Exhibit 99.1
| Investor Relations: | | Alexandra Lynn |
| | | (617) 747-3300 |
| | | ir@amg.com |
| | | |
| Media Relations: | | Laura O’Brien |
| | | (617) 747-3300 |
| | | pr@amg.com |
AMG Reports Financial and Operating Results
for the Third Quarter and Nine Months Ended September 30, 2010
Company Reports Economic EPS of $1.50; EPS of $0.65
BOSTON, October 26, 2010 — Affiliated Managers Group, Inc. (NYSE: AMG) today reported its financial and operating results for the third quarter and nine months ended September 30, 2010.
For the third quarter of 2010, Economic Earnings Per Share (“Economic EPS”) were $1.50, compared to $1.05 for the same period of 2009, while diluted earnings per share for the third quarter of 2010 were $0.65, compared to $0.40 for the same period of 2009. For the third quarter of 2010, Economic Net Income was $77.9 million, compared to $45.6 million for the same period of 2009. For the third quarter of 2010, Net Income was $34.0 million, compared to $17.8 million for the same period of 2009. (Performance measures Economic Net Income and Economic EPS are defined in the attached tables.)
For the third quarter of 2010, revenue was $354.4 million, compared to $217.5 million for the same period of 2009. For the third quarter of 2010, EBITDA was $102.3 million, compared to $60.5 million for the same period of 2009.
For the nine months ended September 30, 2010, Economic Net Income was $192.5 million, while EBITDA was $252.2 million. For the same period, Net Income was $76.6 million, on revenue of $937.5 million. For the nine months ended September 30, 2009, Economic Net Income was $125.8 million, while EBITDA was $162.9 million. For the same period, Net Income was $34.9 million, on revenue of $597.2 million.
Net client cash flows for the third quarter of 2010 were approximately $5.5 billion, with flows in the institutional, mutual fund, and high net worth channels of approximately $4.2 billion, $1.1 billion, and $0.2 billion, respectively. The aggregate assets under management of AMG’s affiliated investment management firms were approximately $294 billion at September 30, 2010, pro forma for a pending investment.
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“AMG had an excellent quarter, reporting Economic Earnings Per Share of $1.50, an increase of 43% compared to the same quarter of last year,” stated Sean M. Healey, President and Chief Executive Officer of AMG. “Our results reflect the successful execution of our growth strategy, including accretion from investments in new Affiliates as well as the strong organic growth of our existing Affiliates. Our Affiliates continue to generate outstanding investment performance across an array of product areas, particularly in emerging markets and international equity and alternative products. Given our industry-leading offerings in these product areas, we remain confident in our prospects for continued new business momentum as global institutional investors increasingly focus on expanding their allocations to alpha-generating strategies.”
“Over 70% of our EBITDA is now generated by global equity and alternative products, across a broad range of international markets and investment strategies, and our Affiliates participating in these areas delivered excellent results. Global equity manager Tweedy, Browne and emerging markets manager Genesis continued to generate outperformance across all time periods in their flagship products, and Third Avenue’s Value fund ranked at the top of its Lipper category in the quarter. In addition, Harding Loevner’s emerging markets equity product outperformed over both the near and long term, while alternative managers AQR, BlueMountain, and ValueAct realized substantial absolute returns across their largest products. Finally, global private equity fund-of-funds manager Pantheon continued to perform well, with solid organic growth in the quarter.”
“With the continued outperformance of our Affiliates, AMG is well-positioned to benefit as investor risk appetite increases — particularly among clients outside the U.S., which already account for over half of our earnings,” Mr. Healey added. “Our global distribution platform extends our boutique Affiliates’ marketing reach to large institutions in Australia, the Middle East, Europe, and now Asia. As evidenced by our net client cash flows this quarter of $5.5 billion, we are seeing continued demand from sophisticated investors in these regions as AMG brings the outstanding performance of focused, return-oriented specialist firms, supported by the scale, resources, and risk management of a global investment manager, to strategic markets around the world.”
