AMG Reports Financial and Operating Results for Second Quarter and First Half of 2005; Company Reports EPS of $0.63; Cash EPS of $1.13.BOSTON Boston, town, England Boston, town (1991 pop. 26,495), E central England, on the Witham River. Boston's fame as a port dates from the 13th cent., when it was a Hanseatic port trading wool and wine. Having recovered from a decline in the 18th and 19th cent. -- Affiliated af·fil·i·ate v. af·fil·i·at·ed, af·fil·i·at·ing, af·fil·i·ates v.tr. 1. To adopt or accept as a member, subordinate associate, or branch: Managers Group, Inc. (NYSE NYSE See: New York Stock Exchange : AMG AMG All Music Guide (music website) AMG All Media Guide (group of media websites) AMG All Movie Guide (Movie website) AMG Arzneimittelgesetz (German Law) ) today reported its financial and operating results for the quarter and six months ended June June: see month. 30, 2005. Cash earnings per share ("Cash EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ") for the second quarter of 2005 were $1.13, compared to $1.00 for the second quarter of 2004, while diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the second quarter of 2005 were $0.63, compared to $0.51 for the same period of 2004. Cash Net Income was $42.4 million for the second quarter of 2005, compared to $30.4 million for the second quarter of 2004. Net Income for the second quarter of 2005 was $26.2 million, compared to $18.9 million for the second quarter of 2004. (Cash EPS and Cash Net Income are defined in the attached tables.) For the second quarter of 2005, revenue was $208.3 million, compared to $158.6 million for the second quarter of 2004. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become for the second quarter of 2005 was $59.4 million, compared to $46.1 million for the same period of 2004. For the six months ended June 30, 2005, Cash Net Income was $84.1 million, while EBITDA was $118.0 million. For the same period, Net Income was $51.8 million, on revenue of $409.9 million. For the six months ended June 30, 2004, Cash Net Income was $59.7 million, while EBITDA was $89.9 million. For the same period, Net Income was $37.1 million, on revenue of $310.2 million. Net client cash flows for the second quarter of 2005 were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $2.6 billion, with net inflows in the mutual fund and institutional channels of $2.1 billion and $790 million, respectively, and outflows in the high net worth channel of $348 million. These aggregate net client cash flows for the quarter resulted in an increase of approximately $3.8 million to AMG's annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. EBITDA. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma for the pending acquisition of First Asset Management Inc., the aggregate assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. of AMG's affiliated investment management firms at June 30, 2005 were approximately $163 billion. "AMG had an excellent quarter, reporting Cash earnings per share of $1.13, an increase of 13 percent compared to the second quarter of 2004," said Sean M. Healey Healey is a surname originally from the Sligo area of the Republic of Ireland and the Gaelic word O hEalaighthe which derives from the word 'ealadhach' meaning indigenous. Other versions of this surname include Haly, Haley, Haily, Hely, Healy, O'Healey, O'Haly and many more. , President and Chief Executive Officer of AMG. "Our Affiliates performed extremely well during the quarter. With strong investment performance and net client cash flows across our Affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. group, AMG's assets under management grew by $5.9 billion, or 4.5 percent, quarter-over-quarter." "We are very pleased with our Affiliates' results in a period of mixed returns in the equity markets," said William William, crown prince of Germany William or Frederick William, 1882–1951, crown prince of Germany, son of William II. In World War I he commanded (1914) an army on the Western Front and was nominal commander in the German attack J. Nutt, Chairman. "AMG's broad participation in the major segments of the investment management industry, through highly regarded, strong performing mutual fund products offered by firms such as Tweedy, Browne, Third Avenue, and Friess Associates, as well as institutionally-focused international and alternative investments offered by firms such as Genesis, First Quadrant quadrant, in analytic geometry quadrant. 1 In analytic geometry, one of the four regions of the plane determined by two lines, the x-axis and the y-axis. , and AQR AQR Association for Qualitative Research (UK) AQR Airline Quality Rating AQR Anàlisi Quantitativa Regional AQR Assured Quality Routing (iBasis) AQR Applied Quantitative Research , positioned us for higher earnings this quarter and going forward." "Our pending acquisition of First Asset Management will further enhance our diversity, expand our product offerings, and add some of Canada's finest investment managers to our Affiliate group," continued Mr. Healey. "Looking ahead, we continue to identify and develop relationships with high quality mid-sized asset management firms This is a list of corporations that provide financial asset management.
