning balance (as of January 1, 2010) |
$ | 17,741 | $ | 101 | $ | (62,932 | ) | $ | (45,090 | ) | ||||||||||||
Total gains or losses (realized/unrealized) |
(4,047 | ) | (9 | ) | 11,379 | 7,323 | ||||||||||||||||
Included in earnings |
- | 24 | 11,379 | 11,403 | ||||||||||||||||||
Included in other comprehensive income |
(4,047 | ) | (33 | ) | - | (4,080 | ) | |||||||||||||||
Purchases |
- | 1,000 | - | 1,000 | ||||||||||||||||||
Sales |
- | - | - | - | ||||||||||||||||||
Transfers into Level 3 |
- | - | - | - | ||||||||||||||||||
Transfers out of Level 3 due to
consolidation of variable interest
entities |
(3,787 | ) | - | - | (3,787 | ) | ||||||||||||||||
Ending balance (as of September 30, 2010) |
$ | 9,907 | $ | 1,092 | $ | (51,553 | ) | $ | (40,554 | ) | ||||||||||||
For other investments, approximately $23 thousand of the $24 thousand in net gains for the
nine month period ended September 30, 2010 presented in the table above as included in earnings
are attributable to the change in unrealized gains or losses for assets which were still held at
September 30, 2010. The remaining $1 thousand of net gains shown in the table above as included
in earnings relates to realized gains on investments sold during the period.
For derivative financial instruments, all $11.4 million of net gains for the nine month period
ended September 30, 2010 presented in the table above as included in earnings are attributable to
the change in unrealized gains/losses for liabilities which were still held at September 30, 2010.
15
Fair Value Levels of Assets and Liabilities
Available-for-Sale Securities and Trading Securities
Approximately $127.0 million of the Companys available-for-sale securities are classified as
Level 1 financial instruments, as they are valued based on unadjusted quoted market prices. The
majority of these investments are investments in the Companys managed funds and certain product
portfolios (seed investments). Approximately $1.8 million of the Companys available-for-sale
investments are considered to be Level 2 financial instruments, as they are valued based on
observable inputs.
The Company also holds $12.4 million (at par value) in auction rate preferred stock (ARPS) of an
unaffiliated issuer, for which the Company recorded a 20% unrealized loss due to liquidity issues
related to the failed auctions for all ARPS, and which the Company carries at $9.9 million on its
consolidated balance sheets at September 30, 2010 and December 31, 2009. As the auctions for ARPS
began to fail on a widespread basis in early 2008, the Company considers these investments as
Level 3 financial instruments, as there is currently no liquid market for these investments.
Realized gains and losses on the sale of investments are calculated based on the specific
identification method and are recorded in Other Income/(Expense) on the consolidated statements
of income. For the nine months ended September 30, 2010, proceeds from the sales of
available-for-sale securities were $7.8 million. Gross realized gains included in earnings on
those sales were $8.6 million and gross realized losses included in earnings on those sales were
$1 thousand.
Underlying Investments from Consolidated Fund
The Company is required to consolidate a recently created product portfolio into its financial
results. This recently created product portfolio relates to an investment in a limited
partnership for which one of the Companys subsidiaries is an advisor. As the Company is the only
investor in this fund, the Company is required to consolidate it into its financial results. The
Company considers this limited partnership investment to be a Level 3 investment due to its
illiquid nature and lack of market inputs.
Other Investments
Included in the $7.7 million of Other Investments in the fair value measurements table above is
approximately: $4.4 million of private investment funds included in the secular trust for the
Companys mutual incentive program (refer to Note 10, Mutual Fund Incentive Program for
additional information); $2.1 million of general partner interests in certain limited
partnerships for which one of the Companys subsidiaries is the advisor; and $1.0 million in a
private equity fund. In accordance with ASC 820, the fair value of
these investments is based on their reported net asset values. The private investment funds and general partner interests are considered
Level 2 financial instruments. The $1.0 million in the private equity fund is considered to be a
Level 3 financial instrument.
Derivative Financial Instruments
As further discussed in Note 8, Derivative Financial Instruments, the Company uses derivative
instruments to manage the economic impact of fluctuations in interest rates related to its
long-term debt, and to mitigate the overall market risk for certain product portfolios.
Currently, the Company uses interest rate swaps to manage its interest rate risk related to its
long-term debt. These are not designated in a formal hedge relationship under the provisions of
Codification. The valuation of these derivative instruments is determined using widely accepted
valuation techniques including discounted cash flow analysis on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including interest rate curves and implied
volatilities.
The fair values of interest rate swaps are determined using the market standard methodology of
netting the discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts). The variable cash payments (or receipts) are based on an
expectation of future interest rates (forward curves) derived from observable market interest rate
curves.
To comply with the provisions of FASB ASC 820, the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective
counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk, the Company has
16
considered the impact of netting and any applicable credit enhancements, such as collateral
postings, thresholds, mutual puts, and guarantees. At September 30, 2010 and December 31, 2009,
these credit valuation adjustments approximate $4.0 million and $6.2 million, respectively.
Although the Company has determined that the majority of the inputs used to value its derivatives
related to long-term debt fall within Level 2 of the fair value hierarchy, the credit valuation
adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current
credit spreads to evaluate the likelihood of default by the Company and its counterparties. As
the credit valuation adjustments at September 30, 2010 and December 31, 2009 are significant to
the overall valuation of these derivative positions, the Company has determined that its
valuations for derivatives related to its long-term debt in their entirety should be classified in
Level 3 of the fair value hierarchy.
Counterparty risk, otherwise known as default risk, is the risk that an organization will fail to
perform on its obligations when due, either because of temporary liquidity issues or longer-term
systemic issues. Although the Company is subject to counterparty risk with respect to our
derivative instruments related to long-term debt, as of September 30, 2010, all of the Companys
derivative instruments related to long-term debt are in a negative position meaning that the
fair value of these open derivatives represents a net liability owed by the Company to various
counterparties. The Company does not have any collateral posted on deposit with any of its
counterparties for any of the derivative instruments related to long-term debt. The Company
attempts to minimize counterparty risk on derivative instruments related to long-term debt by
entering into derivative contracts with major banks and financial institutions with which the
Company already has established relationships.
Total Consolidated Investments By Type
Of the approximately $158.2 million in total investments at September 30, 2010, approximately
$11.8 million relates to an underlying investment in an investment fund that the Company is
required to consolidate, $100.8 million relates to equity-based funds and accounts, $28.0 million
relates to fixed-income funds or accounts, and $9.9 million relates to ARPS issued by unaffiliated
third-parties. At December 31, 2009, of the approximately $184 million in total investments on
the Companys consolidated balance sheet, approximately $11 million relates to underlying
investments in an investment company that the Company is required to consolidate, $117 million
relates to equity-based funds and accounts, $32 million relates to fixed-income funds or accounts,
$8 million relates to Symphony CLO investments, $10 million to ARPS issued by unaffiliated
third-parties, and $6 million relates to private investment funds.
