AMG Reports Financial and Operating Results for the Second Quarter and First Half of 2006; Company Reports EPS of $0.86; Cash EPS of $1.30.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, 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 second quarter of 2006 were $1.30, compared to $1.13 for the second 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 second quarter of 2006 were $0.86, compared to $0.63 for the same period of 2005. Cash Net Income was $50.3 million for the second quarter of 2006, compared to $42.4 million for the second quarter of 2005. Net Income for the second quarter of 2006 was $33.9 million, compared to $26.2 million for the second quarter of 2005. (Cash EPS and Cash Net Income are defined in the attached tables.) For the second quarter of 2006, revenue was $283.1 million, compared to $208.3 million for the second 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 second quarter of 2006 was $78.1 million, compared to $59.4 million for the same period of 2005. For the six months ended June 30, 2006, Cash Net Income was $103.2 million, while EBITDA was $156.6 million. For the same period, Net Income was $69.2 million, on revenue of $561.2 million. 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. Net client cash flows for the second quarter of 2006 were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $2.9 billion, with net inflows in the institutional, mutual fund and high net worth channels of $2.2 billion, $289 million, and $404 million, respectively. 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, 2006 were approximately $202 billion, an increase of $64 billion over the same period of 2005, with organic growth contributing approximately $40 billion, or more than 60%, of this increase. "AMG produced solid earnings growth in the second quarter of 2006, notwithstanding a challenging equity market environment. Our organic growth remains strong, as net client cash flows during the quarter were $2.9 billion, driven by the strength and diversity of our Affiliates' product offerings," 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. "We are very well positioned for continued growth, with broad participation across major product categories through leading firms such as 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. in alternative products, Genesis and Tweedy, Browne in international equity products, and Friess Associates and Third Avenue in domestic growth and value equity products." "Our second quarter results also demonstrate our focus on enhancing shareholder value through effective capital management, including stock repurchases Stock repurchase A firm's repurchase of outstanding shares of its common stock. ," continued Mr. Healey. "During the quarter, we issued $300 million of convertible trust preferred securities at a conversion price of $150 per share. We used 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. common stock, bringing our aggregate stock repurchases to approximately 4.0 million through the second quarter. Given our strong balance sheet and recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. 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 have ample capacity to finance attractive new investments while continuing to maximize In a graphical environment, to enlarge a window to the full size of the screen. See Win Maximize windows. our return on capital." Mr. Healey concluded, "AMG's prospects for making new investments remain strong, as we are widely recognized among high quality mid-sized asset managers for our track record of successful investments and unique succession planning Management Succession Planning In organizational development, succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players — such as the chief executive officer (CEO) — solution for growing firms, and we continue to make excellent progress in our discussions with prospective 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 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, 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 1-866-250-2351 (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 11066244. 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
6/30/05 6/30/06
----------- ------------
Revenue $ 208,257 $ 283,108
Net Income $ 26,241 $ 33,936
Cash Net Income (A) $ 42,380 $ 50,349
EBITDA (B) $ 59,412 $ 78,140
Average shares outstanding - diluted 44,375,152 45,213,524
Earnings per share - diluted $ 0.63 $ 0.86
Average shares outstanding - adjusted
diluted (C) 37,615,508 38,733,290
Cash earnings per share - diluted (C) $ 1.13 $ 1.30
December 31, June 30,
2005 2006
----------- ------------
Cash and cash equivalents $ 140,423 $ 160,406
Senior debt $ 241,250 $ 259,750
Senior convertible securities $ 424,232 $ 413,659
Mandatory convertible securities $ 300,000 $ 300,000
Junior convertible trust preferred
securities (D) $ - $ 300,000
Stockholders' equity $ 817,381 $ 543,419
Affiliated Managers Group, Inc.
