AFFILIATED MANAGERS GROUP, INC.
The accompanying notes are an integral part of the Consolidated Financial Statements.
AFFILIATED MANAGERS GROUP, INC.
The accompanying notes are an integral part of the Consolidated Financial Statements.
AFFILIATED MANAGERS GROUP, INC.
The accompanying notes are an integral part of the Consolidated Financial Statements.
AFFILIATED MANAGERS GROUP, INC.
The accompanying notes are an integral part of the Consolidated Financial Statements.
AFFILIATED MANAGERS GROUP, INC.
The accompanying notes are an integral part of the Consolidated Financial Statements.
Table of ContentsAFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1.Basis of Presentation and Use of Estimates | |
1. | Basis of Presentation and Use of Estimates |
The Consolidated Financial Statements of Affiliated Managers Group, Inc. (the(“AMG” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of AmericaU.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for full year financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentationstatement of the Company’s interim financial position and results of operations have been included and all intercompany balances and transactions have been eliminated. During the second quarter of 2017, the Company changed its Consolidated Statement of Income presentation to include Income from equity method investments in Operating income, as its equity method Affiliates are integral to the Company’s operations. This change, along with otherCertain reclassifications hashave been made to the prior period’s financial statements to conform to the current period’s presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for any other period or for the full year. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162022 includes additional information about its operations, financial position, and accounting policies, and should be read in conjunction with this Quarterly Report on Form 10-Q.
The preparation of financial statements in accordanceconformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
All amounts in these notes, except per share data in the text and tables herein, are stated in millions unless otherwise indicated.
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2. | 2.Accounting Standards and Policies Recent Accounting Developments |
Effective January 1, 2017, the Company adopted Accounting Standard Update (“ASU”) 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting, and ASU 2016-06, Derivatives, and Hedging: Contingent Put and Call Options in Debt Instruments. The adoption of these updates did not have a significant impact on the Company’s Consolidated Financial Statements.
In May 2014,June 2022, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, and subsequently issued several related amendments. The standard provides a comprehensive model for revenue recognition and is effective for the Company and its consolidated Affiliates for interim and annual periods beginning after December 15, 2017 and for interim and annual periods beginning after December 15, 2018 for the Company’s equity method Affiliates. The standard may be adopted using either the full or modified retrospective method. The Company has not yet selected its transition method and continues to evaluate the impact of this standard on its Consolidated Financial Statements, but it does not expect the adoption to significantly impact the timing of the recognition of its Revenue. The Company is evaluating whether certain costs currently expensed as incurred meet the criteria for capitalization and whether certain revenue-related costs will be presented on a gross or net basis.
In January 2016, the FASB issued ASU 2016-01,Accounting Standards Update (“ASU”) 2022-03, Fair Value: Recognition andValue Measurement (Topic 820): Fair Value Measurement of Financial Assets and Liabilities. UnderEquity Securities Subject to Contractual Sale Restrictions, which clarifies the new standard, all equity investmentsguidance in unconsolidated entities (other than those accounted for usingTopic 820 on the equity method of accounting) will generally be measured at fair value with any changes recognized through earnings.measurement of an equity security that is subject to a contractual sale restriction and requires specific disclosures related to such an equity security. The standard is effective for interim and annual periods beginning after December 15, 2017 and must be adopted using a modified retrospective method. The impact of this standard on the Company’s Consolidated Financial Statements will depend on the equity investments held by2023 for the Company, at the time of adoption.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize assets and liabilities arising from most operating leases on the statement of financial position. The standard is effective for interim and annual periods beginning after December 15, 2018 for the Company and its consolidated Affiliates and for interim and annual periods beginning after December 15, 20192024 for the Company’s equity method Affiliates. The standard must be adopted using a modified retrospective method. The Company is evaluating the impact of this standard, however it currently does not expect the adoption to have a material impact on its Consolidated Financial Statements.
In August 2016,
3.Investments in Marketable Securities
Equity Securities
The following table summarizes the FASB issued ASU 2016-15, Statementcost, gross unrealized gains, gross unrealized losses, and fair value of Cash Flows - Classificationinvestments in equity securities:
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | December 31,
2022 | | March 31,
2023 |
| Cost | | | | | | $ | 394.4 | | | $ | 165.9 | |
| Unrealized gains | | | | | | 59.9 | | | 24.3 | |
| Unrealized losses | | | | | | (6.4) | | | (3.7) | |
| Fair value | | | | | | $ | 447.9 | | | $ | 186.5 | |
As of Certain Cash ReceiptsDecember 31, 2022 and Cash Payments,March 31, 2023, investments in equity securities include ordinary shares of EQT AB (“EQT”), a public company listed on Nasdaq Stockholm (EQT.ST), with fair values of $405.1 million and $141.5 million, respectively. The Company received the EQT shares through the sale of its equity interest in Baring Private Equity Asia (“BPEA”), in connection with the strategic combination of BPEA and EQT, which clarifies how cash receipts and cash payments are classifiedwas completed in the statementfourth quarter of cash flows. The standard is effective for interim2022.
As of December 31, 2022 and annual periods beginning after December 15, 2017March 31, 2023, investments in equity securities include consolidated Affiliate sponsored investment products with fair values of $23.5 million and must be adopted using a full retrospective$21.4 million, respectively.
For the three months ended March 31, 2023, the Company recognized $1.4 million of net unrealized gains on equity securities still held as of March 31, 2023.
Debt Securities
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
method. The Company does not expect the adoption of this standard to have a significant impact on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for interim and annual periods beginning after December 15, 2017. The Company will apply the standard prospectively upon adoption. The impact of this standard on the Company’s Consolidated Financial Statements will depend on acquisitions (or disposals) of assets or businesses by the Company in periods following adoption.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Accounting for Goodwill Impairment. Under the new standard, a goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for interim and annual periods beginning after December 15, 2019. The Company will apply the standard prospectively upon adoption. The Company is evaluating the impact of this standard on its Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation, which simplifies modification accounting related to share-based arrangements. Under the new standard, modification assessments will not be required if fair value, vesting conditions and classification would be unaffected by a modification. The standard is effective for interim and annual periods beginning after December 15, 2017. The Company will apply the standard prospectively upon adoption. The Company does not expect the adoption of this standard to have a significant impact on its Consolidated Financial Statements.
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3. | Investments in Marketable Securities |
Investments in marketable securities at December 31, 2016 and September 30, 2017 were $122.4 million and $92.4 million, respectively. The following is a summary oftable summarizes the cost, gross unrealized gains and losses, and fair value of investments in U.S. Treasury securities classified as available-for-sale, of which $100.4 million mature in 2023 and $151.7 million mature in 2024, and consolidated Affiliate sponsored investment products classified as trading:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Available-for-sale | | Trading |
| | December 31, 2022 | | March 31, 2023 | | December 31, 2022 | | March 31, 2023 |
| Cost | | $ | 252.3 | | | $ | 252.9 | | | $ | 19.7 | | | $ | 20.6 | |
| Unrealized losses | | (1.3) | | | (0.8) | | | (1.7) | | | (1.5) | |
| Fair value | | $ | 251.0 | | | $ | 252.1 | | | $ | 18.0 | | | $ | 19.1 | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Available-for-Sale | | Trading |
| | December 31,
2016 | | September 30,
2017 | | December 31,
2016 | | September 30,
2017 |
| Cost | $ | 66.1 |
| | $ | 30.5 |
| | $ | 34.4 |
| | $ | 44.2 |
|
| Unrealized gains | 17.6 |
| | 10.8 |
| | 6.6 |
| | 8.5 |
|
| Unrealized losses | (1.8 | ) | | — |
| | (0.5 | ) | | (1.6 | ) |
| Fair Value | $ | 81.9 |
| | $ | 41.3 |
| | $ | 40.5 |
| | $ | 51.1 |
|
InDuring the three and nine months ended September 30, 2016,March 31, 2023, the Company received proceeds$101.7 million of $12.6 million and $47.0 million, respectively,proceeds from the salematurity of investments classified as available-for-sale and recorded gains of $6.2 million and $15.4 million, respectively. Insecurities.
For the three and nine months ended September 30, 2017,March 31, 2023, the Company received proceedsrecognized $0.1 million of $15.4 million and $58.7 million, respectively, from the sale of investments classified as available-for-sale and recorded gains of $7.4 million and $19.2 million, respectively. There were no significant realized gains ornet unrealized losses on investmentsour debt securities classified as trading in the three and nine months ended September 30, 2016. In the three and nine months ended September 30, 2017, the Company received proceedsstill held as of $8.2 million and $23.2 million, respectively, from the saleMarch 31, 2023.
4.Other Investments
Other investments consists primarily of investments classifiedin funds advised by the Company’s Affiliates that are carried at net asset value (“NAV”) as tradinga practical expedient and recorded net gains of $1.7 million and $5.0 million, respectively. The realized gains and losses on securities held in Affiliate sponsored consolidated products were recorded in Other operating expenses (net), other realized gains and losses wereinvestments without readily determinable fair values. Any gain or loss related to these investments is recorded in Investment and other income.income on the Consolidated Statements of Income.
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4. | Investments in Affiliates and Affiliate Sponsored Investment Products |
Investments in Affiliates
Measured at NAV as a Practical Expedient
The Company’s Affiliates are consolidated or accountedsponsor funds in which the Company and its Affiliates may make general partner and seed capital investments. These funds operate in partnership form and apply the specialized fair value accounting for underinvestment companies. The Company accounts for its interests in these funds using the equity method depending uponof accounting and is required to retain the specialized fair value accounting of the investment companies. Because the funds’ investments do not have readily determinable fair values, the Company uses the NAV of these investments as a practical expedient for their fair values. The following table summarizes the fair values of these investments and any related unfunded commitments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | March 31, 2023 |
| Category of Investment | | Fair Value | | Unfunded
Commitments | | Fair Value | | Unfunded
Commitments |
| | | | | | | | |
Private equity funds(1) | | $ | 356.4 | | | $ | 158.3 | | | $ | 361.4 | | | $ | 154.9 | |
Investments in other strategies(2) | | 14.8 | | | — | | | 14.2 | | | — | |
Total(3) | | $ | 371.2 | | | $ | 158.3 | | | $ | 375.6 | | | $ | 154.9 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
__________________________
(1)The Company accounts for the majority of its interests in private equity funds one quarter in arrears (adjusted for current period calls and distributions). These funds primarily invest in a broad range of third-party funds and direct investments. Distributions will be received as the underlying structure of and relationship with each Affiliate.
A limited numberassets are liquidated over the life of the funds, which is generally up to 15 years.
(2)These are multi-disciplinary funds that invest across various asset classes and strategies, including equity, credit, and real estate. Investments are generally redeemable on a daily, monthly, or quarterly basis.
(3)Fair value attributable to the controlling interest was $275.1 million and $279.4 million as of December 31, 2022 and March 31, 2023, respectively.
Investments Without Readily Determinable Fair Values
The Company made an investment in a private corporation where it does not exercise significant influence. Because this investment does not have a readily determinable fair value, the Company has elected to measure this investment at its cost minus impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments in the private corporation. The following table summarizes the cost, cumulative unrealized gains, and carrying amount of investments without readily determinable fair values:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | | | December 31,
2022 | | March 31,
2023 |
| Cost | | | | | | $ | 8.5 | | | $ | 8.5 | |
| Cumulative unrealized gains | | | | | | 41.9 | | | 41.9 | |
| Carrying amount | | | | | | $ | 50.4 | | | $ | 50.4 | |
For the three months ended March 31, 2023, the Company recorded no gains or losses on the underlying investment.
The following table presents the changes in Other investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| | Measured at NAV as a Practical Expedient | | Without Readily Determinable Fair Values | | Total | | Measured at NAV as a Practical Expedient | | Without Readily Determinable Fair Values | | Total |
| Balance, beginning of period | | $ | 324.8 | | | $ | 50.4 | | | $ | 375.2 | | | $ | 371.2 | | | $ | 50.4 | | | $ | 421.6 | |
| Purchases and commitments | | 15.1 | | | — | | | 15.1 | | | 9.8 | | | — | | | 9.8 | |
| Sales and distributions | | (11.5) | | | — | | | (11.5) | | | (11.5) | | | — | | | (11.5) | |
| Net realized and unrealized gains | | 15.3 | | | — | | | 15.3 | | | 6.1 | | | — | | | 6.1 | |
| Balance, end of period | | $ | 343.7 | | | $ | 50.4 | | | $ | 394.1 | | | $ | 375.6 | | | $ | 50.4 | | | $ | 426.0 | |
5.Fair Value Measurements
The following tables summarize financial assets and liabilities that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements |
| | | December 31,
2022 | |
| | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Financial Assets | | | | | | | | |
| | | | | | | | |
Investments in equity securities(1) | | $ | 447.9 | | | $ | 305.6 | | | $ | 142.3 | | | $ | — | |
Investments in debt securities(1) | | 269.0 | | | — | | | 269.0 | | | — | |
Derivative financial instruments(2) | | 0.5 | | | — | | | 0.5 | | | — | |
Financial Liabilities(3) | | | | | | | | |
| Contingent payment obligations | | $ | 21.0 | | | $ | — | | | $ | — | | | $ | 21.0 | |
| Affiliate equity purchase obligations | | 24.5 | | | — | | | — | | | 24.5 | |
| | | | | | | | |
| Derivative financial instruments | | 0.9 | | | — | | | 0.9 | | | — | |
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements |
| | | March 31,
2023 | |
| | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Financial Assets | | | | | | | | |
| | | | | | | | |
Investments in equity securities(1) | | $ | 186.5 | | | $ | 45.0 | | | $ | 141.5 | | | $ | — | |
Investments in debt securities(1) | | 271.2 | | | — | | | 271.2 | | | — | |
Derivative financial instruments(2) | | 0.9 | | | — | | | 0.9 | | | — | |
| | | | | | | | |
Financial Liabilities(3) | | | | | | | | |
| Contingent payment obligations | | $ | 22.9 | | | $ | — | | | $ | — | | | $ | 22.9 | |
| Affiliate equity purchase obligations | | 60.9 | | | — | | | — | | | 60.9 | |
| Derivative financial instruments | | 1.1 | | | — | | | 1.1 | | | — | |
| | | | | | | | |
| | | | | | | | |
__________________________
(1)Amounts are presented within Investments in marketable securities on the Consolidated Balance Sheets.
(2)Amounts are presented within Other assets on the Consolidated Balance Sheets.
(3)Amounts are presented within Other liabilities on the Consolidated Balance Sheets.
Level 3 Financial Liabilities
The following table presents the changes in level 3 liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| | Contingent Payment Obligations | | Affiliate Equity Purchase Obligations | | Contingent Payment Obligations | | Affiliate Equity Purchase Obligations |
| Balance, beginning of period | | $ | 40.3 | | | $ | 12.6 | | | $ | 21.0 | | | $ | 24.5 | |
| | | | | | | | |
Purchases and issuances(1) | | — | | | 40.6 | | | — | | | 44.2 | |
| Settlements and reductions | | — | | | (5.3) | | | — | | | (7.5) | |
Net realized and unrealized (gains) losses(2) | | (8.9) | | | (0.3) | | | 1.9 | | | (0.3) | |
| Balance, end of period | | $ | 31.4 | | | $ | 47.6 | | | $ | 22.9 | | | $ | 60.9 | |
| | | | | | | | |
Net change in unrealized (gains) losses relating to instruments still held at the reporting date(1) | | $ | (8.9) | | | $ | (0.3) | | | $ | 1.9 | | | $ | (0.3) | |
__________________________
(1)Affiliate equity purchase obligation activity includes transfers from Redeemable non-controlling interests.
(2)Gains and losses resulting from changes to expected payments are included in Other expenses (net) on the Consolidated Statements of Income and the accretion of these obligations is included in Interest expense on the Consolidated Statements of Income.
The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s level 3 fair value measurements:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quantitative Information About Level 3 Fair Value Measurements |
| | | | | | December 31, 2022 | | March 31, 2023 |
| | | Valuation Techniques | | Unobservable Input | | Fair Value | | Range | | Weighted Average(1) | | Fair Value | | Range | | Weighted Average(1) |
| Contingent payment obligations | | Monte Carlo simulation | | Volatility | | $ | 21.0 | | | 18% - 25% | | 18 | % | | $ | 22.9 | | | 18% - 25% | | 19 | % |
| | | | Discount rates | | | | 6 | % | | 6 | % | | | | 6% | | 6 | % |
| Affiliate equity purchase obligations | | Discounted cash flow | | Growth rates(2) | | $ | 24.5 | | | (3)% - 6% | | 1 | % | | $ | 60.9 | | | (7)% - 6% | | 0 | % |
| | | | Discount rates | | | | 14% - 17% | | 14 | % | | | | 12% - 17% | | 14 | % |
__________________________
(1)Calculated by comparing the relative fair value of an obligation to its respective total.
(2)Represents growth rates of asset- and performance-based fees.
Contingent payment obligations represent the fair value of the expected future settlement amounts related to the Company’s investments in its consolidated Affiliates. Changes to assumed volatility and discount rates change the fair value of contingent payment obligations. Increases to the volatility rates used would result in higher fair values, while increases to the discount rates used would result in lower fair values.
Affiliate equity purchase obligations include agreements to purchase Affiliate equity and represent the fair value of the expected future settlement amounts. Changes to assumed growth rates and discount rates change the fair value of the Affiliate equity purchase obligations. Increases to the assumed growth rates would result in higher fair values, while increases to the discount rates used would result in lower fair values.
Other Financial Assets and Liabilities Not Carried at Fair Value
The following table summarizes the Company’s other financial liabilities not carried at fair value:
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| | | December 31, 2022 | | March 31, 2023 | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Fair Value Hierarchy |
| Senior notes | | $ | 1,098.7 | | | $ | 1,024.6 | | | $ | 1,098.8 | | | $ | 1,030.1 | | | Level 2 |
| Junior subordinated notes | | 765.9 | | | 552.3 | | | 765.9 | | | 603.0 | | | Level 2 |
| Junior convertible securities | | 341.7 | | | 346.9 | | | 341.7 | | | 336.6 | | | Level 2 |
The Company has other financial assets and liabilities that are not required to be carried at fair value, but are required to be disclosed at fair value. The carrying amount of Cash and cash equivalents, Receivables, Payables and accrued liabilities, and certain Other liabilities approximates fair value because of the short-term nature of these instruments. The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates. The carrying value of the credit facilities (as defined in Note 7) approximates fair value because the credit facilities have variable interest based on selected short-term rates.
6.Investments in Affiliates areand Affiliate Sponsored Investment Products
In evaluating whether an investment must be consolidated, the Company evaluates the risk, rewards, and significant terms of each of its Affiliates and other investments to determine if an investment is considered a voting rights entitiesentity (“VREs”VRE”) becauseor a variable interest entity (“VIE”). An entity is a VRE when the total equity investment at risk is sufficient to enable the entitiesentity to finance their respectiveits activities independently, and each entity’swhen the equity holders have the obligation to absorb losses, the right to receive residual returns, the obligation to absorb losses and the right to direct the activities of the entity that most significantly impact its economic performance. An entity is a VIE when it lacks one or more of the characteristics of a VRE, which, for the Company, are Affiliate investments structured as partnerships (or similar entities) where the Company is a limited partner and lacks substantive kick-out or substantive participation rights over the general partner. Assessing whether an entity is a VRE or VIE involves judgment. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a VRE or a VIE.
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
that most significantly impact its economic performance. MostThe Company consolidates VREs when it has control over significant operating, financial, and investing decisions of the Company’s Affiliates considered VREs are accounted for under the equity method becauseentity. When the Company lacks such control, but is deemed to have significant influence.influence, the Company accounts for the VRE under the equity method. Investments with readily determinable fair values in which the Company does not have rights to exercise significant influence are recorded at fair value on the Consolidated Balance Sheets, with changes in fair value included in Investment and other income.
Substantially all of the Company’s Affiliates are considered variable interest entities (“VIEs”) because they are structured as partnerships (or similar entities) and the limited partners lack substantive kick-out or substantive participation rights over the general partner. The Company consolidates a VIEVIEs when it is the primary beneficiary of the entity, which is defined as having the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or the right to receive benefits from, or the obligation to absorb losses of the entity that could potentially be significant to the VIE. Substantially all of the Company’s consolidated Affiliates considered VIEs are controlled because the Company holds a majority of the voting interests or it is the managing member or general partner. Furthermore, an Affiliate’s assets can be used for purposes other than the settlement of the respective Affiliate’s obligations. The Company applies the equity method of accounting to a VIE when itVIEs where the Company is not the primary beneficiary, but has the ability to exercise significant influence over operating and financial matters of the VIE.