AMG is an asset management company with equity investments in a diverse group of mid-sized investment management firms. AMG's strategy is to generate growth through the internal growth of its existing Affiliates, as well as through investments in new Affiliates. AMG's innovative transaction structure allows individual members of each Affiliate's management team to retain or receive significant direct equity ownership in their firm while maintaining operating autonomy autonomy (ôtŏn`əmē) [Gr.,=self-rule], in a political sense, limited self-government, short of independence, of a political state or, more frequently, of a subdivision. . In addition, AMG provides centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. assistance to its Affiliates in strategic matters, marketing, distribution, product development and operations. Certain matters discussed in this press release may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay , competition for acquisitions of interests in investment management firms, our ability to complete pending acquisitions, 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2004. 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 1-800-257-2101 (domestic calls) or 1-303-262-2004 (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 be available for replay approximately one hour after the conclusion of the call. To access the replay, please dial 1-800-405-2236 (domestic calls) or 1-303-590-3000 (international calls), pass code 11035381. The live call and the replay of the session, and the additional financial information referenced during the teleconference, may also be accessed via the Web at www.amg.com. For more information on Affiliated Managers Group, Inc., please visit AMG's Web site at www.amg.com.
Affiliated Managers Group, Inc.
Financial Highlights
(dollars in thousands, except per share data)
Three Months Three Months
Ended Ended
6/30/04 6/30/05
------------- -------------
Revenue $ 158,562 $ 208,257
Net Income $ 18,920 $ 26,241
Cash Net Income (A) $ 30,354 $ 42,380
EBITDA (B) $ 46,127 $ 59,412
Average shares outstanding - diluted (C) 38,197,082 44,375,152
Earnings per share - diluted (C)(a) $ 0.51 $ 0.63
Average shares outstanding - adjusted
diluted (D) 30,314,383 37,615,508
Cash earnings per share - diluted (D) $ 1.00 $ 1.13
December 31, June 30,
2004 2005
------------- -------------
Cash and cash equivalents $ 140,277 $ 171,348
Senior debt $ 126,750 $ 116,750
Senior convertible debt $ 423,958 $ 424,262
Mandatory convertible securities $ 300,000 $ 300,000
Stockholders' equity $ 707,692 $ 765,910
(a) As required by EITF 04-08 (discussed in Note C in greater
detail), the calculation of diluted earnings per share
includes the addition to Net Income of interest expense
related to the Company's contingently convertible securities,
net of tax, of $632 and $1,552 for the three months ended
June 30, 2004 and 2005, respectively.
Affiliated Managers Group, Inc.
Financial Highlights
(dollars in thousands, except per share data)
Six Months Six Months
Ended Ended
6/30/04 6/30/05
------------- -------------
Revenue $ 310,196 $ 409,869
Net Income $ 37,090 $ 51,794
Cash Net Income (A) $ 59,733 $ 84,110
EBITDA (B) $ 89,879 $ 117,965
Average shares outstanding - diluted (C) 39,105,591 44,225,309
Earnings per share - diluted (C)(b) $ 0.98 $ 1.24
Average shares outstanding - adjusted
diluted (D) 31,297,223 37,465,179
Cash earnings per share - diluted (D) $ 1.91 $ 2.25
(b) As required by EITF 04-08 (discussed in Note C in greater
detail), the calculation of diluted earnings per share
includes the addition to Net Income of interest expense
related to the Company's contingently convertible securities,
net of tax, of $1,239 and $2,847 for the six months ended
June 30, 2004 and 2005, respectively.
Affiliated Managers Group, Inc.
