AMG Reports Financial and Operating Results for the First Quarter of 2006; Company Reports EPS of $0.81; Cash EPS of $1.27.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 ended March 31, 2006. 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 first quarter of 2006 were $1.27, compared to $1.12 for the first quarter of 2005, 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 first quarter of 2006 were $0.81, compared to $0.61 for the same period of 2005. Cash Net Income was $52.8 million for the first quarter of 2006, compared to $41.7 million for the first quarter of 2005. Net Income for the first quarter of 2006 was $35.2 million, compared to $25.6 million for the first quarter of 2005. (Cash EPS and Cash Net Income are defined in the attached tables.) For the first quarter of 2006, revenue was $278.0 million, compared to $201.6 million for the first quarter of 2005. 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 first quarter of 2006 was $78.5 million, compared to $58.6 million for the same period of 2005. Net client cash flows for the first quarter of 2006 were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $5.8 billion, with net inflows in the institutional, mutual fund, and high net worth channels of $4.3 billion, $1.2 billion, and $300 million, respectively. These aggregate net client cash flows resulted in an increase of approximately $10.4 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. 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 March 31, 2006 were approximately $203 billion. "AMG is off to an excellent start in 2006, with strong momentum across our business, particularly in fast-growing adj. 1. tending to spread quickly; - used mostly of plants. Adj. 1. fast-growing - tending to spread quickly; "an aggressive tumor" strong-growing, aggressive areas such as international equities and alternative investments," stated 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. "Assets under management grew $19 billion in the quarter, including $5.8 billion from net client cash flows. Highlights of the quarter included excellent results at emerging markets equities specialist Genesis, as well as the continued outstanding performance at quantitative quantitative /quan·ti·ta·tive/ (kwahn´ti-ta?tiv) 1. denoting or expressing a quantity. 2. relating to the proportionate quantities or to the amount of the constituents of a compound. managers AQR AQR Association for Qualitative Research (UK) AQR Airline Quality Rating AQR Anàlisi Quantitativa Regional AQR Assured Quality Routing (iBasis) AQR Applied Quantitative Research and 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. . Our domestic equity products also generated substantial growth during the quarter, led by value manager Third Avenue, as well as growth managers Friess and TimesSquare." Mr. Healey continued, "In addition to our strong first quarter operating results, we issued $300 million of convertible trust preferred securities at a conversion price of $150, using a substantial portion of the proceeds to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. approximately 2.1 million shares of common stock. Combined with our credit facility and strong cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , we continue to have significant capacity to execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution our growth strategy, through additional investments in new Affiliates, repaying existing indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , or repurchasing our stock, as appropriate." Mr. Healey concluded, "Finally, looking ahead, we continue to make progress in pursuing additional investment opportunities in high quality mid-sized firms, and we remain confident that we will continue to add to our earnings growth through accretive investments in new Affiliates." 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 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 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, 2005. 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 1-866-250-4375 (domestic calls) or 1-303-262-2191 (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 11058789. 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 Three
Months Months
Ended Ended
3/31/05 3/31/06
-------- ------------
Revenue $201,612 $278,042
Net Income $ 25,553 $ 35,240
Cash Net Income (A) $ 41,730 $ 52,817
EBITDA (B) $ 58,553 $ 78,485
Average shares outstanding - diluted 44,075,669 46,307,678
Earnings per share - diluted $ 0.61 $ 0.81
Average shares outstanding - adjusted
diluted (C) 37,315,053 41,721,962
Cash earnings per share - diluted (C) $ 1.12 $ 1.27
December 31, March 31,
2005 2006
----------- -----------
Cash and cash equivalents $140,423 $114,719
Senior debt $241,250 $284,750
Senior convertible debt $424,232 $414,449
Mandatory convertible securities $300,000 $300,000
Stockholders' equity $817,381 $816,560
Affiliated Managers Group, Inc.
Reconciliations of Earnings Per Share Calculation
(dollars in thousands, except per share data)
Three Months Three Months
Ended Ended
3/31/05 3/31/06
------------- ------------
Net Income $25,553 $35,240
Contingent convertible securities interest
expense, net 1,294 2,278
--------- ---------
Net Income, as adjusted $26,847 $37,518
Average shares outstanding - diluted 44,075,669 46,307,678
Earnings per share - diluted $ 0.61 $ 0.81
Reconciliations of Average Shares Outstanding
Three Months Three Months
Ended Ended
3/31/05 3/31/06
------------- ------------
Average shares outstanding - diluted 44,075,669 46,307,678
Assumed issuance of COBRA shares (5,944,283) (7,150,703)
Assumed issuance of LYONS shares (2,344,130) (2,297,774)
Dilutive impact of COBRA shares 1,127,305 3,858,961
Dilutive impact of LYONS shares 400,492 1,003,800
----------- -----------
Average shares outstanding - adjusted
diluted (C) 37,315,053 41,721,962
=========== ===========
Affiliated Managers Group, Inc.