“We were pleased to announce our investment in premier global and emerging markets equity manager Trilogy Global Advisors during the quarter, which further enhanced our position in these product areas,” Mr. Healey concluded. “We continue to see substantial opportunities for ongoing earnings growth through our New Investments strategy, with a strong and diverse pipeline of traditional and alternative firms, increasingly characterized by succession-driven transactions. With our unparalleled competitive position and the favorable transaction environment, we are uniquely positioned to make additional accretive investments in the highest quality boutique firms globally.”
About Affiliated Managers Group
AMG is a global asset management company with equity investments in leading boutique investment management firms. AMG’s innovative partnership approach allows each Affiliate’s management team to own significant equity in their firm while maintaining operational autonomy. AMG’s strategy is to generate growth through the internal growth of existing Affiliates, as well as through investments in new Affiliates. In addition, AMG provides centralized assistance to its
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Affiliates in strategic matters, marketing, distribution, product development and operations. As of September 30, 2010, the aggregate assets under management of AMG’s Affiliates were approximately $294 billion, pro forma for a pending investment, in more than 350 investment products across a broad range of investment styles, asset classes and distribution channels. For more information, please visit the Company’s website at www.amg.com.
Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including changes in the securities or financial markets or in general economic conditions, the availability of equity and debt financing, competition for acquisitions of interests in investment management firms, the ability to close pending investments, the investment performance of our Affiliates and their ability to effectively market their investment strategies, and other risks detailed from time to time in AMG’s filings with the Securities and Exchange Commission. Reference is hereby made to the “Cautionary Statements” set forth in the Company’s Form 10-K for the year ended December 31, 2009.
AMG routinely posts information that may be significant for investors in the Investor Information section of its website, and encourages investors to consult that section regularly. For additional information, please visit www.amg.com.
Financial Tables Follow
A teleconference will be held with AMG’s management at 11:00 a.m. Eastern time today. Parties interested in listening to the teleconference should dial 1-877-407-9210 (domestic calls) or 1-201-689-8049 (international calls) starting at 10:45 a.m. Eastern time. Those wishing to listen to the teleconference should dial the appropriate number at least ten minutes before the call begins.
The teleconference will also be available for replay beginning approximately one hour after the conclusion of the call. To hear a replay of the call, please dial 1-877-660-6853 (domestic calls) or 1-201-612-7415 (international calls) and provide account number 286 and conference ID 357598. The live call and replay of the session, and additional financial information referenced during the teleconference, can also be accessed via the Web at http://www.amg.com/InvestorRelations.
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Affiliated Managers Group, Inc.
Financial Highlights
(dollars in thousands, except per share data)
| | Three Months | | Three Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Revenue | | $ | 217,461 | | $ | 354,372 | |
| | | | | |
Net Income (controlling interest) | | $ | 17,769 | | $ | 33,955 | |
| | | | | |
Economic Net Income (A) | | $ | 45,629 | | $ | 77,883 | |
| | | | | |
EBITDA (B) | | $ | 60,532 | | $ | 102,271 | |
| | | | | |
| | | | | |
Average shares outstanding - diluted | | 44,267,107 | | 51,895,871 | |
| | | | | |
Earnings per share - diluted | | $ | 0.40 | | $ | 0.65 | |
| | | | | |
Average shares outstanding - adjusted diluted (C) | | 43,523,113 | | 51,895,871 | |
| | | | | |
Economic earnings per share (C) | | $ | 1.05 | | $ | 1.50 | |
| | December 31,
2009 | | September 30,
2010 | |
| | | | | |
Cash and cash equivalents | | $ | 259,487 | | $ | 255,452 | |
| | | | | |
Senior bank debt | | $ | — | | $ | 371,000 | |
| | | | | |
Senior convertible securities (D) | | $ | 456,976 | | $ | 418,987 | |
| | | | | |
Junior convertible trust preferred securities (D) | | $ | 507,358 | | $ | 509,222 | |
| | | | | |
Stockholders’ equity | | $ | 1,109,690 | | $ | 1,712,068 | |
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Affiliated Managers Group, Inc.
