-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S9vc4VMIQLckC6RvsFX3OMSA1kSsGF6WrNmI0AxsLUdNJ+OieYpGcUKP36miPzFy 3zij+X0K94a7HAOkx2qNFQ== 0000950137-06-005625.txt : 20060509 0000950137-06-005625.hdr.sgml : 20060509 20060509160351 ACCESSION NUMBER: 0000950137-06-005625 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060509 DATE AS OF CHANGE: 20060509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUVEEN INVESTMENTS INC CENTRAL INDEX KEY: 0000885708 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 363817266 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11123 FILM NUMBER: 06821082 BUSINESS ADDRESS: STREET 1: 333 W WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129177700 MAIL ADDRESS: STREET 1: 333 WEST WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: NUVEEN JOHN COMPANY DATE OF NAME CHANGE: 19930328 10-Q 1 c05097e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2006 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _________________ to _________________ Commission file number 1-11123 NUVEEN INVESTMENTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3817266 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 917-7700 NO CHANGES (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer X Accelerated filer Non-accelerated filer ---- ---- ---- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No X ----- ----- At May 5, 2006, there were 79,208,371 shares of the Company's Class A Common Stock outstanding, $0.01 par value. NUVEEN INVESTMENTS, INC. TABLE OF CONTENTS
Page No. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (Unaudited), March 31, 2006 and December 31, 2005 3 Consolidated Statements of Income (Unaudited), Three Months Ended March 31, 2006 and 2005 4 Consolidated Statement of Changes in Common Stockholders' Equity (Unaudited), Three Months Ended March 31, 2006 5 Consolidated Statements of Cash Flows (Unaudited), Three Months Ended March 31, 2006 and 2005 6 Notes to Consolidated Financial Statements (Unaudited) 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 26 ITEM 4. Controls and Procedures 27 PART II. OTHER INFORMATION Item 1 through Item 6 28 Signatures 31
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NUVEEN INVESTMENTS, INC. CONSOLIDATED BALANCE SHEETS UNAUDITED (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 2006 2005 ------------- ------------- ASSETS Cash and cash equivalents $ 122,476 $ 128,933 Management and distribution fees receivable 65,285 61,932 Other receivables 33,952 22,387 Furniture, equipment, and leasehold improvements, at cost less accumulated depreciation and amortization of $61,097 and $58,950, respectively 31,529 31,926 Investments 129,235 121,273 Goodwill 647,767 625,267 Other intangible assets, at cost less accumulated amortization of $22,458 and $20,785, respectively 60,634 62,307 Current taxes receivable -- 4,377 Other assets 23,534 18,815 ------------- ------------- $ 1,114,412 $ 1,077,217 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Short-Term Obligations: Notes payable $ 150,000 $ 150,000 Accounts payable 15,648 15,990 Current taxes payable 9,686 -- Accrued compensation and other expenses 27,340 86,644 Other short-term liabilities 28,214 12,930 ------------- ------------- Total Short-Term Obligations 230,888 265,564 ------------- ------------- Long-Term Obligations: Senior term notes $ 543,924 $ 543,733 Deferred compensation 39,360 36,585 Deferred income tax liability, net 28,293 26,319 Other long-term liabilities 24,001 23,186 ------------- ------------- Total Long-Term Obligations 635,578 629,823 ------------- ------------- Total liabilities 866,466 895,387 Minority interest 23,111 25,007 Common stockholders' equity: Class A Common stock, $0.01 par value; 160,000,000 shares authorized; 1,209 1,209 120,911,480 shares issued at March 31, 2006 and December 31, 2005 Additional paid-in capital 254,154 246,565 Retained earnings 1,004,234 965,058 Unamortized cost of restricted stock awards (30,437) (18,337) Accumulated other comprehensive gain/(loss) 428 864 ------------- ------------- 1,229,588 1,195,359 Less common stock held in treasury, at cost (41,715,656 and 43,196,377 shares, respectively) (1,004,753) (1,038,536) ------------- ------------- Total common stockholders' equity 224,835 156,823 ------------- ------------- $ 1,114,412 $ 1,077,217 ============= =============
See accompanying notes to consolidated financial statements. 3 NUVEEN INVESTMENTS, INC. CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------------------- 2006 2005 ------------- ------------- Operating revenues: Investment advisory fees from assets under management $ 156,331 $ 131,209 Product distribution 1,237 2,803 Performance fees / other revenue 2,578 856 ------------- ------------- Total operating revenues 160,146 134,868 Operating expenses: Compensation and benefits 53,821 43,038 Advertising and promotional costs 2,670 2,669 Occupancy and equipment costs 5,931 5,400 Amortization of intangible assets 1,673 1,273 Travel and entertainment 2,108 1,686 Outside and professional services 7,144 5,829 Minority interest expense 1,481 1,406 Other operating expenses 5,758 4,544 ------------- ------------- Total operating expenses 80,586 65,845 Other income/(expense) 2,329 1,858 ------------- ------------- Net interest expense (8,345) (989) ------------- ------------- Income before taxes 73,544 69,892 Income taxes 28,682 26,699 ------------- ------------- Net income $ 44,862 $ 43,193 ============= ============= Average common and common equivalent shares outstanding: Basic 78,670 93,757 ============= ============= Diluted 83,688 98,913 ============= ============= Earnings per common share: Basic $ 0.57 $ 0.46 ============= ============= Diluted $ 0.54 $ 0.44 ============= =============
See accompanying notes to consolidated financial statements. 4 NUVEEN INVESTMENTS, INC. CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY UNAUDITED (IN THOUSANDS)
UNAMORTIZED ACCUMULATED CLASS A ADDITIONAL COST OF OTHER COMMON PAID-IN RETAINED RESTRICTED COMPREHENSIVE TREASURY STOCK CAPITAL EARNINGS STOCK AWARDS INCOME/(LOSS) STOCK TOTAL ----------- ----------- ----------- ------------ ------------- ----------- ----------- Balance at December 31, 2005 $ 1,209 $ 246,565 $ 965,058 $ (18,337) $ 864 $(1,038,536) $ 156,823 Net income 44,862 44,862 Cash dividends paid (16,549) (16,549) Purchase of treasury stock (3,726) (3,726) Compensation expense on options 3,792 3,792 Exercise of stock options (5,014) 4,202 29,847 29,035 Grant of restricted stock 6,661 (14,436) 7,775 -- Forfeit of restricted stock 113 (113) -- Amortization of restricted stock awards 2,223 2,223 Tax effect of options exercised 8,807 8,807 Tax effect of restricted stock 4 4 Other comprehensive income (436) (436) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2006 $ 1,209 $ 254,154 $ 1,004,234 $ (30,437) $ 428 $(1,004,753) $ 224,835 =========== =========== =========== =========== =========== =========== ===========
THREE MONTHS Comprehensive Income (in 000s): ENDING 3/31/06 - ------------------------------ -------------- Net income $ 44,862 Other comprehensive income: Unrealized gains/(losses) on marketable equity securities, net of tax 658 Reclassification adjustments for realized gains/(losses) (456) Amortization of terminated cash flow hedge (59) Deferred tax impact of terminated cash flow hedge (574) Foreign currency translation adjustment (5) ---------- Subtotal: other comprehensive income (436) ---------- Comprehensive Income $ 44,426 ==========
THREE MONTHS Change in Shares Outstanding (in 000s): ENDING 3/31/06 - --------------------------------------- -------------- Shares outstanding at the beginning of the year 77,715 Shares issued under equity incentive plans 1,564 Shares acquired (81) Forfeit of restricted stock (2) ------------- Shares outstanding at March 31, 2006 79,196 =============
See accompanying notes to consolidated financial statements. 5 NUVEEN INVESTMENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------------------- 2006 2005 ------------- ------------- Cash flows from operating activities: Net income $ 44,862 $ 43,193 Adjustments to reconcile net income to net cash provided from operating activities: Deferred income taxes 1,272 1,500 Depreciation of office property and equipment 2,318 2,060 Amortization of intangible assets 1,673 1,273 Amortization of debt related costs, net 132 (247) Compensation expense for options and restricted stock 6,008 4,964 Net (increase) decrease in assets: Management and distribution fees receivable (3,353) 417 Other receivables 4,534 2,715 Other assets (4,718) (4,664) Net increase (decrease) in liabilities: Accrued compensation and other expenses (59,323) (47,037) Deferred compensation 2,775 746 Accounts payable (342) (277) Current taxes payable 14,063 19,107 Other liabilities (3,298) 1,122 Other (2,642) 3,190 ------------- ------------- Net cash provided from operating activities 3,961 28,062 ------------- ------------- Cash flows from financing activities: Dividends paid (16,549) (16,883) Proceeds from stock options exercised 29,035 13,203 Acquisition of treasury stock (3,726) (3,651) Net deferred debt issuance related items 50 -- Tax effect of options and restricted stock 8,810 -- ------------- ------------- Net cash provided from/(used for) financing activities 17,620 (7,331) ------------- ------------- Cash flows from investing activities: Purchase of office property and equipment (2,095) (4,330) Proceeds from sales of investment securities 7,722 18,234 Purchases of investment securities (11,814) (4,585) Repurchase of NWQ minority members' interests (22,500) (24,675) Net change in consolidated mutual funds 682 (4,578) Other (33) (17) ------------- ------------- Net cash used for investing activities (28,038) (19,951) ------------- ------------- Increase/(decrease) in cash and cash equivalents (6,457) 780 Cash and cash equivalents: Beginning of year 128,933 209,360 ------------- ------------- End of period $ 122,476 $ 210,140 ------------- ------------- Supplemental Information: Taxes paid $ 6,565 $ 1,079 Interest paid $ 16,570 $ 7,063