Unrealized Gains and Losses
The cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of
available-for-sale securities by major security type at September 30, 2010 and December 31, 2009,
are as follows:
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
(in 000s) | Cost | Holding Gains | Holding Losses | Fair Value | ||||||||||||
At September 30, 2010 |
||||||||||||||||
Equity Separately Managed
Accounts (SMAs) |
$ | 31,858 | $ | 6,123 | $ | - | $ | 37,981 | ||||||||
Fixed Income SMAs |
1,590 | 223 | - | 1,813 | ||||||||||||
Equity Funds |
48,638 | 14,159 | - | 62,797 | ||||||||||||
Fixed Income Funds |
23,686 | 2,501 | (4 | ) | 26,183 | |||||||||||
Auction Rate Preferred Stock |
12,350 | - | (2,470 | ) | 9,880 | |||||||||||
Other |
56 | - | - | 56 | ||||||||||||
$ | 118,178 | $ | 23,006 | $ | (2,474 | ) | $ | 138,710 | ||||||||
17
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
(in 000s) | Cost | Holding Gains | Holding Losses | Fair Value | ||||||||||||
At December 31, 2009 |
||||||||||||||||
Equity Separately
Managed Accounts
(SMAs) |
$ | 32,280 | $ | 6,776 | $ | (97 | ) | $ | 38,959 | |||||||
Fixed Income SMAs |
1,488 | 158 | - | 1,646 | ||||||||||||
Equity Funds |
63,127 | 14,523 | - | 77,650 | ||||||||||||
Symphony
Collateralized
Loan/Debt
Obligations |
3,786 | 4,858 | (810 | ) | 7,834 | |||||||||||
Fixed Income Funds |
28,405 | 2,293 | (16 | ) | 30,682 | |||||||||||
Auction Rate
Preferred Stock |
12,350 | - | (2,470 | ) | 9,880 | |||||||||||
Other |
58 | - | - | 58 | ||||||||||||
$ | 141,494 | $ | 28,608 | $ | (3,393 | ) | $ | 166,709 | ||||||||
The following table presents information about the Companys investments with unrealized
losses at September 30, 2010 and December 31, 2009 (in 000s):
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
At September 30, 2010 |
||||||||||||||||||||||||
Fixed Income Funds |
$ | 18 | $ | (4 | ) | - | - | $ | 18 | $ | (4 | ) | ||||||||||||
Equity Funds |
- | - | - | - | - | - | ||||||||||||||||||
Equity SMAs |
- | - | - | - | - | - | ||||||||||||||||||
Auction Rate Preferred Stock |
9,880 | (2,470 | ) | - | - | 9,880 | (2,470 | ) | ||||||||||||||||
At December 31, 2009 |
||||||||||||||||||||||||
Fixed Income Funds |
$ | 107 | $ | (16 | ) | $ | - | $ | - | $ | 107 | $ | (16 | ) | ||||||||||
Symphony Collateralized
Loan/Debt Obligations |
- | - | 1,140 | (810 | ) | 1,140 | (810 | ) | ||||||||||||||||
Equity SMAs |
4,568 | (97 | ) | - | - | 4,568 | (97 | ) | ||||||||||||||||
Auction Rate Preferred Stock |
9,880 | (2,470 | ) | - | - | 9,880 | (2,470 | ) |
Fair Value of Financial Instruments
FASB ASC 825, Financial Instruments, requires the disclosure of the estimated fair value of
financial instruments. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
In determining the fair value of its financial instruments, the Company uses a variety of
methods and assumptions that are based on market conditions and risk existing at each balance
sheet date. For the majority of financial instruments, including most derivatives, long-term
investments and long-term debt, standard market conventions and techniques such as discounted
cash flow analysis, option pricing models, replacement cost and termination cost are used to
determine fair value. Dealer quotes are used for the remaining financial instruments. All
methods of assessing fair value result in a general approximation of value, and such value may
never actually be realized.
Cash and cash equivalents, marketable securities, notes and other accounts receivable and
investments are financial assets with carrying values that approximate fair value because of the
short maturity of those instruments. Accounts payable and
18
other accrued expenses are financial liabilities with carrying values that also approximate fair
value because of the short maturity of those instruments. The fair value of long-term debt is
based on market prices.
A comparison of the fair values and carrying amounts of these instruments is as presented below.
See Note 2, Consolidated Variable Interest Entities, for fair value information related to
consolidated variable interest entities.
September 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 286,259 | $ | 286,259 | $ | 290,085 | $ | 290,085 | ||||||||
Restricted cash for debt retirement |
- | - | 201,745 | 201,745 | ||||||||||||
Management and distribution fees receivable |
113,714 | 113,714 | 109,824 | 109,824 | ||||||||||||
Other receivables |
17,683 | 17,683 | 18,532 | 18,532 | ||||||||||||
Available-for-sale securities |
138,710 | 138,710 | 166,709 | 166,709 | ||||||||||||
Underlying securities in consolidated fund |
11,777 | 11,777 | 10,967 | 10,967 | ||||||||||||
Other investments |
7,706 | 7,706 | 6,433 | 6,433 | ||||||||||||
Liabilities: |
||||||||||||||||
Debt (short-term and long-term) |
3,800,520 | 3,677,743 | 3,984,831 | 3,691,912 | ||||||||||||
Accounts payable |
16,713 | 16,713 | 16,809 | 16,809 | ||||||||||||
Open derivatives (short-term and long-term) |
51,553 | 51,553 | 62,932 | 62,932 |
Note 4 Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return and provide for
income taxes on a separate return basis. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and the tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are applicable to periods
in which the differences are expected to affect taxable income. In order to fully realize
deferred tax assets, the Company will need to generate future taxable income before the expiration
of the deferred tax assets governed by the tax code.
Valuation allowances may be established, when necessary, to reduce deferred tax assets to amounts
expected to be realized. Management considers the scheduled reversal of deferred tax liabilities
(including the impact of available carryback and carryforward periods), projected taxable income,
and tax planning strategies in making this assessment.
At September 30, 2010 and December 31, 2009, the Company had $17.9 million and $17.2 million,
respectively, in valuation allowances related to state net operating loss carryforwards due to the
uncertainty that certain deferred tax assets will be realized. At September 30, 2010 and December
31, 2009, total gross deferred tax assets (after tax valuation allowances) were $169.9 million and
$191.9 million, respectively. In assessing the likelihood of realization of deferred tax assets,
management considers whether it is more likely than not that some or all of the deferred tax
assets will not be realized. Based on projections for future taxable income and the reversal of
future temporary timing differences over the periods for which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will realize the
benefits of these deductible differences, net of the existing valuation allowances at September
30, 2010. The amount of the deferred tax asset considered realizable, however, could be reduced
if estimates of future taxable income and the reversal of future temporary timing differences
during the carryforward period are reduced.
Note 5 Net Capital Requirement
Nuveen Investments, LLC, the Companys wholly-owned broker/dealer subsidiary, is subject to SEC
Rule 15c3-1, the Uniform Net Capital Rule, which requires the maintenance of minimum net capital
and requires that the ratio of aggregate indebtedness to net capital, as these terms are defined
in the Rule, shall not exceed 15 to 1. At September 30, 2010, Nuveen
19
Investments, LLCs net capital ratio was 1.15 and its net capital was approximately $26.0 million,
which was $24.0 million in excess of the required net capital of $2.0 million.