Reconciliations of Earnings Per Share Calculation
(dollars in thousands, except per share data)
Three Months Three Months
Ended Ended
6/30/04 6/30/05
------------- -------------
Net Income $ 18,920 $ 26,241
Contingent convertible securities
interest expense, net 632 1,552
------------- -------------
Net Income, as adjusted $ 19,552 $ 27,793
Average shares outstanding - diluted (C) 38,197,082 44,375,152
Earnings per share - diluted (C) $ 0.51 $ 0.63
Six Months Six Months
Ended Ended
6/30/04 6/30/05
------------- -------------
Net Income $ 37,090 $ 51,794
Contingent convertible securities
interest expense, net 1,239 2,847
------------- -------------
Net Income, as adjusted $ 38,329 $ 54,641
Average shares outstanding - diluted (C) 39,105,591 44,225,309
Earnings per share - diluted (C) $ 0.98 $ 1.24
Affiliated Managers Group, Inc.
Reconciliations of Average Shares Outstanding
Three Months Three Months
Ended Ended
6/30/04 6/30/05
------------ ------------
Average shares outstanding - diluted (C) 38,197,082 44,375,152
Assumed issuance of COBRA shares (5,538,465) (6,331,805)
Assumed issuance of LYONS shares (2,344,234) (2,344,130)
Dilutive impact of COBRA shares - 1,513,820
Dilutive impact of LYONS shares - 402,471
------------ ------------
Average shares outstanding -
adjusted diluted (D) 30,314,383 37,615,508
============ ============
Six Months Six Months
Ended Ended
6/30/04 6/30/05
------------ ------------
Average shares outstanding - diluted (C) 39,105,591 44,225,309
Assumed issuance of COBRA shares (5,606,779) (6,138,044)
Assumed issuance of LYONS shares (2,344,234) (2,344,130)
Dilutive impact of COBRA shares 98,181 1,320,563
Dilutive impact of LYONS shares 44,464 401,481
------------ ------------
Average shares outstanding -
adjusted diluted (D) 31,297,223 37,465,179
============ ============
Affiliated Managers Group, Inc.
Operating Results
(in millions)
Assets Under Management
Statement of Changes - Quarter to Date
Mutual High Net
Fund Institutional Worth Total
--------- ------------- --------- ------------
Assets under management,
March 31, 2005 $ 34,282 $ 79,671 $ 18,108 $132,061
Net client cash flows
- directly managed
assets 2,118 132 (348) 1,902
Net client cash flows
- overlay assets - 658 - 658
Investment
performance 1,376 1,554 408 3,338
--------- ------------- --------- ------------
Assets under management,
June 30, 2005 $ 37,776 $ 82,015 $ 18,168 $137,959
========= ============= ========= ============
Statement of Changes - Year to Date
Mutual High Net
Fund Institutional Worth Total
--------- ------------- --------- ------------
Assets under management,
December 31, 2004 $ 29,881 $ 79,430 $ 20,491 $129,802
Net client cash flows
- directly managed
assets 3,359 2,185 (2,290) 3,254
Net client cash flows
- overlay assets - (910) - (910)
New investments (F) 2,825 72 88 2,985
Investment
performance 1,711 1,238 (121) 2,828
--------- ------------- --------- ------------
Assets under management,
June 30, 2005 $ 37,776 $ 82,015 $ 18,168 $137,959
========= ============= ========= ============
Affiliated Managers Group, Inc.
Operating Results
(in thousands)
Financial Results
Three Three
Months Months
Ended Percent Ended Percent
6/30/04 of Total 6/30/05 of Total
--------- ------------- --------- ------------
Revenue
Mutual Fund $ 61,550 39% $ 89,348 43%
Institutional 62,372 39% 88,373 42%
High Net Worth 34,640 22% 30,536 15%
--------- ------------- --------- ------------
$158,562 100% $208,257 100%
========= ============= ========= ============
EBITDA (B)
Mutual Fund $ 18,258 40% $ 24,129 41%
Institutional 18,079 39% 27,206 46%
High Net Worth 9,790 21% 8,077 13%
--------- ------------- --------- ------------
$ 46,127 100% $ 59,412 100%
========= ============= ========= ============
Six Six
Months Months
Ended Percent Ended Percent
6/30/04 of Total 6/30/05 of Total
--------- ------------- --------- ------------
Revenue
Mutual Fund $121,853 39% $170,289 42%
Institutional 117,613 38% 176,421 43%
High Net Worth 70,730 23% 63,159 15%
--------- ------------- --------- ------------
$310,196 100% $409,869 100%
========= ============= ========= ============
EBITDA (B)
Mutual Fund $ 36,369 40% $ 47,170 40%
Institutional 33,319 37% 54,428 46%
High Net Worth 20,191 23% 16,367 14%
--------- ------------- --------- ------------
$ 89,879 100% $117,965 100%
========= ============= ========= ============
Affiliated Managers Group, Inc.