Financial Highlights
(dollars in thousands, except per share data)
| | Nine Months | | Nine Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Revenue | | $ | 597,182 | | $ | 937,474 | |
| | | | | |
Net Income (controlling interest) | | $ | 34,873 | | $ | 76,622 | |
| | | | | |
Economic Net Income (A) | | $ | 125,754 | | $ | 192,522 | |
| | | | | |
EBITDA (B) | | $ | 162,916 | | $ | 252,246 | |
| | | | | |
| | | | | |
Average shares outstanding - diluted | | 42,835,258 | | 48,741,873 | |
| | | | | |
Earnings per share - diluted | | $ | 0.82 | | $ | 1.57 | |
| | | | | |
Average shares outstanding - adjusted diluted (C) | | 42,005,112 | | 48,359,998 | |
| | | | | |
Economic earnings per share (C) | | $ | 2.99 | | $ | 3.98 | |
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Affiliated Managers Group, Inc.
Reconciliations of Earnings Per Share Calculation
(dollars in thousands, except per share data)
| | Three Months | | Three Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Net Income (controlling interest) | | $ | 17,769 | | $ | 33,955 | |
Convertible securities interest expense, net (E) | | 36 | | — | |
Net Income (controlling interest), as adjusted | | $ | 17,805 | | $ | 33,955 | |
| | | | | |
Average shares outstanding - diluted | | 44,267,107 | | 51,895,871 | |
| | | | | |
Earnings per share - diluted | | $ | 0.40 | | $ | 0.65 | |
| | Nine Months | | Nine Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Net Income (controlling interest) | | $ | 34,873 | | $ | 76,622 | |
Convertible securities interest expense, net (E) | | 108 | | 53 | |
Net Income (controlling interest), as adjusted | | $ | 34,981 | | $ | 76,675 | |
| | | | | |
Average shares outstanding - diluted | | 42,835,258 | | 48,741,873 | |
| | | | | |
Earnings per share - diluted | | $ | 0.82 | | $ | 1.57 | |
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Affiliated Managers Group, Inc.
Reconciliations of Average Shares Outstanding
| | Three Months | | Three Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Average shares outstanding - diluted | | 44,267,107 | | 51,895,871 | |
Assumed issuance of LYONS shares | | (873,803 | ) | — | |
Assumed issuance of 2008 Senior Convertible Notes shares | | — | | — | |
Assumed issuance of Trust Preferred shares | | — | | — | |
Dilutive impact of LYONS shares | | 129,809 | | — | |
Dilutive impact of 2008 Senior Convertible Notes shares | | — | | — | |
Dilutive impact of Trust Preferred shares | | — | | — | |
Average shares outstanding - adjusted diluted (C) | | 43,523,113 | | 51,895,871 | |
| | Nine Months | | Nine Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Average shares outstanding - diluted | | 42,835,258 | | 48,741,873 | |
Assumed issuance of LYONS shares | | (873,803 | ) | (514,761 | ) |
Assumed issuance of 2008 Senior Convertible Notes shares | | — | | — | |
Assumed issuance of Trust Preferred shares | | — | | — | |
Dilutive impact of LYONS shares | | 43,657 | | 132,886 | |
Dilutive impact of 2008 Senior Convertible Notes shares | | — | | — | |
Dilutive impact of Trust Preferred shares | | — | | — | |
Average shares outstanding - adjusted diluted (C) | | 42,005,112 | | 48,359,998 | |
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Affiliated Managers Group, Inc.
Operating Results
(in millions)
Assets Under Management
Statement of Changes - Quarter to Date
| | Mutual
Fund | | Institutional | | High Net
Worth | | Total | |
| | | | | | | | | |
Assets under management, June 30, 2010 | | $ | 64,317 | | $ | 155,175 | | $ | 29,500 | | $ | 248,992 | |
Client cash inflows | | 6,430 | | 8,472 | | 1,417 | | 16,319 | |
Client cash outflows | | (5,314 | ) | (4,316 | ) | (1,222 | ) | (10,852 | ) |
Net client cash flows | | 1,116 | | 4,156 | | 195 | | 5,467 | |
Investment performance | | 7,833 | | 15,302 | | 2,671 | | 25,806 | |
Other (G) | | 1,623 | | (2,211 | ) | — | | (588 | ) |
Assets under management, September 30, 2010 | | $ | 74,889 | | $ | 172,422 | | $ | 32,366 | | $ | 279,677 | |
Statement of Changes - Year to Date
| | Mutual
Fund | | Institutional | | High Net
Worth | | Total | |
| | | | | | | | | |
Assets under management, December 31, 2009 | | $ | 44,531 | | $ | 133,858 | | $ | 29,650 | | $ | 208,039 | |
New investments (F) | | 22,903 | | 26,060 | | 427 | | 49,390 | |
Adjusted Assets under management, December 31, 2009 | | 67,434 | | 159,918 | | 30,077 | | 257,429 | |
Client cash inflows | | 15,303 | | 20,794 | | 5,006 | | 41,103 | |
Client cash outflows | | (13,250 | ) | (18,469 | ) | (4,704 | ) | (36,423 | ) |
Net client cash flows | | 2,053 | | 2,325 | | 302 | | 4,680 | |
Investment performance | | 3,828 | | 12,496 | | 1,988 | | 18,312 | |
Other (G) | | 1,574 | | (2,317 | ) | (1 | ) | (744 | ) |
Assets under management, September 30, 2010 | | $ | 74,889 | | $ | 172,422 | | $ | 32,366 | | $ | 279,677 | |
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Affiliated Managers Group, Inc.