See accompanying notes to consolidated financial statements. 6 NUVEEN INVESTMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2006 NOTE 1 BASIS OF PRESENTATION The unaudited consolidated financial statements include the accounts of Nuveen Investments, Inc. and its majority-owned subsidiaries (the "Company" or "Nuveen Investments") and have been prepared in conformity with accounting principles generally accepted in the United States of America. These financial statements have also been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures have been omitted pursuant to such rules and regulations. As a result, these financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's latest annual report on Form 10-K. In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No. 123, and supersedes APB Opinion No. 25 and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. SFAS No. 123R requires the use of a slightly different method of accounting for forfeitures. Beginning in 2006, the Company adopted SFAS No. 123R. No cumulative accounting adjustment was required. This change in methodology did not have a material impact on the Company's consolidated financial statements. In 2005, the Company repurchased $600 million of Nuveen Investments' common stock directly from The St. Paul Travelers Companies, Inc. ("STA") at a price of $32.98 per share, or approximately 18.2 million shares. The repurchase of these shares was completed in two steps: 1) a $200 million (6.0 million shares) repurchase was completed on April 7, 2005, and a $400 million forward purchase (plus interest) that settled on July 28, 2005. The entire $600 million repurchase was recorded by Nuveen Investments as if it were completed in its entirety on April 7, 2005. As such, effective April 7, 2005 Nuveen Investments had approximately 75.9 million shares of common stock outstanding for the purposes of computing basic earnings per share. These financial statements rely, in part, on 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. 7 NOTE 2 EARNINGS PER COMMON SHARE The following table sets forth a reconciliation of net income and the weighted average common shares used in the basic and diluted earnings per share computations for the three-month periods ended March 31, 2006 and 2005.
For the three months ended ------------------------------------------------------------------------------------------ March 31, 2006 March 31, 2005 ------------------------------------------- ------------------------------------------- In thousands Net Per-share Net Per-share except per share data income Shares amount income Shares amount - --------------------- ----------- ----------- ----------- ----------- ----------- ----------- Basic EPS $ 44,862 78,670 $ 0.57 $ 43,193 93,757 $ 0.46 Dilutive effect of: Deferred stock awards -- 464 -- 459 Employee stock options -- 4,554 -- 4,697 ----------- ----------- ----------- ----------- Diluted EPS $ 44,862 83,688 $ 0.54 $ 43,193 98,913 $ 0.44
Options to purchase 46,860 and 9,074 shares of the Company's common stock were outstanding as of March 31, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive since the options' weighted average exercise price of $46.39 and $39.88 per share, respectively, was greater than the average market price of the Company's common shares during the applicable period. NOTE 3 NET CAPITAL REQUIREMENT Nuveen Investments, LLC, the Company's 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 March 31, 2006, Nuveen Investments, LLC's net capital ratio was 1.34 to 1 and its net capital was approximately $20.8 million which was $18.9 million in excess of the required net capital of $1.9 million. NOTE 4 GOODWILL AND INTANGIBLE ASSETS The following table presents a reconciliation of activity in the balance of goodwill from December 31, 2005 to March 31, 2006 presented on our consolidated balance sheets (in thousands):
Goodwill - -------- Balance at December 31, 2005 $ 625,267 Repurchase of NWQ minority interests 22,500 ---------- Balance at March 31, 2006 $ 647,767 ==========
As part of the acquisition of NWQ Investment Management ("NWQ") in 2002, key employees purchased three classes of non-controlling member interests in NWQ. The purchase allows NWQ key employees to participate in profits of NWQ above specified levels beginning January 1, 2003. Beginning in 2004 and continuing through 2008, the Company has the right to purchase the non-controlling members' respective interests in NWQ at fair market value. On February 13, 2004, the Company exercised its right to call 100% of the NWQ Class 2 minority members' interests for 8 $15.4 million. Of the total amount paid, approximately $12.9 million was recorded as goodwill. On February 15, 2005, the Company exercised its right to call 100% of the NWQ Class 3 minority members' interests for $22.8 million. Of the total amount paid, approximately $22.5 million was recorded as goodwill. On February 15, 2006, the Company exercised its right to purchase 25% of the NWQ Class 4 minority members' interests for $22.6 million. Of the total amount paid, approximately $22.5 million was recorded as goodwill, with the remainder being recorded as a return of capital. Although the Company has engaged external valuation experts to determine the appropriate purchase price allocation for the Santa Barbara Asset Management ("SBAM") acquisition completed in October 2005, a final valuation is not yet complete. The purchase price allocation presented within this 10-Q filing is preliminary. The Company does not expect to make any material modifications to its initial estimates relating to the SBAM acquisition. Generally accepted accounting principles allow for purchase price adjustments for one year from the time of an acquisition. Our preliminary estimate indicates that approximately $14.4 million of the purchase price in excess of the net book value of assets acquired is assignable to intangible assets, all of which relates to existing contractual customer relationships. SFAS No. 142, "Goodwill and Other Intangible Assets," requires an annual goodwill impairment test. The results of our last annual test indicated that, as of May 31, 2005, there was no indication of potential impairment of goodwill. The following table presents gross carrying amounts and accumulated amortization amounts for intangible assets presented on our consolidated balance sheets at March 31, 2006 and December 31, 2005 (in thousands):
At March 31, 2006 At December 31, 2005 ---------------------- ---------------------- Gross Gross Carrying Accumulated Carrying Accumulated Amortizable Intangible Assets Amount Amortization Amount Amortization - ----------------------------- -------- ------------ -------- ------------ Symphony- Customer relationships $43,800 $10,446 $43,800 $ 9,891 Internally developed software 1,622 1,513 1,622 1,432 Favorable lease 369 369 369 369 NWQ customer contracts 22,900 9,330 22,900 8,693 SBAM - estimated intangibles 14,400 800 14,400 400 ------- ------- ------- ------- Total $83,091 $22,458 $83,091 $20,785 ======= ======= ======= =======
The projected amortization for the next five years is approximately $4.9 million for the remaining nine months of 2006, and annual amortization of $6.4 million for each of 2007, 2008, 2009, and 2010. 9 NOTE 5 DEBT At March 31, 2006 and December 31, 2005, debt on the accompanying consolidated balance sheets was comprised of the following (in thousands):
MARCH 31, 2006 DECEMBER 31, 2005 -------------- ----------------- Short-Term Obligations: Notes payable $150,000 $150,000 -------- -------- Long-Term Obligations: Senior Term Notes: Senior term notes - 5 Year $250,000 $250,000 Net unamortized discount (623) (654) Senior term notes - 10 Year 300,000 300,000 Net unamortized discount (1,444) (1,473) Net unamortized debt issuance costs (4,009) (4,140) -------- -------- subtotal $543,924 $543,733 -------- -------- Total $693,924 $693,733 ======== ========
SENIOR TERM NOTES On September 12, 2005, Nuveen Investments issued $550 million of senior unsecured notes, comprised of $250 million of 5-year notes and $300 million of 10-year notes. The Company received approximately $544 million in net proceeds after discounts and other debt issuance costs. The five-year notes bear interest at an annual fixed rate of 5.0% payable semi-annually beginning March 15, 2006. The 10-year senior notes bear interest at an annual fixed rate of 5.5% payable semi-annually also beginning March 15, 2006. The net proceeds from the notes were used to repay a portion of the outstanding debt under the Company's then outstanding $750 million bridge credit agreement. The costs related to the issuance of the senior term notes are being capitalized and amortized to expense over their term. At March 31, 2006, the fair value of the five-year and ten-year senior term notes was approximately $243.3 million and $291.0 million, respectively. SENIOR REVOLVING CREDIT FACILITY In addition to the senior term notes, the Company has a $400 million senior revolving credit facility that expires on September 15, 2010. As of March 31, 2006 and December 31, 2005, the Company borrowed $150 million of the total amount available under the senior revolving credit facility. The proceeds under this borrowing were used to repay the remaining amount due under the then outstanding bridge credit agreement. The rate of interest payable under the agreement is, at the Company's option, a function of either one of various floating rate indices or the Federal Funds rate. For the three months ended March 31, 2006, the weighted average interest rate was 5.01%. The agreement requires the Company to pay a facility fee at an annual rate of a range of 0.08% to 0.15% that is dependent on our debt rating. Proceeds from borrowings under this facility may be used for fulfilling day-to-day cash requirements and general corporate purposes, including acquisitions, share repurchases and asset purchases. OTHER Our broker-dealer subsidiary occasionally utilizes available, uncommitted lines of credit, which approximate $100 million, with no annual facility fees to satisfy periodic, short-term liquidity needs. At March 31, 2006 and December 31, 2005, no borrowings were outstanding on these uncommitted lines of credit. 