Note 6 Goodwill and Intangible Assets
The following table presents a reconciliation of activity in the balance of goodwill from December
31, 2009 to September 30, 2010 presented on the Companys consolidated balance sheets (in
thousands):
Balance at December 31, 2009 |
$ | 2,239,351 | ||
HydePark contingent payment related to acquisition |
2,594 | |||
Balance at September 30, 2010 |
$ | 2,241,945 | ||
During the nine months ended September 30, 2010, the Company paid approximately $2.6 million of
contingent consideration to the former owners of HydePark per the acquisition agreement. The $2.6
million is considered additional purchase price and has been recorded as goodwill.
At September 30, 2010 and December 31, 2009, the Companys accumulated goodwill impairment losses
total $1.1 billion.
The following table presents gross carrying amounts and accumulated amortization amounts for the
intangible assets presented on the Companys consolidated balance sheets at September 30, 2010 and
December 31, 2009 (in thousands):
At September 30, 2010 | At December 31, 2009 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Nuveen trade name |
$ | 184,900 | $ | - | $ | 184,900 | $ | - | ||||||||
Nuveen investment contracts closed-end funds |
1,277,900 | - | 1,277,900 | - | ||||||||||||
Nuveen investment contracts mutual funds |
768,900 | - | 768,900 | - | ||||||||||||
Nuveen customer relationships managed accounts |
972,600 | 186,415 | 972,600 | 137,785 | ||||||||||||
Winslow trade name |
2,100 | 185 | 2,100 | 107 | ||||||||||||
Winslow NYLIM customer relationship |
22,800 | 3,098 | 22,800 | 1,782 | ||||||||||||
Winslow other customer relationships |
38,300 | 6,149 | 38,300 | 3,538 | ||||||||||||
Total |
$ | 3,267,500 | $ | 195,847 | $ | 3,267,500 | $ | 143,212 | ||||||||
At September 30, 2010 and December 31, 2009, the Companys accumulated intangible asset impairment
losses totaled $885.5 million.
Of the four Nuveen intangible assets presented above, only one is amortizable: Nuveen customer
relationships managed accounts, which has an estimated useful life of 15 years. The remaining
Nuveen intangible assets presented above are indefinite-lived.
Management of the Company has determined that the estimated useful lives of the Winslow intangible
assets are 20 years for the Winslow Capital trade name, 13 years for the Winslow Capital NYLIM
customer relationship, and 11 years for all other Winslow Capital customer relationships.
The estimated aggregate amortization expense for the next five years for all intangible assets is
approximately $17.6 million for the remaining three months of 2010, and annual amortization of
$70.2 million for each of the years 2011 through 2014.
20
Note 7 Debt
At September 30, 2010 and December 31, 2009, debt (not including any debt related to consolidated
VIEs) on the accompanying consolidated balance sheets was comprised of the following (in 000s):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Short-Term Obligations: |
||||||||
Senior Term Notes: |
||||||||
Senior term notes 5% due 9/15/10 |
$ | - | $ | 198,745 | ||||
Net unamortized discount |
- | (86 | ) | |||||
Net unamortized debt issuance costs |
- | (242 | ) | |||||
Total Short-Term Term Notes |
$ | - | $ | 198,417 | ||||
Long-Term Obligations: |
||||||||
Senior Secured Credit Agreement- |
||||||||
Revolving Credit Facility due 11/13/13 |
$ | 250,000 | $ | 250,000 | ||||
Term Loan Facility due 11/13/14 |
2,087,197 | 2,087,197 | ||||||
Net unamortized discount |
(13,796 | ) | (15,865 | ) | ||||
Net unamortized debt issuance costs |
(17,735 | ) | (20,392 | ) | ||||
Second-Lien Term Loan- |
||||||||
Second Lien Debt 12.5% due 7/31/15 |
450,000 | 450,000 | ||||||
Net unamortized discount |
(39,005 | ) | (42,970 | ) | ||||
Net unamortized debt issuance costs |
(24,862 | ) | (27,460 | ) | ||||
Incremental Second Lien Debt due 7/31/15 |
50,000 | 50,000 | ||||||
Net unamortized discount |
(3,024 | ) | (3,338 | ) | ||||
Net unamortized debt issuance costs |
(939 | ) | (1,041 | ) | ||||
Senior Term Notes- |
||||||||
Senior term notes 5.5% due 9/15/15 |
300,000 | 300,000 | ||||||
Net unamortized discount |
(849 | ) | (959 | ) | ||||
Net unamortized debt issuance costs |
(1,334 | ) | (1,506 | ) | ||||
Senior Unsecured 10.5% Notes due 11/15/15 |
785,000 | 785,000 | ||||||
Net unamortized debt issuance costs |
(20,133 | ) | (22,252 | ) | ||||
Total Long-Term Debt |
3,800,520 | 3,786,414 | ||||||
Total Debt |
$ | 3,800,520 | $ | 3,984,831 | ||||
Senior Secured Credit Agreement
As a result of the acquisition of the Company in November 2007 by a group of private equity
investors led by Madison Dearborn Partners, LLC (the MDP Transactions) (refer to Note 1,
Acquisition of the Company in the Companys 2009 annual audited financial statements filed on
Form 10-K), the Company has a senior secured credit facility (the Credit Facility) consisting of
a $2.3 billion term loan facility and a $250 million secured revolving credit facility. The
Credit Facility contains customary financial covenants, including a financial covenant that
requires the Company to maintain a maximum ratio of senior unsecured indebtedness to adjusted
EBITDA (as such terms are defined in the Credit Facility); limitations on the incurrence of
additional debt; and other limitations.
At September 30, 2010 and December 31, 2009, the Company had $2.1 billion outstanding under the
term loan facility (the first-lien term loan). The borrowings under the term loan facility were
used as part of the financing to consummate the MDP Transactions. At September 30, 2010 and
December 31, 2009, the Company had $250 million outstanding under the revolving credit facility.
All borrowings under the Credit Facility bear interest at a rate per
annum equal to three-month LIBOR plus
3.0%.
21
In addition to paying interest on outstanding principal under the Credit Facility, the Company is
required to pay a commitment fee to the lenders in respect of the unutilized loan commitments at a
rate of 0.3750% per annum.
All obligations under the Credit Facility are guaranteed by Windy City Investments Inc. (the
Parent) and each of the Companys present and future, direct and indirect, wholly-owned
material domestic subsidiaries (excluding subsidiaries that are broker dealers). The obligations
under the Credit Facility and these guarantees are secured, subject to permitted liens and other
specified exceptions, (1) on a first-lien basis, by all the capital stock of Nuveen Investments
and certain of its subsidiaries (excluding significant subsidiaries and limited, in the case of
foreign subsidiaries, to 100% of the non-voting capital stock and 65% of the voting capital stock
of the first tier foreign subsidiaries) directly held by Nuveen Investments or any guarantor and
(2) on a first lien basis by substantially all present and future assets of Nuveen Investments
and each guarantor, except that the Additional Term Loans (as defined below) are secured by the
same capital stock and other assets on a second lien basis. Refer to Note 12, Financial
Information Related to Guarantor Subsidiaries.