Investments in Affiliates
Substantially all of the Company’s Affiliates are considered VIEs and are either consolidated or accounted for under the equity method. A limited number of the Company’s Affiliates are considered VREs and most of these are accounted for under the equity method.
When an Affiliate is deemedconsolidated, the portion of the earnings attributable to Affiliate management’s and any co-investor’s equity ownership is included in Net income (non-controlling interests) in the Consolidated Statements of Income. Undistributed earnings attributable to Affiliate management’s and any co-investor’s equity ownership, along with their share of any tangible or intangible net assets, are presented within Non-controlling interests on the Consolidated Balance Sheets. Affiliate equity interests where the holder has certain rights to demand settlement are presented, at their current redemption values, as Redeemable non-controlling interests or Other liabilities on the Consolidated Balance Sheets. The Company periodically issues, sells, and purchases the equity of its consolidated Affiliates. Because these transactions take place between entities that are under common control, any gains or losses attributable to these transactions are required to be included in Additional paid-in capital in the Consolidated Balance Sheets, net of any related income tax effects in the period the transaction occurs.
When an Affiliate is accounted for under the equity method, the Company’s share of an Affiliate’s earnings or losses, net of amortization and impairments, is included in Equity method income (net) in the Consolidated Statements of Income and the carrying value of the Affiliate is reported in Equity method investments in Affiliates (net) in the Consolidated Balance Sheets. Deferred taxes recorded on intangible assets upon acquisition of an Affiliate accounted for under the equity method are presented on a gross basis within Equity method investments in Affiliates (net) and Deferred income tax liability (net) in the Consolidated Balance Sheets. The Company’s share of income taxes incurred directly by Affiliates accounted for under the equity method is recorded in Income tax expense in the Consolidated Statements of Income.
The Company periodically performs assessments to determine if the fair value of an investment may have significant influence.
declined below its related carrying value for its Affiliates accounted for under the equity method for a period that the Company considers to be other-than-temporary. Where the Company believes that such declines may have occurred, the Company determines the amount of impairment using valuation methods, such as discounted cash flow analyses. Impairments are recorded as an expense in Equity method income (net) to reduce the carrying value of the Affiliate to its fair value.
The unconsolidated assets, net of liabilities and non-controlling interests of Affiliates accounted for under the equity method Affiliates considered VIEs, and the Company’s carrying value and maximum risk ofexposure to loss, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | March 31, 2023 |
| | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss | | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss |
| Affiliates accounted for under the equity method | | $ | 1,273.5 | | | $ | 2,051.6 | | | $ | 839.3 | | | $ | 1,826.1 | |
As of December 31, 2022 and March 31, 2023, the carrying value and maximum exposure to loss for all of the Company’s Affiliates accounted for under the equity method was $2,139.5 million and $1,920.2 million, respectively, including Affiliates accounted for under the equity method considered VREs of $87.9 million and $94.1 million, respectively.
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| | | | | | | | | | | | | | | |
| | December 31, 2016 | | September 30, 2017 |
| | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss | | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss |
| Affiliates accounted for under the equity method | $ | 1,047.6 |
| | $ | 2,846.8 |
| | $ | 1,019.4 |
| | $ | 2,749.7 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Affiliate Sponsored Investment Products
The Company’s consolidated Affiliates sponsor various investment products for which theywhere the Affiliate also actacts as the investment advisor.adviser. These investment products are typically owned primarily owned by third-party investors; however, certain products are funded with general partner and seed capital investments from the Company and its Affiliates.
Third-party investors in Affiliate sponsored investment products are generally entitled to substantially all of the economics of these products, except for the asset- and performance-based fees earned by the Company’s Affiliates or any gains or losses attributable to the Company’s or its Affiliates’ investments in these products.
Certain As a result, the Company generally does not consolidate these products. However, for certain products, the Company’s consolidated Affiliates, as the investment manager, have the power to direct the activities of the Company’sinvestment product and have an exposure to the economics of the VIE that is more than insignificant, though generally only for a short period while the product is established and has yet to attract significant other investors. When the products are consolidated, the Company retains the specialized investment company accounting principles of the underlying products, and all of the underlying investments are carried at fair value in Investments in marketable securities, with corresponding changes in the investments’ fair values included in Investment and other income. Purchases and sales of securities are presented within purchases and sales by consolidated Affiliate sponsored investment products are considered VIEs because they are structured as partnerships (or similar entities)in the Consolidated Statements of Cash Flows, respectively, and the limited partners lack substantive kick-outthird-party investors’ interests are recorded in Redeemable non-controlling interests. When the Company or substantive participation rights overits consolidated Affiliates no longer control these products, due to a reduction in ownership or other reasons, the general partner. products are deconsolidated with only the Company’s or its consolidated Affiliate’s investment in the product reported from the date of deconsolidation.
The Company's Affiliates’ involvement withCompany’s carrying value, and maximum exposure to loss from unconsolidated Affiliate sponsored investment products, is generally limited to that of a service provider, and their seed capital investments, if any, represent an insignificant interest in the relevant investment products’ net assets. The Company’s andits or its consolidated Affiliates’ exposure to riskinterests in these entities is generally limited to any capital contribution made or required to be made and any earned but uncollected management and performance fees. As a result, in most cases these VIEs are not consolidated and are accounted for under the equity method because neitherunconsolidated net assets of the Company nor its Affiliates are deemed to be the primary beneficiary.
respective products. The net assets of unconsolidated VIEs attributable to Affiliate sponsored investment products, that were considered VIEs accounted for under the equity method and the Company’s carrying value and maximum risk ofexposure to loss, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | March 31, 2023 |
| | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss | | Unconsolidated
VIE Net Assets | | Carrying Value and
Maximum Exposure
to Loss |
| Affiliate sponsored investment products | | $ | 4,878.6 | | | $ | 15.3 | | | $ | 5,132.1 | | | $ | 16.0 | |
7.Debt
The following table summarizes the Company’s Debt:
| | | | | | | | | | | | | | |
| | December 31,
2022 | | March 31,
2023 |
| Senior bank debt | | $ | 349.9 | | | $ | 349.9 | |
| Senior notes | | 1,095.2 | | | 1,095.6 | |
| Junior subordinated notes | | 751.6 | | | 751.7 | |
| Junior convertible securities | | 338.6 | | | 338.7 | |
| Debt | | $ | 2,535.3 | | | $ | 2,535.9 | |
The Company’s senior notes, junior subordinated notes, and junior convertible securities are carried at amortized cost. Unamortized discounts and debt issuance costs are presented within the Consolidated Balance Sheets as an adjustment to the carrying value of the associated debt.
Senior Bank Debt
The Company has a $1.25 billion senior unsecured multicurrency revolving credit facility (the “revolver”) and a $350.0 million senior unsecured term loan facility (the “term loan” and, together with the revolver, the “credit facilities”). The revolver matures on October 25, 2027 and the term loan matures on October 23, 2026. Subject to certain conditions, the Company may increase the commitments under the revolver by up to an additional $500.0 million and may borrow up to an additional $75.0 million under the term loan. The Company pays interest on any outstanding obligations under the credit facilities at specified rates, currently based either on an applicable term-SOFR plus a SOFR adjustment of 0.10% or prime rate, plus a marginal rate determined based on its credit rating. As of March 31, 2023, the interest rate for the Company’s
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | September 30, 2017 |
| Unconsolidated VIE Net Assets | | Carrying Value and Maximum Exposure to Loss | | Unconsolidated VIE Net Assets | | Carrying Value and Maximum Exposure to Loss |
| Affiliate sponsored investment products | $ | 1,756.6 |
| | $ | 9.4 |
| | $ | 1,961.5 |
| | $ | 9.9 |
|
Senior Notes
As of March 31, 2023, the Company had senior notes outstanding. The carrying values of the senior notes are accreted to their principal amount at maturity over the remaining life of the underlying instrument. The principal terms of the senior notes outstanding as of March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2024
Senior Notes | | 2025
Senior Notes | | 2030
Senior Notes |
| Issue date | | February 2014 | | February 2015 | | June 2020 |
| Maturity date | | February 2024 | | August 2025 | | June 2030 |
| Par value (in millions) | | $ | 400.0 | | | $ | 350.0 | | | $ | 350.0 | |
| Stated coupon | | 4.25 | % | | 3.50 | % | | 3.30 | % |
| Coupon frequency | | Semi-annually | | Semi-annually | | Semi-annually |
| Potential call date | | Any time | | Any time | | Any time |
| Call price | | As defined | | As defined | | As defined |
The senior notes may be redeemed, in whole or in part, at any time, in the case of the 2024 and 2025 senior notes, and at any time prior to March 15, 2030, in the case of the 2030 senior notes. In each case, the senior notes may be redeemed at a make-whole redemption price, plus accrued and unpaid interest. The make-whole redemption price, in each case, is equal to the greater of 100% of the principal amount of the notes to be redeemed and the remaining principal and interest payments on the notes being redeemed (excluding accrued but unpaid interest to, but not including, the redemption date) discounted to their present value as of the redemption date at the applicable treasury rate plus 0.25%, in the case of the 2024 and the 2025 senior notes, and to their present value as of the redemption date on a semi-annual basis at the applicable treasury rate plus 0.40%, in the case of the 2030 senior notes.
Junior Subordinated Notes
As of March 31, 2023, the Company had junior subordinated notes outstanding, the respective principal terms of which are presented below:
| | | | | | | | | | | | | | | | | | | | |
| | 2059
Junior Subordinated Notes | | 2060
Junior Subordinated Notes | | 2061
Junior Subordinated Notes |
| Issue date | | March 2019 | | September 2020 | | July 2021 |
| Maturity date | | March 2059 | | September 2060 | | September 2061 |
| Par value (in millions) | | $ | 300.0 | | | $ | 275.0 | | | $ | 200.0 | |
| Stated coupon | | 5.875 | % | | 4.75 | % | | 4.20 | % |
| Coupon frequency | | Quarterly | | Quarterly | | Quarterly |
| Potential call date | | March 2024 | | September 2025 | | September 2026 |
| Call price | | As defined | | As defined | | As defined |
| Listing | | NYSE | | NYSE | | NYSE |
| | | | | | |
The junior subordinated notes may be redeemed at any time, in whole or in part, on or after March 30, 2024, in the case of the 2059 junior subordinated notes, on or after September 30, 2025, in the case of the 2060 junior subordinated notes, and on or after September 30, 2026, in the case of the 2061 junior subordinated notes. In each case, the junior subordinated notes may be redeemed at 100% of the principal amount of the notes being redeemed, plus any accrued and unpaid interest thereon. Prior to the applicable redemption date, at the Company’s option, the applicable junior subordinated notes may also be redeemed, in whole but not in part, at 100% of the principal amount, plus any accrued and unpaid interest, if certain changes in tax laws, regulations, or interpretations occur; or at 102% of the principal amount, plus any accrued and unpaid interest, if a rating agency makes certain changes relating to the equity credit criteria for securities with features similar to the applicable notes.
The Company may, at its option, and subject to certain conditions and restrictions, defer interest payments subject to the terms of the junior subordinated notes.
| |
5. | Commitments and Contingencies |
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Junior Convertible Securities
As of March 31, 2023, the Company had $341.7 million of principal outstanding in its 5.15% junior convertible trust preferred securities (the “junior convertible securities”), maturing in 2037. The junior convertible securities bear interest at a rate of 5.15% per annum, payable quarterly in cash.
As of December 31, 2022 and March 31, 2023, the unamortized issuance costs related to the junior convertible securities were $3.1 million and $3.0 million, respectively.
The following table presents interest expense recognized in connection with the junior convertible securities:
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| Contractual interest expense | | $ | 5.0 | | | $ | 4.4 | |
| Amortization of debt issuance costs | | 0.1 | | | 0.1 | |
| | | | |
| Total | | $ | 5.1 | | | $ | 4.5 | |
| | | | | | | | | | | | | | |
| Effective interest rate | | 5.24 | % | | 5.21 | % |
Holders of the junior convertible securities have no rights to put these securities to the Company. The holder may convert the securities to 0.2558 shares of common stock per $50.00 junior convertible security, equivalent to an adjusted conversion price of $195.47 per share. The conversion rate is subject to adjustments as described in the Amended and Restated Declaration of Trust of AMG Capital Trust II and the related indenture, both dated October 17, 2007 and filed as exhibits to the Company’s most recent Annual Report on Form 10-K. Upon conversion, holders will receive cash or shares of the Company’s common stock, or a combination thereof, at the Company’s election. The Company may redeem the junior convertible securities if the closing price of its common stock for 20 trading days in a period of 30 consecutive trading days exceeds 130% of the then prevailing conversion price, and may also repurchase junior convertible securities in the open market or in privately negotiated transactions from time to time at management’s discretion. During the three months ended March 31, 2022, the Company repurchased a portion of its junior convertible securities for a purchase price of $16.5 million and as a result of these repurchases, the Company reduced its Deferred income tax liability (net) by $2.7 million. The Company did not repurchase any of its junior convertible securities during the three months ended March 31, 2023.
8.Commitments and Contingencies
From time to time, the Company and its Affiliates may be subject to claims, legal proceedings, and other contingencies in the ordinary course of their business activities. Any such matters are subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner unfavorable to the Company or its Affiliates. The Company and its Affiliates establish accruals, as necessary, for matters for which the outcome is probable and the amount of the liability can be reasonably estimated.
Third Avenue Management LLC (“Third Avenue”), one of the Company’s consolidated Affiliates, was named as a defendant in various legal actions relating to the liquidation and closure of the Third Avenue Focused Credit Fund. The Company was named as a co-defendant in one of these actions, as a purported control person. In 2016, Third Avenue recorded
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
a reserve of $15.0 million in connection with the proposed resolution of all claims related to the Focused Credit Fund. These claims, including those against the Company, were subsequently resolved in a court-approved settlement, and Third Avenue and its insurers paid amounts due under the settlement during the quarter and no additional expense was recognized.
The Company has committed to co-invest in certain Affiliate sponsored investment products. As of September 30, 2017,March 31, 2023, these unfunded commitments were $94.9$154.9 million and may be called in future periods.
As of September 30, 2017,March 31, 2023, the Company was obligated to make deferred payments and was contingently liable to make payments in connection with certain of its consolidated Affiliates as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Earliest Payable |
| | Controlling Interest | | Co-Investor | | Total | | 2023 | | 2024 | | 2025 |
| Deferred payment obligations | | $ | 65.0 | | | $ | — | | | $ | 65.0 | | | $ | 21.7 | | | $ | 43.3 | | | $ | — | |
Contingent payment obligations(1) | | 17.5 | | | 5.4 | | | 22.9 | | | — | | | 21.5 | | | 1.4 | |
__________________________(1)Fair value as of March 31, 2023. The Company is contingently liable to make maximum contingent payments of up to $110.0 million ($24.9 million attributable to the co-investor), of which $100.0 million and $10.0 million may become payable in 2024 and 2025, respectively.
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The Company had liabilities for deferred and contingent payment obligations related to certain of its investments in Affiliates accounted for under the equity method. As of March 31, 2023, the Company was obligated to make payments of $8.8 million in 2023. Liabilities for deferred and contingent payments are included in Other liabilities.
As of March 31, 2023, the Company was contingently liable uponto make payments of $153.5 million related to the achievement by certain Affiliates of specified financial targets to make payments related toby certain of its Affiliates accounted for under the Company’s investmentsequity method, of which $62.5 million may become payable in these Affiliates2023 and the remainder may become payable through 2019. For its consolidated Affiliates,2029. As of March 31, 2023, the Company was contingently liable for up to $21.7 million, and expected to make payments of $8.9 million ($1.6 million in 2017). The present valueapproximately $13 million. In the event certain financial targets are not met at one of these expected payments was $8.1 million. For itsthe Company’s Affiliates accounted for under the equity method, Affiliates, the Company was contingently liable formay receive payments of up to $170.0$12.5 million and expectedalso has the option to make no payments.reduce its ownership interest and receive an incremental payment of $25.0 million.
Affiliate equity interests provide holders at consolidated Affiliates with a conditional right to put their interests to the Company over time. See Note 13. In addition, in connection with an investment in an Affiliate accounted for under the equity method, the Company entered into an arrangement with a minority owner of the Affiliate that gives such owner the right to sell a portion of its ownership interest in the Affiliate to the Company annually beginning in the fourth quarter of 2018. The purchase price of these conditional purchases will be at fair market value on the date of the transaction.14.
The Company and certain of its consolidated Affiliates operate under regulatory authorities that require that they maintainthe maintenance of minimum financial or capital requirements. ManagementThe Company’s management is not aware of any significant violations of such requirements.
In the three months ended September 30, 2017, the Company redeemed all $200.0 million principal amount outstanding of its 6.375% senior unsecured notes due 2042 at a redemption price equal to 100% of the principal amount. The notes were subsequently canceled9.Goodwill and retired.Acquired Client Relationships
| |
7. | Fair Value Measurements |
The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | December 31,
2016 | |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) |
| Financial Assets | | | | | | | |
| Cash equivalents | $ | 64.1 |
| | $ | 64.1 |
| | $ | — |
| | $ | — |
|
Investments in marketable securities(1) | | | | | | | |
| Trading securities | 40.5 |
| | 40.5 |
| | — |
| | — |
|
| Available-for-sale securities | 81.9 |
| | 81.9 |
| | — |
| | — |
|
| Other investments | 3.4 |
| | 3.4 |
| | — |
| | — |
|
Foreign currency forward contracts(2) | 0.6 |
| | — |
| | 0.6 |
| | — |
|
Financial Liabilities(2) | | | | | | | |
| Contingent payment arrangements | $ | 8.6 |
| | $ | — |
| | $ | — |
| | $ | 8.6 |
|
| Affiliate equity obligations | 12.1 |
| | — |
| | — |
| | 12.1 |
|
| Foreign currency forward contracts | 0.5 |
| | — |
| | 0.5 |
| | — |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements |
| | September 30,
2017 | |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Other Unobservable Inputs (Level 3) |
| Financial Assets | | | | | | | |
| Cash equivalents | $ | 35.1 |
| | $ | 35.1 |
| | $ | — |
| | $ | — |
|
Investments in marketable securities(1) | | | | | | | |
| Trading securities | 51.1 |
| | 51.1 |
| | — |
| | — |
|
| Available-for-sale securities | 41.3 |
| | 41.3 |
| | — |
| | — |
|
Foreign currency forward contracts(2) | 0.7 |
| | — |
| | 0.7 |
| | — |
|
Financial Liabilities(2) | | | | | | | |
| Contingent payment arrangements | $ | 8.1 |
| | $ | — |
| | $ | — |
| | $ | 8.1 |
|
| Affiliate equity obligations | 45.7 |
| | — |
| | — |
| | 45.7 |
|
| Foreign currency forward contracts | 1.0 |
| | — |
| | 1.0 |
| | — |
|
__________________________
| |
(1)
| Principally investments in equity securities. |
| |
(2)
| Amounts are presented within Other assets or Other liabilities. |
The following are descriptions of the significant financial assets and liabilities measured at fair value and the fair value methodologies used.
Cash equivalents consist primarily of highly liquid investments in daily redeeming money market funds, without enacted liquidity fees or redemption gates that are valued at net asset value (“NAV”).
Investments in marketable securities consist primarily of investments in publicly traded securities and funds advised by Affiliates that are valued at NAV. Publicly traded securities valued using unadjusted quoted market prices for identical instruments in active markets are classified as level 1. Publicly traded securities valued using quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active are classified as level 2. Investments in funds advised by Affiliates that are valued at NAV are classified as level 1.
Contingent payment arrangements represent the present value of the expected future settlement of contingent payment arrangements related to the Company’s investments in consolidated Affiliates. The significant unobservable inputs that are used in the fair value measurement of these obligations are growth and discount rates. Increases in the growth rate result in a higher obligation while increases in the discount rate result in a lower obligation.
Affiliate equity obligations include agreements to repurchase Affiliate equity. The significant unobservable inputs that are used in the fair value measurement of the agreements to repurchase Affiliate equity are growth and discount rates. Increases in the growth rate result in a higher obligation while increases in the discount rate result in a lower obligation.
Foreign currency forward contracts use model-derived valuations in which all significant inputs are observable in active markets to determine fair value.
It is the Company’s policy to value financial assets or liabilities transferred as of the beginning of the period in which the transfer occurs. There were no significant transfers of financial assets or liabilities between level 1 and level 2 in the three and nine months ended September 30, 2016 and 2017.