10 NOTE 6 DERIVATIVE FINANCIAL INSTRUMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133" and further amended by SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," states that, unless a derivative qualifies as a hedge, the gain or loss from a derivative instrument must be recorded into current earnings. Under SFAS No. 133, three types of hedges are recognized: fair value hedges, cash flow hedges, and hedges of a corporation's net investments in foreign operations. Fair value hedges. An entity may designate a derivative instrument as hedging the exposure to changes in the fair value (market value) of financial assets or liabilities. For example, a fixed rate bond's market value changes when prevailing market interest rates change. Hedging the fixed-rate bond's price risk with a derivative would be considered a fair value hedge. Cash flow hedges. An entity may also designate a derivative instrument as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. That exposure may be associated with an existing recognized asset or liability or a forecasted transaction. In anticipation of the issuance of the senior term notes (refer to Note 5, "Debt"), the Company entered into a series of treasury rate lock transactions with an aggregate notional amount of $550 million. These treasury rate locks were accounted for as cash-flow hedges, as they hedged against the variability in future projected interest payments on the forecasted issuance of fixed rate debt (the longer-term senior term notes that replaced the bridge credit agreement) attributable to changes in interest rates. The prevailing treasury rates had increased by the time of the issuance of the senior term notes and the locks were settled for a net payment to the Company of approximately $1.6 million. The Company has recorded this gain in "Accumulated Other Comprehensive Income/(Loss)" on the accompanying consolidated balance sheets as of March 31, 2006 and December 31, 2005, as the treasury rate locks were considered highly effective for accounting purposes in mitigating the interest rate risk on the forecasted debt issuance. The $1.6 million is being reclassified into current earnings commensurate with the recognition of interest expense on the 5-year and 10-year term debt. At March 31, 2006, the unamortized gain on the treasury rate lock transactions was approximately $1.5 million. For the remaining nine months of 2006, the Company expects to reclassify approximately $0.2 million, respectively, of the gain on the treasury rate lock transactions as an offset to interest expense. Also included in the accompanying consolidated balance sheets as of March 31, 2006 and December 31, 2005 are certain swap agreements and futures contracts that have not been designated as hedging instruments. The swap agreements and futures contracts are being used to mitigate overall market risk of certain recently created product portfolios that are not yet being marketed. At March 31, 2006, the net fair value of these open non-hedging derivatives was a net liability of approximately $0.2 million and is reflected as approximately $0.3 million in "Other Assets" and $0.5 million in "Other Short-Term Liabilities" on the accompanying consolidated balance sheet. At December 31, 2005, the net fair value of these open non-hedging derivatives was approximately $0.3 million and is reflected in "Other Short-Term Liabilities" on the accompanying consolidated balance sheet. For the three months ended March 31, 2006, the net fair value adjustment resulted in a gain of approximately $0.1 million, of which approximately $0.1 million was realized, with the remainder in unrealized gains/losses, both reflected in "Other Income/(Expense" in the accompanying consolidated statement of income for the three months ended March 31, 2006. For the three months ended March 31, 2005, the net fair value adjustment resulted in a gain of approximately $0.5 million, of which approximately $0.2 million was realized, with the remainder 11 in unrealized gains/losses, both reflected in "Other Income/(Expense)" in the accompanying consolidated statement of income for the three months ended March 31, 2005. NOTE 7 RETIREMENT PLANS On December 23, 2003, the FASB released a revised version of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised version of SFAS No. 132 includes new interim disclosure requirements regarding components of net periodic benefit cost as well as estimated contributions. The following table presents the components of the net periodic retirement plans' benefit costs for the three months ended March 31, 2006 and 2005, respectively:
Three Months Three Months Ended March 31, 2006 Ended March 31, 2005 ---------------------------------- ---------------------------------- Total Post- Total Post- Pension Retirement Pension Retirement -------------- -------------- -------------- -------------- Service Cost $ 436,250 $ 60,000 $ 392,750 $ 63,000 Interest Cost 522,250 145,250 450,500 128,250 Expected Return on Assets (561,750) -- (541,000) -- Amortization of: Unrecognized Prior Service Cost -- (66,250) -- (66,250) Unrecognized (Gain)/Loss 106,250 29,250 31,500 14,750 -------------- -------------- -------------- -------------- Total $ 503,000 $ 168,250 $ 333,750 $ 139,750 ============== ============== ============== ==============
During 2006, the Company expects to contribute approximately $0.1 million to its excess pension plan and approximately $0.5 million for benefit payments to its post-retirement benefit plan. For the first three months of 2006, the Company has paid out approximately $0.1 million in post-retirement benefits. NOTE 8 STOCK-BASED COMPENSATION Effective January 1, 2006, we adopted Statement of Financial Accounting Standard ("SFAS") No. 123(R), "Share Based Payment." Because the fair value recognition provisions of SFAS No. 123, "Stock-Based Compensation," and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. The Company currently maintains two stock-based compensation plans: the Second Amended and Restated Nuveen 1996 Equity Incentive Award Plan (the "1996 Plan") and the 2005 Equity Incentive Plan (the "2005 Plan"). Under the 1996 Plan, the Company had reserved an aggregate of 30,900,000 shares of Class A common stock for awards. Under the 2005 Plan, the Company has reserved an aggregate of 7,000,000 shares of Class A common stock for awards. Under both plans, options may be awarded at exercise prices not less than 100% of the fair market value of the stock on the grant date, and maximum option terms may not exceed ten years. A Black-Scholes option-pricing model is used to determine the fair value of stock-based compensation awards. Awards that 12 expire or are cancelled without delivery of shares generally become available for reissuance under the plans. Options awarded pursuant to the 1996 Plan and the 2005 Plan are generally subject to three-year cliff vesting and expire ten years from the award date. During the three months ended March 31, 2006, the Company awarded options to employees to purchase 859,695 shares of common stock and 323,398 shares of restricted stock. As of March 31, 2006, there were 5,807,329 shares available for future equity awards. During the first three months of 2006, no stock options expired unexercised. Options awarded during the first three months of 2006 had a weighted-average fair value of $10.23 per share, which was determined at the date of grant using a Black-Scholes option-pricing model with the following assumptions: a dividend yield of 2.1%, expected volatility of 23%, a risk-free interest rate ranging from 4.24% to 4.51%, and an expected life of 5.1 years. Options awarded during the first three months of 2005 had a weighted-average fair value of $7.52 per share, which was determined at the date of grant using a Black-Scholes option-pricing model with the following assumptions: a dividend yield of 2.3%, expected volatility of 22%, a risk-free interest rate of 3.56%, and an expected life of 5.1 years. A summary of the Company's stock option activity for the three months ended March 31, 2006 is presented in the following table:
WEIGHTED- AVERAGE AGGREGATE WEIGHTED- REMAINING INTRINSIC AVERAGE CONTRACTUAL VALUE (IN 000S, EXCEPT PER SHARE DATA) OPTIONS EXERCISE PRICE TERM (YEARS) (IN MILLIONS) ------------- -------------- ------------- -------------- Options outstanding at December 31, 2005 17,683 $ 25.42 Awarded 860 44.68 Exercised (1,241) 23.40 Forfeited (38) 30.70 ------------- Options outstanding at March 31, 2006 17,264 $ 26.52 6.3 $ 366 ============= Options exercisable at March 31, 2006 10,620 $ 21.57 5.0 $ 277
Recorded compensation expense for share based payment awards was $6.3 million and $5.2 million for the three months ended March 31, 2006 and 2005, respectively. Tax benefits related to compensation expense for share based payment awards totaled $2.4 million and $2.0 million for the three months ended March 31, 2006 and 2005, respectively. As of March 31, 2006, there was $41.5 million of total unrecognized compensation costs related to stock options and restricted stock awards, not including long-term equity performance awards discussed below. These costs are expected to be recognized over a weighted average period of 2.4 years. In January 2005, the Company granted long-term equity performance awards including 269,300 restricted shares and 1,443,000 options to senior managers. These grants will be awarded only if specified Company-wide performance criteria are met by the end of 2007, and are subject to additional time-based vesting if the performance criteria are met. As of March 31, 2006, the Company has not recorded any compensation expense related to these awards. During the first three months of 2006, the total intrinsic value of stock options exercised was $27.8 million and the total fair value of stock awards vested was $12.6 million. For the first three months of 2005, the total intrinsic value of stock options exercised was $15.4 million and the total fair value of stock awards vested was $11.2 million. 13 Share repurchases are utilized to reduce the dilutive impact of our stock-based plans. The Company has an approved share repurchase plan in place with 1.4 million shares remaining to be purchased. Repurchased shares are converted to Treasury shares and are used to satisfy stock option exercises, as needed. Share repurchase activity is dependent on the availability of excess cash after meeting business and capital requirements. Therefore, the timing and amount of repurchases is not known and we do not have an estimate of the number of shares expected to be repurchased during 2006. 