Operating Results
Assets Under Management (D)
(in millions)
Statement of Changes
Mutual High Net
Fund Institutional Worth Total
--------- ------------- -------------------
Assets under management,
December 31, 2005 $50,268 $109,299 $24,743 $184,310
Net client cash flows 1,176 4,347 284 5,807
Investment performance 3,888 7,356 1,487 12,731
--------- ------------- --------- ---------
Assets under management,
March 31, 2006 $55,332 $121,002 $26,514 $202,848
========= ============= ========= =========
Financial Results (D)
(in thousands)
Three Three
Months Months
Ended Percent Ended Percent
3/31/05 of Total 3/31/06 of Total
--------- ------------- --------- ---------
Revenue
Mutual Fund $ 85,456 43% $121,214 44%
Institutional 85,179 42% 119,794 43%
High Net Worth 30,977 15% 37,034 13%
--------- ------------- --------- ---------
$201,612 100% $278,042 100%
========= ============= ========= =========
EBITDA (B)
Mutual Fund $ 24,437 42% $ 32,305 41%
Institutional 26,499 45% 36,151 46%
High Net Worth 7,617 13% 10,029 13%
--------- ------------- --------- ---------
$ 58,553 100% $ 78,485 100%
========= ============= ========= =========
Affiliated Managers Group, Inc.
Reconciliations of Performance and Liquidity Measures
(in thousands)
Three Months Three Months
Ended Ended
3/31/05 3/31/06
------------- ------------
Net Income $25,553 $35,240
Intangible amortization 5,736 6,854
Intangible amortization - equity method
investments (E) 1,998 2,316
Intangible-related deferred taxes 7,430 7,105
Affiliate depreciation 1,013 1,302
-------- --------
Cash Net Income (A) $41,730 $52,817
======== ========
Cash flow from operations $(6,033) $(2,083)
Interest expense, net of non-cash items 6,851 10,223
Current tax provision 8,000 13,791
Income from equity method investments, net of
distributions (E) 2,639 (13,107)
Changes in assets and liabilities and other
adjustments 47,096 69,661
-------- --------
EBITDA (B) $58,553 $78,485
-------- --------
Holding company expenses 9,768 12,375
-------- --------
EBITDA Contribution $68,321 $90,860
======== ========
Affiliated Managers Group, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share data)
Three Months Ended
March 31,
2005 2006
----------- -----------
Revenue $201,612 $278,042
Operating expenses:
Compensation and related expenses 81,212 116,517
Selling, general and administrative 33,799 43,483
Amortization of intangible assets 5,736 6,854
Depreciation and other amortization 1,534 1,896
Other operating expenses 4,839 5,586
----------- -----------
127,120 174,336
----------- -----------
Operating income 74,492 103,706
----------- -----------
Non-operating (income) and expenses:
Investment and other income (G) (1,176) (3,983)
Income from equity method investments (3,002) (5,599)
Interest expense 8,070 11,482
----------- -----------
3,892 1,900
----------- -----------
Income before minority interest and taxes 70,600 101,806
Minority interest (F) (29,385) (45,869)
----------- -----------
Income before income taxes 41,215 55,937
Income taxes - current 8,000 13,791
Income taxes - intangible-related deferred 7,430 7,105
Income taxes - other deferred 232 (199)
----------- -----------
Net Income $25,553 $35,240
=========== ===========
Average shares outstanding - basic 33,311,259 33,681,230
Average shares outstanding - diluted 44,075,669 46,307,678
Earnings per share - basic $ 0.77 $ 1.05
Earnings per share - diluted $ 0.61 $ 0.81
Affiliated Managers Group, Inc.
Consolidated Balance Sheets
(in thousands)
December 31, March 31,
2005 2006
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 140,423 $ 114,719
Investment advisory fees receivable 148,850 154,594
Affiliate investments in partnerships, net (G) 5,079 5,809
Prepaid expenses and other current assets 48,529 42,833
----------- -----------
Total current assets 342,881 317,955
Fixed assets, net 50,592 55,327
Equity investments in Affiliates 301,476 288,809
Acquired client relationships, net 483,692 480,093
Goodwill 1,093,249 1,088,347
Other assets 49,746 44,959
----------- -----------
Total assets $2,321,636 $2,275,490
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 176,711 $ 138,894
Senior debt 65,750 65,750
Payables to related party 14,127 9,780
----------- -----------
Total current liabilities 256,588 214,424
Senior debt 175,500 219,000
Senior convertible debt 424,232 414,449
Mandatory convertible securities 300,000 300,000
Deferred income taxes 182,623 193,056
Other long-term liabilities 20,149 17,364
----------- -----------
Total liabilities 1,359,092 1,358,293
Minority interest (F) 145,163 100,637
Stockholders' equity:
Common stock 390 390
Additional paid-in capital 593,090 595,621
Accumulated other comprehensive income 16,756 16,291
Retained earnings 503,188 538,428
----------- -----------
1,113,424 1,150,730
Less treasury stock, at cost (296,043) (334,170)
----------- -----------
Total stockholders' equity 817,381 816,560
----------- -----------
Total liabilities and stockholders' equity $2,321,636 $2,275,490
=========== ===========
Affiliated Managers Group, Inc.