Level 3 Financial Assets and Liabilities
The following tables present the changes in level 3 liabilities:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, |
| | 2016 | 2017 |
| | Contingent Payment Arrangements | | Affiliate Equity Obligations | | | Contingent Payment Arrangements | | Affiliate Equity Obligations |
| Balance, beginning of period | $ | 8.0 |
| | $ | 27.0 |
| | | $ | 7.8 |
| | $ | 70.7 |
|
| Net realized and unrealized (gains) losses | 0.2 |
| (1) | 0.1 |
| | | 0.3 |
| (1) | (0.2 | ) |
| Purchases and issuances | — |
| | 8.4 |
| | | — |
| | 11.1 |
|
| Settlements and reductions | — |
| | (8.8 | ) | | | — |
| | (35.9 | ) |
| Balance, end of period | $ | 8.2 |
| | $ | 26.7 |
| | | $ | 8.1 |
| | $ | 45.7 |
|
| | | | | | | | | |
| Net change in unrealized (gains) losses relating to instruments still held at the reporting date | $ | 0.2 |
| (1) | $ | — |
| | | $ | 0.3 |
| (1) | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2016 | | | 2017 |
| | Contingent Payment Arrangements | | Affiliate Equity Obligations | | | Contingent Payment Arrangements | | Affiliate Equity Obligations |
| Balance, beginning of period | $ | 10.2 |
| | $ | 62.3 |
| | | $ | 8.6 |
| | $ | 12.1 |
|
| Net realized and unrealized (gains) losses | (2.0 | ) | (1) | 0.1 |
| | | 2.3 |
| (1) | (0.2 | ) |
| Purchases and issuances | — |
| | 48.2 |
| | | — |
| | 161.5 |
|
| Settlements and reductions | — |
| | (83.9 | ) | | | (2.8 | ) | | (127.7 | ) |
| Balance, end of period | $ | 8.2 |
| | $ | 26.7 |
| | | $ | 8.1 |
| | $ | 45.7 |
|
| | | | | | | | | |
| Net change in unrealized (gains) losses relating to instruments still held at the reporting date | $ | (2.0 | ) | (1) | $ | — |
| | | 2.3 |
| (1) | $ | — |
|
___________________________
| |
(1)
| Accretion and changes in the expected value of the Company’s contingent payment arrangements are recorded in Imputed interest expense and contingent payment arrangements. |
The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s level 3 financial liabilities:
|
| | | | | | | | | | | | | | | |
| | Quantitative Information About Level 3 Fair Value Measurements |
| | Valuation Techniques | | Unobservable Input | | Fair Value at
December 31, 2016 | | Range at
December 31, 2016 | | Fair Value at September 30, 2017 | | Range at September 30, 2017 |
| Contingent payment arrangements | Discounted cash flow | | Growth rates | | $ | 8.6 |
| | 3% - 8% | | $ | 8.1 |
| | 8% - 9% |
| | | | Discount rates | | |
| | 14% - 15% | | |
| | 14% - 15% |
| Affiliate equity obligations | Discounted cash flow | | Growth rates | | 12.1 |
| | 4% - 10% | | 45.7 |
| | 5% - 9% |
| | | | Discount rates | | |
| | 15% - 16% | | |
| | 12% - 16% |
Investments Measured at NAV as a Practical Expedient
The Company’s Affiliates sponsor investment products in which the Company and Affiliates may make general partner and seed capital investments. The Company uses the NAV of these investments as a practical expedient for their fair value. The following table summarizes the nature of the Company’s investments, unfunded commitments and any related liquidity restrictions or other factors that may impact the ultimate value realized:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | September 30, 2017 |
| Category of Investment | Fair Value | | Unfunded Commitments | | Fair Value | | Unfunded Commitments |
Private equity funds(1) | $ | 137.8 |
| | $ | 92.2 |
| | $ | 151.9 |
| | $ | 94.9 |
|
Other funds(2) | 9.7 |
| | — |
| | 8.6 |
| | — |
|
Other investments(3) | $ | 147.5 |
| | $ | 92.2 |
| | $ | 160.5 |
| | $ | 94.9 |
|
___________________________
| |
(1)
| The Company uses NAV as a practical expedient one quarter in arrears (adjusted for current period calls and distributions) to determine the fair value. These funds primarily invest in a broad range of private equity funds, as well as making direct investments. Distributions will be received as the underlying assets are liquidated over the life of the funds, which is generally up to 15 years. |
| |
(2)
| These are multi-disciplinary funds that invest across various asset classes and strategies, including long/short equity, credit and real estate. Investments are generally redeemable on a daily, monthly or quarterly basis. |
| |
(3)
| Fair value attributable to the controlling interest was $59.9 million and $72.8 million as of December 31, 2016 and September 30, 2017, respectively. |
Other Financial Assets and Liabilities Not Carried at Fair Value
The carrying amount of Receivables and Payables and accrued liabilities approximates fair value because of the short-term nature of these instruments. The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates. The carrying value of the credit facilities, which is reported in Senior bank debt, approximates fair value because the debt has variable interest based on selected short-term rates. The following table summarizes the Company’s other financial liabilities not carried at fair value: |
| | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | September 30, 2017 | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Fair Value Hierarchy |
| Senior notes | $ | 945.1 |
| | $ | 936.0 |
| | $ | 745.5 |
| | $ | 779.6 |
| | Level 2 |
| Convertible securities | 307.5 |
| | 466.9 |
| | 309.3 |
| | 527.8 |
| | Level 2 |
| |
8. | Goodwill and Acquired Client Relationships |
The following tables present the changes in the Company’s consolidated Affiliates’ Goodwill and components of Acquired client relationships (net): |
| | | | |
| | | Goodwill |
| | | Total |
| Balance, as of December 31, 2016 | | $ | 2,628.1 |
|
| Foreign currency translation | | 33.7 |
|
| Balance, as of September 30, 2017 | | $ | 2,661.8 |
|
| | | | | | | | |
| | Goodwill |
| Balance, as of December 31, 2022 | | $ | 2,648.7 | |
| | |
| Foreign currency translation | | 5.3 | |
| Other | | (5.1) | |
| Balance, as of March 31, 2023 | | $ | 2,648.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Acquired Client Relationships (Net) |
| | | Definite-lived | | Indefinite-lived | | Total |
| | | Gross Book Value | | Accumulated Amortization | | Net Book Value | | Net Book Value | | Net Book Value |
| Balance, as of December 31, 2022 | | $ | 1,355.1 | | | $ | (1,069.7) | | | $ | 285.4 | | | $ | 1,590.6 | | | $ | 1,876.0 | |
| | | | | | | | | | |
| Intangible amortization and impairments | | — | | | (12.5) | | | (12.5) | | | — | | | (12.5) | |
| Foreign currency translation | | 0.2 | | | — | | | 0.2 | | | 6.5 | | | 6.7 | |
Transfers(1) | | (10.3) | | | 10.3 | | | — | | | (4.1) | | | (4.1) | |
| Balance, as of March 31, 2023 | | $ | 1,345.0 | | | $ | (1,071.9) | | | $ | 273.1 | | | $ | 1,593.0 | | | $ | 1,866.1 | |
__________________________(1)Transfers include acquired client relationships at Affiliates that were deconsolidated during the period.
Definite-lived acquired client relationships at the Company’s consolidated Affiliates are amortized over their expected period of economic benefit. The Company recorded amortization expense within Intangible amortization and impairments in the Consolidated Statements of Income for these relationships of $12.6 million and $12.5 million for the three months ended March 31, 2022 and 2023, respectively. Based on relationships existing as of March 31, 2023, the Company estimates that its consolidated amortization expense will be approximately $38 million for the remainder of 2023, approximately $35 million in 2024, and approximately $30 million in each of 2025, 2026, 2027, and approximately $25 million in 2028.
As of September 30, 2017, the Company completed its impairment assessments on its goodwill andMarch 31, 2023, no impairments of indefinite-lived acquired client relationships were indicated.
10.Equity Method Investments in Affiliates
The financial results of certain Affiliates accounted for under the equity method are recognized in the Consolidated Financial Statements one quarter in arrears.
Equity method investments in Affiliates (net) consisted of the following:
|
| | | | | | | | | | | | | | | | | | | |
| | Acquired Client Relationships |
| | Definite-lived | | Indefinite-lived | | Total |
| | Gross Book Value | | Accumulated Amortization | | Net Book Value | | Net Book Value | | Net Book Value |
| Balance, as of December 31, 2016 | $ | 1,290.0 |
| | $ | (788.1 | ) | | $ | 501.9 |
| | $ | 995.5 |
| | $ | 1,497.4 |
|
| Intangible amortization and impairments | — |
| | (65.1 | ) | | (65.1 | ) | | — |
| | (65.1 | ) |
| Foreign currency translation | 5.0 |
| | — |
| | 5.0 |
| | 29.9 |
| | 34.9 |
|
| Balance, as of September 30, 2017 | $ | 1,295.0 |
| | $ | (853.2 | ) | | $ | 441.8 |
| | $ | 1,025.4 |
| | $ | 1,467.2 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Definite-lived acquired client relationships are amortized over their expected useful lives. As of September 30, 2017, these relationships were being amortized over a weighted average life of approximately 12 years. The Company recorded amortization expense, in Intangible amortization and impairments, for these relationships of $26.9 million and $82.2 million for the three and nine months ended September 30, 2016, respectively, and $21.2 million and $65.1 million for the three and nine months ended September 30, 2017, respectively. Based on relationships existing as of September 30, 2017, the Company estimates that its consolidated annual amortization expense will be approximately $85 million in each of 2017, 2018 and 2019, $50 million in 2020 and $30 million in 2021.
| |
9. | Equity Method Investments in Affiliates |
In 2016, the Company completed investments in Systematica Investments L.P. and Baring Private Equity Asia, both of which closed on January 4, 2016, Capula Investment Management, LLP, Mount Lucas Management LP and Capeview Capital LLP, all of which closed on July 1, 2016, Partner Fund Management, L.P., which closed on September 30, 2016, and Winton Group Ltd., which closed on October 4, 2016. The purchase price allocations were completed using financial models that included assumptions of expected market performance, net client cash flows and discount rates. The majority of the consideration paid is deductible for U.S. tax purposes over a 15-year life. The financial results of certain equity method Affiliates are recognized in the Consolidated Financial Statements one quarter in arrears.
The aggregate purchase price allocation for the 2016 investments was as follows:
|
| | | |
| | Total |
| Consideration paid | $ | 1,362.3 |
|
| | |
| Definite-lived acquired client relationships | $ | 560.8 |
|
| Indefinite-lived acquired client relationships | 36.9 |
|
| Tangible assets | 2.0 |
|
| Deferred tax liability | (91.8 | ) |
| Goodwill | 854.4 |
|
| | $ | 1,362.3 |
|
For these new investments, the Company recorded amortization expense on the definite-lived acquired client relationships of $3.7 million and $11.2 million in the three and nine months ended September 30, 2016, respectively, and $15.5 million and $33.9 million in the three and nine months ended September 30, 2017, respectively. | | | | | | | | | | | | | | |
| | December 31,
2022 | | March 31,
2023 |
| Goodwill | | $ | 1,262.4 | | | $ | 1,278.4 | |
| Definite-lived acquired client relationships (net) | | 479.4 | | | 462.0 | |
| Indefinite-lived acquired client relationships (net) | | 119.0 | | | 121.1 | |
| Undistributed earnings and tangible capital | | 278.7 | | | 58.7 | |
| Equity method investments in Affiliates (net) | | $ | 2,139.5 | | | $ | 1,920.2 | |
The following table presents the change in Equity method investments in Affiliates:Affiliates (net):
| | | | | | | | |
| | Equity Method Investments in Affiliates |
| Balance, as of December 31, 2022 | | $ | 2,139.5 | |
| | |
| Earnings | | 79.5 | |
| Intangible amortization and impairments | | (20.9) | |
| Distributions of earnings | | (306.9) | |
| | |
| Foreign currency translation | | 25.0 | |
| Other | | 4.0 | |
| Balance, as of March 31, 2023 | | $ | 1,920.2 | |
|
| | | |
| | Total |
| Balance, as of December 31, 2016 | $ | 3,368.3 |
|
| Equity method earnings | 303.3 |
|
| Equity method intangible amortization | (71.7 | ) |
| Distributions of earnings from equity method investments | (368.0 | ) |
| Investments | 29.8 |
|
| Foreign currency translation | 32.1 |
|
| Other | (3.0 | ) |
| Balance, as of September 30, 2017 | $ | 3,290.8 |
|
As of September 30, 2017, the definite-livedDefinite-lived acquired client relationships at all of the Company’s Affiliates accounted for under the equity method Affiliates were beingare amortized over a weighted average lifetheir expected period of approximately 10 years.economic benefit. The Company recognizedrecorded amortization expense for these relationships of $14.0$23.3 million and $43.0$20.9 million for the three and nine months ended September 30, 2016, respectively,March 31, 2022 and $25.9 million and $71.7 million for the three and nine months ended September 30, 2017,2023, respectively. Based on relationships existing as of September 30, 2017,March 31, 2023, the Company estimates the annual amortization expense attributable to its current equity method Affiliates will be approximately $100$65 million for the remainder of 2023, approximately $50 million in each of 20172024 and 2018 and $802025, approximately $45 million in each of 2019, 20202026 and 2021.
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2027, and approximately $35 million in 2028.
The Company has determined that onehad liabilities for deferred and contingent payment obligations related to certain of its investments in Affiliates accounted for under the equity method. See Note 8.
The Company had 20 and 21 Affiliates accounted for under the equity method as of December 31, 2022 and March 31, 2023. The majority of these Affiliates is significant under Rule 10-01(b)(1)are partnerships with structured interests that define how the Company will participate in Affiliate earnings, typically based upon a fixed percentage of Regulation S-X. Forrevenue reduced by, in some cases, certain agreed-upon expenses. The partnership agreements do not define a fixed percentage for the three and nine months ended September 30, 2016, thisCompany’s ownership of the equity methodof the Affiliate. These percentages would be subject to a separate future negotiation if an Affiliate recognized revenue of $230.2 million and $658.6 million, respectively, and net income of $126.4 million and $361.0 million, respectively. For the three and nine months ended September 30, 2017, this equity method Affiliate recognized revenue of $301.8 million and $826.6 million, respectively, and net income of $178.3 million and $471.3 million, respectively.were to be sold or liquidated.
| |
10. | Related Party Transactions |
11.Related Party Transactions
A prior owner of one of the Company’s consolidated Affiliates retained an interestretains interests in certain of the Affiliate’s private equity investment partnerships.partnerships and, as a result, is a related party of the Company. The prior owner’s interest isinterests are presented in the Company’s Consolidated Balance Sheets as either a liability inwithin Other liabilities or as Non-controlling interests, depending on the structure of the prior owner’s investments in the partnerships. The total liability was $67.8and were $21.0 million and $64.1$19.7 million atas of December 31, 20162022 and September 30, 2017, respectively. The total non-controlling interest was $2.5 million and $0.8 million at DecemberMarch 31, 2016 and September 30, 2017,2023, respectively.
The Company may invest from time to time in funds or products advised by its Affiliates. The Company’s executive officers and directors may invest from time to time in funds advised or products offered by its Affiliates, or receive other investment services provided by its Affiliates, on substantially the same terms as other investors. In addition, the Company and its Affiliates earn asset based revenue, performance fees, distributionasset- and servicing and otherperformance-based fees and incur distribution and servicing and other expenses for services provided to Affiliate sponsored investment products. In addition, Affiliate management owners and Companythe Company’s officers may serve as trustees or directors of certain investment vehicles from which the Company or an Affiliate earns revenue.
Thefees. Also, from time to time, the Company has liabilities to related partiesmay enter into ordinary course engagements for contingent payment arrangements in connectioncapital markets, banking, brokerage, and other services with certain business combinations. The net present valuebeneficial owners of 5% or more of the total amounts payable were $8.6 million and $8.1 million as of December 31, 2016 and September 30, 2017, respectively, and were included in Other liabilities.Company’s voting securities.
The Company has related party transactions in association with its deferred and contingent payment obligations, and Affiliate equity transactions, as more fully described in Notes 128, 10, 13, and 13.14.
17
| |
11. | Share-Based Compensation |
The following is a summary of share-based compensation expense: |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2016 | | 2017 | | 2016 | | 2017 |
| Share-based compensation | $ | 10.7 |
| | $ | 10.3 |
| | $ | 30.7 |
| | $ | 30.0 |
|
| Tax benefit | 4.1 |
| | 4.0 |
| | 11.8 |
| | 11.5 |
|
The Company had $66.4 million and $73.8 millionStock Options
The following table summarizes transactions in the Company’s stock options:
|
| | | | | | | | |
| | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) |
| Unexercised options outstanding - December 31, 2016 | 1.4 |
| | $ | 108.53 |
| | |
| Options granted | 0.0 |
| | 168.60 |
| | |
| Options exercised | (0.6 | ) | | 96.86 |
| | |
| Options forfeited | (0.1 | ) | | 140.26 |
| | |
| Unexercised options outstanding - September 30, 2017 | 0.7 |
| | 118.35 |
| | 3.5 |
| Exercisable at September 30, 2017 | 0.3 |
| | 108.55 |
| | 1.5 |
For the nine months ended September 30, 2016 and 2017, the Company granted stock options with fair values of $16.4 million and $0.8 million, respectively. Stock options generally vest over a period of three to four years and expire seven years after the grant date. All options have been granted with exercise prices equal to the closing price of the Company’s common
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
stock on the grant date. In certain circumstances, option awards also require certain performance conditions to be satisfied in order for the options to be exercised.12.Share-Based Compensation
The fair valuefollowing table presents share-based compensation expense:
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| Share-based compensation expense | | $ | 14.7 | | | $ | 14.7 | |
| Tax benefit | | 1.7 | | | 1.7 | |
As of options granted was estimated usingDecember 31, 2022, the Black-Scholes option pricing model. ForCompany had unrecognized share-based compensation expense of $64.7 million. As of March 31, 2023, the nine months ended September 30, 2016 and 2017, theCompany had unrecognized share-based compensation expense of $95.0 million, which will be recognized over a weighted average fair valuesperiod of options granted were $39.02 and $48.05, per option, respectively, based on the weighted-average grant date assumptions stated below.
|
| | | | | | |
| | | For the Nine Months Ended September 30, |
| | | 2016 | | 2017 |
| Dividend yield | | — |
| | 0.5 | % |
| Expected volatility | | 30.7 | % | | 28.0 | % |
| Risk-free interest rate | | 1.6 | % | | 2.1 | % |
| Expected life of options (in years) | | 5.7 |
| | 5.7 |
|
| Forfeiture rate | | — |
| | — |
|
Restricted Stock
The following table summarizes transactions in the Company’s restricted stock units:
| | | | | | | Restricted Stock Units | | Weighted Average Grant Date Value |
| | Restricted Stock Units | | Weighted Average Grant Date Value | |
| Unvested units - December 31, 2016 | 0.6 |
| | $ | 168.84 |
| |
| Unvested units— December 31, 2022 | | Unvested units— December 31, 2022 | | 1.1 | | | $ | 106.88 | |
| Units granted | 0.2 |
| | 153.09 |
| Units granted | | 0.3 | | | 160.91 | |
| Units vested | (0.2 | ) | | 167.72 |
| Units vested | | (0.4) | | | 87.00 | |
| Units forfeited | (0.0 | ) | | 170.52 |
| Units forfeited | | (0.0 | ) | | 125.94 | |
| Unvested units - September 30, 2017 | 0.6 |
| | 162.97 |
| |
| Performance condition changes | | Performance condition changes | | 0.0 | | | 73.81 | |
| Unvested units— March 31, 2023 | | Unvested units— March 31, 2023 | | 1.0 | | | 131.44 | |
For the ninethree months ended September 30, 2016March 31, 2022 and 2017,2023, the Company granted awardsrestricted stock units with fair values of $28.0$45.3 million and $36.7$45.5 million, respectively. These awardsrestricted stock units were valued based on the closing price of the Company’s common stock on the grant date and containthe number of shares expected to vest. Restricted stock units containing vesting conditions requiringgenerally require service over a period of three years to four years. In certain circumstances, awardsyears and may also require the satisfaction of certain performance conditions. For awards with performance conditions, the number of restricted stock units expected to be satisfied.vest may change over time depending upon the performance level achieved.