14 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 2006 DESCRIPTION OF THE BUSINESS Our principal businesses are asset management and related research, as well as the development, marketing and distribution of investment products and services for the affluent, high-net-worth and institutional market segments. We distribute our investment products and services, which include individually managed accounts, closed-end exchange-traded funds ("closed-end funds"), and open-end mutual funds ("open-end funds" or "mutual funds"), to the affluent and high-net-worth market segments through unaffiliated intermediary firms including broker-dealers, commercial banks, affiliates of insurance providers, financial planners, accountants, consultants and investment advisors. We also provide managed account services, including privately offered partnerships, to several institutional market segments and channels. The Company and its subsidiaries offer high-quality investment capabilities through six branded investment teams: NWQ, specializing in value-style equities; Nuveen Investments ("Nuveen"), managing fixed-income investments; Santa Barbara, committed to growth equities; Tradewinds NWQ, specializing in global equities; Rittenhouse, dedicated to "blue-chip" growth equities , and Symphony, with expertise in alternative investments as well as equity and income products. We derive a substantial portion of our revenue from investment advisory fees, which are recognized as services are performed. These fees are directly related to the market value of the assets we manage. Advisory fee revenues generally will increase with a rise in the level of assets under management. Assets under management will rise through sales of our investment products or through increases in the value of portfolio investments. Assets under management may also increase as a result of reinvestment of distributions from funds and accounts. Fee income generally will decline when assets under management decline, as would occur when the values of fund portfolio investments decrease or when managed account withdrawals or mutual fund redemptions exceed gross sales and reinvestments. In addition to investment advisory fees, we have two other main sources of operating revenue: 1) performance fees and 2) distribution and underwriting revenue. Performance fees are earned when investment performance on certain institutional accounts and hedge funds exceeds a contractual threshold. These fees are recognized only at the performance measurement date contained in the individual account management agreement. Distribution revenue is earned when certain funds are sold to the public through financial advisors. Correspondingly, distribution revenue will rise and fall with the level of our sales of mutual fund products. Underwriting fees are earned on the initial public offerings of our closed-end funds. The level of underwriting fees earned in any given year will fluctuate depending on the number of new funds offered, the size of the funds offered and the extent to which we participate as a member of the syndicate group underwriting the fund. Also included in distribution and underwriting revenue is Muni Preferred(R) and Fund Preferred(R) revenue. Preferred shares of our closed-end funds are bought and sold through a secondary market auction. A participation fee is paid by the fund to the auction participants based on shares traded. Access to the auction must be made through a participating broker. We offer non-participating brokers access to the auctions, for which we earn a portion of the participation fee. Sales of our products, and our profitability, are directly affected by many variables, including investor preferences for equity, fixed-income or other investments, the availability and attractiveness of competing products, market performance, continued access to distribution channels, changes in interest rates, inflation, and income tax rates and laws. 15 RECENT ACQUISITIONS On October 3, 2005, the Company finalized the acquisition of Santa Barbara Asset Management ("Santa Barbara") for approximately $50 million in cash. Santa Barbara, an asset management firm based in California, specializes in mid- to large-cap and small- to mid-cap growth equities primarily with institutions and high-net-worth investors. At the time of the acquisition, Santa Barbara managed approximately $3 billion in assets. OTHER RECENT EVENTS In the first quarter of 2006, the Company established a separate investment management platform, dedicated to international and global investing. This new unit was named Tradewinds NWQ Global Investors, LLC, and is another distinct, independent and separately branded investment team on the Nuveen Investments' platform. This team previously managed international and global value portfolios as part of NWQ. Of the assets managed by NWQ at December 31, 2005, approximately $15 billion are now part of Tradewinds. SUMMARY OF OPERATING RESULTS The table presented below highlights the results of our operations for the first quarters of 2006 and 2005: FINANCIAL RESULTS SUMMARY COMPANY OPERATING STATISTICS (in millions, except per share amounts)
QUARTER ENDED MARCH 31, 2006 2005 % CHANGE ----------- ----------- -------- Gross sales of investment products $ 10,109 $ 7,682 32% Net flows of investment products 5,903 4,297 37 Assets under management (1) (2) 145,017 118,505 22 Operating revenues 160.1 134.9 19 Operating expenses 80.6 65.8 22 Income before net interest and taxes(3) 81.9 70.9 16 Net interest expense 8.3 1.0 744 Income taxes 28.7 26.7 7 Net income 44.9 43.2 4 Basic earnings per share .57 .46 24 Diluted earnings per share .54 .44 23 Dividends per share .21 .18 17
(1) At period end. (2) Excludes defined portfolio assets under surveillance. (3) In addition to net income, income before net interest and taxes is reported to help the reader in assessing the results from operations relative to prior periods given the increased debt on our balance sheet - and the accompanying higher interest expense - as a result of a $600 million share repurchase. 16 RESULTS OF OPERATIONS The following discussion and analysis contains important information that should be helpful in evaluating our results of operations and financial condition, and should be read in conjunction with the consolidated financial statements and related notes. Gross sales of investment products (which include new managed accounts, deposits into existing managed accounts and the sale of open-end and closed-end fund shares) for the quarter ended March 31, 2006 and 2005 are shown below: GROSS INVESTMENT PRODUCT SALES (in millions)
QUARTER ENDED MARCH 31, 2006 2005 ------- ------- Closed-End Funds $ -- $ 1,414 Mutual Funds 1,347 702 Retail Managed Accounts 7,230 3,684 Institutional Managed Accounts 1,532 1,882 ------- ------- Total $10,109 $ 7,682 ======= =======
First quarter gross sales increased 32% year over year, reaching $10.1 billion. Retail and institutional managed account sales were $8.8 billion, up 57% versus sales in the first quarter of last year. The largest driver of the increase was a $2.8 billion increase in value-style equity managed account sales, primarily international value-style accounts. Mutual fund gross sales nearly doubled, driven by increases in both municipal and equity fund sales. Municipal mutual fund sales were up over 50% due to high demand for the Nuveen High Yield Municipal Bond Fund. Equity fund sales more than tripled, driven by sales of our NWQ Multi-Cap Value Fund and the NWQ International Value Fund. There were no closed-end fund sales this quarter. During the first quarter of the prior year we raised just over $1.2 billion in our second equity option strategy fund and another $0.2 billion in our first Tax Advantaged Floating Rate Fund. Net flows of investment products for first quarters of 2006 and 2005 are shown below: NET FLOWS (in millions)
QUARTER ENDED MARCH 31, 2006 2005 ------- ------- Closed-End Funds $ (7) $ 1,424 Mutual Funds 864 350 Retail Managed Accounts 4,114 1,195 Institutional Managed Accounts 932 1,328 ------- ------- Total $ 5,903 $ 4,297 ======= =======
Net flows increased $1.6 billion versus the prior year to $5.9 billion. Retail managed account flows of $4.1 billion were more than three times the level of flows in the same quarter of the prior year. Contributing to this growth was an acceleration of flows due to the announcement of the soft-closing of our Tradewinds international strategy in retail managed accounts. Mutual fund flows showed continued strength with growth in both municipal and equity fund flows. 17 The following table summarizes net assets under management: NET ASSETS UNDER MANAGEMENT(1) (in millions)
MARCH 31, DECEMBER 31, MARCH 31, 2006 2005 2005 -------- ------------ -------- Closed-End Funds $ 51,813 $ 51,997 $ 51,050 Mutual Funds 15,398 14,495 12,887 Retail Managed Accounts 53,652 47,675 37,715 Institutional Managed Accounts 24,154 21,950 16,853 -------- -------- -------- Total $145,017 $136,117 $118,505 ======== ======== ========
(1) Excludes defined portfolio product assets under surveillance. Assets under management ended the quarter at just over $145 billion, an increase of 22% versus assets under management at the end of the first quarter of 2005 and an increase of 7% versus assets under management at the end of the prior year. At March 31, 2006, 48% or our assets were in equity-style products, 42% in municipal-style products and 10% in taxable income style products. The components of the change in our assets under management were as follows: NET ASSETS UNDER MANAGEMENT(1) (in millions)
MARCH 31, MARCH 31, 2006 2005 --------- --------- QUARTER ENDED Beginning Assets Under Management $ 136,117 $ 115,453 Gross Sales 10,109 7,682 Reinvested Dividends 63 62 Redemptions (4,269) (3,447) --------- --------- Net Flows into Managed Assets 5,903 4,297 Appreciation/(Depreciation) 2,997 (1,245) --------- --------- Ending Assets Under Management $ 145,017 $ 118,505 ========= =========
(1) Excludes defined portfolio product assets under surveillance. Assets were up $8.9 billion versus the end of the year as net flows for the quarter of $5.9 billion were coupled with market appreciation of $3.0 billion. Equity and income-oriented assets appreciated $3.3 billion and $0.2 billion during the quarter, respectively, while market depreciation caused a $0.5 billion decline in municipal assets. 18 Investment advisory fee income, net of sub-advisory fees and expense reimbursements, is shown in the following table: INVESTMENT ADVISORY FEES (in thousands)
QUARTER ENDED MARCH 31, 2006 2005 -------- -------- Closed-End Funds $ 61,843 $ 61,151 Mutual Funds 19,877 16,432 Managed Accounts 74,611 53,626 -------- -------- Total $156,331 $131,209 ======== ========