Financial Highlights
(dollars in thousands, except per share data)
Six Months Six Months
Ended Ended
6/30/05 6/30/06
----------- ------------
Revenue $ 409,869 $ 561,150
Net Income $ 51,794 $ 69,176
Cash Net Income (A) $ 84,110 $ 103,166
EBITDA (B) $ 117,965 $ 156,625
Average shares outstanding - diluted 44,225,309 45,835,501
Earnings per share - diluted $ 1.24 $ 1.67
Average shares outstanding - adjusted
diluted (C) 37,465,179 40,302,526
Cash earnings per share - diluted (C) $ 2.25 $ 2.56
Affiliated Managers Group, Inc.
Reconciliations of Earnings Per Share Calculation
(dollars in thousands, except per share data)
Three Months Three Months
Ended Ended
6/30/05 6/30/06
--------------- ---------------
Net Income $ 26,241 $ 33,936
Convertible securities interest
expense, net (E) 1,552 4,938
--------------- ---------------
Net Income, as adjusted $ 27,793 $ 38,874
Average shares outstanding - diluted 44,375,152 45,213,524
Earnings per share - diluted $ 0.63 $ 0.86
Six Months Six Months
Ended Ended
6/30/05 6/30/06
--------------- ---------------
Net Income $ 51,794 $ 69,176
Convertible securities interest
expense, net (E) 2,847 7,216
--------------- ---------------
Net Income, as adjusted $ 54,641 $ 76,392
Average shares outstanding - diluted 44,225,309 45,835,501
Earnings per share - diluted $ 1.24 $ 1.67
Affiliated Managers Group, Inc.
Reconciliations of Average Shares Outstanding
Three Months Three Months
Ended Ended
6/30/05 6/30/06
--------------- ---------------
Average shares outstanding - diluted 44,375,152 45,213,524
Assumed issuance of COBRA shares (6,331,805) (6,823,797)
Assumed issuance of LYONS shares (2,344,130) (2,143,391)
Assumed issuance of Trust Preferred
shares (D) - (1,956,044)
Dilutive impact of COBRA shares 1,513,820 3,511,664
Dilutive impact of LYONS shares 402,471 931,334
Dilutive impact of Trust Preferred
shares (D) - -
--------------- ---------------
Average shares outstanding - adjusted
diluted (C) 37,615,508 38,733,290
=============== ===============
Six Months Six Months
Ended Ended
6/30/05 6/30/06
--------------- ---------------
Average shares outstanding - diluted 44,225,309 45,835,501
Assumed issuance of COBRA shares (6,138,044) (6,987,250)
Assumed issuance of LYONS shares (2,344,130) (2,220,582)
Assumed issuance of Trust Preferred
shares (D) - (978,022)
Dilutive impact of COBRA shares 1,320,563 3,685,312
Dilutive impact of LYONS shares 401,481 967,567
Dilutive impact of Trust Preferred
shares (D) - -
--------------- ---------------
Average shares outstanding - adjusted
diluted (C) 37,465,179 40,302,526
=============== ===============
Affiliated Managers Group, Inc.
Operating Results
(in millions)
Assets Under Management (F)
Statement of Changes - Quarter to Date
Mutual High Net
Fund Institutional Worth Total
--------- ------------- ---------- --------
Assets under management,
March 31, 2006 $ 55,332 $ 121,002 $ 26,514 $202,848
Net client cash flows 289 2,190 404 2,883
Investment performance (1,443) (1,788) (239) (3,470)
-------- ---------- --------- --------
Assets under management,
June 30, 2006 $ 54,178 $ 121,404 $ 26,679 $202,261
======== ========== ========= ========
Statement of Changes - Year to Date
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 1,465 6,537 688 8,690
Investment performance 2,445 5,568 1,248 9,261
-------- ---------- --------- --------
Assets under management,
June 30, 2006 $ 54,178 $ 121,404 $ 26,679 $202,261
======== ========== ========= ========
Affiliated Managers Group, Inc.
