Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| |
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
| |
| |
|
For the fiscal year ended: December 31, 2004 |
| |
|
or |
| |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
| |
| |
|
For the transition period
from to |
Commission file number: 000-51003
Calamos Asset Management, Inc.
(Exact name of Registrant as specified in its charter)
| |
|
|
|
Delaware |
|
32-0122554 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| |
1111 E. Warrenville Road,
Naperville, Illinois
(Address of principal executive offices) |
|
60563
(Zip Code) |
Registrant’s telephone number, including area code:
630-245-7200
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
| |
|
|
| Title of Each Class |
|
Name of Each Exchange on Which Registered |
| |
|
|
|
Class A Common Stock, $0.01 par value
|
|
Nasdaq National Market |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. Yes þ No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently
completed second fiscal quarter. Not applicable.
Indicate the number of shares outstanding of each of the
registrant’s classes of common stock, as of the latest
practicable date. 23,000,000 shares of Class A common
stock and 100 shares of Class B common stock at
March 1, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy statement for our
Annual Meeting of Shareholders are incorporated by reference
into Part III hereof.
TABLE OF CONTENTS
PART I
In this report, unless the context otherwise requires,
references to “we,” “us,” “our”
and “our company” refer to (1) Calamos Asset
Management, Inc., a Delaware corporation, and its consolidated
subsidiaries, including Calamos Holdings LLC and the operating
company subsidiaries of Calamos Holdings LLC, after consummation
of the reorganization undertaken in connection with our initial
public offering, which we refer to as the
“Reorganization,” and (2) Calamos Family
Partners, Inc. (formerly known as Calamos Holdings, Inc.), a
Delaware corporation, its subsidiaries and their predecessor
companies, before consummation of the Reorganization. Calamos
Asset Management, Inc. was incorporated on July 23, 2004,
in preparation for our company’s initial public offering
later that year. Calamos Family Partners was incorporated on
December 21, 2001 and is wholly owned by John P. Calamos,
Nick P. Calamos, John P. Calamos, Jr. and trusts for the
benefit of Calamos family members.
Unless the context otherwise requires:
“Calamos Advisors” refers to (1) Calamos Advisors
LLC, a Delaware limited liability company and wholly owned
subsidiary of Calamos Holdings LLC, after consummation of the
Reorganization, and (2) Calamos Asset Management, Inc. an
Illinois corporation, registered investment advisor and wholly
owned subsidiary of Calamos Holdings, Inc., before consummation
of the Reorganization. Calamos Advisors acts as an investment
advisor in managing our open-end and closed-end mutual
funds; and
“Calamos Financial Services” refers to
(1) Calamos Financial Services LLC, a broker-dealer,
Delaware limited liability company and wholly owned subsidiary
of Calamos Holdings LLC, after consummation of the
Reorganization, and (2) Calamos Financial Services, Inc.,
an Illinois corporation, registered broker-dealer and
wholly-owned subsidiary of Calamos Holdings, Inc., before
consummation of the Reorganization.
The other operating company subsidiaries of Calamos Holdings LLC
are Calamos Property Management LLC, a provider of real estate
investment services; and Calamos Partners LLC and Calamos
Capital LLC, investment advisors that provide investment
management services primarily related to alternative investment
products.
The assets under management and other financial data presented
in this report with respect to the mutual funds we manage
include the Calamos Growth and Income Portfolio, which is a
portfolio of the Calamos Advisors Trust, a registered open-end
investment company. However, references to the terms
“mutual funds” and “open-end funds” in this
report do not otherwise include this portfolio.
Overview
We provide investment advisory services through our subsidiaries
to institutions and individuals, and had $38.0 billion in
client assets managed by our subsidiaries at December 31,
2004. For more than 25 years, we have been steadfast in our
focus on providing our clients with superior risk-adjusted
returns, which we define as investment returns that are superior
to performance benchmarks, with an equal or lower level of
assumed risk. We have consistently applied a investment
philosophy and a proprietary process centered on risk management
across an expanding range of investment strategies within the
equity, global/international, balanced, high yield, convertible
and alternative asset classes. We believe this disciplined
adherence to our investment philosophy and process has enabled
us to deliver superior risk-adjusted returns. At
December 31, 2004, 97% of the $20.9 billion of
open-end fund assets managed by our subsidiary, Calamos
Advisors, with an overall Morningstar rating, were rated by
Morningstar as “four stars” or “five stars.”