The term loan facility matures on November 13, 2014 and the revolving credit facility matures on
November 13, 2013.
The Company was required to make quarterly payments under the term loan facility in the amount of
approximately $5.8 million. The Company used a portion of the proceeds of the Additional Term
Loans (as defined below) to prepay these quarterly payments. All or any portion of the loans
outstanding under the Credit Facility may be prepaid at par, except that the Additional Term
Loans may only be voluntarily prepaid with specified premiums or fees prior to July 31, 2014.
At September 30, 2010 and December 31, 2009, the fair value of the first-lien term loan was
approximately $1.9 billion and $1.8 billion, respectively. At September 30, 2010 and December
31, 2009, the fair value of the $250 million revolving credit facility was approximately $211.3
million and $206.3 million, respectively.
Second-Lien Term Loan and Restricted Cash
On July 28, 2009, Nuveen Investments, Inc. entered into an amendment (the First Amendment) to
the Credit Facility, pursuant to which the Company obtained a new $500 million second-lien term
facility and borrowed $450 million of loans thereunder (the Additional Term Loans). The
Additional Term Loans bear interest at rate of 12.50% per annum and will mature on July 31, 2015.
During August 2009, the Company elected to borrow an additional $50 million of Additional Term
Loans under this second-lien term loan facility.
The Additional Term Loans are guaranteed by the same subsidiaries of the Company that guarantee
the first-lien, senior secured Credit Facility. The Additional Term Loans and the guarantees
thereof are secured by the same collateral of the Company and the subsidiary guarantors that
secure the Companys obligations under the existing first-lien, senior secured Credit Facility on
a second-lien basis, and are therefore junior to the security interests of the lenders under the
Credit Facility.
The Company escrowed part of the proceeds from the Additional Term Loans to retire the Companys
5% senior unsecured notes due September 15, 2010 (discussed below in Senior Term Notes). At
the time of the Additional Term Loans, the Company escrowed approximately $222.7 million for the
then-remaining 5% senior unsecured notes due 2010. During the remainder of 2009 and also during the nine months
ended September 30, 2010 prior to the date due, the Company repurchased / early retired a portion
of the remaining 5% senior unsecured notes due September 15, 2010. Funds were released from the
escrow to make those repurchases. On September 14, 2010, the remaining 5% senior unsecured notes
due were repaid in full. At September 30, 2010, there were no remaining amounts in escrow. At
December 31, 2009, the amount remaining in the escrow account was approximately $201.7 million.
The money in the escrow account is reflected in Restricted Cash for Debt Retirement on the
Companys accompanying consolidated balance sheet as of December 31, 2009.
As described in the section above, the Company used the remaining net proceeds, approximately
$198.9 million, from the Additional Loans to prepay quarterly payments that were required under
the term loan facility.
At September 30, 2010 and December 31, 2009, the fair value of the $500 million Additional Term
Loans was approximately $542.2 million and $523.1 million, respectively.
22
Senior Unsecured Notes
Also in connection with the MDP Transactions, the Company issued $785 million of 10.5% senior
unsecured notes (10.5% senior notes). The 10.5% senior notes mature on November 15, 2015 and
pay a coupon of 10.5% of par value semi-annually on May 15 and November 15 of each year,
commencing on May 15, 2008. The Company received approximately $758.9 million in net proceeds
after underwriting commissions and structuring fees. The net proceeds were used as part of the
financing to consummate the Transactions.
At September 30, 2010 and December 31, 2009, the fair value of the $785 million 10.5% senior
notes was approximately $798.8 million and $716.3 million, respectively.
Obligations under the notes are guaranteed by the Parent and each of our existing, subsequently
acquired, and/or organized direct or indirect, domestic, restricted (as defined in the credit
agreement) subsidiaries that guarantee the debt under the Credit Facility. Refer to Note 12,
Financial Information Related to Guarantor Subsidiaries.
Senior Term Notes
On September 12, 2005, the Company issued $550 million of senior unsecured notes, comprised of
$250 million of 5-year notes and $300 million of 10-year notes (Predecessor senior term notes).
At September 30, 2010, only the $300 million of 10-year notes remain outstanding, as the $250
million of 5-year notes were repaid. At December 31, 2009, both the 5-year notes and the 10-year
notes were outstanding. The Company received approximately $544 million in net proceeds after
discounts and other debt issuance costs. The 5-year Predecessor senior term notes bore interest
at an annual fixed rate of 5.0% payable semi-annually on March 15 and September 15. The 10-year
Predecessor senior term notes bear interest at an annual fixed rate of 5.5% payable semi-annually
also on March 15 and September 15. The net proceeds from the Predecessor senior term notes were
used to refinance outstanding indebtedness. The costs related to the issuance of the Predecessor
senior term notes were capitalized and amortized to expense over their term. At September 30,
2010, the fair value of the 10-year Predecessor senior term notes was approximately $243.5
million. At December 31, 2009, the fair value of the 5-year and 10-year Predecessor senior term
notes was approximately $196.7 million and $214.4 million, respectively.
During the first nine months of 2010 and prior to the repayment
in full on September 14, 2010 date due,
the Company retired additional amounts of the 5% senior term notes due September 15, 2010.
Approximately $83.5 million was paid for these early retirements. The Company recorded a net
loss of $0.4 million, comprised of: a $0.3 million loss on the early retirement of debt, a $74
thousand loss for the acceleration of the amortization of debt issuance costs, and a $26 thousand
loss for the acceleration of discounts. This loss is reflected in Other Income/(Expense) on
our consolidated statement of income for the nine months ended September 30, 2010.
For the three and nine months ended September 30, 2009, the Company retired a portion of the
5-year Predecessor senior term notes due 2010. Of the $5.2 million in total cash paid,
approximately $6.6 thousand was for accrued interest, with the remaining amount for principal
representing $9.5 million in par on the 5% senior term notes due 2010. The Company also
accelerated the recognition of the amortization of bond discount and debt issuance costs. The
net gain recorded by the Company (gain on early retirement of debt net of accelerated
amortization expense) was approximately $4.3 million and is reflected in Other Income/(Expense)
on the Companys consolidated statement of income for the three and nine months ended September
30, 2009.
Note 8 Derivative Financial Instruments
FASB Topic 815-10 deals with derivatives and requires recognition of all derivatives on the
balance sheet at fair value. Derivatives that do not meet the criteria for hedge accounting must
be adjusted to fair value through earnings. Changes in the fair value of derivatives that do meet
the hedge accounting criteria under FASB Topic 815-10 are offset against the change in the fair
value of the hedged assets or liabilities, with only any ineffectiveness (as defined) marked
through earnings.
At September 30, 2010 and December 31, 2009, the Company did not hold any derivatives designated
in a formal hedge relationship under the provisions of FASB Topic 815-10.
23
Derivative Transactions Related to Financing Part of the MDP Transactions
As further discussed in the Companys 2009 Annual Report on Form 10-K, the Company entered into
derivative transactions related to financing part of the MDP Transactions (the New Debt
Derivatives).