Operating Results
(in thousands)
Financial Results (F)
Three Three
Months Months
Ended Percent Ended Percent
6/30/05 of Total 6/30/06 of Total
-------- ------------- --------- ----------
Revenue
Mutual Fund $ 93,094 45% $ 125,450 44%
Institutional 85,766 41% 118,702 42%
High Net Worth 29,397 14% 38,956 14%
-------- ---------- --------- --------
$208,257 100% $ 283,108 100%
======== ========== ========= ========
EBITDA (B)
Mutual Fund $ 25,276 42% $ 33,592 43%
Institutional 26,537 45% 35,021 45%
High Net Worth 7,599 13% 9,527 12%
-------- ---------- --------- --------
$ 59,412 100% $ 78,140 100%
======== ========== ========= ========
Six Months Six Months
Ended Percent Ended Percent
6/30/05 of Total 6/30/06 of Total
-------- ------------- --------- ----------
Revenue
Mutual Fund $178,550 43% $ 246,664 44%
Institutional 170,945 42% 238,496 42%
High Net Worth 60,374 15% 75,990 14%
-------- ---------- --------- --------
$409,869 100% $ 561,150 100%
======== ========== ========= ========
EBITDA (B)
Mutual Fund $ 49,713 42% $ 65,897 42%
Institutional 53,036 45% 71,172 46%
High Net Worth 15,216 13% 19,556 12%
-------- ---------- --------- --------
$117,965 100% $ 156,625 100%
======== ========== ========= ========
Affiliated Managers Group, Inc.
Reconciliations of Performance and Liquidity Measures
(in thousands)
Three Months Three Months
Ended Ended
6/30/05 6/30/06
------------ -------------
Net Income $26,241 $33,936
Intangible amortization 5,737 6,839
Intangible amortization - equity method
investments (G) 1,998 2,316
Intangible-related deferred taxes 7,430 5,697
Affiliate depreciation 974 1,561
------------ -------------
Cash Net Income (A) $42,380 $50,349
============ =============
Cash flow from operations $67,336 $129,383
Interest expense, net of non-cash items 7,302 13,787
Current tax provision 7,139 11,453
Income from equity method investments,
net of distributions (G) 1,136 1,090
Changes in assets and liabilities and
other adjustments (23,501) (77,573)
------------ -------------
EBITDA (B) $59,412 $78,140
------------ -------------
Holding company expenses 9,754 12,009
------------ -------------
EBITDA Contribution $69,166 $90,149
============ =============
Six Months Six Months
Ended Ended
6/30/05 6/30/06
------------ -------------
Net Income $51,794 $69,176
Intangible amortization 11,473 13,693
Intangible amortization - equity method
investments (G) 3,995 4,632
Intangible-related deferred taxes 14,860 12,802
Affiliate depreciation 1,988 2,863
------------ -------------
Cash Net Income (A) $84,110 $103,166
============ =============
Cash flow from operations $61,303 $127,300
Interest expense, net of non-cash items 14,153 24,010
Current tax provision 15,139 25,244
Income from equity method investments,
net of distributions (G) 3,775 (12,017)
Changes in assets and liabilities and
other adjustments 23,595 (7,912)
------------ -------------
EBITDA (B) $117,965 $156,625
------------ -------------
Holding company expenses 19,523 24,384
------------ -------------
EBITDA Contribution $137,488 $181,009
============ =============
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,
2005 2006 2005 2006
----------- ----------- ----------- -----------
Revenue $ 208,257 $ 283,108 $ 409,869 $ 561,150
Operating expenses:
Compensation and
related expenses 82,859 118,671 164,071 235,188
Selling, general and
administrative 37,477 45,276 71,276 88,759
Amortization of
intangible assets 5,737 6,839 11,473 13,693