Advisory fees increased 19% for the quarter driven by an increase in fees across all product lines. Fees on managed accounts increased due mainly to an increase in fees on value, international and municipal accounts as a result of an increase in assets under management, while fees on our growth accounts declined slightly as a result of a decline in assets under management. Product distribution revenue for the three-month periods ended March 31, 2006 and 2005 is shown in the following table: PRODUCT DISTRIBUTION (in thousands)
QUARTER ENDED MARCH 31, 2006 2005 ------- ------- Closed-End Funds $ (10) $ 1,441 Muni/Fund Preferred(R) 1,174 1,151 Mutual Funds 73 211 ------- ------- Total $ 1,237 $ 2,803 ======= =======
Product distribution revenue declined $1.6 million for the quarter due mainly to a reduction in closed-end fund underwriting revenue. We did not complete any closed-end fund offerings in the first quarter of 2006. Mutual fund distribution revenue declined slightly as a result of an increase in commissions paid to distributors on high dollar value sales. PERFORMANCE FEES/OTHER REVENUE Performance fees/other revenue consists of performance fees earned on institutional assets managed by Symphony and various fees earned in connection with services provided on behalf of our defined portfolio assets under surveillance. Performance fees for 2006 were $2.4 million, up from the $0.4 million in performance fees in the first quarter of 2005. Partially offsetting this increase, fees earned on services provided on behalf of our defined portfolio assets under surveillance declined due to an overall decline in these assets. 19 OPERATING EXPENSES The following table summarizes operating expenses for the three-month periods ended March 31, 2006 and 2005: OPERATING EXPENSES (in thousands)
QUARTER ENDED MARCH 31, 2006 2005 ------- ------- Compensation and benefits $53,821 $43,038 Advertising and promotional costs 2,670 2,669 Occupancy and equipment costs 5,931 5,400 Amortization of intangible assets 1,673 1,273 Travel and entertainment 2,108 1,686 Outside and professional services 7,144 5,829 Minority interest expense 1,481 1,406 Other operating expenses 5,758 4,544 ------- ------- Total $80,586 $65,845 ======= ======= As a % of Operating Revenues 50.3% 48.8%
SUMMARY Operating expenses for the quarter increased 22% due mainly to an increase in compensation and benefits. COMPENSATION AND BENEFITS Compensation and related benefits for the first quarter of 2006 increased $10.8 million due to an increase in base compensation as a result of new positions and salary increases and an increase in overall incentive compensation due to the Company's higher profit level. A portion of the increase in overall incentive compensation relates to expense recognized on various profits interests awarded to affiliates. The fair market value of unvested profits interests is being expensed over the appropriate vesting period of the related units as a compensation charge with a corresponding increase in minority interest outstanding (see also Capital Resources, Liquidity and Financial Condition for further information). OCCUPANCY AND EQUIPMENT COSTS Occupancy and equipment costs increased $0.5 million due to an increase in leased space for NWQ and Santa Barbara. AMORTIZATION OF INTANGIBLES Amortization of intangibles increased $0.4 million during the first quarter of 2006 as a result of amortization of intangible assets associated with the Santa Barbara acquisition (See Note 4 to the Consolidated Financial Statements, "Goodwill and Intangible Assets" for further information). OUTSIDE AND PROFESSIONAL SERVICES Outside and professional services expense increased $1.3 million primarily due to an increase in electronic information expense as we provide our investment and research teams with more data and other tools to better manage their portfolios. ALL OTHER OPERATING EXPENSES All other operating expenses, including advertising and product promotion, travel and entertainment, minority interest expense, fund organization costs and other expenses increased approximately $1.7 million, due primarily to higher insurance costs and increased recruiting and relocation. 20 OTHER INCOME/(EXPENSE) Other income/(expense) includes realized gains and losses on investments and miscellaneous income, including gain or loss on the disposal of property. The following is a summary of other income/(expense) for the quarters ended March 31, 2006 and 2005: OTHER INCOME/(EXPENSE) (in thousands)
QUARTER ENDED MARCH 31, 2006 2005 ------- ------- Gains/(Losses) on Investments $ 2,388 $ 1,915 Miscellaneous Income/(Expense) (59) (57) ------- ------- Total $ 2,329 $ 1,858 ======= =======
Total other income/(expense) increased $0.5 million in the first quarter of 2006 compared to the first quarter of 2005, due to an increase in investment gains for the quarter. NET INTEREST EXPENSE The following is a summary of net interest expense for the quarters ended March 31, 2006 and 2005: NET INTEREST EXPENSE (in thousands)
QUARTER ENDED MARCH 31, 2006 2005 -------- -------- Dividend and Interest Revenue $ 1,852 $ 2,266 Interest Expense (10,197) (3,255) -------- -------- Total $ (8,345) $ (989) ======== ========
Total net interest expense increased $7.4 million in the first quarter of 2006 compared to the first quarter of 2005, due to increased interest expense associated with the repurchase of shares from STA and the related increase in outstanding debt. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R is a revision of SFAS No. 123, and supersedes APB Opinion No. 25 and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. SFAS No. 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. SFAS No. 123R requires the use of a slightly different method of accounting for forfeitures. Beginning in 2006, the Company adopted SFAS No. 123R. 21 This change in methodology did not have a material impact on the Company's consolidated financial statements. CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION Our primary liquidity needs are to support working capital requirements, service indebtedness and fund capital expenditures. Our principal sources of liquidity are cash flows from operating activities and borrowings under available credit facilities and long-term notes. PRIVATE PLACEMENT DEBT On September 19, 2003, the Company issued $300 million of senior unsecured notes (the "private placement debt"). Proceeds from the private placement debt were used to refinance existing debt and for general corporate purposes. These notes, which carried a fixed coupon rate of 4.22%, payable semi-annually, were issued at 100% of par, were unsecured and were prepayable at any time in whole or in part. These notes were originally scheduled to mature on September 19, 2008, but were repaid on April 6, 2005, with borrowings made under a new bridge credit agreement (discussed below). At the time of the repayment, the Company also paid approximately $1.5 million in accrued interest. Under the terms of the private placement debt, no "make-whole premium" amounts were due. BANK CREDIT FACILITIES Since 2003, the Company maintained a line of credit with a group of banks. This $250 million credit line was divided into two equal facilities: one with a three-year term that was scheduled to expire in August of 2006, and one with a term of 364 days that was scheduled to expire in August of 2005. During the second quarter of 2005, the Company terminated the 364-day line of credit, and amended the three-year line of credit to permit the borrowings under a new bridge financing agreement and the use of those borrowings as described below. During the third quarter of 2005, the Company terminated the three-year term facility and replaced it with a new senior revolving credit facility (discussed below). BRIDGE CREDIT FACILITY In April 2005, the Company entered into a $750 million bridge credit agreement with various financial institutions. The original maturity date of this credit agreement was March 31, 2006. Borrowings under this facility bore an interest rate, at Nuveen Investments' option, of either LIBOR or the Federal Funds rate plus a spread equal to 0.335% to 0.470% based on Nuveen Investments' leverage, with such applicable spread increasing by 0.25% on September 30, 2005, and by an additional 0.25% on December 31, 2005. The bridge credit agreement required Nuveen Investments to pay a facility fee quarterly in arrears in an annual amount ranging from 0.09% to 0.13%, depending on Nuveen Investments' leverage ratio, and, when applicable, a utilization fee. During the second quarter of 2005, the Company used approximately $300 million of the amount available under the facility to prepay the holders of the Company's 4.22% senior unsecured notes due September 19, 2008. During the third quarter of 2005, the Company used an additional $410 million of the remaining amount available under the bridge credit agreement primarily to fulfill its forward contract obligation to repurchase shares of its common stock owned by STA. During the third quarter of 2005, the entire $710 million borrowed under the bridge credit agreement was repaid with borrowings made under a new senior revolving credit facility and the issuance of senior notes (both discussed below) and the bridge credit facility was terminated. 