Stock Options
The following table summarizes transactions in the Company’s stock options:
| | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) |
| Unexercised options outstanding— December 31, 2022 | | 3.2 | | | $ | 76.81 | | | |
| Options granted | | — | | | — | | | |
| Options exercised | | (0.0 | ) | | 122.40 | | | |
| Options forfeited | | — | | | — | | | |
| Options expired | | — | | | — | | | |
| Performance condition changes | | — | | | — | | | |
| Unexercised options outstanding— March 31, 2023 | | 3.2 | | | 76.77 | | | 3.5 |
| Exercisable at March 31, 2023 | | 0.0 | | | 116.62 | | | 3.1 |
For the three months ended March 31, 2022, the Company granted stock options with fair values of $1.8 million. The Company did not grant any stock options during the three months ended March 31, 2023. Stock options generally vest over a period of three years to five years and expire seven years after the grant date. All stock options have been granted with exercise
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
prices equal to the closing price of the Company’s common stock on the grant date. Substantially all of the Company’s outstanding stock options contain both service and performance conditions. For awards with performance conditions, the number of stock options expected to vest may change over time depending upon the performance level achieved.
For the three months ended March 31, 2022, the weighted average fair value of options granted was $47.84. The Company uses the Black-Scholes option pricing model to determine the fair value of options. The weighted average grant date assumptions used to estimate the fair value of stock options granted were as follows:
| | | | | | | | | | |
12. | Redeemable Non-Controlling Interests | For the Three Months Ended March 31, 2022 | | |
| | |
| | | | |
| Dividend yield | | 0.0 | % | | |
| Expected volatility | | 36.8 | % | | |
| Risk-free interest rate | | 1.7 | % | | |
| Expected life of options (in years) | | 5.7 | | |
| Forfeiture rate | | — | % | | |
13.Redeemable Non-Controlling Interests
Affiliate equity interests provide holders with a ratable portion of ownershipan equity interest in one of the Company’s consolidated Affiliates, consistent with the structured partnership interests in place at the respective Affiliate. Affiliate equity holders generally have a conditional right to put their interests to the Company at certain intervals (between five years and 15 years from the date the equity interest is received by the Affiliate equity holder or on an annual basis following an Affiliate equity holder’s departure). The current redemption value ofPrior to becoming redeemable, the Company’s Affiliate equity interests is presented aswithin Non-controlling interests. Upon becoming redeemable, these interests are reclassified to Redeemable non-controlling interests.interests at their current redemption values. Changes in the current redemption value are recorded to Additional paid-in capital. When the Company has an unconditional obligation to purchase Affiliate equity interests, the interests are reclassified from Redeemable non-controlling interest to Other liabilities at current fair value. Changes in fair value are recorded to Other expenses (net).
The following table presents the changes in Redeemable non-controlling interests:
|
| | | | |
| | | Redeemable Non-controlling interests |
| Balance, as of December 31, 2016 | | $ | 673.5 |
|
| Changes attributable to consolidated products | | 9.5 |
|
| Repurchases of redeemable Affiliate equity | | (151.6 | ) |
| Transfers from non-controlling interests | | 56.8 |
|
| Changes in redemption value | | 216.4 |
|
| Balance, as of September 30, 2017 | | $ | 804.6 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | |
13. | | | Redeemable Non-controlling Interests |
| Balance, as of December 31, 2022 | | | $ | 465.4 | |
Decrease attributable to consolidated Affiliate Equitysponsored investment products | | | (1.6) | |
| Transfers to Other liabilities | | | (32.3) | |
| | | |
| Changes in redemption value | | | 101.7 | |
Balance, as of March 31, 2023(1) | | | $ | 533.2 | |
__________________________
(1)As of December 31, 2022 and March 31, 2023, Redeemable non-controlling interests include consolidated Affiliate sponsored investment products primarily attributable to third-party investors of $20.1 million and $18.5 million, respectively.
14.Affiliate Equity
Affiliate equity interests are allocated income in a manner that is consistent with the structured partnership interests in place at the respective Affiliate. The Company’s Affiliates generally pay quarterly distributions to Affiliate equity holders. For the nine months ended September 30, 2016 and 2017, distributionsDistributions paid to non-controlling interest Affiliate equity holders were $270.1$122.5 million and $266.8$79.5 million for the three months ended March 31, 2022 and 2023, respectively.
The Company periodically repurchasespurchases Affiliate equity interests from and issues Affiliate equity to the Company’s consolidated Affiliate partners and other parties under agreements that provide the Company a conditional right to call and Affiliate equity holders the conditional right to put their Affiliate equity interests to the Company at certain intervals. The Company has the right to settle a portion of these purchases in shares of its Affiliatecommon stock. For Affiliates accounted for under the equity holders.method, the Company does not typically have such put and call arrangements. For the ninethree months ended September 30, 2016March 31, 2022 and 2017, 2023,
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
the amount of cash paid for repurchasespurchases was $82.1$5.3 million and $121.3$5.0 million, respectively. For the ninethree months ended September 30, 2016March 31, 2022 and 2017,2023, the total amount of cash received for issuances was $11.8$11.6 million and $8.8$12.3 million, respectively.
Sales and repurchasespurchases of Affiliate equity generally occur at fair value; however, the Company also grants Affiliate equity to its consolidated Affiliate partners employees and officersother parties as a form of compensation. If the equity is issued for consideration below the fair value of the equity, or repurchasedpurchased for consideration above the fair value of the equity, then suchthe difference is recorded as compensation expense in Compensation and related expenses in the Consolidated Statements of Income over the requisite service period.
The following is a summary oftable presents Affiliate equity compensation expense:
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2016 | | 2017 | | 2016 | | 2017 |
| Controlling interest | $ | 3.2 |
| | $ | 2.3 |
| | $ | 7.7 |
| | $ | 9.4 |
|
| Non-controlling interests | 18.5 |
| | 7.7 |
| | 27.2 |
| | 29.2 |
|
| Total | $ | 21.7 |
| | $ | 10.0 |
| | $ | 34.9 |
| | $ | 38.6 |
|
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| Controlling interest | | $ | 1.7 | | | $ | (0.7) | |
| Non-controlling interests | | 14.5 | | | 11.3 | |
| Total | | $ | 16.2 | | | $ | 10.6 | |
The following is a summary oftable presents unrecognized Affiliate equity compensation expense:
|
| | | | | | | | | | | |
| Controlling Interest | | Remaining Life | | Non-controlling Interests | | Remaining Life |
| December 31, 2016 | $ | 31.3 |
| | 4 years | | $ | 70.7 |
| | 5 years |
| September 30, 2017 | 33.0 |
| | 4 years | | 82.5 |
| | 5 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Controlling Interest | | Remaining Life | | Non-controlling Interests | | Remaining Life |
| December 31, 2022 | | $ | 31.4 | | | 5 years | | $ | 284.6 | | | 7 years |
| March 31, 2023 | | 37.1 | | | 5 years | | 281.8 | | | 7 years |
The Company records amounts receivable from, and payable to, Affiliate equity holders in connection with the transfer of Affiliate equity interests that have not settled at the end of the period. The total amount receivable was $22.9$11.6 million and $10.9$11.0 million atas of December 31, 20162022 and September 30, 2017,March 31, 2023, respectively, and was included in Other assets. The total amount payable was $12.1$24.5 million and $45.7$60.9 million as of December 31, 20162022 and September 30, 2017,March 31, 2023, respectively, and was included in Other liabilities.
Effects of Changes in the Company’s Ownership in Affiliates
The Company periodically acquires interests from, and transfers interests to, Affiliate equity holders. Because these transactions do not result in a change of control, any gain or loss related to these transactions is recorded to Additional paid-in capital, which increases or decreases the controlling interest’s equity. No gain or loss related to these transactions is recognized in the Consolidated Statements of Income or the Consolidated Statements of Comprehensive Income.
While the Company presents the current redemption value of Affiliate equity within Redeemable non-controlling interests, with changes in the current redemption value increasing or decreasing the controlling interest’s equity over time, the following table disclosespresents the cumulative effect that ownership changes had on the controlling interest’s equity related only to Affiliate equity transactions that settledoccurred during the applicable periods: | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | 2022 | | 2023 |
| Net income (controlling interest) | | $ | 146.0 | | | $ | 134.5 | |
| Increase (decrease) in controlling interest paid-in capital from Affiliate equity issuances | | 3.4 | | | (3.6) | |
| Decrease in controlling interest paid-in capital from Affiliate equity purchases | | (25.9) | | | (27.5) | |
| Net income (controlling interest) including the net impact of Affiliate equity transactions | | $ | 123.5 | | | $ | 103.4 | |
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)15.Income Taxes
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2016 | | 2017 | | 2016 | | 2017 |
| Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
|
| Increase / (decrease) in controlling interest paid-in capital from purchases and sales of Affiliate equity issuances | 5.3 |
| | (0.3 | ) | | 1.9 |
| | (0.6 | ) |
| Decrease in controlling interest paid-in capital related to Affiliate equity repurchases | (2.1 | ) | | (12.7 | ) | | (23.4 | ) | | (81.8 | ) |
| Net income attributable to controlling interest and transfers from Non-controlling interests | $ | 113.4 |
| | $ | 112.4 |
| | $ | 301.0 |
| | $ | 291.8 |
|
The Company’s consolidated income tax provision includes taxes attributable to the controlling interest and, to a lesser extent, taxes attributable to the non-controlling interests as follows:interests.
The following table presents the consolidated provision for income taxes:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, | |
| | 2016 | | 2017 | | 2016 | | 2017 | | | 2022 | | 2023 | |
| Controlling interest: | | | | | | | | Controlling interest: | | | | | |
| Current tax | $ | 29.5 |
| | $ | 39.6 |
| | $ | 84.2 |
| | $ | 102.0 |
| |
| Current taxes | | Current taxes | | $ | 30.3 | | | $ | 31.2 | | |
| Intangible-related deferred taxes | 19.5 |
| | 22.9 |
| | 63.0 |
| | 61.8 |
| Intangible-related deferred taxes | | 15.7 | | | 14.8 | | |
| Other deferred taxes | 1.1 |
| | 1.6 |
| | 8.4 |
| | 18.7 |
| Other deferred taxes | | 4.5 | | | (3.5) | | |
| Total controlling interest | 50.1 |
| | 64.1 |
| | 155.6 |
| | 182.5 |
| Total controlling interest | | 50.5 | | | 42.5 | | |
| Non-controlling interests: | | | | | | | | Non-controlling interests: | | | | | |
| Current tax | $ | 1.5 |
| | $ | 2.1 |
| | $ | 5.7 |
| | $ | 5.9 |
| |
| Current taxes | | Current taxes | | $ | 5.2 | | | $ | 2.5 | | |
| Deferred taxes | (1.3 | ) | | (0.1 | ) | | (1.6 | ) | | (0.2 | ) | Deferred taxes | | — | | | — | | |
| Total non-controlling interests | 0.2 |
| | 2.0 |
| | 4.1 |
| | 5.7 |
| Total non-controlling interests | | 5.2 | | | 2.5 | | |
| Provision for income taxes | $ | 50.3 |
| | $ | 66.1 |
| | $ | 159.7 |
| | $ | 188.2 |
| |
| Income tax expense | | Income tax expense | | $ | 55.7 | | | $ | 45.0 | | |
| Income before income taxes (controlling interest) | $ | 160.3 |
| | $ | 189.5 |
| | $ | 478.1 |
| | $ | 556.7 |
| Income before income taxes (controlling interest) | | $ | 196.5 | | | $ | 177.0 | | |
Effective tax rate attributable to controlling interest(1) | 31.3 | % | | 33.8 | % | | 32.5 | % | | 32.8 | % | |
Effective tax rate (controlling interest)(1) | | Effective tax rate (controlling interest)(1) | | 25.7 | % | | 24.0 | % | |
__________________________
(1)Taxes attributable to the controlling interest divided by income before income taxes (controlling interest).
| |
(1)The Company’s effective tax rate (controlling interest) for the three months ended March 31, 2022 was higher than the marginal tax rate of 24.5%, primarily due to increases in non-deductible compensation expense and unrecognized tax benefits, partially offset by tax benefits from foreign operations. The Company’s effective tax rate (controlling interest) for the three months ended March 31, 2023 was lower than the marginal tax rate of 24.5%, primarily due to tax windfalls related to share-based compensation, partially offset by the impact of the increase in the UK corporate tax rate in 2023. In August 2022, the Inflation Reduction Act was enacted into law. The relevant provisions of the Inflation Reduction Act for the Company are the 15% corporate alternative minimum income tax and the 1% excise tax on repurchases of the Company’s common stock. These provisions are effective as of January 1, 2023. The Company does not currently expect the Inflation Reduction Act to have a material impact on its Consolidated Financial Statements. The Company expects to record the excise tax as part of the cost basis of its common stock repurchased. 16.Earnings Per Share | Taxes attributable to the controlling interest divided by Income before income taxes (controlling interest). |
The calculation of basic earningsEarnings per share (basic) is based on the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earningsEarnings per share (diluted) is similar to basic earningsEarnings per share (basic), but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company’s common stock.
The following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share available to common stockholders.stockholders:
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| | 2016 | | 2017 | | 2016 | | 2017 | | | 2022 | | 2023 |
| Numerator | | | | | | | | Numerator | | | | |
| Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| Net income (controlling interest) | | $ | 146.0 | | | $ | 134.5 | |
| Interest expense on convertible securities, net of taxes | 3.9 |
| | 3.9 |
| | 11.6 |
| | 11.6 |
| |
| Income from hypothetical settlement of Redeemable non-controlling interests, net of taxes | | Income from hypothetical settlement of Redeemable non-controlling interests, net of taxes | | 11.7 | | | 0.7 | |
| Interest expense on junior convertible securities, net of taxes | | Interest expense on junior convertible securities, net of taxes | | 3.8 | | | 3.4 | |
| Net income (controlling interest), as adjusted | $ | 114.1 |
| | $ | 129.3 |
| | $ | 334.1 |
| | $ | 385.8 |
| Net income (controlling interest), as adjusted | | $ | 161.5 | | | $ | 138.6 | |
| Denominator | | | | | | | | Denominator | | | | |
| Average shares outstanding (basic) | 53.9 |
| | 55.8 |
| | 53.9 |
| | 56.3 |
| Average shares outstanding (basic) | | 39.7 | | | 35.9 | |
| Effect of dilutive instruments: | | | | | | | | Effect of dilutive instruments: | | | | |
| Stock options and restricted stock units | 0.5 |
| | 0.3 |
| | 0.5 |
| | 0.3 |
| Stock options and restricted stock units | | 1.2 | | | 2.0 | |
| Hypothetical issuance of shares to settle Redeemable non-controlling interests | | Hypothetical issuance of shares to settle Redeemable non-controlling interests | | 4.0 | | | 0.3 | |
| Junior convertible securities | 2.2 |
| | 2.2 |
| | 2.2 |
| | 2.2 |
| Junior convertible securities | | 2.0 | | | 1.7 | |
| Average shares outstanding (diluted) | 56.6 |
| | 58.3 |
| | 56.6 |
| | 58.8 |
| Average shares outstanding (diluted) | | 46.9 | | | 39.9 | |
Average shares outstanding (diluted) in the table above exclude share awardsexcludes stock options and restricted stock units that have not satisfiedmet certain performance conditions and theinstruments that have an anti-dilutive effect of the following shares:
|
| | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2016 | | 2017 | | 2016 | | 2017 |
| Stock options and restricted stock units | 0.5 |
| | 0.0 |
| | 0.7 |
| | 0.1 |
|
| Shares subject to forward sale agreement | 2.0 |
| | — |
| | 2.0 |
| | — |
|
The Company may settle portions of its Affiliate equity purchases in shares of its common stock. Because it is the Company’s intent to settle these potential purchases in cash, the calculation of diluted earningson Earnings per share excludes any potential dilutive effect(diluted). The following is a summary of items excluded from possible share settlements of Affiliate equity purchases.the denominator in the table above:
In the three and nine months ended September 30, 2017, the Company repurchased 0.4 million and 1.7 million shares, respectively, at an average price per share of $175.68 and $164.00, respectively. | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| | | 2022 | | 2023 |
| Stock options and restricted stock units | | 0.5 | | | 0.4 | |
| Shares issuable to settle Redeemable non-controlling interests | | 3.1 | | | 4.2 | |
| | | | |
17.Comprehensive Income
The following tables showtable presents the tax effects allocated to each component of Other comprehensive income (loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2023 |
| | Pre-Tax | | Tax Expense | | Net of Tax | | Pre-Tax | | Tax Expense | | Net of Tax |
| Foreign currency translation gain (loss) | | $ | (11.3) | | | $ | (0.5) | | | $ | (11.8) | | | $ | 29.5 | | | $ | (2.7) | | | $ | 26.8 | |
| Change in net realized and unrealized gain (loss) on derivative financial instruments | | 0.0 | | | 0.0 | | | 0.0 | | | 0.2 | | | 0.0 | | | 0.2 | |
| Change in net unrealized gain (loss) on available-for-sale debt securities | | — | | | — | | | — | | | 0.5 | | | (0.1) | | | 0.4 | |
| Other comprehensive income (loss) | | $ | (11.3) | | | $ | (0.5) | | | $ | (11.8) | | | $ | 30.2 | | | $ | (2.8) | | | $ | 27.4 | |
The components of accumulated other comprehensive loss, net of taxes, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, |
| | 2016 | | 2017 |
| | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax |
| Foreign currency translation adjustment | $ | (16.8 | ) | | $ | — |
| | $ | (16.8 | ) | | $ | 53.0 |
| | $ | — |
| | $ | 53.0 |
|
| Change in net realized and unrealized gain (loss) on derivative securities | 0.1 |
| | (0.0 | ) | | 0.1 |
| | 0.2 |
| | (0.1 | ) | | 0.1 |
|
| Change in net unrealized gain (loss) on investment securities | 5.8 |
| | (1.8 | ) | | 4.0 |
| | (6.8 | ) | | 2.5 |
| | (4.3 | ) |
| Other comprehensive income (loss) | $ | (10.9 | ) | | $ | (1.8 | ) | | $ | (12.7 | ) | | $ | 46.4 |
| | $ | 2.4 |
| | $ | 48.8 |
|
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign
Currency
Translation
Adjustment | | Realized and
Unrealized Gains (Losses)
on Derivative Financial Instruments | | Unrealized Gains
(Losses) on Investment
Available-
for-Sale
Debt
Securities | | | | Total |
| Balance, as of December 31, 2022 | | $ | (296.4) | | | $ | (0.4) | | | $ | (1.0) | | | | | $ | (297.8) | |
| Other comprehensive income before reclassifications | | 26.8 | | | 0.3 | | | 0.4 | | | | | 27.5 | |
| Amounts reclassified | | — | | | (0.1) | | | — | | | | | (0.1) | |
| Net other comprehensive income | | 26.8 | | | 0.2 | | | 0.4 | | | | | 27.4 | |
| Balance, as of March 31, 2023 | | $ | (269.6) | | | $ | (0.2) | | | $ | (0.6) | | | | | $ | (270.4) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2016 | | 2017 |
| | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax | | Pre-Tax | | Tax Benefit
(Expense) | | Net of Tax |
| Foreign currency translation adjustment | $ | (72.7 | ) | | $ | — |
| | $ | (72.7 | ) | | $ | 92.1 |
| | $ | — |
| | $ | 92.1 |
|
| Change in net realized and unrealized gain (loss) on derivative securities | (0.6 | ) | | (0.1 | ) | | (0.7 | ) | | (0.7 | ) | | (0.1 | ) | | (0.8 | ) |
| Change in net unrealized gain (loss) on investment securities | (34.6 | ) | | 13.8 |
| | (20.8 | ) | | (6.6 | ) | | 3.2 |
| | (3.4 | ) |
| Other comprehensive income (loss) | $ | (107.9 | ) | | $ | 13.7 |
| | $ | (94.2 | ) | | $ | 84.8 |
| | $ | 3.1 |
| | $ | 87.9 |
|
|
| | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Realized and Unrealized Gains (Losses) on Derivative Securities | | Unrealized Gains (Losses) on Investment Securities (1) | | Total |
| Balance, as of December 31, 2016 | $ | (213.9 | ) | | $ | 0.4 |
| | $ | 9.8 |
| | $ | (203.7 | ) |
| Other comprehensive gain (loss) before reclassifications | 92.1 |
| | (0.4 | ) | | 13.8 |
| | 105.5 |
|
| Amounts reclassified | — |
| | (0.4 | ) | | (17.2 | ) | | (17.6 | ) |
| Net other comprehensive gain (loss) | 92.1 |
| | (0.8 | ) | | (3.4 | ) | | 87.9 |
|
| Balance, as of September 30, 2017 | $ | (121.8 | ) | | $ | (0.4 | ) | | $ | 6.4 |
| | $ | (115.8 | ) |
__________________________
| |
(1)
| See Note 3 for amounts reclassified from Other comprehensive income (loss). |
In the first quarter of 2017, the Company’s Chief Operating Decision Maker (the “CODM”) changed the manner in which he assesses the Company’s performance. In 2016, the CODM assessed the performance of the Company in three business segments representing three distribution channels. Given an increase in the number of the Company’s Affiliates accounted for under the equity method of accounting and changes in the way asset management services are delivered, during the first quarter of 2017, the CODM began to assess the performance of the Company as a single global active asset management company. As a result, the CODM now reviews information organized around one operating segment to evaluate and manage the Company’s business operations. Therefore, the Company has determined that it has one reportable segment. In connection with this change, the Company completed impairment assessments based on its former three distribution channels, as well as its single global active asset management reporting unit, and determined that there were no impairments under either approach.