At September 30, 2010 and December 31, 2009, the Company held eight interest rate swap derivative
transactions that effectively convert a portion ($1.2 billion) of the Companys $2.3 billion
variable rate debt under the term loan facility into fixed-rate borrowings. At September 30,
2010, the FASB ASC 820-10 fair value of the New Debt Derivatives was a liability of $51.6 million
and is reflected as $3.1 million of Fair Value of Open Derivatives under Short-Term
Obligations and $48.5 million as Fair Value of Open Derivatives under Long-Term Obligations
on the accompanying consolidated balance sheet as of September 30, 2010. At December 31, 2009,
the FASB ASC 820-10 fair value of the New Debt Derivatives was a liability of $62.9 million and is
reflected as $20.0 million of Fair Value of Open Derivatives under Short-Term Obligations and
$43.0 million as Fair Value of Open Derivatives under Long-Term Obligations on the
accompanying consolidated balance sheet as of December 31, 2009.
For the three and nine months ended September 30, 2010, the Company recorded $4.1 million and
$11.4 million of net unrealized gains, respectively, related to the New Debt Derivatives. For the
three and nine months ended September 30, 2009, the Company recorded $3.1 million in net
unrealized gains and $0.1 million of net unrealized losses, respectively, related to the New Debt
Derivatives. Unrealized gains and losses on the New Debt Derivatives are reflected in Other
Income/(Expense) on the accompanying consolidated statements of income.
Also for the three and nine months ended September 30, 2010, the Company recorded $12.5 million
and $38.8 million, respectively, of interest expense for both periodic swap payments made by the
Company as well as realized gains/losses on the New Debt Derivatives. For the three and nine
months ended September 30, 2009, the Company recorded $16.8 million and $32.8 million,
respectively, of interest expense for both periodic swap payments made by the Company as well as
realized gains/losses on the New Debt Derivatives. These amounts are reflected in Net Interest
Expense on the accompanying consolidated statements of income.
Contingent Features. The New Debt Derivatives are pari-passu (have equal rights of payment or
seniority) with the $2.3 billion of variable rate debt under the term loan facility. Furthermore,
in the event that the Company were to have a technical default of its debt covenants for the term
loan facility, an acceleration of any amounts due on the New Debt Derivatives would only occur if
the lenders accelerate the debt under the term loan facility. The aggregate gross fair value (not
including the fair value credit valuation adjustment required by FASB ASC 820-10) of the New Debt
Derivatives at September 30, 2010 is $55.5 million. Although the Company does have master netting
agreements in place with the various counterparties to the New Debt Derivatives, as of September
30, 2010, each of the Companys New Debt Derivatives are in a liability position. If the
credit-risk-related contingent features underlying the New Debt Derivatives agreements had been
triggered on September 30, 2010, the Company would have been required to make payments totaling
$55.5 million to the various counterparties for the New Debt Derivatives. The Company does not
have any collateral posted for the New Debt Derivatives.
24
Note 9 Retirement Plans
The following table presents the components of the net periodic retirement plans benefit costs for
the three and nine months ended September 30, 2010 and 2009, respectively (in 000s):
Three Months | Three Months | |||||||||||||||
Ended September 30, 2010 | Ended September 30, 2009 | |||||||||||||||
Total | Post- | Total | Post- | |||||||||||||
Pension | Retirement | Pension | Retirement | |||||||||||||
Service Cost |
$ | 409 | $ | 13 | $ | 367 | $ | 13 | ||||||||
Interest Cost |
618 | 101 | 629 | 114 | ||||||||||||
Expected Return on Assets |
(521 | ) | | (433 | ) | | ||||||||||
Amortization of: |
||||||||||||||||
Unrecognized Prior Service Cost |
(48 | ) | 24 | (31 | ) | 24 | ||||||||||
Unrecognized (Gain)/Loss |
205 | (54 | ) | 114 | (44 | ) | ||||||||||
Total |
$ | 663 | $ | 84 | $ | 646 | $ | 107 | ||||||||
Nine Months | Nine Months | |||||||||||||||
Ended September 30, 2010 | Ended September 30, 2009 | |||||||||||||||
Total | Post- | Total | Post- | |||||||||||||
Pension | Retirement | Pension | Retirement | |||||||||||||
Service Cost |
$ | 1,226 | $ | 39 | $ | 1,101 | $ | 40 | ||||||||
Interest Cost |
1,853 | 303 | 1,886 | 342 | ||||||||||||
Expected Return on Assets |
(1,563 | ) | | (1,300 | ) | | ||||||||||
Amortization of: |
||||||||||||||||
Unrecognized Prior Service Cost |
(143 | ) | 72 | (92 | ) | 72 | ||||||||||
Unrecognized (Gain)/Loss |
617 | (164 | ) | 342 | (133 | ) | ||||||||||
Total |
$ | 1,990 | $ | 250 | $ | 1,937 | $ | 321 | ||||||||
The weighted-average expected long-term rate of return on plan assets used to determine net benefit
cost is 8.03%.
During 2010, the Company does not expect to make any contributions to its qualified pension plan,
but expects to contribute approximately $2.8 million as the final funding required to make the
final payments related to the terminated excess pension plan (see below), and $0.7 million (net of
expected Medicare Part D reimbursements) for benefit payments to its post-retirement benefit plan.
During the first nine months of 2010, the Company has not made any contributions or any payments
related to its qualified or excess pension plans. During the first nine months of 2010, the
Company has paid approximately $0.4 million in benefits related to the post-retirement plan.
Effective October 28, 2009, the excess pension plan was terminated and the actuarial equivalent of
total benefits thereunder will be paid out in two tranches, commencing in 2009 and ending in 2010.
Note 10 Mutual Fund Incentive Program
During July 2009, the Company funded $52.2 million into a secular trust as part of a newly
established multi-year Mutual Fund Incentive Program for certain employees. The secular trust
acquired shares of Nuveen mutual funds and other investment products supporting the awards under
this new incentive program. The awards are subject to vesting and certain other restrictions. The
Company funded an additional $2.0 million for this program during 2010.
At June 30, 2010, approximately 50% of the program vested. During the three and nine months ended
September 30, 2010, the Company paid $16.8 million and $30.4 million, respectively, to program
participants.
At September 30, 2010, approximately $27.9 million representing the fair value of the remaining
unvested investments for this program is included in Investments on the Companys consolidated
balance sheet. For accounting purposes, most of these investments are classified as
available-for-sale, with any mark-to-market on these investments being recorded through
accumulated other comprehensive income, a separate component of shareholders equity. A portion of
the investments, $4.3 million as of September 30, 2010, is invested in private investment funds.
The mark-to-market, and realized gains and losses on this portion of the investments, are
recognized in Other Income/(Expense) on the accompanying consolidated statements of income. For
the three and nine months ended September 30, 2010, the Company
25
recorded approximately $131 thousand in net gains and $35 thousand in net losses (unrealized
gains/losses for mark-to-market and realized gains/losses), respectively, for this hedge fund
component. These losses are reflected in Other Income/(Expense) on the accompanying consolidated
statements of income for the respective periods.