Operating Results
(in thousands)
Financial Results
| | Three | | | | Three | | | |
| | Months | | | | Months | | | |
| | Ended | | Percent | | Ended | | Percent | |
| | 9/30/09 | | of Total | | 9/30/10 | | of Total | |
Revenue | | | | | | | | | |
Mutual Fund | | $ | 80,682 | | 37% | | $ | 151,817 | | 43% | |
Institutional | | 109,918 | | 51% | | 170,990 | | 48% | |
High Net Worth | | 26,861 | | 12% | | 31,565 | | 9% | |
| | $ | 217,461 | | 100% | | $ | 354,372 | | 100% | |
| | | | | | | | | |
EBITDA (B) | | | | | | | | | |
Mutual Fund | | $ | 14,514 | | 24% | | $ | 31,271 | | 31% | |
Institutional | | 38,230 | | 63% | | 61,060 | | 59% | |
High Net Worth | | 7,788 | | 13% | | 9,940 | | 10% | |
| | $ | 60,532 | | 100% | | $ | 102,271 | | 100% | |
| | Nine | | | | Nine | | | |
| | Months | | | | Months | | | |
| | Ended | | Percent | | Ended | | Percent | |
| | 9/30/09 | | of Total | | 9/30/10 | | of Total | |
Revenue | | | | | | | | | |
Mutual Fund | | $ | 221,380 | | 37% | | $ | 397,736 | | 42% | |
Institutional | | 293,646 | | 49% | | 445,063 | | 48% | |
High Net Worth | | 82,156 | | 14% | | 94,675 | | 10% | |
| | $ | 597,182 | | 100% | | $ | 937,474 | | 100% | |
| | | | | | | | | |
EBITDA (B) | | | | | | | | | |
Mutual Fund | | $ | 43,781 | | 27% | | $ | 79,221 | | 31% | |
Institutional | | 97,357 | | 60% | | 144,910 | | 58% | |
High Net Worth | | 21,778 | | 13% | | 28,115 | | 11% | |
| | $ | 162,916 | | 100% | | $ | 252,246 | | 100% | |
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Affiliated Managers Group, Inc.