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q, in our other filings with the Securities and Exchange Commission, in our press releases, and in oral statements made with the approval of an executive officer may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, and other non-historical statements, and may be prefaced with words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “preliminary,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “projects,” “positioned,” “prospects,” “intends,” “plans,” “estimates,” “pending investments,” “anticipates”“anticipates,” or the negative version of these words or other comparable words. Such statements are subject to certain risks and uncertainties, including, among others, the factors discussed under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.
2022, and from time to time, as applicable, our Quarterly Reports on Form 10-Q. These factors (among others) could affect our financial condition, business activities, results of operations, cash flows, or overall financial performance and cause actual results and business activities to differ materially from historical earningsperiods and those presently anticipated and projected. Forward-looking statements speak only as of the date they are made, and we will not undertake and we specifically disclaim any obligation to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we caution readers not to place undue reliance on any such forward-looking statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with theour Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
References throughout this report to “AMG,” “we,” “us,” “our,” the “Company” and similar references refer to Affiliated Managers Group, Inc., unless otherwise stated or the context otherwise requires. Executive Overview
We areAMG is a global asset management company with equity investments in leading boutiquepartner to independent investment management firms which we referglobally. Our strategy is to generate long-term value by investing in a diverse array of high-quality independent partner-owned firms, referred to as “Affiliates,” through a proven partnership approach, and allocating resources across our “Affiliates.”unique opportunity set to the areas of highest growth and return. Our innovative partnership approach allowsenables each Affiliate’s management team to own significant equity in their firm while maintaining operational and maintain operationalinvestment autonomy. Our strategy is to generate shareholder value through the growth of existing Affiliates, as well as through investments in new Affiliates and additional investments in existing Affiliates. In addition, we provide centralized assistance tooffer our Affiliates ingrowth capital, distribution, and other strategic matters, marketing, distribution, product developmentvalue-added capabilities, which enhance the long-term growth of these independent businesses, and operations.enable them to align equity incentives across generations of principals to build enduring franchises. As of September 30, 2017,March 31, 2023, our aggregate assets under management were $803.7approximately $668 billion in more than 550 investment products across a broad range of active, return-orienteddifferentiated investment strategies.
We hold meaningful equity interestsOperating Performance Measures
Under accounting principles generally accepted in eachthe U.S. (“GAAP”), we are required to consolidate certain of our Affiliates. In certain cases, we consolidate the Affiliate’s financial results in our Revenue, Operating expensesAffiliates and Non-operating (income) and expenses. In other cases, we use the equity method of accounting and our share of the Affiliate’s financial results is reported (net of intangible amortization) in Income from equity method investments. While we account for a majority of our Affiliates on a consolidated basis of accounting, a growing number of our Affiliates are accounted for on an equity method basis and are integral to our operations. Accordingly, Income from equity method investments is included in Operating income.
others. Whether we account forconsolidate an Affiliate on a consolidated or use the equity method basis of accounting, we generally maintain the same innovative partnership approach and provide support and assistance in substantially the same manner andfor all of our operating model is generally the same.Affiliates. Furthermore, all of our Affiliates are investment managers and are impacted by similar marketplace factors and operational trends, which may not be observable when analyzing the financial results ofindustry trends. Therefore, our consolidated and equity method Affiliates separately. Therefore, we believe ourkey aggregate operating performance measures of assets under management, average assets under management and aggregate revenue, which incorporate the assets under management and revenues of all of our Affiliates, regardless of the accounting treatment, have become increasinglyare important in providing management and investors with a more comprehensive view of the operating performance and material trends across our entire business. Aggregate revenue is calculated by combining the Revenue of our consolidated Affiliates with equity method revenue. We discuss both Revenue at our consolidated Affiliates and equity method revenue in our Results of Operations. Equity method revenue and aggregate revenue are provided in addition to, but not as substitutes for, Revenue at our consolidated Affiliates.
The following table presents our key aggregate operating performance measures:
| | | | | | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended March 31, | | |
| (in billions, except as noted) | | 2022 | | 2023 | | % Change |
| Assets under management | | $ | 776.7 | | | $ | 668.0 | | | (14) | % |
| Average assets under management | | 787.3 | | | 660.4 | | | (16) | % |
| Aggregate fees (in millions) | | 1,330.5 | | | 1,505.1 | | | 13 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended September 30, | | | | As of and for the Nine Months Ended September 30, | | |
| (in billions, except as noted) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
Assets under management(1) | | | | | | | | | | | | |
| Consolidated Affiliate assets under management | | $ | 378.8 |
| | $ | 416.3 |
| | 10 | % | | $ | 378.8 |
| | $ | 416.3 |
| | 10 | % |
| Equity method Affiliate assets under management | | 293.6 |
| | 387.4 |
| | 32 | % | | 293.6 |
| | 387.4 |
| | 32 | % |
| Total | | $ | 672.4 |
| | $ | 803.7 |
| | 20 | % | | $ | 672.4 |
| | $ | 803.7 |
| | 20 | % |
| | | | | | | | | | | | | |
Average assets under management(1) | | | | | | | | | | | | |
| Consolidated Affiliate average assets under management | | $ | 378.0 |
| | $ | 414.5 |
| | 10 | % | | $ | 371.9 |
| | $ | 400.9 |
| | 8 | % |
| Equity method Affiliate average assets under management | | 285.5 |
| | 376.1 |
| | 32 | % | | 273.6 |
| | 365.6 |
| | 34 | % |
| Total | | $ | 663.5 |
| | $ | 790.6 |
| | 19 | % | | $ | 645.5 |
| | $ | 766.5 |
| | 19 | % |
| | | | | | | | | | | | | |
| Revenue (in millions) | | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % |
Equity method revenue (in millions)(2) | | 456.4 |
| | 686.6 |
| | 50 | % | | 1,350.5 |
| | 2,159.8 |
| | 60 | % |
__________________________
| |
(1)
| Assets under management, and therefore average assets under management, include the assets under management of our consolidated and equity method Affiliates. Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate’s financial results in our Consolidated Financial Statements. Average assets under management provides a more meaningful relationship to our financial and operating results as it reflects both the particular billing patterns of Affiliate sponsored products and client accounts and corresponds with the timing of the inclusion of an Affiliate's financial results in our Consolidated Financial Statements. |
| |
(2)
| Equity method revenue consists of asset based revenue and performance fees earned by our equity method Affiliates. |
Assets Under Management
Through our Affiliates, we manage active return-oriented strategies rather than passive or indexing strategies, fixed income or money market products, which typically carry lower fee rates. We continue to see meaningful client demand for active return-oriented strategies, particularly in alternative and multi-asset strategies, reflecting continued investor demand for returns that are less correlated to traditional equity and fixed income markets. Investor demand for passively managed and indexing strategies has continued, particularly for the large cap U.S. equity portion of client portfolios, and we have experienced outflows in U.S. equity strategies consistent with this industry-wide trend. We expect client demand for alternative and multi-asset strategies to continue, and believe the best-performing active equity managers (whether global-, regional- or country-specific) will continue to have significant opportunities to grow from net client cash inflows. We believe we are well positioned to benefit from these trends.
The following charts and tables provide information regarding the composition of and changes in our assets under management on a current basis by active return-oriented strategy and client type:
__________________
| |
(1)
| Alternatives primarily include assets under management in long and short public equity, control equity, managed futures, multi-strategy, and other alternative and hedge fund strategies, as well as energy and infrastructure investments and primary and secondary private equity strategies. Alternative strategies generate earnings from (i) management fees from products subject to lock-ups or similar restrictions, (ii) management fees from products not subject to such restrictions and/or (iii) performance fees and carried interest. |
| |
(2)
| Global equities include emerging markets strategies, which accounted for 10% of our aggregate assets under management as of September 30, 2017. |
By Strategy - Quarter to Date
|
| | | | | | | | | | | | | | | | | | | |
| (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-asset & Other | | Total |
| June 30, 2017 | $ | 296.3 |
| | $ | 267.9 |
| | $ | 110.7 |
| | $ | 97.2 |
| | $ | 772.1 |
|
| Client cash inflows and commitments | 20.7 |
| | 7.3 |
| | 3.8 |
| | 3.9 |
| | 35.7 |
|
| Client cash outflows and realizations | (10.4 | ) | | (11.9 | ) | | (7.0 | ) | | (3.3 | ) | | (32.6 | ) |
| Net client cash flows | 10.3 |
| | (4.6 | ) | | (3.2 | ) | | 0.6 |
| | 3.1 |
|
| Market changes | 5.6 |
| | 13.6 |
| | 4.1 |
| | 0.9 |
| | 24.2 |
|
Foreign exchange(1) | 1.4 |
| | 2.4 |
| | 0.2 |
| | 0.5 |
| | 4.5 |
|
| Other | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) |
| September 30, 2017 | $ | 313.4 |
| | $ | 279.3 |
| | $ | 111.8 |
| | $ | 99.2 |
| | $ | 803.7 |
|
By Client Type - Quarter to Date
|
| | | | | | | | | | | | | | | |
| (in billions) | Institutional | | Retail | | High Net Worth | | Total |
| June 30, 2017 | $ | 457.4 |
| | $ | 207.1 |
| | $ | 107.6 |
| | $ | 772.1 |
|
| Client cash inflows and commitments | 16.3 |
| | 15.5 |
| | 3.9 |
| | 35.7 |
|
| Client cash outflows and realizations | (20.1 | ) | | (9.3 | ) | | (3.2 | ) | | (32.6 | ) |
| Net client cash flows | (3.8 | ) | | 6.2 |
| | 0.7 |
| | 3.1 |
|
| Market changes | 14.8 |
| | 7.0 |
| | 2.4 |
| | 24.2 |
|
Foreign exchange(1) | 2.7 |
| | 1.4 |
| | 0.4 |
| | 4.5 |
|
| Other | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
| September 30, 2017 | $ | 470.9 |
| | $ | 221.7 |
| | $ | 111.1 |
| | $ | 803.7 |
|
By Strategy - Year to Date
|
| | | | | | | | | | | | | | | | | | | |
| (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-asset & Other | | Total |
| December 31, 2016 | $ | 252.4 |
| | $ | 233.9 |
| | $ | 110.1 |
| | $ | 92.3 |
| | $ | 688.7 |
|
| Client cash inflows and commitments | 47.3 |
| | 25.1 |
| | 10.6 |
| | 12.8 |
| | 95.8 |
|
| Client cash outflows and realizations | (27.9 | ) | | (30.6 | ) | | (21.6 | ) | | (12.0 | ) | | (92.1 | ) |
| Net client cash flows | 19.4 |
| | (5.5 | ) | | (11.0 | ) | | 0.8 |
| | 3.7 |
|
| New investments | 30.6 |
| | 1.5 |
| | — |
| | 3.3 |
| | 35.4 |
|
| Market changes | 8.3 |
| | 43.8 |
| | 12.5 |
| | 5.0 |
| | 69.6 |
|
Foreign exchange(1) | 4.0 |
| | 6.0 |
| | 0.3 |
| | 1.4 |
| | 11.7 |
|
| Other | (1.3 | ) | | (0.4 | ) | | (0.1 | ) | | (3.6 | ) | | (5.4 | ) |
| September 30, 2017 | $ | 313.4 |
| | $ | 279.3 |
| | $ | 111.8 |
| | $ | 99.2 |
| | $ | 803.7 |
|
By Client Type - Year to Date
|
| | | | | | | | | | | | | | | |
| (in billions) | Institutional | | Retail | | High Net Worth | | Total |
| December 31, 2016 | $ | 401.2 |
| | $ | 188.3 |
| | $ | 99.2 |
| | $ | 688.7 |
|
| Client cash inflows and commitments | 44.2 |
| | 39.3 |
| | 12.3 |
| | 95.8 |
|
| Client cash outflows and realizations | (50.5 | ) | | (31.4 | ) | | (10.2 | ) | | (92.1 | ) |
| Net client cash flows | (6.3 | ) | | 7.9 |
| | 2.1 |
| | 3.7 |
|
| New Investments | 31.0 |
| | 1.2 |
| | 3.2 |
| | 35.4 |
|
| Market changes | 39.6 |
| | 20.5 |
| | 9.5 |
| | 69.6 |
|
Foreign exchange(1) | 7.0 |
| | 4.0 |
| | 0.7 |
| | 11.7 |
|
| Other | (1.6 | ) | | (0.2 | ) | | (3.6 | ) | | (5.4 | ) |
| September 30, 2017 | $ | 470.9 |
| | $ | 221.7 |
| | $ | 111.1 |
| | $ | 803.7 |
|
_________________________
| |
(1)
| Foreign exchange reflects the impact of translating non-U.S. dollar denominated assets under management into U.S. dollars for reporting purposes. |
In addition to assets under management, we also report average assets under management. Average assets under management provides a more meaningful relationship to our financial and operating results as it reflects both the particular billing patterns of Affiliate sponsored products and client accounts and corresponds with the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements.
Average assets under management increased $127.1 billion or 19%reflects the timing of the inclusion of an Affiliate’s financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management for mutual funds and similar investment products generally represents an average of the three months ended September 30, 2017 compared to the corresponding period in the prior year, due to a 32% increase indaily net assets under management, while for institutional and high net worth clients, average assets under management generally represents an average of the assets at equity method Affiliates and a 10% increase in average assets under management at consolidated Affiliates. Average assets under management increased $121.0 billionthe beginning or 19% inend of each month during the nine months ended September 30, 2017 compared to the corresponding period in the prior year, due to a 34% increase in average assets under management at equity method Affiliates and a 8% increase in average assets under management at consolidated Affiliates.
Aggregate Revenue
Aggregate revenue is calculatedfees consist of the total asset- and performance-based fees earned by combining the Revenueall of our consolidated Affiliates with equity method revenue. Aggregate revenue and equity method revenueAffiliates. For certain of our Affiliates accounted for under the equity method, we report aggregate fees and the Affiliate’s financial results in our Consolidated Financial Statements one quarter in arrears. Aggregate fees are provided in addition to, but not as substitutesa substitute for, RevenueConsolidated revenue or other GAAP performance measures.
Assets Under Management
Our Affiliates provide a diverse range of differentiated return streams through their specialized investment processes. We continue to see demand for alternative strategies, as evidenced by our net inflows in this category for the quarter ended March 31, 2023. At the same time, we experienced outflows in equity strategies particularly in global equities, in line with de-risking trends across the industry. We continue to invest in areas of long-term client demand — including private markets, liquid alternatives, sustainable strategies, wealth management, and Asia — through new and existing Affiliates, to better position AMG to benefit from industry growth trends. We also anticipate that independent investment firms will continue to seek access to an evolving range of partnership solutions, and that we have a significant opportunity to invest in additional high-quality firms across the global investment management industry.
The following charts present information regarding the composition of our assets under management by strategy and client type as of March 31, 2023:
__________________________
(1)Alternatives include private markets strategies, which accounted for 15% of our assets under management as of March 31, 2023.
The following tables present changes in our assets under management by strategy and client type for the three months ended March 31, 2023:
By Strategy - Quarter to Date
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in billions) | Alternatives | | Global Equities | | U.S. Equities | | Multi-Asset & Fixed Income | | Total |
| December 31, 2022 | $ | 220.9 | | | $ | 186.1 | | | $ | 133.3 | | | $ | 110.5 | | | $ | 650.8 | |
| Client cash inflows and commitments | 10.1 | | | 4.8 | | | 5.0 | | | 5.0 | | | 24.9 | |
| Client cash outflows | (6.3) | | | (9.9) | | | (7.3) | | | (4.6) | | | (28.1) | |
| Net client cash flows | 3.8 | | | (5.1) | | | (2.3) | | | 0.4 | | | (3.2) | |
| | | | | | | | | |
| Market changes | (0.0) | | 10.8 | | | 5.8 | | | 3.6 | | | 20.2 | |
Foreign exchange(1) | 0.7 | | | 0.8 | | | 0.2 | | | 0.0 | | | 1.7 | |
| Realizations and distributions (net) | (1.4) | | | (0.0) | | (0.0) | | (0.1) | | | (1.5) | |
Other(2) | (0.3) | | | 0.0 | | | 0.0 | | | 0.3 | | | (0.0) |
| March 31, 2023 | $ | 223.7 | | | $ | 192.6 | | | $ | 137.0 | | | $ | 114.7 | | | $ | 668.0 | |
By Client Type - Quarter to Date
| | | | | | | | | | | | | | | | | | | | | | | |
| (in billions) | Institutional | | Retail | | High Net Worth | | Total |
| December 31, 2022 | $ | 333.5 | | | $ | 188.9 | | | $ | 128.4 | | | $ | 650.8 | |
| Client cash inflows and commitments | 9.4 | | | 10.2 | | | 5.3 | | | 24.9 | |
| Client cash outflows | (11.6) | | | (11.6) | | | (4.9) | | | (28.1) | |
| Net client cash flows | (2.2) | | | (1.4) | | | 0.4 | | | (3.2) | |
| | | | | | | |
| Market changes | 7.4 | | | 8.1 | | | 4.7 | | | 20.2 | |
Foreign exchange(1) | 0.9 | | | 0.7 | | | 0.1 | | | 1.7 | |
| Realizations and distributions (net) | (1.4) | | | (0.1) | | | (0.0) | | (1.5) | |
Other(2) | (0.3) | | | 0.4 | | | (0.1) | | | (0.0) |
| March 31, 2023 | $ | 337.9 | | | $ | 196.6 | | | $ | 133.5 | | | $ | 668.0 | |
__________________________
(1)Foreign exchange reflects the impact of translating into U.S. dollars the assets under management of our Affiliates whose functional currency is not the U.S. dollar.
(2)Other includes assets under management attributable to product transitions and reclassifications.
The following tables present performance of our investment strategies, where available, measured by the percentage of assets under management ahead of their relevant benchmark:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | AUM Weight | | % of AUM Ahead of Benchmark(1) |
| | | | 3-year | | 5-year | | 10-year |
Liquid alternatives(2) | | 18 | % | | 96 | % | | 71 | % | | 83 | % |
Global equity(2) | | 29 | % | | 56 | % | | 36 | % | | 80 | % |
U.S. equity(2) | | 21 | % | | 82 | % | | 75 | % | | 82 | % |
Multi-asset and fixed income(3) | | 17 | % | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | |
| | AUM Weight | | % of AUM Ahead of Benchmark(1) |
| | | | IRR Latest Vintage | | IRR Last Three Vintages |
Private markets(4) | | 15 | % | | 84 | % | | 86 | % |
__________________________(1)Past performance is not indicative of future results. Performance and AUM information is as of March 31, 2023 and is based on data available at the time of calculation. Product returns are sourced from Affiliates while benchmark returns are generally sourced via third-party subscriptions.
(2)For liquid alternative, global equity, and U.S. equity products, performance is reported as the percentage of assets that have outperformed benchmarks across the indicated periods, and excludes market-hedging products. For purposes of investment performance comparisons, products are an aggregation of portfolios (separate accounts, investment funds, and other
products) that each represent a particular investment objective, using the most representative portfolio for the performance comparison. Performance is presented for products with a three-, five-, and/or ten-year track record and is measured on a consistent basis relative to the most appropriate benchmarks. Benchmark appropriateness is generally reviewed annually to reflect any changes in how underlying portfolios/mandates are managed. Product and benchmark performance is reflected as total return and is annualized. Reported product performance is gross-of-fees for institutional and high-net-worth separate accounts, and generally net-of-fees across retail funds and other commingled vehicles such as hedge funds.
(3)Multi-asset and fixed income products are mainly our wealth management and solutions offerings. These investment products are primarily customized toward wealth preservation, estate planning, and liability and tax management, and therefore are typically not measured against a benchmark.