These ratings are based on past performance, which may not be
predictive of future results. For additional information about
Morningstar ratings, see “Mutual Fund Ratings and
Rankings.”
Our target clients are institutions and individuals with
long-term investment horizons. We make our range of investment
strategies available to these clients, directly and through
intermediaries, by offering an array of investment products
designed to suit their individual investment needs, such as
open-end funds, closed-end funds and separate accounts,
including alternative investments. As we continue to introduce
new investment strategies that provide the opportunity for
attractive risk-adjusted returns for our clients, we will strive
to develop investment products that best deliver our strategies
to long-term investors.
2
We believe our investment performance, broad range of investment
strategies and diverse product offerings, coupled with an
expanded sales effort with increased emphasis on open-end funds,
have allowed us to consistently grow our assets under management
and revenues and position us for continued growth. Our assets
under management have increased from $9.3 billion at
December 31, 2001 to $38.0 billion at
December 31, 2004.
On October 28, 2004, the Class A common stock of
Calamos Asset Management, Inc. began trading on the Nasdaq
National Market under the symbol CLMS. Our company’s
initial public offering was intended to generate additional
equity capital to accelerate product development, create a
public market for our Class A shares, create a publicly
traded currency for attracting and retaining employees, allow
for future access to the public markets, and facilitate
estate/succession planning for the Calamos family. Subsequently,
we paid our first quarterly dividend of 7 cents per share in
February 2005. In 2004 and early 2005, we added new board
members to ensure that we have a majority of independent
directors on our board. These independent directors are members
of our audit, compensation, and nominating and governance
committees. We expect to recruit additional outside expertise to
our board over time.
Business Strategy
Our business strategy is to continue to diversify the assets we
manage by investment product and type of client. Investment
products have been created organically within what we believe to
be a strong core competency in investment research and portfolio
management. The organization of our investment research and
portfolio management, which features strong leadership centered
around a team concept, continues to provide significant leverage
of investment talent. Our franchise is built upon a consistent
investment philosophy and an evolving investment process that
has produced strong investment performance and driven
significant growth in assets under management. In managing
historical growth and in planning for future growth, we have
been, and will continue to be, guided by the following business
strategies:
A key guiding principle is to have the client’s best
interest in mind and to work hard to outperform client
expectations in performance and service. We strongly believe
that the success of our company is a byproduct of our success in
helping clients achieve their investment objectives.
|
|
|
Maintain Superior Investment Performance |
We have a long-term record of achieving high, risk-adjusted
returns on the mutual funds and separate accounts that our
subsidiaries manage. Lipper ranked our Growth Fund as
the #1 multi-cap growth fund for 5 and 10 years, our
Convertible Fund as the #1 convertible fund for
10 years and our Market Neutral Fund as the #1
flexible income fund for 10 years, in each case as of
December 31, 2004. These ratings and rankings are based on
past performance, which may not be predictive of future results.
For additional information about Lipper rankings, see
“Mutual Fund Ratings and Rankings.” Our key
strategy is to maintain our investment performance by
consistently applying our investment philosophy and process
while actively managing our portfolios to achieve distinct
balances, or profiles, of risk and reward. We are equally
mindful of protecting our clients during changing market
conditions and accordingly have closed, and expect to continue
to close, products to new investments during periods when we do
not believe satisfactory risk-adjusted returns can be achieved
for new investors.
|
|
|
Focus on Serving Long-Term Investors |
Our investment strategies are focused on seeking to generate
superior risk-adjusted returns over the long term. We seek to
attract and retain long-term clients with investment horizons in
excess of five years. In order to attract these clients, we
focus on educating our clients about our investment philosophy
and process. We believe that excellent client service is
critical to attracting, developing and maintaining long-term
client relationships. We have dedicated personnel continually
reviewing all key aspects of the client relationship. In 2004,
we received the Dalbar Crystal Pyramid Award for Excellence in
Financial Professionals’ Opinion of Mutual
Fund National Firm Channel. The Crystal Pyramid Award
recognizes companies for their success at achieving excellence
in the eyes of their customers.