Reconciliations of Performance and Liquidity Measures
(in thousands)
| | Three Months | | Three Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Net Income (controlling interest) | | $ | 17,769 | | $ | 33,955 | |
Intangible amortization | | 16,120 | | 25,976 | |
Intangible-related deferred taxes | | 6,181 | | 9,820 | |
Imputed interest and contingent payment adjustments | | 2,067 | | 3,767 | |
Affiliate equity expense | | 1,579 | | 1,776 | |
Affiliate depreciation | | 1,913 | | 2,589 | |
Economic Net Income (A) | | $ | 45,629 | | $ | 77,883 | |
| | | | | |
Cash flow from operations | | $ | 80,162 | | $ | 168,369 | |
Interest expense, net of non-cash items | | 14,249 | | 14,363 | |
Current tax provision | | 63 | | 7,931 | |
Income from equity method investments, net of distributions | | 2,484 | | 2,863 | |
Changes in assets and liabilities and other adjustments | | (36,426 | ) | (91,255 | ) |
EBITDA (B) | | $ | 60,532 | | $ | 102,271 | |
Holding company expenses | | 11,426 | | 17,965 | |
EBITDA Contribution | | $ | 71,958 | | $ | 120,236 | |
| | Nine Months | | Nine Months | |
| | Ended | | Ended | |
| | 9/30/09 | | 9/30/10 | |
| | | | | |
Net Income (controlling interest) | | $ | 34,873 | | $ | 76,622 | |
Intangible amortization | | 48,120 | | 59,660 | |
Intangible-related deferred taxes | | 25,296 | | 34,870 | |
Imputed interest and contingent payment adjustments | | 6,177 | | 9,254 | |
Affiliate equity expense | | 5,474 | | 5,316 | |
Affiliate depreciation | | 5,814 | | 6,800 | |
Economic Net Income (A) | | $ | 125,754 | | $ | 192,522 | |
| | | | | |
Cash flow from operations | | $ | 168,067 | | $ | 351,480 | |
Interest expense, net of non-cash items | | 42,899 | | 43,012 | |
Current tax provision | | (9,108 | ) | 15,783 | |
Income from equity method investments, net of distributions | | 3,293 | | 1,243 | |
Changes in assets and liabilities and other adjustments | | (42,235 | ) | (159,272 | ) |
EBITDA (B) | | $ | 162,916 | | $ | 252,246 | |
Holding company expenses | | 32,474 | | 61,732 | |
EBITDA Contribution | | $ | 195,390 | | $ | 313,978 | |
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Affiliated Managers Group, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share data)
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2009 | | 2010 | | 2009 | | 2010 | |
| | | | | | | | | |
Revenue | | $ | 217,461 | | $ | 354,372 | | $ | 597,182 | | $ | 937,474 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Compensation and related expenses | | 105,237 | | 151,533 | | 292,770 | | 413,501 | |
Selling, general and administrative | | 26,864 | | 73,378 | | 89,276 | | 190,743 | |
Amortization of intangible assets | | 8,293 | | 20,517 | | 24,430 | | 39,045 | |
Depreciation and other amortization | | 3,167 | | 3,716 | | 9,649 | | 10,117 | |
Other operating expenses | | 10,865 | | 9,638 | | 21,351 | | 24,109 | |
| | 154,426 | | 258,782 | | 437,476 | | 677,515 | |
Operating income | | 63,035 | | 95,590 | | 159,706 | | 259,959 | |
| | | | | | | | | |
Non-operating (income) and expenses: | | | | | | | | | |
Investment and other income | | (6,614 | ) | (11,384 | ) | (13,564 | ) | (14,929 | ) |
Income from equity method investments | | (8,203 | ) | (9,536 | ) | (21,970 | ) | (28,543 | ) |
Investment (income) loss from Affiliate
investments in partnerships (H) | | (14,914 | ) | — | | (26,065 | ) | 4,493 | |
Interest expense | | 16,151 | | 16,322 | | 48,555 | | 48,750 | |
Imputed interest expense | | 3,389 | | 7,191 | | 10,126 | | 17,303 | |
| | (10,191 | ) | 2,593 | | (2,918 | ) | 27,074 | |
| | | | | | | | | |
Income before income taxes | | 73,226 | | 92,997 | | 162,624 | | 232,885 | |
| | | | | | | | | |
Income taxes (I) | | 5,366 | | 23,968 | | 15,275 | | 52,878 | |
Net income | | 67,860 | | 69,029 | | 147,349 | | 180,007 | |
| | | | | | | | | |
Net income (non-controlling interests) | | (35,459 | ) | (35,074 | ) | (87,008 | ) | (107,770 | ) |
Net (income) loss (non-controlling interests
in partnerships) (H) | | (14,632 | ) | — | | (25,468 | ) | 4,385 | |
| | | | | | | | | |
Net Income (controlling interest) | | $ | 17,769 | | $ | 33,955 | | $ | 34,873 | | $ | 76,622 | |
| | | | | | | | | |
Average shares outstanding - basic | | 41,854,249 | | 51,154,863 | | 41,115,819 | | 46,054,042 | |
Average shares outstanding - diluted | | 44,267,107 | | 51,895,871 | | 42,835,258 | | 48,741,873 | |
| | | | | | | | | |
Earnings per share - basic | | $ | 0.42 | | $ | 0.66 | | $ | 0.85 | | $ | 1.66 | |
Earnings per share - diluted | | $ | 0.40 | | $ | 0.65 | | $ | 0.82 | | $ | 1.57 | |
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Affiliated Managers Group, Inc.