(4)For private markets products, performance is reported as the percentage of assets that have outperformed benchmarks on a since-inception internal rate of return basis. Benchmarks utilized include a combination of public market equivalents, peer medians, and absolute returns where benchmarks are not available. For purposes of investment performance comparisons, the latest vintage comparison includes the most recent vehicles and strategies (traditional long-duration investment funds, customized vehicles, and other evergreen vehicles and product structures) where meaningful performance is available and calculable. In order to illustrate the performance of our private markets product category over a longer period of history, the last three vintages comparison incorporates the latest vintage vehicles and the prior two vintages for traditional long-duration investment funds, as well as additional vehicles and strategies launched during the equivalent time period as the last three vintages of traditional long duration investment funds. Due to the nature of these investments and vehicles, reported performance is typically on a three- to six-month lag basis.
Aggregate Fees
Aggregate fees consist of asset- and performance-based fees of our consolidated and equity method Affiliates. We derive our aggregate revenue primarily from asset based revenue and performanceAsset-based fees from investment management services. Asset based revenue includesinclude advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client’s assets under management. Performancemanagement, generally inclusive of uncalled commitments. Asset-based fees are billedgenerally impacted by the level of average assets under management and the composition of these assets across our strategies with different asset-based fee ratios. Our asset-based fee ratio is calculated as asset-based fees divided by average assets under management.
In some cases, if product returns exceed certain performance thresholds, we will participate in performance-based fees. Performance-based fees are based uponon investment performance, typically on an absolute basis or relative to a benchmark.benchmark or a hurdle rate, and are generally recognized when it is improbable that there will be a significant reversal in the amount of revenue recognized. Performance-based fees are generally billed less frequently than asset-based fees and will vary from period to period because they inherently depend on investment performance. As of March 31, 2023, approximately 26% of our total assets under management could potentially earn performance-based fees. These percentages were approximately 12% and 47% of our assets under management for our consolidated Affiliates and Affiliates accounted for under the equity method, respectively. We anticipate performance-based fees will be a recurring component of our aggregate fees; however, we do not anticipate these fees to be a significant component of our Consolidated revenue as these fees are predominantly earned by our Affiliates accounted for under the equity method.
Our ratioAggregate fees were $1,505.1 million for the three months ended March 31, 2023, an increase of asset based revenue$174.6 million or 13% as compared to the three months ended March 31, 2022. The increase in our aggregate fees was principally due to a $362.5 million or 27% increase from performance-based fees, primarily in our liquid alternative strategies, offset by a $187.9 million or 14% decrease in asset-based fees. The decrease in asset-based fees was principally due to a decrease in our average assets under management, (“asset based revenue ratio”), eitherprimarily in our U.S. and global equity strategies, and the aggregate or separately for consolidated Affiliates or equity method Affiliates, is calculated as asset based revenue divided by average assets under management for the respective Affiliates. Our asset based revenue ratios may change as a result of new investments, client cash flows, market changes, foreign exchange or changes in contractual fees.
The following table presents the Revenue of our consolidated Affiliates and equity method revenue, and when combined, aggregate revenue:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| (in millions) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
| Revenue | | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % |
| Equity method revenue | | 456.4 |
| | 686.6 |
| | 50 | % | | 1,350.5 |
| | 2,159.8 |
| | 60 | % |
Aggregate revenue increased 27% in the three months ended September 30, 2017. This increase was due to a $230.2 million or 50% increase in equity method revenue and a $41.0 million or 8% increase in Revenue at our consolidated Affiliates. The increase in equity method revenue was due to an increase of $166.8 million or 36% from asset based revenue and an
increase of $63.4 million or 14% from performance fees. The increase in Revenue at our consolidated Affiliates was due to an increase of $38.2 million or 7% from asset based revenue and a $2.8 million or 1% increase from performance fees.
Aggregate revenue increased 29% in the nine months ended September 30, 2017, due to an increase in equity method revenue of $809.3 million or 60% and a $56.7 million or 3% increase in Revenue at our consolidated Affiliates. The increase in equity method revenue was due to an increase of $532.9 million or 40% from asset based revenue and an increase of $276.4 million or 20% from performance fees. The increase in Revenue at our consolidated Affiliates was due to a $70.1 million or 4% increase from asset based revenue, partially offset by a $13.4 million or 1% decrease from performance fees.
See Results of Operations for a further discussionimpact of the changesBPEA Transaction (as defined in Revenue at our consolidated Affiliates and equity method revenue.“Supplemental Financial Performance Measures”).
Financial and Supplemental Financial Performance Measures
The following table presents our key financial and supplemental financial performance measures:
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| (in millions) | | 2022 | | 2023 | | % Change |
| Net income (controlling interest) | | $ | 146.0 | | | $ | 134.5 | | | (8) | % |
Adjusted EBITDA (controlling interest)(1) | | 240.0 | | | 216.8 | | | (10) | % |
Economic net income (controlling interest)(1) | | 178.5 | | | 158.1 | | | (11) | % |
__________________________
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| (in millions) | | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
| Net income (controlling interest) | | $ | 110.2 |
| | $ | 125.4 |
| | 14 | % | | $ | 322.5 |
| | $ | 374.2 |
| | 16 | % |
Adjusted EBITDA (controlling interest)(1) | | 219.8 |
| | 256.3 |
| | 17 | % | | 655.8 |
| | 754.8 |
| | 15 | % |
Economic net income (controlling interest)(1) | | 165.5 |
| | 191.3 |
| | 16 | % | | 492.3 |
| | 563.2 |
| | 14 | % |
__________________________
| |
(1)
| Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in “Supplemental Financial Performance Measures.” |
We believe Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for our management and investors. Adjusted EBITDA (controlling interest)as it provides a comprehensive view of our share of the financial performance of our entire business before interest, taxes, depreciation, amortization, impairments and adjustments to our contingent payment obligations. Conversely, our GAAP financial performance measures, Operating income and Income before income taxes, include the non-controlling interest’s share of financial performance.
Our ownership level of consolidated Affiliates is higher than our ownership level of our equity method Affiliates and, as a result, we experience a greater proportion of an increasebusiness. While aggregate fees increased $174.6 million or decrease in Revenue from our consolidated Affiliates than an increase or decrease in our equity method revenue. While our equity method revenue increased 50%13% in the three months ended September 30, 2017,March 31, 2023, our Revenue from consolidated Affiliates increased 8%, resulting in a $36.5Adjusted EBITDA (controlling interest) decreased $23.2 million or 17%10%, primarily due to the recognition of performance fees at Affiliates in which we hold less of an economic interest.
For the three months ended March 31, 2023, our Net income (controlling interest) decreased $11.5 million or 8%. The decrease in Net income (controlling interest) was primarily due to an $89.9 million or 15% decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the controlling interest, primarily related to the increase in the values of contingent payment and Affiliate equity purchase obligations. The impact of these items was partially offset by a $10.0 million increase in Equity method income (net) and an $8.0 million decrease in Income tax expense attributable to the controlling interest.
We believe Economic net income (controlling interest) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to the acquisition of interests in Affiliates and improves comparability of performance between periods. For the three months ended March 31, 2023, our Economic net income (controlling interest) decreased $20.4 million or 11%, primarily due to a $23.2 million decrease in Adjusted EBITDA (controlling interest). In, partially offset by an $8.0 million decrease in Income tax expense attributable to the nine months ended September 30, 2017, our equity method revenue increased 60%, while our Revenue from consolidated Affiliates increased 3%, resulting in a $99.0 million or 15% increase in Adjusted EBITDA (controlling interest).controlling interest.
Our Net income (controlling interest) increased $15.2 million or 14% and $51.7 million or 16% in the three and nine months ended September 30, 2017, respectively, which was consistent with the 17% and 15% increases in Adjusted EBITDA (controlling interest) during the respective periods.
We consider Economic net income (controlling interest) to be an important measure of our financial performance, as we believe it best represents our performance after tax and before our share of non-cash expenses relating to our acquisition of interests in our Affiliates. Our Economic net income (controlling interest) increased $25.8 million or 16% and $70.9 million or 14% in the three and nine months ended September 30, 2017, respectively, which was consistent with the 17% and 15% increases in Adjusted EBITDA (controlling interest) during the respective periods.
Results of Operations
The following discussion includes the key operating performance measures and financial results of our consolidated and equity method Affiliates. Our consolidated Affiliates’ financial results are included in our Revenue, OperatingConsolidated revenue, Consolidated expenses, and Non-operating (income)Investment and expenses,other income, and our share of our equity method Affiliates’ financial results is reported, (netnet of intangible amortization)amortization and impairments, in Income from equityEquity method investments in Operating income.income (net).
Consolidated Revenue
The following table summarizespresents our consolidated Affiliate average assets under management and Revenue:Consolidated revenue:
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| (in millions, except as noted) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
| Consolidated Affiliates average assets under management (in billions) | $ | 378.0 |
| | $ | 414.5 |
| | 10 | % | | $ | 371.9 |
| | $ | 400.9 |
| | 8 | % |
| Revenue | $ | 544.7 |
| | $ | 585.7 |
| | 8 | % | | $ | 1,644.2 |
| | $ | 1,700.9 |
| | 3 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| (in millions, expect as noted) | | 2022 | | 2023 | | % Change |
| Consolidated Affiliate average assets under management (in billions) | | $ | 474.2 | | | $ | 399.0 | | | (16) | % |
| Consolidated revenue | | $ | 607.3 | | | $ | 517.4 | | | (15) | % |
Our Revenue increased $41.0Consolidated revenue decreased $89.9 million or 8% in15% for the three months ended September 30, 2017,March 31, 2023, primarily due to a $38.2$90.7 million or 7% increase from asset based revenue, and a $2.8 million or 1% increase from performance15% decrease in asset-based fees. The changedecrease in asset based revenueasset-based fees was due to a 10% increase in average assets under management, partially offset by a 2% decline in our asset based revenue ratio. The decline in our asset based revenue ratio was primarily due to changes in the composition of our average assets under management.
Our Revenue increased $56.7 million or 3% in the nine months ended September 30, 2017, due to a $70.1 million or 4% increase from asset based revenue, partially offset by a $13.4 million or 1% decrease from performance fees. The change in asset based revenue was due to an 8% increase in average assets under management and a 3% decline in our asset based revenue ratio. The decline in our asset based revenue ratio wasprincipally due to a decrease in asset based revenue related to renewal commissions at one of our Affiliates in the United Kingdom as a result of a regulatory change which was offset by a reduction in distribution expenses at theconsolidated Affiliate which were reported in Selling, general and administrative expenses. The decline in our asset based revenue ratio was also due to changes in the composition of our average assets under management.management primarily in our U.S. and global equity strategies.
OperatingConsolidated Expenses
The following table summarizes our consolidated operating expenses:
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| | % Change | | % Change |
| (in millions) | 2016 | | 2017 | | | 2016 | | 2017 | |
| Compensation and related expenses | $ | 244.2 |
| | $ | 238.7 |
| | (2 | )% | | $ | 702.9 |
| | $ | 722.9 |
| | 3% |
| Selling, general and administrative | 94.2 |
| | 91.9 |
| | (2 | )% | | 286.7 |
| | 269.7 |
| | (6)% |
| Intangible amortization and impairments | 26.9 |
| | 21.2 |
| | (21 | )% | | 82.2 |
| | 65.1 |
| | (21)% |
| Depreciation and other amortization | 5.0 |
| | 4.8 |
| | (4 | )% | | 15.0 |
| | 14.9 |
| | (1)% |
| Other operating expenses (net) | 3.4 |
| | 10.3 |
| | N.M.(1) |
| | 25.9 |
| | 32.0 |
| | 24% |
| Total operating expenses | $ | 373.7 |
| | $ | 366.9 |
| | (2 | )% | | $ | 1,112.7 |
| | $ | 1,104.6 |
| | (1)% |
___________________________ | |
(1)
| Percentage change is not meaningful. |
Our operatingConsolidated expenses are primarily attributable to the non-controlling interests because the substantial majority of these expenses are incurred byour consolidated Affiliates with which we share in revenue without regard to expenses. For these Affiliates, the amountAffiliates.
The following table presents our Consolidated expenses:
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| | | % Change |
| (in millions) | | 2022 | | 2023 | |
| Compensation and related expenses | | $ | 255.0 | | | $ | 222.3 | | | (13) | % |
| Selling, general and administrative | | 89.4 | | | 97.1 | | | 9 | % |
| Intangible amortization and impairments | | 12.6 | | | 12.5 | | | (1) | % |
| Interest expense | | 29.1 | | | 30.5 | | | 5 | % |
| Depreciation and other amortization | | 3.4 | | | 3.7 | | | 9 | % |
| Other expenses (net) | | 5.6 | | | 14.4 | | | N.M.(1) |
| Total consolidated expenses | | $ | 395.1 | | | $ | 380.5 | | | (4) | % |
__________________________
(1)Percentage change is generally determined by the percentage of revenue allocated to operating expenses as part of the structured partnership interests in place at the respective Affiliate. Accordingly, our operating expenses are impacted by increases or decreases in a consolidated Affiliate’s revenue and corresponding increases or decreases in a consolidated Affiliate’s operating expenses.not meaningful.
Compensation and related expenses decreased $5.5$32.7 million or 2% in13% for the three months ended September 30, 2017,March 31, 2023, primarily due to a $11.9$27.1 million or 5% decrease fromin compensation expenses associated withcorrelated to the decrease in Consolidated revenue and a $5.6 million decrease in Affiliate equity transactions, partially offset by an $8.0 million or 3% increase from compensation expenses at Affiliates. These changes primarily relate to the non-controlling interests.expense.
Compensation and related expenses increased $20.0 million or 3% in the nine months ended September 30, 2017, primarily due to a $17.0 million or 2% increase from compensation expenses at Affiliates and a $3.6 million or 1% increase from compensation expenses associated with Affiliate equity transactions. These changes primarily relate to the non-controlling interests.
There was no significant change in Selling, general and administrative expenses inincreased $7.7 million or 9% for the three months ended September 30, 2017. Selling, general and administrative expenses decreased $17.0 million or 6% in the nine months ended September 30, 2017,March 31, 2023, primarily due to a $8.8$7.0 million or 3% decrease from a reductionincrease in distribution expenses, related to commissions at certain of our Affiliatesprofessional fees.
There were no significant changes in the United Kingdom and a $5.8 million or 2% decrease from a reduction of expenses in wealth management initiatives.
Intangible amortization and impairments decreased $5.7 million or 21% infor the three months ended September 30, 2017,March 31, 2023.
Interest expense increased $1.4 million or 5% for the three months ended March 31, 2023, primarily due to a $3.3$3.9 million or 12%increase resulting from higher interest rates on our senior unsecured term loan facility (the “term loan”). This increase was partially offset by a $2.6 million decrease resulting from a changerepurchases of our junior convertible securities in the patternfirst quarter of economic benefit for certain assets and a $2.4 million or 9% decrease from certain assets being fully amortized.
Intangible amortization and impairments decreased $17.1 million or 21% in the nine months ended September 30, 2017, due to a $11.6 million or 14% decrease from a change in the pattern of economic benefit for certain assets and a $5.5 million or 7% decrease from certain assets being fully amortized.2022.
There were no significant changes in Depreciation and other amortization in the three and nine months ended September 30, 2017.
Other operating expenses (net) increased $6.9 million infor the three months ended September 30, 2017, primarily from decreases in net gains on Affiliate sponsored consolidated investment products of $6.2 million. This change primarily relates to the non-controlling interests.March 31, 2023.
Other operating expenses (net) increased $6.1$8.8 million or 24%for the three months ended March 31, 2023, primarily due to an $11.0 million increase in expenses related to the increase in the nine months ended September 30, 2017, primarily from decreases in net gains onvalues of contingent payment obligations and Affiliate sponsored consolidated investment products of $4.8 million or 19%. This change primarily relates to the non-controlling interests.equity purchase obligations.
Income from Equity Method InvestmentsIncome (Net)
For our Affiliates accounted for under the equity method, Affiliates, ourwe use structured partnership interests in which we contractually share of an Affiliate’s earnings or losses is contractually calculated using a formula, which is based either on a fixed percentage of suchin the Affiliate’s revenue without regard to expenses or by reference to such Affiliate’s revenue less certain agreed-upon expenses. Our share of an equity method Affiliate’s earnings or losses is reported (net of intangible amortization attributable to our investment in an Affiliate) in Income from Affiliates accounted for under the equity method, investmentsnet of amortization and impairments, is included in Operating income.
Additional investments in existing or new Affiliates will generally impact our financial results in the year of investment and, depending upon the timing, in the following year when the full-year financial results of the Affiliate investment are reflected in our Consolidated Financial Statements.Equity method income (net).
The following table summarizes equity method earnings and equity method intangible amortization, which together comprise Income from equity method investments, as well aspresents equity method Affiliate average assets under management and equity method revenue.revenue, as well as equity method earnings, equity method intangible amortization, and equity method intangible impairments, if any, which in aggregate form Equity method revenue is provided in addition to, but not as a substitute for, Revenue at our consolidated Affiliates.income (net):
| | | | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | | | | For the Three Months Ended March 31, | | |
| (in millions, except as noted) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change | (in millions, except as noted) | | 2022 | | 2023 | | % Change |
| Operating Performance Measures | | Operating Performance Measures | | | | | | |
| Equity method Affiliate average assets under management (in billions) | | Equity method Affiliate average assets under management (in billions) | | $ | 313.1 | | | $ | 261.4 | | | (17) | % |
| Equity method revenue | | Equity method revenue | | $ | 723.2 | | | $ | 987.7 | | | 37 | % |
| | Financial Performance Measures | | Financial Performance Measures | |
| Equity method earnings | $ | 81.5 |
| | $ | 96.6 |
| | 19 | % | | $ | 243.7 |
| | $ | 303.3 |
| | 24 | % | Equity method earnings | | $ | 71.9 | | | $ | 79.5 | | | 11 | % |
| Equity method intangible amortization | (14.0 | ) | | (25.9 | ) | | 85 | % | | (43.0 | ) | | (71.7 | ) | | 67 | % | Equity method intangible amortization | | (23.3) | | | (20.9) | | | (10) | % |
| Income from equity method investments | $ | 67.5 |
| | $ | 70.7 |
| | 5 | % | | $ | 200.7 |
| | $ | 231.6 |
| | 15 | % | |
| | | | | | | | | | | | | |
| Operating Measures | | | | | | | | | | | | |
| Equity method Affiliates average assets under management (in billions) | $ | 285.5 |
| | $ | 376.1 |
| | 32 | % | | $ | 273.6 |
| | $ | 365.6 |
| | 34 | % | |
| Equity method revenue | $ | 456.4 |
| | $ | 686.6 |
| | 50 | % | | $ | 1,350.5 |
| | $ | 2,159.8 |
| | 60 | % | |
| Equity method income (net) | | Equity method income (net) | | $ | 48.6 | | | $ | 58.6 | | | 21 | % |
Our equity method revenue increased $230.2$264.5 million or 50% in37% for the three months ended September 30 2017,March 31, 2023, principally due to a $166.8$361.7 million or 36% increase from asset based revenue and a $63.4 million or 14% increase from performance fees. The50% increase in asset based revenue was due to increases of $125.4 million or 27% fromperformance-based fees, primarily in our 2016 investments in new Affiliates and $41.4 million or 9% from existing Affiliates. The increase in performance fees was due toliquid alternative strategies, offset by a $57.8$97.2 million or 13% increase from existing Affiliates and a $5.6 million or 1% increase from our 2016 investmentsdecrease in new Affiliates.asset-based fees. The decrease in asset-based fees was primarily due to the impact of the BPEA Transaction.
While equity method revenue increased 50% inFor the three months ended September 30, 2017,March 31, 2023, equity method earnings increased $15.1$7.6 million or 19%11%,primarily due to our 2016 investmentsa $264.5 million or 37% increase in newequity method revenue. Equity method earnings increased less than equity method revenue on a percentage basis, primarily due to the increase in performance-based fees at Affiliates in which we ownhold less of the equity interests than in our existing equity method Affiliates.an economic interest.
Equity method intangible amortization increased $11.9decreased $2.4 million or 85% in10% for the three months ended September 30, 2017, due to our 2016 investments in new Affiliates.
Our equity method revenue increased $809.3 million or 60% in the nine months ended September 30, 2017,March 31, 2023, primarily due to a $532.9$2.7 million or 40% increase from asset based revenuedecrease in amortization expense related to certain definite-lived assets being fully amortized and a $276.4$1.3 million or 20% increase from performance fees. The increase in asset based revenue was due to increases of $395.4 million or 29% from our 2016 investments in new Affiliates and $137.5 million or 10% from existing Affiliates. The increase in performance fees wasdecrease due to a $238.2decline in actual and expected client attrition for certain definite-lived acquired client relationships. These decreases were partially offset by a $1.6 million or 18% increase from performance fees from our 2016 investments in new Affiliates and a $38.1 million or 3% increase from existing Affiliates.