Depreciation and
other amortization 1,483 2,251 3,018 4,147
Other operating
expenses 4,918 5,597 9,756 11,183
----------- ----------- ----------- -----------
132,474 178,634 259,594 352,970
----------- ----------- ----------- -----------
Operating income 75,783 104,474 150,275 208,180
----------- ----------- ----------- -----------
Non-operating (income)
and expenses:
Investment and other
income (1,505) (2,014) (3,066) (5,371)
Income from equity
method investments (3,002) (6,467) (6,005) (12,066)
Investment (income)
loss from Affiliate
investments in
partnerships (I) (339) 9,321 47 (1,508)
Interest expense 8,541 15,102 16,611 26,584
----------- ----------- ----------- -----------
3,695 15,942 7,587 7,639
----------- ----------- ----------- -----------
Income before minority
interest and taxes 72,088 88,532 142,688 200,541
Minority interest (H) (30,435) (46,099) (59,820) (91,968)
Minority interest in
Affiliate investments
in partnerships (I) - 9,199 - (1,004)
----------- ----------- ----------- -----------
Income before income taxes 41,653 51,632 82,868 107,569
Income taxes - current 7,139 11,453 15,139 25,244
Income taxes -
intangible-related
deferred 7,430 5,697 14,860 12,802
Income taxes - other
deferred 843 546 1,075 347
----------- ----------- ----------- -----------
Net Income $ 26,241 $ 33,936 $ 51,794 $ 69,176
=========== =========== =========== ===========
Average shares
outstanding - basic 33,591,741 31,224,354 33,452,278 32,445,996
Average shares
outstanding - diluted 44,375,152 45,213,524 44,225,309 45,835,501
Earnings per share -
basic $ 0.78 $ 1.09 $ 1.55 $ 2.13
Earnings per share -
diluted $ 0.63 $ 0.86 $ 1.24 $ 1.67
Affiliated Managers Group, Inc.
Consolidated Balance Sheets
(in thousands)
December 31, June 30,
2005 2006
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 140,423 $ 160,406
Investment advisory fees receivable 148,850 147,727
Affiliate investments in partnerships (I) 5,079 115,097
Prepaid expenses and other current assets 48,529 40,098
------------ ------------
Total current assets 342,881 463,328
Fixed assets, net 50,592 59,075
Equity investments in Affiliates 301,476 287,724
Acquired client relationships, net 483,692 477,616
Goodwill 1,093,249 1,104,105
Other assets 49,746 64,914
------------ ------------
Total assets $ 2,321,636 $ 2,456,762
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 176,711 $ 188,496
Senior debt 65,750 65,750
Payables to related party 14,127 9,428
------------ ------------
Total current liabilities 256,588 263,674
Senior debt 175,500 194,000
Senior convertible securities 424,232 413,659
Mandatory convertible securities 300,000 300,000
Junior convertible trust preferred
securities (D) - 300,000
Deferred income taxes 182,623 201,255
Other long-term liabilities 20,149 16,525
------------ ------------
Total liabilities 1,359,092 1,689,113
Minority interest (H) 145,163 114,611
Minority interest in Affiliate investments
in partnerships (I) - 109,619
Stockholders' equity:
Common stock 390 390
Additional paid-in capital 593,090 599,259
Accumulated other comprehensive income 16,756 29,750
Retained earnings 503,188 572,364
------------ ------------
1,113,424 1,201,763
Less treasury stock, at cost (296,043) (658,344)
------------ ------------
Total stockholders' equity 817,381 543,419
------------ ------------
Total liabilities and
stockholders' equity $ 2,321,636 $ 2,456,762
============ ============
Affiliated Managers Group, Inc.