Consolidated Statements of Cash Flow
(in thousands)
Three Months Ended
March 31,
2005 2006
--------- ---------
Cash flow used in operating activities:
Net Income $25,553 $35,240
Adjustments to reconcile Net Income to net cash
flow used in operating activities:
Amortization of intangible assets 5,736 6,854
Amortization of debt issuance costs 745 663
Depreciation and other amortization 1,534 1,896
Deferred income tax provision 7,662 6,906
Accretion of interest 474 596
Income from equity method investments, net of
amortization (3,002) (5,599)
Distributions received from equity method
investments (1) 2,361 21,022
Tax benefit from exercise of stock options 395 3,010
Other adjustments (657) 380
Changes in assets and liabilities:
Increase in investment advisory fees receivable (18,055) (7,448)
Decrease in prepaids and other current assets 857 2,491
Decrease in other assets 331 3,884
Decrease in accounts payable, accrued liabilities
and other long-term liabilities (10,480) (32,975)
Decrease in minority interest (19,487) (39,003)
--------- ---------
Cash flow used in operating
activities (6,033) (2,083)
--------- ---------
Cash flow from (used in) investing activities:
Costs of investments in Affiliates, net of cash
acquired (15,498) (9,358)
Purchase of fixed assets (2,633) (7,136)
Purchase of investment securities (5,930) (6,562)
Sale of investment securities 24,062 -
--------- ---------
Cash flow from (used in) investing
activities (1) 1 (23,056)
--------- ---------
Cash flow used in financing activities:
Borrowings of senior bank debt 5,000 107,000
Repayments of senior bank debt (5,000) (63,500)
Issuance of common stock 1,741 32,407
Repurchase of common stock - (69,855)
Issuance costs (243) (5)
Excess tax benefit from exercise of stock
options - 11,239
Cost of call-spread option contracts - (13,290)
Repayments of notes payable and other
liabilities (12,805) (4,490)
--------- ---------
Cash flow used in financing activities (11,307) (494)
--------- ---------
Effect of foreign exchange rate changes on cash
flow (285) (71)
Net decrease in cash and cash equivalents (17,624) (25,704)
Cash and cash equivalents at beginning of period 140,277 140,423
--------- ---------
Cash and cash equivalents at end of period $122,653 $114,719
========= =========
(1) Distributions received from equity method investments (as
discussed further in Note E) have been reclassified from "Cash
flow from (used in) investing activities," as reported in the
first quarter of 2005, to "Cash flow used in operating
activities." This reclassification had no net impact on the
Company's financial results.
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) Cash earnings per share represents Cash Net Income divided by the
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.
(D) In connection with the Company's July 2005 acquisition of First
Asset Management Inc., and the resulting increase in registered
products based outside the United States, the Company amended its
Mutual Fund distribution channel definition to include
non-institutional collective investment vehicle products
registered abroad. As a result, in the third quarter of 2005,
approximately $3.2 billion and $0.7 billion of existing assets
under management in the Institutional and High Net Worth
distribution channels, respectively, were reclassified to the
Mutual Fund distribution channel, and accordingly, financial
information for prior periods has been revised to conform to this
presentation.
In addition, during the first quarter of 2006, approximately $1.5
billion and $0.6 billion of existing assets under management were
reclassified to the Institutional and Mutual Fund distribution
channels, respectively, from the High Net Worth distribution
channel, to conform to current period's presentation.
(E) The Company is required to use the equity method of accounting for
its investments in AQR Capital Management, LLC, Beutel, Goodman &
Company Ltd. and Deans Knight Capital Management Ltd. (together,
"equity method investments"). Consistent with this method, the
Company has not consolidated the operating results (including the
revenue) of its equity method investments in its income statement.
The Company's share of its equity method investments' profits, net
of intangible amortization, is reported in "Income from equity
method investments." Income tax attributable to these profits is
reported within the Company's consolidated income tax provision.
The assets under management of equity method investments are
included in the Company's reported assets under management.
(F) 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.
(G) EITF Issue No. 04-05, "Determining Whether a General Partner, or
the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights,"
("EITF 04-05"), became effective January 1, 2006. EITF 04-05
requires the Company to consolidate certain Affiliate investment
partnerships (including interests in the partnerships in which the
Company does not have ownership rights) in its consolidated
financial statements. While the Company's ownership interests in
these partnerships has not changed over prior periods, under EITF
04-05, an additional $120 million will be reflected on the
Company's consolidated balance sheet (and the related income and
expense will be reflected in the consolidated income statement) in
its Quarterly Report on Form 10-Q. To best reflect the
Company's ownership interests in this press release, the interests
are presented net of any portion owned by underlying investors
unrelated to the Company (the "outside owners"). For the period
ending March 31, 2006, the total non-operating income associated
with those partnerships was $10.8 million, while the portion
attributable to the outside owners was $10.2 million; as of March
31, 2006, the total assets attributable to these investment
partnerships was $125 million, while the portion owned by the
outside owners was $120 million.
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