While equity method revenue increased 60% in the nine months ended September 30, 2017, equity method earnings increased $59.6 million or 24%, primarilyamortization expense due to our 2016 investmentsan investment in a new Affiliates, in which we own lessAffiliate.
Equity method intangible amortization increased $28.7 million or 67% in the nine months ended September 30, 2017, due to a $22.9 million or 53% increase from our 2016 investments in new AffiliatesInvestment and a $5.8 million or 14% increase from a change in the pattern of economic benefit related to assets at certain existing Affiliates.
Non-Operating (Income) and ExpensesOther Income
The following table summarizes non-operating income and expense data:
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| (in millions) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
| Investment and other income | $ | (11.0 | ) | | $ | (15.6 | ) | | 42 | % | | $ | (26.7 | ) | | $ | (44.7 | ) | | 67 | % |
| Interest expense | 22.4 |
| | 21.5 |
| | (4 | )% | | 66.4 |
| | 65.8 |
| | (1 | )% |
| Imputed interest expense and contingent payment arrangements | 0.9 |
| | 0.7 |
| | (22 | )% | | (0.2 | ) | | 3.7 |
| | N.M.(1) |
|
| Income taxes | 50.3 |
| | 66.1 |
| | 31 | % | | 159.7 |
| | 188.2 |
| | 18 | % |
___________________________
| |
(1)
| Percentage change is not meaningful. |
presents our Investment and other income increased $4.6 million or 42% in the three months ended September 30, 2017, primarily due to a $2.9 million or 26% increase from changes in the fair value of investments and a $1.4 million or 13% increase from realized gains on the sale of investment securities.income:
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| (in millions) | | 2022 | | 2023 | | % Change |
| Investment and other income | | $ | 13.6 | | | $ | 38.0 | | | N.M.(1) |
__________________________(1)Percentage change is not meaningful.
Investment and other income increased $18.0$24.4 million or 67% infor the ninethree months ended September 30, 2017,March 31, 2023, primarily due to a $14.2$31.4 million or 53% increase from changes in the fair value of investmentsnet realized and a $5.7 million or 21% increase from realizedunrealized gains on the sale of investmentInvestments in marketable securities, partially offset by a $1.7$9.8 million decrease in net realized and unrealized gains on Other investments.
Income Tax Expense
The following table presents our Income tax expense:
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| (in millions) | | 2022 | | 2023 | | % Change |
| Income tax expense | | $ | 55.7 | | | $ | 45.0 | | | (19) | % |
Income tax expense decreased $10.7 million or 6% decrease from lower dividend income.
There were no significant changes in Interest expense in the three and nine months ended September 30, 2017.
There was no significant change in Imputed interest expense and contingent payment arrangements in19% for the three months ended September 30, 2017. Imputed interest and contingent payment arrangements increased $3.9 million in the nine months ended September 30, 2017,March 31, 2023, primarily due to a $2.8$4.7 million gain ondecrease in taxes resulting from the revaluation of a contingent payment arrangement$19.5 million decrease in the nine months ended September 30, 2016, which did not recur, and a $1.4 million expense on the revaluation of a contingent payment arrangement in the nine months ended September 30, 2017.
Income taxes increased $15.8 million or 31% and $28.5 million or 18% in the three and nine months ended September 30, 2017, respectively, primarily due to an increase in Incomeincome before income taxes attributable to the controlling interest, partially offset by stocka $2.7 million increase in tax windfalls related to share-based compensation, and a $2.7 million decrease in income tax benefits. Inattributable to the non-controlling interest.
Net Income
The following table presents Net income, Net income (non-controlling interests), and Net income (controlling interest):
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| (in millions) | | 2022 | | 2023 | | % Change |
| | | | | | |
| Net income | | $ | 218.7 | | | $ | 188.5 | | | (14) | % |
| Net income (non-controlling interests) | | 72.7 | | | 54.0 | | | (26) | % |
| Net income (controlling interest) | | 146.0 | | | 134.5 | | | (8) | % |
Net income (controlling interest) decreased $11.5 million or 8% for the three months ended September 30, 2016, we also recognized a benefitMarch 31, 2023, primarily due to a decrease in Consolidated revenue and an increase in Other expenses (net) attributable to the reductioncontrolling interest. These changes were partially offset by an increase in corporateEquity method income (net) and a decrease in Income tax rates inexpense attributable to the United Kingdom, which did not recur in 2017.controlling interest.
Net Income
The previously discussed changes in Revenue, expenses and Income from equity method investments had the following effect on Net income:
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | | | For the Nine Months Ended September 30, | | |
| (in millions) | 2016 | | 2017 | | % Change | | 2016 | | 2017 | | % Change |
| Net income | $ | 175.9 |
| | $ | 216.8 |
| | 23 | % | | $ | 533.0 |
| | $ | 614.9 |
| | 15 | % |
| Net income (non-controlling interests) | 65.7 |
| | 91.4 |
| | 39 | % | | 210.5 |
| | 240.7 |
| | 14 | % |
| Net income (controlling interest) | 110.2 |
| | 125.4 |
| | 14 | % | | 322.5 |
| | 374.2 |
| | 16 | % |
Supplemental Financial Performance Measures
Adjusted EBITDA (controlling interest)
As supplemental information, we provide a non-GAAP measure that we refer to asperformance measures of Adjusted EBITDA (controlling interest)., Economic net income (controlling interest), and Economic earnings per share. Management utilizes these non-GAAP performance measures to assess our performance before our share of certain non-cash expenses and to improve comparability between periods. In the first quarter of 2023, we updated the definitions of Adjusted EBITDA (controlling interest) representsand Economic net income (controlling interest) to reflect AMG's strategic evolution, including our increased allocation of capital toward private markets and liquid alternatives. To align with the economic impact of these capital allocation decisions, the updated definitions of Adjusted EBITDA (controlling interest) and Economic net income (controlling interest): i) include only the realized economic gains and losses on seed capital, general partner commitments, and other strategic investments and ii) exclude any unrealized gains and losses on strategic investments (consistent with the existing treatment of seed capital and general partner commitments). We have retroactively applied this definition change to prior periods. The table below shows the impact on the years ended December 31, 2020, 2021, and 2022, as well as the three months ended March 31, 2022. Periods prior to 2020 were also affected by this definition change, none of which were material in any calendar year.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Three Months Ended March 31, |
| (in millions) | | 2020 | | 2021 | | 2022 | | 2022 |
Adjusted EBITDA (controlling interest) - As reported(1) | | $ | 795.3 | | | $ | 1,045.6 | | | $ | 1,053.8 | | | $ | 240.0 | |
| Adjusted EBITDA (controlling interest) - Prior definition | | 798.8 | | | 1,058.6 | | | 1,060.3 | | | 255.3 | |
| Change (attributable to other items) | | $ | (3.5) | | | $ | (13.0) | | | $ | (6.5) | | | $ | (15.3) | |
| % Change | | (0.4) | % | | (1.2) | % | | (0.6) | % | | (6.0) | % |
| | | | | | | | |
| | | | | | | | |
Economic net income (controlling interest) - As reported(1) | | $ | 621.7 | | | $ | 770.0 | | | $ | 797.2 | | | $ | 178.5 | |
| Economic net income (controlling interest) - Prior definition | | 624.4 | | | 779.8 | | | 802.1 | | | 190.0 | |
| Change (attributable to other economic items) | | $ | (2.7) | | | $ | (9.8) | | | $ | (4.9) | | | $ | (11.5) | |
| % Change | | (0.4) | % | | (1.3) | % | | (0.6) | % | | (6.1) | % |
| | | | | | | | |
| | | | | | | | |
Economic earnings per share - As reported(1) | | $ | 13.30 | | | $ | 18.05 | | | $ | 20.02 | | | $ | 4.36 | |
| Economic earnings per share - Prior definition | | 13.36 | | | 18.28 | | | 20.14 | | | 4.65 | |
| Change (attributable to other economic items) | | $ | (0.06) | | | $ | (0.23) | | | $ | (0.12) | | | $ | (0.29) | |
| % Change | | (0.4) | % | | (1.3) | % | | (0.6) | % | | (6.2) | % |
__________________________(1) For reconciliations of Net income (controlling interest) to Adjusted EBITDA (controlling interest), Economic net income (controlling interest), and Economic earnings per share under the prior definitions for the each of the years ended December 31, 2020, 2021, and 2022, please see our Annual Reports on Form 10-K for each such fiscal year as filed with the SEC (the “Prior Reconciliations”). The as reported figures above for such periods under the updated definitions can be reconciled to GAAP by applying the amounts of the respective changes reflected above to (i) other items under the applicable Prior Reconciliations for Adjusted EBITDA (controlling interest) and (ii) other economic items under the applicable Prior Reconciliations for Economic net income (controlling interest) and Economic earnings per share.
Adjusted EBITDA (controlling interest)
Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of the financial performance of our business before our share of interest expense, income and certain non-income based taxes, depreciation, amortization, impairments, gains and adjustmentslosses related to the BPEA Transaction, and non-cash items such as certain Affiliate equity activity, gains and losses on our contingent payment obligations.obligations, and unrealized gains and losses on seed capital, general partner commitments, and other strategic investments. Adjusted EBITDA (controlling interest) is also adjusted for realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments. We believe that many investors use this informationnon-GAAP measure when assessing the financial performance of companies in the investment management industry. This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net income (controlling interest) or any other GAAP measures of financial performance.performance measures.
The following table providespresents a reconciliation of Net income (controlling interest) to Adjusted EBITDA (controlling interest):
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| (in millions) | | 2022 | | 2023 |
| Net income (controlling interest) | | $ | 146.0 | | | $ | 134.5 | |
| Interest expense | | 29.1 | | | 30.5 | |
| Income taxes | | 50.5 | | | 42.5 | |
Intangible amortization and impairments(1) | | 31.9 | | | 29.4 | |
BPEA Transaction(2) | | — | | | (21.6) | |
Other Items(3) | | (17.5) | | | 1.5 | |
| Adjusted EBITDA (controlling interest) | | $ | 240.0 | | | $ | 216.8 | |
__________________________ |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| (in millions) | 2016 | | 2017 | | 2016 | | 2017 |
| Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
|
| Interest expense | 22.4 |
| | 21.5 |
| | 66.4 |
| | 65.8 |
|
Imputed interest expense and contingent payment arrangements(1) | 0.9 |
| | 0.7 |
| | (0.2 | ) | | 3.7 |
|
| Income taxes | 50.1 |
| | 64.1 |
| | 155.6 |
| | 182.5 |
|
| Depreciation and other amortization | 2.0 |
| | 2.4 |
| | 5.9 |
| | 7.1 |
|
Intangible amortization and impairments(2) | 34.2 |
| | 42.2 |
| | 105.6 |
| | 121.5 |
|
| Adjusted EBITDA (controlling interest) | $ | 219.8 |
| | $ | 256.3 |
| | $ | 655.8 |
| | $ | 754.8 |
|
31
___________________________ | |
(1)
| For the nine months ended September 30, 2016 and 2017, Imputed interest expense and contingent payment arrangements include gains from adjustments to our contingent payment obligations of $2.8 million ($1.7 million net of tax) and expenses from adjustments to our contingent payment obligations of $1.4 million ($0.9 million net of tax), respectively. There were no contingent payment adjustments in the three months ended September 30, 2016 and 2017. |
| |
(2)
| Our reported intangible amortization includes amortization attributable to our non-controlling interests. For our equity method Affiliates, we do not separately report intangible amortization in our Consolidated Statements of Income. Our share of these Affiliates’ amortization is reported in Income from equity method investments. |
(1)Intangible amortization and impairments in our Consolidated Statements of Income include amortization attributable to the non-controlling interests of our consolidated Affiliates. For our Affiliates accounted for under the equity method, we do not separately report intangible amortization and impairments in our Consolidated Statements of Income. Our share of these Affiliates’ amortization and impairments is reported in Equity method income (net). The following table summarizespresents the Intangible amortization and impairments shown above:
| | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| (in millions) | | 2022 | | 2023 |
| Consolidated intangible amortization and impairments | | $ | 12.6 | | | $ | 12.5 | |
| Consolidated intangible amortization and impairments (non-controlling interests) | | (4.0) | | | (4.0) | |
| Equity method intangible amortization and impairments | | 23.3 | | | 20.9 | |
| Total | | $ | 31.9 | | | $ | 29.4 | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| (in millions) | 2016 | | 2017 | | 2016 | | 2017 |
| Reported Intangible amortization and impairments | $ | 26.9 |
| | $ | 21.2 |
| | $ | 82.2 |
| | $ | 65.1 |
|
| Intangible amortization (non-controlling interests) | (6.7 | ) | | (4.9 | ) | | (19.6 | ) | | (15.3 | ) |
| Equity method intangible amortization | 14.0 |
| | 25.9 |
| | 43.0 |
| | 71.7 |
|
| Total | $ | 34.2 |
| | $ | 42.2 |
| | $ | 105.6 |
| | $ | 121.5 |
|
(3)Other items include certain non-income based taxes, depreciation, and non-cash items such as gains and losses on our contingent payment obligations, certain Affiliate equity activity, unrealized gains and losses on seed capital, general partner commitments, and other strategic investments, and realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments.
Economic Net Income (controlling interest) and Economic Earnings Per Share
As supplemental information, we also provide non-GAAP measures that we refer to as Economic net income (controlling interest) and Economic earnings per share. We considerbelieve Economic net income (controlling interest) and Economic earnings per share to beare important measures of our financial performance, as we believebecause they best represent our performance before our share of non-cash expenses relating to ourthe acquisition of interests in our Affiliates and they are, therefore, employed as our principal financialimprove comparability of performance measures.between periods. Economic net income (controlling interest) and Economic earnings per share are used by our management and Board of Directors as our principal performance benchmarks, including as one of the measures for aligning executive compensation with stockholder value. These non-GAAP performance measures are provided in addition to, but not as substitutes for, other GAAP measures of financial performance, such as Net income (controlling interest) and Earnings per share (diluted). or other GAAP performance measures.
Under our Economic net income (controlling interest) definition, we add toadjust Net income (controlling interest) for our share of pre-tax intangible amortization and impairments attributable to intangible assets (including the portion attributable to equity method investments in Affiliates), deferred taxes related to intangible assets, and other economic items, which include non-cash imputed interest (principally related to the accounting for convertible securities and contingent payment arrangements) and certain Affiliate equity expenses. We add back intangible amortization and impairments attributable to acquired client relationships because these expenses do not correspond to the changes in the value of these assets, which do not diminish predictably over time. The portion ofWe also adjust for deferred taxes generally attributable to intangible assets (including goodwill) is added back because we believe it is unlikely these accruals will be used to settle material tax obligations. We add back non-cash imputed interestFurther, we adjust for gains and reductions or increases in contingent payment arrangementslosses related to better reflect our contractual interest obligations. We add back non-cash expenses relatingthe BPEA Transaction, net of tax, and other economic items to certain transfersimprove comparability of equityperformance between Affiliate partners when these transfers have no dilutive effect to shareholders.periods.
Economic earnings per share represents Economic net income (controlling interest) divided by the Average shares outstanding (adjusted diluted). In this calculation, we exclude the potential shares issued upon settlement of Redeemable non-controlling interests from Average shares outstanding (adjusted diluted) because we intend to settle those obligations without issuing shares, consistent with all prior Affiliate equity purchase transactions. The potential share issuance in connection with our junior convertible securities is measured using a “treasury stock” method. Under this method, only the net number of shares of common stock equal to the value of these junior convertible securities in excess of par, if any, isare deemed to be outstanding. We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of our common stock) that occurs when these securities are converted and we are relieved of our debt obligation. This method does not take into account any increase or decrease in our cost of capital in an assumed conversion.
The following table providespresents a reconciliation of Net income (controlling interest) to Economic net income (controlling interest): and Economic earnings per share:
| | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended March 31, |
| (in millions, except per share data) | 2016 | | 2017 | | 2016 | | 2017 | (in millions, except per share data) | | 2022 | | 2023 |
| Net income (controlling interest) | $ | 110.2 |
| | $ | 125.4 |
| | $ | 322.5 |
| | $ | 374.2 |
| Net income (controlling interest) | | $ | 146.0 | | | $ | 134.5 | |
Intangible amortization and impairments(1) | 34.2 |
| | 42.2 |
| | 105.6 |
| | 121.5 |
| Intangible amortization and impairments(1) | | 31.9 | | | 29.4 | |
| Intangible-related deferred taxes | 19.5 |
| | 22.9 |
| | 63.0 |
| | 61.8 |
| Intangible-related deferred taxes | | 15.7 | | | 14.8 | |
Other economic items(2)(3) | 1.6 |
| | 0.8 |
| | 1.2 |
| | 5.7 |
| |
BPEA Transaction(2) | | BPEA Transaction(2) | | — | | | (16.3) | |
Other economic items(3) | | Other economic items(3) | | (15.1) | | | (4.3) | |
| Economic net income (controlling interest) | $ | 165.5 |
| | $ | 191.3 |
| | $ | 492.3 |
| | $ | 563.2 |
| Economic net income (controlling interest) | | $ | 178.5 | | | $ | 158.1 | |
| Average shares outstanding (diluted) | 56.6 |
| | 58.3 |
| | 56.6 |
| | 58.8 |
| Average shares outstanding (diluted) | | 46.9 | | | 39.9 | |
| | Hypothetical issuance of shares to settle Redeemable non-controlling interests | | Hypothetical issuance of shares to settle Redeemable non-controlling interests | | (4.0) | | | (0.3) | |
| Assumed issuance of junior convertible securities shares | (2.2 | ) | | (2.2 | ) | | (2.2 | ) | | (2.2 | ) | Assumed issuance of junior convertible securities shares | | (2.0) | | | (1.7) | |
| Average shares outstanding (adjusted diluted) | 54.4 |
| | 56.1 |
| | 54.4 |
| | 56.6 |
| Average shares outstanding (adjusted diluted) | | 40.9 | | | 37.9 | |
| Economic earnings per share | $ | 3.04 |
| | $ | 3.41 |
| | $ | 9.04 |
| | $ | 9.95 |
| Economic earnings per share | | $ | 4.36 | | | $ | 4.18 | |
____________________________(1)See note (1) to the table in “Adjusted EBITDA (controlling interest).”
(2)Includes gains on EQT shares, net of $5.3 million of income tax expense.
| |
(3)Other economic items include gains and losses related to contingent payment obligations, tax windfalls and shortfalls from share-based compensation, certain Affiliate equity activity, unrealized gains and losses on seed capital, general partner commitments, and other strategic investments, and realized economic gains and losses related to these seed capital, general partner commitments, and other strategic investments. For the three months ended March 31, 2022 and 2023, other economic items were net of income tax benefit of $1.6 million and income tax expense of $1.8 million, respectively. (1)
| See note (2) to the table in “Adjusted EBITDA (controlling interest).”
|
| |
(2)
| See note (1) to the table in “Adjusted EBITDA (controlling interest).”
|
| |
(3)
| For the three months ended September 30, 2016 and 2017, Other economic items were net of income tax expense of $0.1 million and $0.3 million, respectively. For the nine months ended September 30, 2016 and 2017, Other economic items were net of an income tax benefit of $0.1 million and income tax expense of $1.4 million, respectively. |
Liquidity and Capital Resources
DuringWe generate long-term value by investing in new Affiliate partnerships, existing Affiliates, and strategic value-add capabilities through which we can leverage our scale and resources to benefit our Affiliates and enhance their long-term growth prospects. Given our annual cash generation from operations, in addition to investing for growth in our business, we are also able to return excess capital to shareholders primarily through share repurchases. We continue to manage our capital structure consistent with an investment grade company and are currently rated A3 by Moody’s Investor Services and BBB+ by S&P Global Ratings.
Cash and cash equivalents were $832.8 million as of March 31, 2023 and were attributable to both our controlling and the ninenon-controlling interests. In the three months ended September 30, 2017,March 31, 2023, we met our cash requirements primarily through cash generated by operating activities. Our principal uses of cash duringin the quarterthree months ended March 31, 2023 were and for the foreseeable future are expected to be, for
repaymentspurchases of senior debt,investment securities and distributions to Affiliate equity holders, repurchasesholders.