Reconciliation of Performance and Liquidity Measures
(in thousands)
Three Three
Months Months
Ended Ended
6/30/04 6/30/05
--------- ---------
Net Income $ 18,920 $ 26,241
Intangible amortization 4,163 5,737
Intangible amortization - equity method
investment (G) - 1,998
Intangible-related deferred taxes 6,160 7,430
Affiliate depreciation 1,111 974
--------- ---------
Cash Net Income (A) $ 30,354 $ 42,380
========= =========
Cash flow from operations $ 65,596 $ 67,336
Interest expense, net of non-cash items 7,555 7,302
Current tax provision 5,624 7,139
Income from equity method investment, net of
distributions (G) - 1,136
Changes in assets and liabilities and other
adjustments (32,648) (23,501)
--------- ---------
EBITDA (B) $ 46,127 $ 59,412
--------- ---------
Holding company expenses 7,038 9,754
--------- ---------
EBITDA Contribution $ 53,165 $ 69,166
========= =========
Six Six
Months Months
Ended Ended
6/30/04 6/30/05
--------- ---------
Net Income $ 37,090 $ 51,794
Intangible amortization 8,264 11,473
Intangible amortization - equity method
investment (G) - 3,995
Intangible-related deferred taxes 12,243 14,860
Affiliate depreciation 2,136 1,988
--------- ---------
Cash Net Income (A) $ 59,733 $ 84,110
========= =========
Cash flow from operations $ 77,402 $ 61,303
Interest expense, net of non-cash items 13,812 14,153
Current tax provision 10,173 15,139
Income from equity method investment, net of
distributions (G) - 3,775
Changes in assets and liabilities and other
adjustments (11,508) 23,595
--------- ---------
EBITDA (B) $ 89,879 $117,965
--------- ---------
Holding company expenses 13,929 19,523
--------- ---------
EBITDA Contribution $103,808 $137,488
========= =========
Affiliated Managers Group, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2005 2004 2005
------------ ------------ ------------ ------------
Revenue $ 158,562 $ 208,257 $ 310,196 $ 409,869
Operating expenses:
Compensation and
related expenses 57,591 82,859 114,882 164,071
Selling, general
and administrative 25,325 37,477 48,646 71,276
Amortization of
intangible assets 4,163 5,737 8,264 11,473
Depreciation and
other amortization 1,620 1,483 3,159 3,018
Other operating
expenses 3,451 4,918 7,173 9,756
------------ ------------ ------------ ------------
92,150 132,474 182,124 259,594
------------ ------------ ------------ ------------
Operating income 66,412 75,783 128,072 150,275
------------ ------------ ------------ ------------
Non-operating (income) and expenses:
Investment and
other income (1,698) (4,846) (3,582) (9,024)
Interest expense 8,810 8,541 16,125 16,611
------------ ------------ ------------ ------------
7,112 3,695 12,543 7,587
------------ ------------ ------------ ------------
Income before
minority interest
and taxes 59,300 72,088 115,529 142,688
Minority interest(E) (27,766) (30,435) (53,198) (59,820)
------------ ------------ ------------ ------------
Income before
income taxes 31,534 41,653 62,331 82,868
Income taxes -
current 5,624 7,139 10,173 15,139
Income taxes -
intangible-related
deferred 6,160 7,430 12,243 14,860
Income taxes -
other deferred 830 843 2,825 1,075
------------ ------------ ------------ ------------
Net Income $ 18,920 $ 26,241 $ 37,090 $ 51,794
============ ============ ============ ============
Average shares
outstanding -
basic 28,992,832 33,591,741 29,651,623 33,452,278
Average shares
outstanding -
diluted (C) 38,197,082 44,375,152 39,105,591 44,225,309
Earnings per share
- basic $ 0.65 $ 0.78 $ 1.25 $ 1.55
Earnings per share
- diluted (C) $ 0.51 $ 0.63 $ 0.98 $ 1.24
Affiliated Managers Group, Inc.