Consolidated Statements of Cash Flow
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2006 2005 2006
--------- --------- --------- ---------
Cash flow used in operating
activities:
Net Income $26,241 $33,936 $51,794 $69,176
Adjustments to reconcile Net
Income to net cash flow from
operating activities:
Amortization of intangible
assets 5,737 6,839 11,473 13,693
Amortization of issuance costs 765 728 1,510 1,391
Depreciation and other
amortization 1,483 2,251 3,018 4,147
Deferred income tax provision 8,273 6,243 15,935 13,149
Accretion of interest 474 587 948 1,183
Income from equity method
investments, net of
amortization (3,002) (6,467) (6,005) (12,066)
Distributions received from
equity method investments 3,864 7,693 6,225 28,715
Tax benefit from exercise of
stock options 5,346 424 5,741 3,434
Other adjustments (212) 1,489 (869) 1,869
Changes in assets and liabilities:
(Increase) decrease in
investment advisory fees
receivable (2,295) 6,808 (20,350) (640)
(Increase) decrease in
prepaids and other current
assets (994) 2,924 (137) 5,415
(Increase) decrease in other
assets (84) (2,814) 247 1,070
Increase in accounts payable,
accrued liabilities and
other long-term liabilities 14,306 53,331 3,826 20,356
Increase (decrease) in
minority interest 7,434 15,411 (12,053) (23,592)
--------- --------- --------- ---------
Cash flow from
operating activities 67,336 129,383 61,303 127,300
--------- --------- --------- ---------
Cash flow used in investing
activities:
Costs of investments in
Affiliates, net of cash
acquired (2,893) (7,669) (18,391) (17,027)
Purchase of fixed assets (2,356) (4,801) (4,989) (11,937)
Purchase of investment
securities (463) (9,017) (6,393) (15,579)
Sale of investment
securities - - 24,062 -
Sale of investment
securities -
Affiliate investments
in partnerships - 974 - 974
--------- --------- --------- ---------
Cash flow used in
investing activities (5,712) (20,513) (5,711) (43,569)
--------- --------- --------- ---------
Cash flow used in financing
activities:
Borrowings of senior bank debt - 206,000 5,000 313,000
Repayments of senior bank debt - (231,000) (5,000) (294,500)
Issuance of junior convertible
trust preferred
securities (D) - 300,000 - 300,000
Repurchase of senior debt (10,000) - (10,000) -
Issuance of common stock 12,284 3,040 14,025 35,447
Repurchase of common stock - (332,615) - (402,470)
Issuance costs (380) (8,890) (623) (8,895)
Settlement of forward equity
sale agreement (14,008) - (14,008) -
Excess tax benefit from
exercise of stock options - 1,710 - 12,949
Cost of call spread option
agreements - - - (13,290)
Repayments of notes payable
and other liabilities (480) (1,112) (13,285) (5,602)
Minority interest - Affiliate
investments in partnerships - (974) - (974)
--------- --------- --------- ---------
Cash flow used in
financing activities (12,584) (63,841) (23,891) (64,335)
--------- --------- --------- ---------
Effect of foreign exchange rate
changes on cash flow (345) 658 (630) 587
Net increase in cash and cash
equivalents 48,695 45,687 31,071 19,983
Cash and cash equivalents at
beginning of period 122,653 114,719 140,277 140,423
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $171,348 $160,406 $171,348 $160,406
========= ========= ========= =========
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
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. 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) On April 3, 2006, the Company completed the private placement of
convertible trust preferred securities. The convertible trust
preferred securities were issued to investors by a wholly-owned
trust, simultaneous with the issuance of $300 million of junior
subordinated convertible debentures (the "junior convertible trust
preferred" or "Trust Preferred" securities) by the Company to the
trust.
(E) Convertible securities interest expense, net, includes the
interest expense, net of tax, associated with the Company's
contingently convertible securities and Trust Preferred securities
(but excludes the interest expense associated with the Company's
mandatory convertible securities).
(F) 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 the current period's presentation.
(G) 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.
(H) 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.
(I) 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. For the six months ending June 30, 2006, the
total non-operating income associated with those partnerships was
$1.5 million, while the portion attributable to the underlying
investors unrelated to the Company (the "outside owners") was $1.0
million; as of June 30, 2006, the total assets attributable to
these investment partnerships was $115.1 million, while the
portion owned by the outside owners was $109.6 million.
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