We expect investments in new Affiliates, investments in existing Affiliates primarily through purchases of common stock, Affiliate equity interests and general partner and seed capital investments, the return of capital through share repurchases and the payment of cash dividends on our common stock, repayment of debt, distributions to Affiliate equity holders, payment of income taxes, and general working capital purposes. We also expect that a principal useto be the primary uses of cash will beon a consolidated basis for investments in new and existing Affiliates.the foreseeable future. We anticipate that our current cash balance, cash flows from operations, together withproceeds from sales of our marketable securities, and borrowings under our revolver and proceeds from our equity distribution program, will be sufficient to support our cash flow needs for the foreseeable future.
Cash and cash equivalents at December 31, 2016 and September 30, 2017 were $430.8 million and $374.7 million, respectively, including $18.9 million and $24.9 million, respectively, in our wholly-owned foreign subsidiaries, which could be repatriated without accruing or paying any significant additional U.S. taxes.
The following table summarizes our cash flow activities:
|
| | | | | | | |
| | For the Nine Months Ended September 30, |
| (in millions) | 2016 | | 2017 |
| Operating cash flow | $ | 684.5 |
| | $ | 800.5 |
|
| Investing cash flow | (868.7 | ) | | 4.9 |
|
| Financing cash flow | 36.6 |
| | (871.5 | ) |
Operating Cash Flow
In the nine months ended September 30, 2017, Cash flow from operating activities increased $116.0 million, of which approximately 70% was attributable to the controlling interest. Cash flow from operating activities attributable to the controlling interest increased primarily from the receipt of cash distributions of our share of equity method earnings from our 2016 investments in new Affiliates.
Investing Cash Flow
In the nine months ended September 30, 2017, Cash flows from investing activities, which is primarily attributable to the controlling interest, increased $873.6 million, primarily due to a decrease in Investments in Affiliates of $854.6 million.
Financing Cash Flow
In the nine months ended September 30, 2017, Cash flows used in financing activities, which is primarily attributable to the controlling interest, increased $908.1 million. This increase was primarily due to a change in senior debt activity from net borrowings of $230.0 million in the nine months ended September 30, 2016 to net repayments of $200.0 million in the nine months ended September 30, 2017. This increase was also due to an increase in repurchases of common stock of $243.0 million and a decrease in cash received for the issuance of common stock of $129.5 million.
The following table summarizes the carrying value of our outstanding indebtedness:
|
| | | | | | | |
| (in millions) | December 31, 2016 | | September 30, 2017 |
| Senior bank debt | $ | 870.0 |
| | $ | 870.0 |
|
| Senior notes | 945.1 |
| | 745.5 |
|
| Convertible securities | 307.5 |
| | 309.3 |
|
Senior Bank Debt and Senior Notes
We have a $1.45 billion senior unsecured multicurrency revolving credit facility (the “revolver”) will be sufficient to support our uses of cash for the foreseeable future. In addition, we may draw funding from the debt and a $385.0 million senior unsecured term loan facility (the “term loan”equity capital markets, and together with the revolver, the “credit facilities”). Theour credit facilities both matureratings, among other factors, allow us to access these sources of funding on September 30, 2020.favorable terms.
The credit facilities contain financial covenants with respect to leveragefollowing table presents operating, investing, and interest coverage, as well as customary affirmativefinancing cash flow activities:
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| (in millions) | | 2022 | | 2023 |
| Operating cash flow | | $ | 145.0 | | | $ | 234.8 | |
| Investing cash flow | | (157.4) | | | 288.0 | |
| Financing cash flow | | (388.9) | | | (116.9) | |
Operating Cash Flow
Operating cash flows are calculated by adjusting Net income for other significant sources and negative covenants, including limitations on priority indebtedness, asset dispositionsuses of cash, significant non-cash items, and fundamental corporate changes,timing differences in the cash settlement of assets and certain customary events of default. As of September 30, 2017, we were in compliance with all terms of our credit facilities and had approximately $1 billion of remaining capacity under our revolver, all of which we could borrow and remain in compliance with our credit facilities.liabilities.
InFor the three months ended September 30, 2017, we redeemed all $200.0March 31, 2023, Cash flows from operating activities were $234.8 million, principal amount outstandingprimarily from Net income of our 6.375% senior unsecured notes$188.5 million adjusted for distributions of earnings received from equity method investments of $305.5 million and for non-cash items of $30.7 million. These items were partially offset by timing differences in the cash settlement of receivables, other assets, and payables, accrued liabilities, and other liabilities of $231.1 million. For the three months ended March 31, 2023, operating cash flows were primarily attributable to the controlling interest.
Investing Cash Flow
For the three months ended March 31, 2023, Cash flows from investing activities were $288.0 million, primarily due 2042 at a redemption price equal to 100%net sales and maturities of investment securities. For the principal amount. The notesthree months ended March 31, 2023, investing cash flows were subsequently canceledprimarily attributable to the controlling interest.
Financing Cash Flow
For the three months ended March 31, 2023, Cash flows used in financing activities were $116.9 million, primarily due to $79.5 million of distributions to non-controlling interests and retired.$41.6 million of other financing items. Cash flows used in financing activities were partially offset by $7.3 million of proceeds from Affiliate equity issuances, net of purchases.
We are currently rated A3 by Moody’s Investors Service and A- by S&P Global Ratings. A downgrade of our credit rating, including a downgrade to below investment grade, would not trigger a default or have any other significant impact on the terms of our existing credit facilities. A reduction in our credit rating could, however, increase our borrowing costs. Additionally, a downgrade of our credit rating below investment grade in connection with a change in control would require us to make a repurchase offer on our senior notes.
Equity Distribution Program
In 2016, we entered into equity distribution and forward equity agreements with several major securities firms under which we, from time to time, may issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price of up to $500.0 million (the “equity distribution program”). As of September 30, 2017, no sales have occurred under the equity distribution program.
Affiliate Equity
Many ofWe periodically purchase Affiliate equity from and issue Affiliate equity to our consolidated Affiliate partners and other parties, under agreements that provide us with a conditional right to call and Affiliate equity holders with thea conditional right to put their Affiliate equity interests to us at certain intervals. We have the right to settle a portion of these purchases in shares of our common stock. For Affiliates accounted for under the equity method, Affiliates, we do not typically have such put and call arrangements. The purchase price of these conditional purchases is generally calculated based upon a multiple of the Affiliate’s cash flow distributions, which is intended to represent fair value. Affiliate equity holders are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to our approval or other restrictions.
As of September 30, 2017, ourMarch 31, 2023, the current redemption value of $804.6Affiliate equity interests was $594.1 million, for these interests has beenof which $533.2 million was presented as Redeemable non-controlling interests.interests (including $18.5 million of consolidated Affiliate sponsored investment products primarily attributable to third-party investors), and $60.9 million was presented as Other liabilities. Although the timing and amounts of these purchases are difficult to predict, we repurchased $161.5received $12.3 million for Affiliate equity issuances and paid $5.0 million for Affiliate equity purchases during the three months ended March 31, 2023, and we expect net purchases of approximately $120 million of Affiliate equity during the nine months ended September 30, 2017, and expect to repurchase approximately $10 million in the fourth quarterremainder of 2017.2023. In the event of a repurchase,purchase, we become the owner of the cash flow associated with the repurchasedpurchased equity.
Commitments
We have committed to co-invest in certain investment partnerships. As of September 30, 2017, these unfunded commitments totaled $94.9 million See Notes 13 and may be called in future periods.
As of September 30, 2017, we were contingently liable, upon achievement by certain Affiliates of specified financial targets, to make payments related to our investments in Affiliates through 2019. For our consolidated Affiliates, we were contingently liable for up to $21.7 million, and expected to make payments of $8.9 million ($1.6 million in 2017). The present value of these expected payments was $8.1 million. For our equity method Affiliates, we were contingently liable for up to $170.0 million, and expected to make no payments.
Affiliate equity interests provide holders with a conditional right to put their interests to us over time. In addition, in connection with an investment in an Affiliate accounted for under the equity method, we entered into an arrangement with a minority owner of the Affiliate that gives such owner the right to sell a portion of its ownership interest in the Affiliate to us annually beginning in the fourth quarter of 2018. The purchase price of these conditional purchases will be at fair market value on the date of the transaction.
We and certain14 of our Affiliates operate under regulatory authorities, which require that we and they maintain minimum financial or capital requirements.Consolidated Financial Statements.
Share Repurchases
Our Board of Directors authorized share repurchase programs in May 2015October 2022 and January 2017, authorizing us2022 to repurchase up to 3.0 million and 1.92.0 million shares of our common stock, respectively, forand these authorizations have no expiry. Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments. During the three months ended March 31, 2023, we did not repurchase any shares of our common stock. As of March 31, 2023, there were a total of 4.93.9 million shares available for repurchase under our October 2022 and January 2022 share repurchase programs.
In December 2022, we entered into an accelerated share repurchase agreement to repurchase shares of our common stock in exchange for an upfront payment of $225.0 million. We received an initial share delivery of 1.1 million shares in December 2022, which represents 80% of the upfront payment based on the closing price of our common stock on the agreement date. The total number of shares to be repurchased will be based on volume-weighted average prices of our common stock during the term of the agreement less a discount and subject to adjustments pursuant to the terms and conditions of such agreement. The final settlement of this transaction is expected to be completed in the second or third quarter of 2023.
In August 2022, the Inflation Reduction Act was enacted into law and included a 1% excise tax on stock repurchases after December 31, 2022. We do not expire. Ascurrently expect the excise tax to have a material impact on our financial position or cash flows.
Contractual Obligations
The following table summarizespresents the carrying value of our contractualoutstanding indebtedness. See Note 7 of our Consolidated Financial Statements:
| | | | | | | | | | | | | | |
| (in millions) | | December 31, 2022 | | March 31, 2023 |
| Senior bank debt | | $ | 350.0 | | | $ | 350.0 | |
| Senior notes | | 1,098.7 | | | 1,098.8 | |
| Junior subordinated notes | | 765.9 | | | 765.9 | |
| Junior convertible securities | | 341.7 | | | 341.7 | |
The carrying value of our debt differs from the amount reported in the notes to our Consolidated Financial Statements, as the carrying value of our debt in the table above is not reduced for debt issuance costs.
Senior Bank Debt
We have a $1.25 billion revolver and a $350.0 million term loan (together, the “credit facilities”). The revolver matures on October 25, 2027 and the term loan matures on October 23, 2026. Subject to certain conditions, we may increase the commitments under the revolver by up to an additional $500.0 million and may borrow up to an additional $75.0 million under the term loan.
As of March 31, 2023, we had no outstanding borrowings under the revolver, and could borrow all capacity and remain in compliance with our credit facilities.
Senior Notes
As of March 31, 2023, we had senior notes outstanding, the respective principal terms of which are presented below:
| | | | | | | | | | | | | | | | | | | | |
| | 2024
Senior Notes | | 2025
Senior Notes | | 2030
Senior Notes |
| Issue date | | February 2014 | | February 2015 | | June 2020 |
| Maturity date | | February 2024 | | August 2025 | | June 2030 |
| Par value (in millions) | | $ | 400.0 | | | $ | 350.0 | | | $ | 350.0 | |
| Stated coupon | | 4.25 | % | | 3.50 | % | | 3.30 | % |
| Coupon frequency | | Semi-annually | | Semi-annually | | Semi-annually |
| Potential call date | | Any time | | Any time | | Any time |
Junior Subordinated Notes
As of March 31, 2023, we had junior subordinated notes outstanding, the respective principal terms of which are presented below:
| | | | | | | | | | | | | | | | | | | | |
| | 2059
Junior Subordinated Notes | | 2060
Junior Subordinated Notes | | 2061
Junior Subordinated Notes |
| Issue date | | March 2019 | | September 2020 | | July 2021 |
| Maturity date | | March 2059 | | September 2060 | | September 2061 |
| Par value (in millions) | | $ | 300.0 | | | $ | 275.0 | | | $ | 200.0 | |
| Stated coupon | | 5.875 | % | | 4.75 | % | | 4.20 | % |
| Coupon frequency | | Quarterly | | Quarterly | | Quarterly |
| Potential call date | | March 2024 | | September 2025 | | September 2026 |
| Listing | | NYSE | | NYSE | | NYSE |
Junior Convertible Securities
As of March 31, 2023, we had $341.7 million of principal outstanding in our 5.15% junior convertible trust preferred securities (the “junior convertible securities”), maturing in 2037. The junior convertible securities were issued by AMG Capital Trust II, a Delaware statutory trust, in October 2007. Each of the junior convertible securities represents an undivided
beneficial interest in the assets of the trust. The trust’s only assets are junior subordinated convertible debentures issued to it by us, and have substantially the same payment terms as the junior convertible securities. We own all of the trust’s common securities, and have fully and unconditionally guaranteed, on a subordinated basis, the payment obligations on the junior convertible securities. We do not consolidate the trust’s financial results into our Consolidated Financial Statements.
Holders of the junior convertible securities have no rights to put these securities to us. Upon conversion, holders will receive cash or shares of our common stock, or a combination thereof, at our election. We may redeem the junior convertible securities, subject to our stock trading at or above certain specified levels over specified periods, and may also repurchase junior convertible securities in the open market or in privately negotiated transactions from time to time at management’s discretion. During the three months ended March 31, 2022, we repurchased a portion of our junior convertible securities for a purchase price of $16.5 million and as a result of September 30, 2017these repurchases, we reduced our Deferred income tax liability (net) by $2.7 million. We did not repurchase any of our junior convertible securities during the three months ended March 31, 2023.
Equity Distribution Program
In the second quarter of 2022, we entered into equity distribution and forward equity agreements with several major securities firms under which we may, from time to time, issue and sell shares of our common stock (immediately or on a forward basis) having an aggregate sales price of up to $500.0 million (the “equity distribution program”). Contractual debtThis equity distribution program superseded and replaced our prior equity distribution program. As of March 31, 2023, no sales had occurred under the equity distribution program.
Commitments
See Note 8 of our Consolidated Financial Statements.
Other Contingent Commitments
See Notes 5 and 8 of our Consolidated Financial Statements.
Leases
As of March 31, 2023, our lease obligations includewere $30.8 million for the cash paymentremainder of fixed interest.2023, $73.3 million from 2024 through 2025, $45.1 million from 2026 through 2027, and $87.5 million thereafter. The portion of these lease obligations attributable to the controlling interest were $8.4 million for the remainder of 2023, $20.2 million from 2024 through 2025, $6.4 million from 2026 through 2027, and $9.9 million thereafter.
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments Due |
| (in millions) | Total | | Remainder of 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
Contractual Obligations(1) | | | | | | | | | |
| Senior bank debt | $ | 870.0 |
| | $ | — |
| | $ | — |
| | $ | 870.0 |
| | $ | — |
|
| Senior notes | 958.5 |
| | — |
| | 58.5 |
| | 58.5 |
| | 841.5 |
|
| Junior convertible securities | 880.1 |
| | 5.5 |
| | 44.4 |
| | 44.4 |
| | 785.8 |
|
Leases(2) | 199.4 |
| | 9.6 |
| | 67.9 |
| | 59.2 |
| | 62.7 |
|
| Affiliate equity | 45.7 |
| | 44.3 |
| | 1.4 |
| | — |
| | — |
|
| Total contractual obligations | $ | 2,953.7 |
| | $ | 59.4 |
| | $ | 172.2 |
| | $ | 1,032.1 |
| | $ | 1,690.0 |
|
| Contingent Obligations | | | | | | | | | |
Contingent payment obligations(3) | $ | 8.9 |
| | $ | 1.6 |
| | $ | 7.3 |
| | $ | — |
| | $ | — |
|
___________________________
| |
(1)
| This table does not include liabilities for commitments to co-invest in certain investment partnerships or uncertain tax positions of $94.9 million and $26.4 million, respectively, as of September 30, 2017, as we cannot predict when such obligations will be paid.
|
| |
(2)
| The controlling interest portion is $3.0 million through 2017, $22.8 million in 2018-2019, $19.8 million in 2020-2021 and $29.4 million thereafter. |
| |
(3)
| The contingent payment obligations disclosed in the table represent our expected settlement amounts associated with our investments in new Affiliates. The maximum settlement amount through 2017 is $4.7 million, $187.0 million in 2018-2019 and none thereafter. |
Recent Accounting Developments
See Note 2 of theour Consolidated Financial Statements.
Critical Accounting Estimates and Judgments
Our 2022 Annual Report on Form 10‑K includes additional information about our Critical Accounting Estimates and Judgments, and should be read in conjunction with this Quarterly Report on Form 10‑Q.
| |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our Quantitative and Qualitative Disclosures About Market Risk infor the three months ended September 30, 2017.March 31, 2023. Please refer to the below as well as the additional disclosures in Item 7A of our 20162022 Annual Report on Form 10-K.
Foreign Currency Exchange Risk
To illustrate the effect of possible changes in currency exchange rates, we estimate a 1% change in the pound sterling and Canadian dollar to U.S. dollar exchange rates would have resulted in changes to stockholders’ equity of approximately $13 million and $2 million, respectively, as of September 30, 2017, and annual changes to Income before income taxes of $1.1 million and $0.3 million, respectively.
| |
Item 4. | Controls and Procedures |
Item 4.Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures during the quarter covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the quarter covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective in ensuring that (i) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management
management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their stated objectives, and our principal executive officer and principal financial officersofficer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. We review on an ongoing basis and document our disclosure controls and procedures, and our internal control over financial reporting, and we may from time to time make changes in an effort to enhance their effectiveness and ensure that our systems evolve with our business.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
| |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| |
(c) | Purchases of Equity Securities by the Issuer. |
|
| | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Average Price Paid Per Share | | Maximum Number of Shares that May Yet Be Purchased Under Outstanding Plans or Programs(2) |
July 1-31, 2017(3) | | 1,838 |
| | $ | 175.14 |
| | 1,838 |
| | $ | 175.14 |
| | 2,718,174 |
|
| August 1-31, 2017 | | 339,128 |
| | 176.91 |
| | 339,128 |
| | 176.91 |
| | 2,379,046 |
|
| September 1-30, 2017 | | 81,774 |
| | 174.56 |
| | 81,774 |
| | 174.56 |
| | 2,297,272 |
|
| Total | | 422,740 |
| | 175.68 |
| | 422,740 |
| | 175.68 |
| | |
____________________________
| |
(1)
| Includes shares surrendered, if any, to the Company to satisfy tax withholding and/or option exercise price obligations in connection with stock swap option exercise transactions. |
| |
(2)
| Our Board of Directors authorized share repurchase programs in May 2015 and January 2017, authorizing us to repurchase up to 3.0 million and 1.9 million shares of our common stock, respectively, for a total of 4.9 million shares, which do not expire. As of September 30, 2017, we had repurchased 2.6 million shares of this total authorized amount. |
| |
(3)
| Includes 1,838 shares delivered upon the completion of a $32.0 million accelerated share repurchase program entered into in June 2017 and completed in July 2017, resulting in delivery of a total of 182,713 shares at an average share price of $175.14 per share. This average share price has been used for the shares delivered upon completion of the program in July 2017 included in this table. |
Item 6.Exhibits
The exhibits are listed on the Exhibit Index and are included elsewhere in this Quarterly Report on Form 10-Q.
below.
EXHIBIT INDEX
| | | | | | | | |
| | |
| Exhibit No. | | Description |
| | |
| | |
| | |
| | |
| | |
| | |
| 31.1 | | | |
| 31.2 | | | |
| 32.1 | | | |
| 32.2 | | | |
| 101 | | | The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 are filed herewith, formatted in XBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income for the three-month periods ended March 31, 2023 and 2022, (ii) the Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2023 and 2022, (iii) the Consolidated Balance Sheets at March 31, 2023 and December 31, 2022, (iv) the Consolidated Statements of Changes in Equity for the three-month periods ended March 31, 2023 and 2022, (v) the Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2023 and 2022, and (vi) the Notes to the Consolidated Financial Statements |
| 104 | | | The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in XBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101 |
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | |
| AFFILIATED MANAGERS GROUP, INC.
(Registrant)
|
November 2, 2017May 8, 2023 | /s/ JAY C. HORGENTHOMAS M. WOJCIK |
| Jay C. HorgenThomas M. Wojcik
on behalf of the Registrant as Chief Financial Officer and Treasurer (and also as Principal Financial and Principal Accounting Officer) |
EXHIBIT INDEX
|
| | | |
| | |
Exhibit No. | | Description |
31.1 |
| | |
31.2 |
| | |
32.1 |
| | |
32.2 |
| | |
101 |
| | The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 are filed herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income for the three-and nine-month periods ended September 30, 2017 and 2016, (ii) the Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iii) the Consolidated Statements of Equity for the nine-month periods ended September 30, 2017 and 2016, (iv) the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2017 and 2016, and (v) the Notes to the Consolidated Financial Statements. |