Consolidated Balance Sheets
(in thousands)
| | December 31, | | September 30, | |
| | 2009 | | 2010 | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 259,487 | | $ | 255,452 | |
Investment advisory fees receivable | | 140,118 | | 183,988 | |
Investments in partnerships (H) | | 93,809 | | — | |
Investments in marketable securities | | 56,690 | | 84,945 | |
Unsettled fund share receivables | | — | | 57,046 | |
Prepaid expenses and other current assets | | 35,478 | | 58,756 | |
Total current assets | | 585,582 | | 640,187 | |
| | | | | |
Fixed assets, net | | 62,402 | | 66,789 | |
Equity investments in Affiliates | | 658,332 | | 630,996 | |
Acquired client relationships, net | | 571,573 | | 1,400,806 | |
Goodwill | | 1,413,217 | | 1,995,756 | |
Other assets | | 99,800 | | 216,408 | |
Total assets | | $ | 3,390,906 | | $ | 4,950,942 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Accounts payable and accrued liabilities | | $ | 117,227 | | $ | 240,796 | |
Unsettled fund share payables | | — | | 54,302 | |
Payables to related party | | 109,888 | | 100,176 | |
Total current liabilities | | 227,115 | | 395,274 | |
| | | | | |
Senior bank debt | | — | | 371,000 | |
Senior convertible securities (D) | | 456,976 | | 418,987 | |
Junior convertible trust preferred securities (D) | | 507,358 | | 509,222 | |
Deferred income taxes | | 322,671 | | 471,571 | |
Other long-term liabilities | | 26,066 | | 188,905 | |
Total liabilities | | 1,540,186 | | 2,354,959 | |
| | | | | |
Redeemable non-controlling interests | | 368,999 | | 386,183 | |
| | | | | |
Equity: | | | | | |
Common stock | | 458 | | 539 | |
Additional paid-in capital | | 612,091 | | 1,016,318 | |
Accumulated other comprehensive income | | 45,958 | | 70,973 | |
Retained earnings | | 873,137 | | 949,759 | |
| | 1,531,644 | | 2,037,589 | |
Less treasury stock, at cost | | (421,954 | ) | (325,521 | ) |
Total stockholders’ equity | | 1,109,690 | | 1,712,068 | |
| | | | | |
Non-controlling interests | | 281,946 | | 497,732 | |
Non-controlling interests in partnerships (H) | | 90,085 | | — | |
Total equity | | 1,481,721 | | 2,209,800 | |
Total liabilities and equity | | $ | 3,390,906 | | $ | 4,950,942 | |
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Affiliated Managers Group, Inc.