22 SENIOR TERM NOTES On September 12, 2005, Nuveen Investments issued $550 million of senior unsecured notes, consisting of $250 million of 5-year notes and $300 million of 10-year notes. The Company received approximately $544.4 million in net proceeds after discounts. The five-year notes bear interest at an annual fixed rate of 5.0%, payable semi-annually beginning March 15, 2006. The 10-year senior notes bear interest at an annual fixed rate of 5.5%, payable semi-annually also beginning March 15, 2006. The net proceeds from the notes were used to repay a portion of the outstanding debt under the bridge credit facility. The costs related to the issuance of the senior term notes were capitalized and are being amortized to expense over their respective terms. SENIOR REVOLVING CREDIT FACILITY In addition to the senior term notes, the Company has a new $400 million senior revolving credit facility that expires on September 15, 2010. On September 30, 2005, the Company borrowed $140 million of the total amount available under the new senior revolving credit facility in order to repay the remaining amount due under the bridge credit facility. As of March 31, 2006, the Company had $150 million outstanding under this facility. The rate of interest payable under the agreement is, at the Company's option, a function of either one of various floating rate indices or the Federal Funds rate. The agreement requires the Company to pay a facility fee at an annual rate of a range of 0.08% to 0.15% that is dependent on our debt rating. Proceeds from borrowings under this facility may be used for fulfilling day-to-day cash requirements and general corporate purposes, including acquisitions, share repurchases and asset purchases. There are conventional financial covenants associated with this credit facility, including a minimum net worth requirement and a maximum leverage ratio. We were in compliance with those covenants as of March 31, 2006. We do not believe that the bank facility requirements will have any impact on our ability to use the credit facility in the future. OTHER In addition to the above facilities, our broker-dealer subsidiary may utilize available, uncommitted lines of credit with no annual facility fees, which approximate $100 million, to satisfy periodic, short-term liquidity needs. As of March 31, 2006 and December 31, 2005, no borrowings were outstanding on these uncommitted lines of credit. EQUITY AND DIVIDENDS As part of the NWQ acquisition, key individuals of NWQ purchased a non-controlling, member interest in NWQ Investment Management Company, LLC. The non-controlling interest of $0.3 million as of March 31, 2006, and $0.7 million as of March 31, 2005, is reflected in minority interest on the consolidated balance sheets. This purchase allows management to participate in NWQ's profits above specified levels beginning January 1, 2003. During the first quarter of 2006 and 2005, we recorded approximately $0.9 million and $1.4 million, respectively, of minority interest expense, which reflects the portion of profits applicable to the minority owners. Beginning in 2004 and continuing through 2008, the Company has the right to purchase the non-controlling members' respective interests in NWQ at fair value. On February 13, 2004, the Company exercised its right to call 100% of the Class 2 minority members' interests for $15.4 million. Of the total amount paid, approximately $12.9 million was recorded as goodwill. On February 15, 2005, the Company exercised its right to call 100% of the Class 3 NWQ minority members' interests for $22.8 million. Of the total amount paid, approximately $22.5 million was recorded as goodwill. On February 15, 2006, the Company exercised its right to call 25% of the Class 4 NWQ minority members' interests for $22.6 million. Of the total amount paid on March 1, 2006, approximately $22.5 million was recorded as goodwill. 23 In the first quarter of 2006 in connection with the establishment of the Tradewinds NWQ Global Investors platform, a new equity opportunity was put in place. The Company established two separate programs, one covering Tradewinds and the other covering the traditional NWQ business. These programs allow key individuals of these businesses to participate in the growth of either Tradewinds or NWQ over the next five years. Four classes of units were established at each of Tradewinds and NWQ, (collectively referred to as "Units"). One of the classes of Units at each of NWQ and Tradewinds vests on June 30 of each of 2007, 2008, 2009 and 2010. During the first quarter of 2006, we recorded approximately $0.2 million of minority interest expense, which reflects the portion of profits applicable to minority owners. The Units entitle the holders to receive a distribution of the cash flow from either Tradewinds' or NWQ's business to the extent such cash flow exceeds certain thresholds. The distribution thresholds vary from year to year, reflecting Tradewinds' or NWQ's achievement of certain profit levels. The profits interest distributions are also subject to a cap in each year. Beginning in 2008 and continuing through 2011, the Company has the right to acquire the Units of the non-controlling members. As part of the Santa Barbara acquisition, an equity opportunity was put in place to allow key individuals of SBAM to participate in Santa Barbara's earnings growth over the next five years. Four classes of units were issued (collectively referred to as "SB Units"). The first class of SB Units was fully vested upon issuance. The second class shall vest one third on June 30, 2007, one third on June 30, 2008, and one third on June 30, 2009. One third of the third class of SB Units vested upon issuance, one third will vest on June 30, 2007, and one third will vest on June 30, 2009. The final class shall vest on June 30, 2009. During the first quarter of 2006, we recorded approximately $0.4 million of minority interest expense, which reflects the portion of profits applicable to the minority owners. The Units entitle the holders to receive a distribution of the cash flow from Santa Barbara's business to the extent such cash flow exceeds certain thresholds. The distribution thresholds vary from year to year, reflecting Santa Barbara achieving certain profit levels. The profits interest distributions are also subject to a cap in each year. Beginning in 2008 and continuing through 2012, the Company has the right to acquire the Units of the non-controlling members. At March 31, 2006, we held in treasury 41,715,656 shares of Nuveen Investments common stock. During the first quarter of 2006, the Company repurchased 80,870 shares of common stock in open market transactions as part of an on-going repurchase program. As part of that share repurchase program approved on August 9, 2002, we are authorized to purchase up to 7.0 million shares of common stock. As of March 31, 2006, the remaining authorization covered 1.4 million shares. During the first quarter of 2006, we paid out dividends on common shares totaling approximately $16.5 million. BROKER/DEALER Our broker/dealer subsidiary is subject to requirements of the Securities and Exchange Commission relating to liquidity and capital standards (See Note 3 to Consolidated Financial Statements, "Net Capital Requirement"). ADEQUACY OF LIQUIDITY Management believes that cash provided from operations and borrowings available under its uncommitted and committed credit facilities will provide the Company with sufficient liquidity to meet its working capital needs, planned capital expenditures, future contractual obligations and payment of its anticipated quarterly dividends. 24 INFLATION Our assets are, to a large extent, liquid in nature and therefore not significantly affected by inflation. However, inflation may result in increases in our expenses, such as employee compensation, advertising and promotional costs, and office occupancy costs. To the extent inflation, or the expectation thereof, results in rising interest rates or has other adverse effects upon the securities markets and on the value of financial instruments, it may adversely affect our financial condition and results of operations. A substantial decline in the value of fixed-income or equity investments could adversely affect the value of assets we manage, which in turn would result in a decline in investment advisory and performance fee revenue. FORWARD-LOOKING INFORMATION AND RISKS From time to time, information we provide or information included in our filings with the SEC (including Management's Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Consolidated Financial Statements in this Form 10-Q) may contain statements that are not historical facts, but are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or future financial performance and reflect management's expectations and opinions. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," or comparable terminology. These statements are only predictions, and our actual future results may differ significantly from those anticipated in any forward-looking statements due to numerous known and unknown risks, uncertainties and other factors. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed below and elsewhere in this report. These factors may not be exhaustive, and we cannot predict the extent to which any factor, or combination of factors, may cause actual results to differ materially from those predicted in any forward-looking statements. We undertake no responsibility to update publicly or revise any forward-looking statements, whether as a result of new information, future events or any other reason. Risks, uncertainties and other factors that pertain to our business and the effects of which may cause our assets under management, earnings, revenues, profit margins, and/or our stock price to decline include: (1) the effects of the substantial competition that we, like all market participants, face in the investment management business; (2) our inability to access third-party distribution channels to market our products; (3) the adverse effects of declines in securities markets and/or poor investment performance by our managers on our assets under management and future offerings; (4) a decline in the market for closed-end funds, mutual funds and managed accounts; (5) the adverse effect of increases in interest rates from their present levels on the net asset value of our assets under management that are invested in fixed-income securities; (6) our failure to comply with contractual requirements and/or guidelines in our client relationships; (7) our failure to comply with various government regulations, including federal and state securities laws, and the rules of the National Association of Securities Dealers; (8) our reliance on revenues from investment management contracts that are subject to annual renewal by the independent board of trustees overseeing the related funds according to their terms; (9) the loss of key employees that could lead to the loss of assets; (10) burdensome regulatory developments; (11) the impact of accounting pronouncements; (12) the effect of increased leverage on us as a result of our incurrence of additional indebtedness as a result of our share repurchase from STA; (13) unforeseen developments in litigation involving the securities industry or the Company; and (14) other risks described from time to time in our SEC filings. 