Consolidated Balance Sheets
(in thousands)
December 31, June 30,
2004 2005
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 140,277 $ 171,348
Short-term investments 21,173 -
Investment advisory fees receivable 91,487 111,838
Prepaid expenses and other current assets 24,795 30,221
----------- -----------
Total current assets 277,732 313,407
Fixed assets, net 40,953 42,925
Equity investment in Affiliate 252,597 252,492
Acquired client relationships, net 440,409 440,913
Goodwill 888,567 892,273
Other assets 33,163 33,771
----------- -----------
Total assets $1,933,421 $1,975,781
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 114,350 $ 121,971
Payables to related party 17,728 11,268
----------- -----------
Total current liabilities 132,078 133,239
Senior debt 126,750 116,750
Senior convertible debt 423,958 424,262
Mandatory convertible securities 300,000 300,000
Deferred income taxes 124,168 137,042
Other long-term liabilities 31,397 23,873
----------- -----------
Total liabilities 1,138,351 1,135,166
Minority interest (E) 87,378 74,705
Stockholders' equity:
Common stock 387 387
Additional paid-in capital 566,776 559,321
Accumulated other comprehensive income 1,537 1,385
Retained earnings 384,119 435,913
----------- -----------
952,819 997,006
Less treasury stock, at cost (245,127) (231,096)
----------- -----------
Total stockholders' equity 707,692 765,910
----------- -----------
Total liabilities and stockholders' equity $1,933,421 $1,975,781
=========== ===========
Affiliated Managers Group, Inc.
Consolidated Statements of Cash Flow
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2005 2004 2005
--------- --------- ---------- ---------
Cash flow from operating
activities:
Net Income $ 18,920 $ 26,241 $ 37,090 $ 51,794
Adjustments to reconcile
Net Income to net cash
flow from operating
activities:
Amortization of
intangible assets 4,163 5,737 8,264 11,473
Amortization of debt
issuance costs 928 765 1,832 1,510
Depreciation and
amortization of fixed
assets 1,620 1,483 3,159 3,018
Deferred income tax
provision 6,990 8,273 15,068 15,935
Accretion of interest 327 474 481 948
Income from equity method
investment, net of
amortization - (3,002) - (6,005)
Distributions received
from equity method
investment - 3,864 - 6,225
Tax benefit from exercise
of stock options - 5,346 5,509 5,741
Other investment income - (212) - (869)
Changes in assets and
liabilities:
Increase in investment
advisory fees receivable (5,775) (2,295) (14,607) (20,350)
(Increase) decrease in
other current assets 5,316 (994) 6,865 (137)
(Increase) decrease in
non-current other
receivables 2,817 (84) 3,528 247
Increase in accounts
payable, accrued
expenses and other
liabilities 22,896 14,306 2,812 3,826
Increase (decrease) in
minority interest 7,394 7,434 7,401 (12,053)
--------- --------- ---------- ---------
Cash flow from
operating
activities 65,596 67,336 77,402 61,303
--------- --------- ---------- ---------
Cash flow used in investing
activities:
Costs of investments in
Affiliates, net of cash
acquired (75,952) (2,893) (80,066) (18,391)
Purchase of fixed assets (2,224) (2,356) (3,519) (4,989)
Purchase of investment
securities (6,575) (463) (10,250) (6,393)
Sale of investment
securities - - 658 24,062
Decrease (increase) in
other assets 49 - (57) -
--------- --------- ---------- ---------
Cash flow used in
investing
activities (84,702) (5,712) (93,234) (5,711)
--------- --------- ---------- ---------
Cash flow from (used in)
financing activities:
Borrowings of senior bank
debt - - - 5,000
Repayments of senior bank
debt - - - (5,000)
Issuance of convertible
securities - - 300,000 -
Repurchase of senior debt
securities - (10,000) - (10,000)
Issuance of common stock - 12,284 11,414 14,025
Repurchase of common
stock - - (194,420) -
Settlement of forward
equity sale agreement - (14,008) - (14,008)
Issuance costs (129) (380) (9,844) (623)
Repayments of notes
payable and other
liabilities (2,457) (480) (7,041) (13,285)
--------- --------- ---------- ---------
Cash flow from
(used in) financing
activities (2,586) (12,584) 100,109 (23,891)
--------- --------- ---------- ---------
Effect of foreign exchange
rate changes on cash flow 61 (345) 61 (630)
Net increase (decrease) in
cash and cash equivalents (21,631) 48,695 84,338 31,071
Cash and cash equivalents at
beginning of period 330,251 122,653 224,282 140,277
--------- --------- ---------- ---------
Cash and cash equivalents at
end of period $308,620 $171,348 $ 308,620 $171,348
========= ========= ========== =========
Affiliated Managers Group, Inc.