Consolidated Statements of Cash Flow
(in thousands)
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2009 | | 2010 | | 2009 | | 2010 | |
Cash flow from operating activities: | | | | | | | | | |
Net income | | $ | 67,860 | | $ | 69,029 | | $ | 147,349 | | $ | 180,007 | |
Adjustments to reconcile Net income to net cash flow from operating activities: | | | | | | | | | |
Amortization of intangible assets | | 8,293 | | 20,517 | | 24,430 | | 39,045 | |
Amortization of issuance costs | | 1,843 | | 1,959 | | 5,479 | | 5,653 | |
Depreciation and other amortization | | 3,167 | | 3,716 | | 9,649 | | 10,117 | |
Deferred income tax provision | | 3,873 | | 7,976 | | 20,701 | | 25,630 | |
Imputed interest expense | | 3,389 | | 7,191 | | 10,126 | | 17,303 | |
Income from equity method investments, net of amortization | | (8,202 | ) | (9,536 | ) | (21,970 | ) | (28,543 | ) |
Distributions received from equity method investments | | 13,725 | | 14,656 | | 42,545 | | 51,420 | |
Tax benefit from exercise of stock options | | 1,715 | | 1,402 | | 3,174 | | 3,478 | |
Stock option expense | | 2,560 | | 3,608 | | 5,695 | | 10,410 | |
Affiliate equity expense | | 3,150 | | 3,511 | | 9,869 | | 10,312 | |
Other adjustments | | (14,546 | ) | (109 | ) | (33,125 | ) | 9,439 | |
Changes in assets and liabilities: | | | | | | | | | |
(Increase) decrease in investment advisory fees receivable | | (17,051 | ) | 13,277 | | 845 | | (12,052 | ) |
(Increase) decrease in Affiliate investments in partnerships | | — | | — | | 331 | | (503 | ) |
Increase in prepaids and other current assets | | (811 | ) | (20,280 | ) | (10,024 | ) | (512 | ) |
(Increase) decrease in other assets | | (46 | ) | (1,654 | ) | 2,869 | | (9,779 | ) |
(Increase) decrease in unsettled fund shares receivable | | — | | 1,651 | | — | | (573 | ) |
Increase in unsettled fund shares payable | | — | | 1,253 | | — | | 3,519 | |
Increase (decrease) in accounts payable, accrued liabilities and other long-term liabilities | | 11,243 | | 50,202 | | (49,876 | ) | 37,109 | |
Cash flow from operating activities | | 80,162 | | 168,369 | | 168,067 | | 351,480 | |
Cash flow used in investing activities: | | | | | | | | | |
Investments in Affiliates | | (137,860 | ) | (10,980 | ) | (139,271 | ) | (804,017 | ) |
Purchase of fixed assets | | (438 | ) | (2,209 | ) | (1,653 | ) | (5,316 | ) |
Purchase of investment securities | | — | | (12,801 | ) | (11,746 | ) | (43,203 | ) |
Sale of investment securities | | 1,584 | | — | | 7,303 | | 11,784 | |
Cash flow used in investing activities | | (136,714 | ) | (25,990 | ) | (145,367 | ) | (840,752 | ) |
Cash flow from (used in) financing activities: | | | | | | | | | |
Borrowings of senior bank debt | | — | | 5,000 | | — | | 1,022,500 | |
Repayments of senior bank debt | | — | | (293,500 | ) | (233,514 | ) | (651,500 | ) |
Issuance of common stock | | 18,139 | | 10,641 | | 29,760 | | 36,055 | |
Issuance costs | | (288 | ) | (102 | ) | (1,209 | ) | (330 | ) |
Excess tax benefit from exercise of stock options | | 2,750 | | 1,946 | | 3,836 | | 6,664 | |
Settlement of forward equity sale agreement | | — | | 194,653 | | 144,258 | | 294,657 | |
Note payments | | 7,196 | | (5,893 | ) | 2,718 | | (31,784 | ) |
Distributions to non-controlling interests | | (14,962 | ) | (16,754 | ) | (102,087 | ) | (77,446 | ) |
Affiliate equity issuances and repurchases | | (7,502 | ) | (6,591 | ) | (40,308 | ) | (116,123 | ) |
Subscriptions (redemptions) of Non-controlling interests
in partnerships | | — | | — | | (471 | ) | 503 | |
Cash flow from (used in) financing activities | | 5,333 | | (110,600 | ) | (197,017 | ) | 483,196 | |
| | | | | | | | | |
Effect of foreign exchange rate changes on cash and cash equivalents | | 2,100 | | 3,130 | | 3,136 | | 2,041 | |
Net increase (decrease) in cash and cash equivalents | | (49,119 | ) | 34,909 | | (171,181 | ) | (4,035 | ) |
Cash and cash equivalents at beginning of period | | 274,369 | | 220,543 | | 396,431 | | 259,487 | |
Cash and cash equivalents at end of period | | $ | 225,250 | | $ | 255,452 | | $ | 225,250 | | $ | 255,452 | |
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Affiliated Managers Group, Inc.
Notes
(in thousands)
(A) Under our Economic Net Income definition, we add to Net Income (controlling interest) amortization (including equity method amortization), deferred taxes related to intangible assets, Affiliate depreciation and Affiliate equity expense, and exclude the non-cash effect of imputed interest expense (principally APB 14-1 interest on convertible securities and non-cash expenses related to contingent payment arrangements). We consider Economic Net Income an important measure of our financial performance, as we believe it best represents operating performance before non-cash expenses relating to the acquisition of interests in our affiliated investment management firms, and it is therefore employed as our principal performance benchmark. This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net Income; Economic Net Income is not a liquidity measure, and should not be used in place of liquidity measures calculated under GAAP.