25 PART I. FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARCH 31, 2006 MARKET RISK The following information, and information included elsewhere in this report, describes the key aspects of certain financial instruments that have market risk. INTEREST RATE SENSITIVITY As of March 31, 2006, we had $150 million outstanding under our senior revolving credit facility. The rate of interest payable under the agreement is, at the Company's option, a function of either one of various floating rate indices or the Federal Funds rate. We estimate that a 100 basis point increase (1 percentage point) in interest rates from the level at March 31, 2006, would result in a $1.5 million increase in annual interest expense; however, it would have no impact on the fair value of the debt at March 31, 2006. In addition to the $150 million of debt outstanding under our revolving credit facility at December 31, 2005, we also had $550 million of senior unsecured notes, including $250 million of 5-year notes and $300 million of 10-year notes. The five-year notes bear interest at an annual fixed rate of 5.0% payable semi-annually, beginning March 15, 2006. The 10-year senior notes bear interest at an annual fixed rate of 5.5% payable semi-annually, also beginning March 15, 2006. A change in interest rates would have had no impact on interest incurred on our fixed rate debt or cash flow, but would have had an impact on the fair value of the debt. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2006, would have resulted in a net decrease in the fair value of our debt of approximately $29.2 million at March 31, 2006. As of March 31, 2005, all of our long-term debt was at a fixed interest rate. A change in interest rates would have had no impact on interest incurred on our fixed debt or cash flow, but would have had an impact on the fair value of the debt. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2005, would have resulted in a net decrease in the fair value of our debt of approximately $9 million at March 31, 2005. Our investments consist primarily of Company-sponsored managed investment funds that invest in a variety of asset classes. Additionally, the Company periodically invests in new advisory accounts to establish a performance history prior to a potential product launch. Company-sponsored funds and accounts are carried on our consolidated financial statements at fair market value and are subject to the investment performance of the underlying sponsored fund or account. Any unrealized gain or loss is recognized upon the sale of the investment. The carrying value of the Company's investments in fixed-income funds or accounts, which expose us to interest rate risk, was approximately $49 million and $45 million at March 31, 2006 and 2005, respectively. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2006, would result in a net decrease of approximately $1.8 million in the fair value of the fixed income investments at March 31, 2006. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2005, would have resulted in a net decrease of approximately $2 million in the fair value of the fixed-income investments at March 31, 2005. Also included in investments at March 31, 2006 are certain swap agreements and futures contracts that are sensitive to changes in interest rates. The futures contracts and swap agreements are being used to mitigate overall market risk related to our investments in recently created product portfolios that are not yet marketed. The fair value of these instruments totaled approximately $0.2 million and $0.5 million at 26 March 31, 2006 and 2005, respectively. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2006, would have resulted in a net increase in the fair market value of the open derivatives of $1.6 million. We estimate that a 100 basis point increase in interest rates from the levels at March 31, 2005, would have resulted in a net increase in the fair market value of the open derivatives of $2 million. See Note 6 "Derivative Financial Instruments" to our Consolidated Financial Statements for more information. EQUITY MARKET SENSITIVITY As discussed above in the interest rate sensitivity section, we invest in certain Company-sponsored managed investment funds and accounts that invest in a variety of asset classes. The carrying value of the Company's investments in funds and accounts subject to equity price risk is approximately $49 million and $45 million, at March 31, 2006 and 2005, respectively. As of March 31, 2006 and 2005, we estimate that a 10% adverse change in equity prices would have resulted in decreases of approximately $5 million, in the fair value of our equity securities. The model to determine sensitivity assumes a corresponding shift in all equity prices. An adverse movement in the equity prices of our holdings in privately held companies cannot be easily quantified as our ability to realize returns on investment depends on the investees' ability to raise additional capital and/or derive cash inflows from continuing operations. ITEM 4. CONTROLS AND PROCEDURES Effective as of March 31, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman and Chief Executive Officer, President, and Senior Vice President, Finance, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's Chairman and Chief Executive Officer, President, and Senior Vice President, Finance concluded that the Company's disclosure controls and procedures are effective and no changes are required at this time. In connection with management's evaluation, pursuant to the Exchange Act Rule 13a-15(d), no changes during the quarter ended March 31, 2006 were identified that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 27 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is involved in legal matters relating to claims arising in the ordinary course of business such as disputes with employees or customers, and in regulatory inquiries that may involve the industry generally or be specific to the Company. There are currently no such matters or inquiries pending that the Company believes would have a material adverse effect on our business or financial condition. ITEM 1A. RISK FACTORS There have been no material changes from the risk factors as previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2005. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES ----------------------------------------------- (c) Total (d) Maximum Number Number of Shares of Shares Purchased that May (a) Total as Part of Yet Be Number (b) Average a Publicly Purchased of Shares Price Paid Announced Under the Period Purchased per Share Program Program - ------ --------- ---------- ---------- --------- Share purchases prior to January 1, 2006 under current repurchase program: 5,473,400 $28.69 5,473,400 1,526,600 January 1, 2006 - January 31, 2006 -- -- -- February 1, 2006 - February 28, 2006 25,370 45.02 25,370 1,501,230 March 1, 2006 - March 31, 2006 55,500 46.55 55,500 1,445,730 --------- ------ --------- --------- Total 5,554,270 $28.94 5,554,270 1,445,730 --------- ------ --------- ---------
As part of a share repurchase program approved and publicly announced on August 9, 2002, we are authorized to purchase up to 7.0 million shares of Class A common stock. As of March 31, 2006, there are approximately 1.4 million shares that may yet be purchased under the share repurchase program. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 28 ITEM 5. OTHER INFORMATION On January 20, 2006, the Company filed a Current Report on Form 8-K (the "Original Report") disclosing that the Company had, among other things, granted options to its executive officers pursuant to a Form of Non-Qualified Stock Option Agreement. The Original Report had disclosed that the Form of the Non-Qualified Stock Option Agreement contains non-compete, non-disclosure and non-solicitation restrictions on the optionee, breaches of which would cause forfeiture of the options. On April 5, 2006, the Company corrected Annex A to the Form of Non-Qualified Stock Option Agreement to reflect the intended restricted period during which recipients may forfeit their vested options if they compete with the Company. The other terms of the agreement have not been materially revised. The foregoing summary of the Form of Non-Qualified Stock Option Agreement is qualified in its entirety to the terms of such contract, a copy of which, as revised, is attached hereto as Exhibit 10.3 and incorporated herein as reference. ITEM 6. EXHIBITS a.) Exhibits. Certain of the following exhibits were previously filed as exhibits to registration statements or reports filed by the Company with the Commission and are incorporated herein by reference to such statements or reports and made a part hereof. Exhibit numbers which are identified with an asterisk (*) have such documents filed herewith. See exhibit index on page E-1. +10.1 Amendment and Award Agreement effective as of December 30, 2005 between Nuveen Investments, Inc. and Timothy R. Schwertfeger, incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 10, 2006. +10.2 Form of Restricted Stock Award Agreement with executive officers regarding the Nuveen Investments, Inc. 2005 Equity Incentive Plan, incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 20, 2006. +10.3* Form of Non-Qualified Stock Option Agreement with executive officers regarding the Nuveen Investments, Inc. 2005 Equity Incentive Plan. +10.4 Employment Terms dated as of January 13, 2006 regarding Alan Brown, incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on January 20, 2006. +10.5 Restricted Stock Award Agreement dated as of January 13, 2006 by and between Nuveen Investments, Inc. and Alan Brown, incorporated by reference to the Company's Current Report on Form 8-K filed on January 20, 2006. 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2* Certification of President pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.3* Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
29 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3* Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