3
|
|
|
Selectively Expand Our Investment Strategies |
Since the introduction of our first convertible strategy in
1977, we have expanded our product offerings to include
strategies within the equity, global/international, balanced,
high yield, convertible and alternative asset classes. Each
expansion has been an outgrowth of our core competency in
investment research. We have developed proprietary research,
including an expertise in valuing companies, taking into
consideration their total capital structure. In 1990, we
introduced our first equity strategy, and in 1999, we began
offering a high yield strategy, both of which are logical
extensions of the analytics and modeling required to assess the
hybrid nature of convertible securities. In 2003, we expanded
our equity strategies to apply our disciplined approach to the
large cap sector of the market. In 2004, we introduced a more
flexible total return strategy, providing investors access to
our equity, convertible and high yield expertise in one vehicle.
Looking ahead, we expect to focus on building our alternative
investment products. In late 2004 and early 2005, Calamos
Holdings LLC invested $25 million in its equity-oriented
alternative investment product and $25 million in its
International Growth Fund, setting aside another
$30 million for new product initiatives. During the same
period, the Calamos family invested $79 million in Calamos
mutual fund products and $30 million into the
equity-oriented alternative product, with another
$30 million earmarked for new products. We will continue to
selectively expand our investment strategies where we believe
the application of our core competencies and our investment
philosophy and process can produce attractive risk-adjusted
returns. We believe that by doing so, we can enhance our
long-term ability to increase our assets under management and
revenues.
|
|
|
Selectively Expand Our Products and Distribution
Relationships |
We strive to develop investment products and distribution
channels that best deliver our strategies to long-term
investors. For example, our first institutional account mandate
was initiated in 1981 for a pension fund account that remains a
client today. We were also one of the first participants in the
broker-sponsored managed account business beginning in the late
1980s. In 2002, we launched our first of three closed-end funds.
Our most recent closed-end fund, the Strategic Total Return
Fund, was offered in 2004. We believe this offering to be among
the largest offerings of a closed-end fund in recent years. We
see continued opportunities to expand our investment products
and relationships for the delivery of these products. For
example, our institutional client relationship management team
continues to identify new potential mandates, interacting
closely with a broad network of consultants and financial
planners and providing information regarding our strategies and
performance. We also continue to expand existing relationships
and initiate new ones within a variety of channels for mutual
funds and managed account products, including avenues such as
401(k) platforms, fund supermarkets, broker-dealers and
financial planners. Specifically, we believe we can continue to
grow organically by increasing the average number of Calamos
funds recommended by broker-dealers and financial advisors, as
well as by increasing the number of intermediaries that
distribute Calamos products. In addition, we have expanded our
geographic horizon by targeting institutional and individual
investors outside the United States through alternative
investments or other managed account relationships. Finally, we
see a significant opportunity to expand our alternative
investment offerings by creating partnerships and other
vehicles. As we seek to expand our products and distribution
relationships, we see additional opportunities to grow our
assets under management and our revenues. To manage this growth,
we have recruited senior-level managers with extensive industry
experience to run our day-to-day operations so that our
investment professionals can focus on investment performance.
|
|
|
Capitalize on Our Recognized and Respected Brand |
We have been recognized for producing top-tier investment
performance across a range of investment strategies. In 2003 and
2004, we were a recipient of the U.S. Excellence in
Fund Management Award from Standard & Poor’s
and BusinessWeek for the management of our Growth and
Income Fund. The awards were presented to the managers or
management teams of 10 out of 14,285 mutual funds tracked by
Standard & Poor’s in 2002, and nine out of 15,878
mutual funds tracked by Standard & Poor’s in 2003,
who were identified by Standard & Poor’s as being
best-in-class for their ability to demonstrate exceptional
levels of leadership while consistently producing strong results
over the five-year periods ended December 31, 2002 and
2003, respectively. In addition, both John P. Calamos, Sr. and
Nick P. Calamos, our chief investment officers, have written
books on investments in convertible securities and are
frequently mentioned in the press and industry
4
publications. They also appear often on broadcast television
programs, including Wall Street Week, Market Week, Power
Lunch and Closing Bell on CNBC, providing expert
market commentary and insights. We believe that as a public
company, we will be able to further strengthen the Calamos brand
and the positive recognition we enjoy. We also believe that we
can use our brand to accelerate the awareness of our investment
philosophy in order to grow assets under management with new and
existing investors. In 2005, our marketing efforts are expected
to include an advertising campaign featuring market commentary
by our chief investment officers.