For the three and nine months ended September 30, 2010, the Company recorded approximately $5.9
million and $26.3 million, respectively, of compensation expense for this program, which is
reflected in Compensation and benefits on the accompanying consolidated statements of income for
these periods. For the three and nine months ended September 30, 2009, the Company recorded $12.3
million of compensation expense for this program.
At September 30, 2010, the Company has a liability of $20.6 million for this program included in
Accrued compensation and other expenses on the accompanying consolidated balance sheet.
Note 11 Equity Incentive Plans
As discussed in the Companys 2009 annual report on Form 10-K, equity opportunity programs
were put in place during 2006 covering NWQ, Tradewinds and Symphony. These programs allow key
individuals of these businesses to participate in the growth of their respective businesses over
the subsequent six years. Classes of interests were established at each subsidiary (collectively
referred to as Interests). Certain of these Interests vested or will vest on June 30 of 2007,
2008, 2009, 2010 and 2011.
The Interests entitle the holders to receive a distribution of the cash flow from their business
to the extent such cash flow exceeds certain thresholds. The distribution thresholds increase
from year to year and the distributions of the profits interests are also subject to a cap in each
year. Beginning in 2008 and continuing through 2012, the Company has the right to acquire the
Interests of the noncontrolling members.
Also discussed in the Companys 2009 annual report on Form 10-K is an equity opportunity program
put in place as part of the Santa Barbara acquisition. This equity opportunity allows key
individuals to participate in Santa Barbaras earnings growth over the subsequent six years (Class
2 Units, Class 5A Units, Class 5B Units, and Class 6 Units, collectively referred to as Units).
Under FASB ASC 810-10-65 on non-controlling interests (which became effective for the Company on
January 1, 2009), any difference between the fair value of the consideration received or paid and
the amount by which the noncontrolling interest is adjusted shall be recognized in equity
attributable to the parent. Prior to FASB ASC 810-10-65, such amounts would have been recorded to
goodwill.
During February 2010, the Company exercised its right to call various noncontrolling interests as
it relates to both the equity opportunity programs put in place during 2006 covering NWQ,
Tradewinds, and Symphony, as well as the equity opportunity program put in place as part of the
Santa Barbara acquisition. Of the total $17.9 million paid, approximately $4.8 million was
recorded as a reduction to additional paid-in capital.
See also Note 13, Subsequent Events for a description of a new equity incentive plan that became
effective October 1, 2010.
Note 12 Financial Information Related to Guarantor Subsidiaries
As discussed in Note 7, Debt, obligations under the 10.5% senior notes due 2015 are guaranteed
by the Parent and each of the Companys present and future, direct and indirect, wholly-owned
material domestic subsidiaries (excluding subsidiaries that are broker dealers).
The following tables present consolidating supplementary financial information for the issuer of
the notes (Nuveen Investments, Inc.), the issuers domestic guarantor subsidiaries, and the
non-guarantor subsidiaries together with eliminations as of and for the periods indicated.
Separate complete financial statements of the respective guarantors would not provide additional
material information that would be useful in assessing the financial composition of the
guarantors.
26
The issuers Parent is also a guarantor of the notes. The Parent was a newly formed entity with
no assets, liabilities or operations prior to the completion of the Transactions on November 13,
2007.
As discussed in Note 10, Mutual Fund Incentive Program, $46.6 million of investments underlying
the mutual fund incentive program are included in the Issuer of Notes Nuveen Investments, Inc.
column of the consolidating balance sheet. Although these investments are presented within the
Issuer of Notes column, these investments may not be pledged as collateral for the debt
obligations under the 10.5% senior notes due 2015. The investments were purchased by a secular
trust and the Company does not have access to these investments. The Company would only have access
to these investments in the event that an employee receiving an award does not vest in their award.
Nuveen Investments, Inc. & Subsidiaries
CONSOLIDATING BALANCE SHEET
September 30, 2010
(in 000s)
CONSOLIDATING BALANCE SHEET
September 30, 2010
(in 000s)
Consolidated | ||||||||||||||||||||||||||||||||||||
Parent | Issuer of Notes | excluding | ||||||||||||||||||||||||||||||||||
Windy City | Nuveen | Guarantor | Non Guarantor | Intercompany | consolidated | Consolidated | Consolidated | |||||||||||||||||||||||||||||
Investments, Inc. | Investments, Inc. | Subsidiaries | Subsidiaries | Eliminations | VIEs | VIEs | VIE Eliminations | Consolidated | ||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 20 | 210,750 | 20,591 | 54,918 | (20 | ) | 286,259 | 493,264 | | 779,523 | |||||||||||||||||||||||||
Restricted cash for debt retirement |
| | | | | | | | ||||||||||||||||||||||||||||
Management and distribution fees receivable |
| | 104,870 | 8,844 | 113,714 | | | 113,714 | ||||||||||||||||||||||||||||
Other receivables |
(20 | ) | (1,339,629 | ) | 1,472,080 | (114,768 | ) | 20 | 17,683 | 55,113 | | 72,796 | ||||||||||||||||||||||||
Furniture, equipment and leasehold improvements* |
| | 52,503 | | 52,503 | | | 52,503 | ||||||||||||||||||||||||||||
Investments |
| 146,187 | 4,385 | 11,834 | 162,406 | 3,452,944 | (4,213 | ) | 3,611,137 | |||||||||||||||||||||||||||
Investment in subsidiaries |
917,097 | 1,631,057 | 878,907 | (1,346 | ) | (3,425,715 | ) | | | | | |||||||||||||||||||||||||
Goodwill |
| 2,166,302 | 70,357 | 5,286 | 2,241,945 | | | 2,241,945 | ||||||||||||||||||||||||||||
Intangible assets* |
| 3,017,885 | 53,768 | | 3,071,653 | | | 3,071,653 | ||||||||||||||||||||||||||||
Current taxes receivable |
(157 | ) | 183 | | 26 | | 26 | |||||||||||||||||||||||||||||
Other assets |
| | 11,441 | 7,518 | 18,959 | 3,565 | | 22,524 | ||||||||||||||||||||||||||||