Notes
(A) Cash Net Income is defined as Net Income plus amortization and
deferred taxes related to intangible assets plus Affiliate
depreciation. This supplemental non-GAAP performance measure is
provided in addition to, but not as a substitute for, Net Income.
The Company considers Cash Net Income an important measure of its
financial performance, as management believes it best represents
operating performance before non-cash expenses relating to the
acquisition of interests in its affiliated investment management
firms. Since acquired assets do not generally depreciate or
require replacement, and since they generate deferred tax expenses
that are unlikely to reverse, the Company adds back these non-cash
expenses. Cash Net Income is used by the Company's management and
Board of Directors as a principal performance benchmark.
The Company adds 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 Company adds back the portion of
deferred taxes generally attributable to intangible assets
(including goodwill) that it no longer amortizes but which
continues to generate tax deductions. These deferred tax expense
accruals would be used in the event of a future sale of an
Affiliate or an impairment charge, which the Company considers
unlikely. The Company adds back the portion of consolidated
depreciation expense incurred by Affiliates because under its
Affiliate operating agreements, the Company is generally not
required to replenish these depreciating assets.
(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, the Company believes EBITDA is useful as an indicator
of its ability to service debt, make new investments and meet
working capital requirements. EBITDA, as calculated by the
Company, 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) EITF Issue No. 04-08, "The Effect of Contingently Convertible Debt
on Diluted Earnings per Share" ("EITF 04-08"), became effective in
the fourth quarter of 2004. EITF 04-08 states that any shares of
common stock that may be issued to settle contingently convertible
securities (such as the shares that underlie the Company's zero
coupon senior convertible notes and floating rate senior
convertible securities) must be considered issued in the
calculation of diluted earnings per share, regardless of whether
the market price trigger (or other contingent feature) in these
securities has been met. This is commonly referred to as the
"if-converted" method. Under this method, the Company has included
the shares of common stock that may be issued to settle its
contingently convertible securities in the calculation of its
diluted earnings per share for the three and six months ended June
30, 2005 and has retroactively adjusted earnings per share
information for the three and six months ended June 30, 2004. In
this if-converted calculation, while the contingently convertible
securities continue to be reflected as liabilities on the
Company's balance sheet, the associated interest expense (net of
taxes) has been added back to Net Income (as further illustrated
in "Reconciliations of Earnings Per Share Calculation").
(D) Cash earnings per share represents Cash Net Income divided by
adjusted diluted average shares outstanding. In this calculation,
the potential share issuance in connection with the Company's
contingently convertible securities measures net shares 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 in excess of par, if any, are deemed to be
outstanding. The Company believes 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 the Company is relieved of its debt
obligation. This method does not take into account any increase or
decrease in the Company's cost of capital in an assumed
conversion.
(E) Minority interest on the Company's income statement represents
the profits allocated to Affiliate management owners for that
period. Minority interest on the Company's balance sheet
represents the undistributed profits and capital owned by
Affiliate management, who retain a conditional right to sell their
interests to the Company.
(F) The Company completed its acquisition of the mutual fund
business of Fremont Investment Advisors through Managers
Investment Group LLC in January 2005.
(G) The Company is required to use the equity method of accounting
for its investment in AQR Capital Management, LLC ("AQR").
Consistent with this method, the Company has not consolidated
AQR's operating results (including its revenue) in its income
statement. The Company's share of AQR's profits, net of intangible
amortization, is reported in "Investment and other income." AQR's
assets under management are included in the Company's reported
assets under management.
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