We add back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The portion of deferred taxes generally attributable to intangible assets (including goodwill) that are no longer amortized but continue to generate tax deductions is added back because we believe it is unlikely these accruals will be used to settle material tax obligations. We add back the portion of consolidated depreciation expense incurred by Affiliates because under our Affiliate operating agreements, we are generally not required to replenish these depreciating assets. We add back non-cash expenses relating to certain transfers of equity between Affiliate management partners when these transfers have no dilutive effect to shareholders.
In connection with recent investments in Affiliates, in the first quarter of 2010 we modified our Economic Net Income definition to exclude non-cash imputed interest and revaluation adjustments related to contingent payment arrangements from Net Income (controlling interest). The modification of the Economic Net Income definition did not have an impact on prior periods reported herein.
(B) EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. This supplemental non-GAAP liquidity measure is provided in addition to, but not as a substitute for, cash flow from operations. As a measure of liquidity, we believe EBITDA is useful as an indicator of our ability to service debt, make new investments and meet working capital requirements. EBITDA, as calculated by us, may not be consistent with computations of EBITDA by other companies. In reporting EBITDA by segment, Affiliate expenses are allocated to a particular segment on a pro rata basis with respect to the revenue generated by that Affiliate in such segment.
(C) Economic earnings per share represents Economic Net Income divided by the adjusted diluted average shares outstanding. In this calculation, the potential share issuance in connection with our 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 the contingently convertible securities and the junior convertible trust preferred securities in excess of par, if any, are 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 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. Economic earnings per share is not a liquidity measure, and should not be used in place of liquidity measures calculated under GAAP.
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(D) We have bifurcated our convertible debt securities into their debt and equity components on our balance sheet. The principal amount at maturity of the senior convertible notes due 2038 was $460,000 at December 31, 2009 and September 30, 2010. The principal amount at maturity of the junior convertible trust preferred securities was $730,820 at December 31, 2009 and September 30, 2010.
(E) Convertible securities interest expense, net, includes the interest expense, net of tax, associated with our dilutive convertible securities.
(F) We completed our investment in Artemis Investment Management during the first quarter of 2010; and we completed our investments in Pantheon and Aston Asset Management during the second quarter of 2010. Our presentation of assets under management activity is pro forma assuming these investments closed at the beginning of each period presented.
(G) Other includes assets under management attributable to Affiliate product transitions, the financial effects of which are not material to our ongoing results.
(H) At December 31, 2009, assets of consolidated investment partnerships are reported as Investments in partnerships. A majority of these assets are held by investors that are unrelated to us, and reported as Non-controlling interests in partnerships. Income from these partnerships is presented as Investment (income) loss from Affiliate investments in partnerships in the Consolidated Statements of Income. In the third quarter of 2010 we deconsolidated these partnerships.
(I) Our consolidated income tax provision includes taxes attributable to controlling interests, and to a lesser extent, taxes attributable to non-controlling interests, as follows:
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2009 | | 2010 | | 2009 | | 2010 | |
Current income taxes | | $ | 63 | | $ | 7,931 | | $ | (9,108 | ) | $ | 15,783 | |
Intangible-related deferred taxes | | 6,181 | | 9,820 | | 25,296 | | 34,870 | |
Other deferred taxes | | (2,308 | ) | (1,423 | ) | (4,595 | ) | (8,357 | ) |
Taxes attributable to controlling interests | | 3,936 | | 16,328 | | 11,593 | | 42,296 | |
Taxes attributable to non-controlling interests | | 1,430 | | 7,640 | | 3,682 | | 10,582 | |
Total income taxes | | $ | 5,366 | | $ | 23,968 | | $ | 15,275 | | $ | 52,878 | |
| | | | | | | | | |
Effective tax rate* | | 18.1 | % | 32.5 | % | 24.9 | % | 35.6 | % |
* Taxes attributable to controlling interests divided by our share of the consolidated income before taxes.
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