$ | 917,097 | 5,832,395 | 2,669,085 | (27,714 | ) | (3,425,715 | ) | 5,965,148 | 4,004,886 | (4,213 | ) | $ | 9,965,821 | |||||||||||||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||||||||||||||
Short-Term Obligations: |
||||||||||||||||||||||||||||||||||||
Debt |
$ | | | | | | | | | $ | | |||||||||||||||||||||||||
Accounts payable |
| | 7,700 | 9,013 | | 16,713 | | | 16,713 | |||||||||||||||||||||||||||
Accrued compensation and other expenses |
| 54,514 | 87,038 | 3,440 | | 144,992 | | 144,992 | ||||||||||||||||||||||||||||
Fair value of open derivatives |
| 3,107 | | | | 3,107 | | | 3,107 | |||||||||||||||||||||||||||
Other short-term liabilities |
| 176 | 6,995 | 554 | | 7,725 | 224,082 | | 231,807 | |||||||||||||||||||||||||||
Total Short-Term Obligations |
| 57,797 | 101,733 | 13,007 | | 172,537 | 224,082 | | 396,619 | |||||||||||||||||||||||||||
Long-Term Obligations: |
||||||||||||||||||||||||||||||||||||
Debt |
| 3,800,520 | | | | 3,800,520 | 3,663,508 | (4,213 | ) | 7,459,815 | ||||||||||||||||||||||||||
Fair value of open derivatives |
| 48,446 | | | | 48,446 | | | 48,446 | |||||||||||||||||||||||||||
Deferred income tax liability, net |
| 1,008,535 | (20,804 | ) | 1,378 | | 989,109 | | | 989,109 | ||||||||||||||||||||||||||
Other long-term liabilities |
| | 25,296 | | | 25,296 | | | 25,296 | |||||||||||||||||||||||||||
Total Long-Term Obligations |
| 4,857,501 | 4,492 | 1,378 | | 4,863,371 | 3,663,508 | (4,213 | ) | 8,522,666 | ||||||||||||||||||||||||||
Total Liabilities |
| 4,915,298 | 106,225 | 14,385 | | 5,035,908 | 3,887,590 | (4,213 | ) | 8,919,285 | ||||||||||||||||||||||||||
Equity: |
||||||||||||||||||||||||||||||||||||
Nuveen Investments shareholders equity |
917,097 | 917,097 | 2,550,775 | (42,157 | ) | (3,425,715 | ) | 917,097 | 117,296 | | 1,034,393 | |||||||||||||||||||||||||
Noncontrolling interest |
| | 12,085 | 58 | 12,143 | | 12,143 | |||||||||||||||||||||||||||||
Total equity |
917,097 | 917,097 | 2,562,860 | (42,099 | ) | (3,425,715 | ) | 929,240 | 117,296 | | 1,046,536 | |||||||||||||||||||||||||
$ | 917,097 | 5,832,395 | 2,669,085 | (27,714 | ) | (3,425,715 | ) | 5,965,148 | 4,004,886 | (4,213 | ) | $ | 9,965,821 | |||||||||||||||||||||||
* | At cost, less accumulated depreciation and amortization |
27
Nuveen Investments, Inc. & Subsidiaries
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2010
(in 000s)
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2010
(in 000s)
Consolidated | ||||||||||||||||||||||||||||||||
Parent | Issuer of Notes | excluding | ||||||||||||||||||||||||||||||
Windy City | Nuveen | Guarantor | Non Guarantor | Intercompany | consolidated | Consolidated | ||||||||||||||||||||||||||
Investments, Inc. | Investments, Inc. | Subsidiaries | Subsidiaries | Eliminations | VIEs | VIEs | Consolidated | |||||||||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||||||||||
Investment advisory fees from assets under management |
$ | | | 541,830 | 3,551 | | 545,381 | | $ | 545,381 | ||||||||||||||||||||||
Product distribution |
| | 7 | (191 | ) | | (184 | ) | | (184 | ) | |||||||||||||||||||||
Performance fees/other revenue |
| | 1,289 | 41,583 | (39,651 | ) | 3,221 | | 3,221 | |||||||||||||||||||||||
Total operating revenues |
| | 543,126 | 44,943 | (39,651 | ) | 548,418 | | 548,418 | |||||||||||||||||||||||
Operating expense |
||||||||||||||||||||||||||||||||
Compensation and benefits |
| 2,382 | 215,343 | 9,523 | | 227,248 | | 227,248 | ||||||||||||||||||||||||
Severance |
| | 9,998 | | | 9,998 | | 9,998 | ||||||||||||||||||||||||
Advertising and promotional costs |
| | 11,677 | 405 | | 12,082 | | 12,082 | ||||||||||||||||||||||||
Occupancy and equipment costs |
| | 25,238 | 223 | | 25,461 | | 25,461 | ||||||||||||||||||||||||
Amortization of intangible assets |
| 48,630 | 4,005 | | | 52,635 | | 52,635 | ||||||||||||||||||||||||
Travel and entertainment |
| 213 | 6,962 | 986 | | 8,161 | | 8,161 | ||||||||||||||||||||||||
Outside and professional services |
| 39 | 36,682 | 1,484 | | 38,205 | | 38,205 | ||||||||||||||||||||||||
Other operating expenses |
| 559 | 33,375 | 46,147 | (39,651 | ) | 40,430 | | 40,430 | |||||||||||||||||||||||
Total operating expenses |
| 51,823 | 343,280 | 58,768 | (39,651 | ) | 414,220 | | 414,220 | |||||||||||||||||||||||
Total other income/(expense) |
| 21,686 | (764 | ) | 249 | | 21,171 | (34,112 | ) | (12,941 | ) | |||||||||||||||||||||
Total net interest revenue/(expense) |
| (236,892 | ) | 718 | 565 | | (235,609 | ) | 73,019 | (162,590 | ) | |||||||||||||||||||||
Income/(loss) before taxes |
| (267,029 | ) | 199,800 | (13,011 | ) | | (80,240 | ) | 38,907 | (41,333 | ) | ||||||||||||||||||||
Income tax expense/(benefit) |
| (92,542 | ) | 70,152 | (4,627 | ) | | (27,017 | ) | | (27,017 | ) | ||||||||||||||||||||
Net income/(loss) |
| (174,487 | ) | 129,648 | (8,384 | ) | | (53,223 | ) | 38,907 | (14,316 | ) | ||||||||||||||||||||
Less: net/(income)/loss attributable to the noncontrolling |
| | 1,680 | 4 | | 1,684 | 25,189 | 26,873 | ||||||||||||||||||||||||
Net income/(loss) attributable to Nuveen Investments |
$ | | (174,487 | ) | 127,968 | (8,388 | ) | | (54,907 | ) | 13,718 | $ | (41,189 | ) | ||||||||||||||||||
28
Nuveen Investments, Inc. & Subsidiaries
CONSOLIDATING STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2010
(in 000s)
CONSOLIDATING STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2010
(in 000s)
Consolidated | ||||||||||||||||||||||||||||
Parent | Issuer of Notes | excluding | ||||||||||||||||||||||||||
Windy City | Nuveen | Guarantor | Non Guarantor | consolidated | Consolidated | |||||||||||||||||||||||
Investments, Inc. | Investments, Inc. | Subsidiaries | Subsidiaries | VIEs | VIEs | Consolidated | ||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||||||
Net income/(loss) |
$ | | (174,487 | ) | 129,648 | (8,384 | ) | (53,223 | ) | 38,907 | $ | (14,316 | ) | |||||||||||||||
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities: |
||||||||||||||||||||||||||||
Net (income)/loss attributable to noncontrolling interests |
| | (1,680 | ) | (4 | ) | (1,684 | ) | (25,189 | ) | (26,873 | ) | ||||||||||||||||
Net (income)/loss attributable to other consolidated variable interest entities |
| | | | | (13,718 | ) | (13,718 | ) | |||||||||||||||||||
Deferred income taxes |
| (31,221 | ) | 6,628 | (2,560 | ) | (27,153 | ) | | (27,153 | ) | |||||||||||||||||
Depreciation of office property, equipment, and leaseholds |