Investment Philosophy, Management and Process
We believe that a successful investment philosophy must be
consistent and long-term oriented. Our investment philosophy is
based on having a strong view on the longer-term trends and
economic conditions that impact financial markets. We assume
there will always be unforeseen events that will continually
test the conventional wisdom. With our experience in many market
environments, continued study of economics and financial
markets, and application of a sound investment process, we
believe we can achieve strong investment results. We think that
the investment process must be able to cope with volatility and
risky markets. Because of this investment philosophy, our
investment process is focused on risk management. The creation
of wealth for our clients over the long term is not solely about
producing returns, but about managing risk.
We seek to provide our clients with superior risk-adjusted
returns over the long term. While seeking to achieve strong
returns, we are focused, first and foremost, on managing risk,
which we define as the potential for loss and the variability of
returns. We offer a variety of investment strategies that
represent distinct balances, or profiles, of risk and reward. We
believe that diversification is critical to managing risk and
moderating the impact of volatile markets. Our objective is to
maintain the consistency of each strategy’s risk and reward
profile, whether managing a conservative or an aggressive
strategy.
We construct portfolios by applying various proprietary
investment tools and techniques. We structure every portfolio by
analyzing and selecting individual securities in the context of
our perspective on macroeconomic themes in the U.S. and the
world. In order to maintain diversified portfolios for our
clients, we carefully review each security selected for
inclusion in a portfolio to assess its impact on the
portfolio’s asset class allocation (where applicable) and
industry and sector weightings. Our investment philosophy
embraces the extensive use of quantitative tools, overlaid with
internal qualitative research and analysis.
We view our quantitative approach as a competitive advantage and
have a history of committing resources to build, maintain and
enhance our analytical abilities. In addition to our sizable
allocation of staff and resources to technology, a separate
research development team is dedicated solely to investment team
needs and projects, reporting directly to our chief investment
officers. Our preference to build, not buy, software reflects
our desire to control underlying assumptions and to allow for
the customization of our investment process. We have
consistently sought technological advantages to improve the
investment process, and continue to devote significant resources
in this area.
Our investment management team is led by John P. Calamos, Sr.
and Nick P. Calamos, our chief investment officers. As the
originators of our investment philosophy, they have pursued a
team approach for the implementation of that philosophy through
our investment process. This team approach allows for valuable
contributions from different analysts within our company and
creates a synergy of expertise that can be applied across many
different investment strategies. We also believe that pooling
the expertise of our analysts provides for more consistent
investment performance over the long term and has enabled our
company to handle growth in assets without adding significantly
to its infrastructure.
Members of our investment team participate in a career track
system that helps institutionalize our investment process by
immersing many analysts and other team members in our system
from early in their careers. Additionally, key members of the
investment team participate in our incentive compensation plan.
Through this plan, investment team members will be able to share
in the overall success of our company. Our investment management
team currently includes approximately 60 members focused on
portfolio
5
management and research, trading, portfolio administration and
development of analytical models. In 2005, we intend to hire
additional investment personnel to facilitate building an
alternative investment strategy, which we expect will be run by
a separate investment team under the leadership of our chief
investment officers.
We believe that the financial markets operate in a manner that
precludes using a single method of analysis. We believe that
market fluctuations call for a more flexible approach. Our
long-term investment strategy is based on an investment process
that uses a variety of sophisticated quantitative models. Our
approach also incorporates academic theory and real-world
experience to determine a company’s economic enterprise
value. Using this process, our investment management team is
able to value all securities within a corporate capital
structure. This process is employed in each of our investment
strategies.
The key steps in our investment process are:
|
|
|
| |
• |
Assess Business Value. We analyze businesses as would a
buyer of the entire company, analyzing financial statements to
determine an economic enterprise value. |
| |
| |
• |
Assess Security Value. Once we understand the value of a
business, our investment team focuses on individual security
values within its capital structure. |
| |
| |
• |
Assess Investment Opportunities. By understanding all
aspects of a company’s capital structure, we seek to
identify opportunities across asset classes (where applicable),
as well as investment strategies. |
| |
| |
• |
Assess the Opportunity’s Role in the Portfolio.