30 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NUVEEN INVESTMENTS, INC. (Registrant) DATE: May 9, 2006 /s/ John P. Amboian --------------------------------------- John P. Amboian President DATE: May 9, 2006 /s/ Margaret E. Wilson --------------------------------------- Margaret E. Wilson Senior Vice President, Finance (Principal Financial and Accounting Officer) 31 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- +10.1 Amendment and Award Agreement effective as of December 30, 2005 between Nuveen Investments, Inc. and Timothy R. Schwertfeger, incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 10, 2006. +10.2 Form of Restricted Stock Award Agreement with executive officers regarding the Nuveen Investments, Inc. 2005 Equity Incentive Plan, incorporated by reference herein to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 20, 2006. +10.3* Form of Non-Qualified Stock Option Agreement with executive officers regarding the Nuveen Investments, Inc. 2005 Equity Incentive Plan. +10.4 Employment Terms dated as of January 13, 2006 regarding Alan Brown, incorporated by reference herein to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on January 20, 2006. +10.5 Restricted Stock Award Agreement dated as of January 13, 2006 by and between Nuveen Investments, Inc. and Alan Brown, incorporated by reference to the Company's Current Report on Form 8-K filed on January 20, 2006. 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2* Certification of President pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.3* Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3* Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------- * filed herewith + Management contracts and compensatory plans and arrangements E-1 EX-10.3 2 c05097exv10w3.txt FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.3 Annex A RESTRICTIVE COVENANTS (a) Nondisclosure and Nonuse of Trade Secrets. The Participant acknowledges that he has had and will have access to confidential information of the Company and its Affiliates (including, but not limited to, current and prospective confidential know-how, specialized training, customer lists, marketing plans, business plans, financial and pricing information, and information regarding acquisitions, mergers and/or joint ventures) concerning the business, customers, clients, contacts, prospects, and assets of the Company and its Affiliates that is unique, valuable and not generally known outside the Company and its Affiliates, and that was obtained from the Company or an Affiliate or which was learned as a result of the performance of services by the Participant on behalf of the Company or an Affiliate ("Trade Secrets"). Trade Secrets shall not include any information that: (i) is now, or hereafter becomes, through no act or failure to act on the part of the Participant that constitutes a breach of this Annex A, generally known or available to the public; (ii) is known to the Participant at the time such information was obtained from the Company or an Affiliate; (iii) is hereafter furnished without restriction on disclosure to the Participant by a third party, other than an employee or agent of the Company or an Affiliate, who is not under any obligation of confidentiality to the Company or an Affiliate; (iv) is disclosed with the written approval of the Company or an Affiliate; or (v) is required to be disclosed or provided by law, court order, or similar compulsion, including pursuant to or in connection with any legal proceeding involving the parties hereto; provided however, that such disclosure shall be limited to the extent so required or compelled; and provided further, however, that if the Participant is required to disclose such confidential information, he shall give the Company notice of such disclosure and cooperate in seeking suitable protections. Other than in the course of performing services for the Company and its Affiliates, the Participant will not, at any time, either during the Participant's Service or thereafter, directly or indirectly use, divulge, furnish or make accessible to any person any Trade Secrets, but instead will keep all Trade Secrets strictly and absolutely confidential. The Participant will deliver promptly to the Company or the Affiliate that employed the Participant, at the termination of his employment or at any other time at the request of the Company or an Affiliate, without retaining any copies, all documents and other materials in his possession relating, directly or indirectly, to any Trade Secrets. (b) Non-Competition. The Participant acknowledges and agrees that (i) in the course of the Participant's Service the Participant shall become familiar with the Trade Secrets of the Company and its Affiliates, (ii) the Participant's services to the Company and its Affiliates are unique in nature and of an extraordinary value to the Company and its Affiliates, and (iii) the Company and its Affiliates could be irreparably damaged if the Participant were to provide similar services to any person or entity competing with the Company or any Affiliate or engaged in a similar business. In connection with the issuance to the Participant of the Award hereunder, and in consideration for and as an inducement to the Company to enter into this Agreement, the Participant covenants and agrees that during the period beginning on the date 120 days after termination of Participant's Service and ending on the first anniversary of the date of the termination of the Participant's Service (the "Restricted Period"), if the Participant holds any unexpired Stock Options at such time, the Participant shall not directly or indirectly operate, control or participate as a partner, director, principal, officer, or agent of, enter into the employment of, act as a consultant to, or perform any services for, any company, person, or entity engaged in a "Competitive Business" as determined by the Company, which determination shall be binding on the parties. In general, a Competitive Business will include any company, person or entity that in the judgment of the Company competes with the Company in any material way, including entities that directly compete with the Company in (1) the asset management business or (2) the business of wholesaler distribution of investment company products or separately managed retail or institutional accounts. The Company may decide that the employment of a terminated employee in a company that is engaged in Competitive Business but is also a customer or business partner of the Company is on balance advantageous to the Company and therefore waive the application of this non-competition covenant. (c) Nonsolicitation. During the one year period following the termination of the Participant's Service ( the "Nonsolicitation Period"), the Participant shall not, directly or indirectly solicit or induce, or attempt to solicit or induce, any current employee of the Company or an Affiliate, or any individual who becomes an employee during the Nonsolicitation Period, to leave his or her employment with the Company or an Affiliate or join or become affiliated with any other business or entity, hire any employee of the Company or an Affiliate or in any way interfere with the relationship between any employee and the Company or an Affiliate. During the Nonsolicitation Period, the Participant shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any customer, supplier, licensee, licensor or other business relation of the Company or an Affiliate to terminate its relationship or contract with the Company or an Affiliate, to cease doing business with the Company or an Affiliate, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or an Affiliate (including making any negative statements or communications concerning the Company or an Affiliate or their employees). (d) Judicial Modification. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Annex A or Section 12 of this Agreement is invalid or unenforceable, the parties agree that (i) the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or geographic area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, (ii) the parties shall request that the court exercise that power, and (iii) this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment or decision may be appealed. EX-31.1 3 c05097exv31w1.txt CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION I, Timothy R. Schwertfeger, certify that: 1. I have reviewed this report on Form 10-Q of Nuveen Investments, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 9, 2006 /s/ Timothy R. Schwertfeger -------------------------------------------- Chief Executive Officer EX-31.2 4 c05097exv31w2.txt CERTIFICATION OF PRESIDENT EXHIBIT 31.2 CERTIFICATION I, John P. Amboian, certify that: 1. I have reviewed this report on Form 10-Q of Nuveen Investments, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 9, 2006 /s/ John P. Amboian ------------------------------------ President EX-31.3 5 c05097exv31w3.txt CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER EXHIBIT 31.3 CERTIFICATION I, Margaret E. Wilson, certify that: 1. I have reviewed this report on Form 10-Q of Nuveen Investments, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 9, 2006 /s/ Margaret E. Wilson -------------------------------------------- Senior Vice President, Finance (Principal Financial and Accounting Officer) EX-32.1 6 c05097exv32w1.txt CERTIFICATION OF CEO EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ending March 31, 2006, as filed with the Securities and Exchange Commission (the "Report") of Nuveen Investments, Inc. (the "Company") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of the Company, hereby certifies that: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated as of this 9th day of May 2006. /s/ Timothy R. Schwertfeger ----------------------------------- Timothy R. Schwertfeger Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 7 c05097exv32w2.txt CERTIFICATION OF PRESIDENT EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ending March 31, 2006, as filed with the Securities and Exchange Commission (the "Report") of Nuveen Investments, Inc. (the "Company") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President of the Company, hereby certifies that: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated as of this 9th day of May 2006. /s/ John P. Amboian ----------------------------------- John P. Amboian President A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.3 8 c05097exv32w3.txt CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER EXHIBIT 32.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ending March 31, 2006, as filed with the Securities and Exchange Commission (the "Report") of Nuveen Investments, Inc. (the "Company") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Senior Vice President, Finance of the Company, hereby certifies that: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated as of this 9th day of May 2006. /s/ Margaret E. Wilson ---------------------------------------- Margaret E. Wilson Senior Vice President, Finance (Principal Financial and Accounting Officer) A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----