| | 12,453 | | 12,453 | | 12,453 | |||||||||||||||||||||
Loss on sale of fixed assets |
| 44 | | 44 | | 44 | ||||||||||||||||||||||
Realized (gains)/losses from available-for sale investments |
| (10,216 | ) | (774 | ) | 1 | (10,989 | ) | | (10,989 | ) | |||||||||||||||||
Unrealized (gains)/losses on derivatives |
| (11,379 | ) | | | (11,379 | ) | | (11,379 | ) | ||||||||||||||||||
Amortization of intangible assets |
| 48,630 | 4,005 | | 52,635 | | 52,635 | |||||||||||||||||||||
Amortization of debt related items, net |
| 14,334 | | | 14,334 | | 14,334 | |||||||||||||||||||||
Compensation expense for equity plans |
| 2,382 | 15,910 | 165 | 18,457 | | 18,457 | |||||||||||||||||||||
Compensation expense for mutual fund incentive program |
| | 26,298 | | 26,298 | | 26,298 | |||||||||||||||||||||
Net loss / (gain) on early retirement of Senior Unsecured Notes-5% of 2010 |
| 408 | | | 408 | | 408 | |||||||||||||||||||||
Net change in working capital |
20 | 152,926 | 156,298 | 12,790 | 9,438 | | 9,418 | |||||||||||||||||||||
Net cash provided by / (used in) operating activities |
20 | (8,623 | ) | 36,234 | 2,008 | 29,639 | | 29,619 | ||||||||||||||||||||
Cash flow from financing activities |
||||||||||||||||||||||||||||
Repayment of notes and loans payable |
(199,053 | ) | | | (199,053 | ) | | (199,053 | ) | |||||||||||||||||||
Net change in restricted cash: escrow for Senior Notes due 9/15/10 |
| 201,745 | | | 201,745 | | 201,745 | |||||||||||||||||||||
Purchase of noncontrolling interests |
| | (17,872 | ) | | (17,872 | ) | | (17,872 | ) | ||||||||||||||||||
Payment of income allocation to noncontrolling interests |
| | (1,532 | ) | | (1,532 | ) | | (1,532 | ) | ||||||||||||||||||
Undistributed income allocation for noncontrolling interests |
| | 1,680 | | 1,680 | | 1,680 | |||||||||||||||||||||
Dividends paid |
| (448 | ) | | | (448 | ) | | (448 | ) | ||||||||||||||||||
Payout of deferred A units and deferred and restricted A units |
| | (707 | ) | | (707 | ) | | (707 | ) | ||||||||||||||||||
Other |
| | (8 | ) | 4 | (4 | ) | | (4 | ) | ||||||||||||||||||
Net cash provided by / (used in) financing activities |
| 2,244 | 18,439 | 4 | (16,191 | ) | | (16,191 | ) | |||||||||||||||||||
Cash flow from investing activities: |
||||||||||||||||||||||||||||
HydePark acquisition |
| | (2,594 | ) | | (2,594 | ) | | (2,594 | ) | ||||||||||||||||||
Purchase of office property and equipment |
| | (9,757 | ) | | (9,757 | ) | | (9,757 | ) | ||||||||||||||||||
Proceeds from sales of investment securities |
| 7,849 | | | 7,849 | | 7,849 | |||||||||||||||||||||
Purchase of investment securities |
| (9,721 | ) | (1,050 | ) | | (10,771 | ) | | (10,771 | ) | |||||||||||||||||
Purchase of securities for mutual fund incentive program |
| (2,000 | ) | | | (2,000 | ) | | (2,000 | ) | ||||||||||||||||||
Net change in consolidated funds |
| | | | | (68,387 | ) | (68,387 | ) | |||||||||||||||||||
Other |
| | 24 | | 24 | | 24 | |||||||||||||||||||||
Net cash provided by / (used in) investing activities |
| (3,872 | ) | (13,377 | ) | | (17,249 | ) | (68,386 | ) | (85,636 | ) | ||||||||||||||||
Effect of exchange rates on cash and cash equivalents |
| (5 | ) | | | (5 | ) | | (5 | ) | ||||||||||||||||||
Increase/(decrease) in cash and cash equivalents |
20 | (10,256 | ) | 4,418 | 2,012 | (3,806 | ) | (68,387 | ) | (72,213 | ) | |||||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||||||||||
Beginning of year |
| 221,006 | 16,173 | 52,906 | 290,085 | 20,334 | 310,419 | |||||||||||||||||||||
Cash of variable interest entities consolidated on January 1, 2010 |
| 541,317 | 541,317 | |||||||||||||||||||||||||
End of period |
$ | 20 | 210,750 | 20,591 | 54,918 | 286,278 | 493,264 | $ | 779,523 | |||||||||||||||||||
29
Note 13 Subsequent Events
The Company has evaluated subsequent events under the provisions of FASB Topic 855-10 and has
determined that, through November 12, 2010, the date that these September 30, 2010 quarterly
financial statements have been furnished to the Securities and Exchange Commission, there were no
events occurring subsequent to September 30, 2010 fitting the criteria of FASB Topic 855-10 that
needed to be reflected on the Companys statement of financial position as of September 30, 2010
or results of operations for the three and nine months ended September 30, 2010.
FAF Acquisition
On July 29, 2010, the Company announced it entered into an agreement with U.S. Bancorp to acquire
U.S. Bancorps long-term asset business, FAF Advisors, in exchange for $80 million in cash and
9.5% of the outstanding Class A Units of Windy City Investments Holdings, LLC, the ultimate parent
company of Nuveen Investments. FAF Advisors manages $27 billion of long-term assets and serves as
the advisor of the First American Funds. FAF Advisors long-term asset business will be combined
with Nuveen Asset Management. The transaction is expected to close at the end of this year,
subject to customary conditions.
New Deferred Restricted A Unit Program
In October 2010, the Company implemented a new deferred restricted A Unit program similar to the
deferred restricted A Unit program that currently exists (refer to Note 6, Equity-Based
Compensation in the Companys 2009 Form 10-K). Under the new deferred restricted A Unit program,
participants are given the opportunity to share in up to 4.5% of the Companys total equity
value. These Units will vest over a five year period, commencing December 2010. Management of
the Company has engaged external valuation specialists to assist in the valuation of this program.
CLOs / CDOs
During the fourth quarter of 2010, Symphony, one of the Companys subsidiaries, which acts as
collateral manager of the CLOs and CDOs that the Company currently consolidates, reported that
Symphony Credit Partners II, Ltd. (CP2), one of the 10 consolidated VIEs discussed in Note 2,
Consolidated Variable Interest Entities, was redeemed. As part of the redemption of CP2,
approximately $326 million of CP2 assets were sold to another one of the 10 VIEs the Company
currently consolidates, the Symphony Credit Opportunities Fund, Ltd. (COF). Class A, B, and C
debt of CP2 was fully repaid. The remaining subordinated noteholders of CP2 will receive any remaining
residual proceeds.
Also subsequent to September 30, 2010, the COF raised and issued an additional $85.7 million of
subordinated notes.
30