Using risk management and portfolio construction techniques, we
determine whether an individual security has a place in our
investment portfolios and strategies. |
Investment Strategies
The following table describes our investment strategies within
the equity, balanced, high yield, convertible and alternative
asset classes. In addition, we plan to expand our presence in
the global/international asset class by offering a new open-end
mutual fund in April 2005. Calamos Holdings LLC and the Calamos
family invested a total of $50 million in March 2005 to
launch this new Calamos International Growth Fund.
| |
|
|
|
|
|
|
| |
|
Assets Under | |
|
|
| |
|
Management at | |
|
|
| Asset Class |
|
December 31, 2004 | |
|
Description |
| |
|
| |
|
|
| |
|
(In billions) | |
|
|
|
Equity
|
|
$ |
17.1 |
|
|
Invests in a range of U.S. and global companies of various
market capitalization under both growth and value disciplines |
|
Balanced
|
|
|
10.4 |
|
|
Invests in convertible securities, equities and high yield
securities, both in the U.S. and globally |
|
Convertible
|
|
|
7.1 |
|
|
Invests primarily in convertible securities |
|
High Yield
|
|
|
2.8 |
|
|
Invests primarily in high yield securities, or “junk
bonds” |
|
Alternative
|
|
|
0.6 |
|
|
Invests primarily in convertible securities and uses short sales
of the underlying stock to generate income and hedge against risk |
| |
|
|
|
|
|
|
Total
|
|
$ |
38.0 |
|
|
|
| |
|
|
|
|
|
Investment Products
We market our investment strategies to our clients through a
variety of products designed to suit their individual investment
needs. We currently offer six types of investment products that
fall into the categories of mutual funds and separate accounts.
6
Mutual funds include registered open-end funds and registered
closed-end funds.
At December 31, 2004, we had $20.9 billion of assets
under management in open-end funds, representing approximately
55% of our total assets under management. Open-end funds are
continually offered and are not listed on an exchange. Open-end
funds issue new shares for purchase, unless they are closed to
new investors, and redeem shares from those shareholders who
sell. The share price for purchases and redemptions of open-end
funds is determined by each fund’s net asset value, which
is calculated at the end of each business day.
We currently act as the investment advisor to eight open-end
funds offered to customers in a load format. Two of these funds
have been closed to new investors because we do not believe the
current market for convertible securities can provide
satisfactory risk-adjusted returns for new investors in these
funds. We introduced our first open-end fund, the Convertible
Fund, in 1985. We have since expanded our open-end fund products
to include equity, balanced, high yield and alternative
strategies. One of our most recent open-end funds, the Blue Chip
Fund, was introduced in December 2003 in order to apply our
disciplined investment approach to the large cap sector of the
market. In addition, we have seeded a new open-end mutual fund,
the Calamos International Growth Fund.
Calamos Advisors manages the strategies of each of the open-end
funds for which it acts as an investment advisor with the goal
of achieving higher returns with less risk than that of the
broad market. To do so, our investment team focuses on
maintaining each strategy’s distinct balance between risk
and return throughout the full course of the market cycle. The
following table provides the assets under management, risk,
overall Morningstar ratings and Lipper rankings for each
open-end fund managed as of December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
As of December 31, 2004 | |
|
|
|
|
|
|
| |
|
|
|
|
|
Overall Morningstar Rating(3) | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
|
Risk (Beta | |
|
|
|
Number of | |
|
|
|
Lipper Ranking(4) |
| Fund and |
|
Assets Under | |
|
vs. S&P | |
|
|
|
Funds in | |
|
|
|
|
| Year of Inception(1) |
|
Management | |
|
500)(2) | |
|
Category |
|
Category | |
|
Rating | |
|
Category |
|
Years | |
|
Ranking |
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
|
| |
|
(In billions) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth
1990 |
|
$ |
13.8 |
|
|
|
0.73 |
|
|
Mid-cap
growth funds |
|
|
641 |
|
|
|
5 stars |
|
|
Multi-cap growth
funds |
|
|
3
5
10 |
|
|
7/343
1/223
1/74 |
Growth and Income
1988 |
|
|
4.7 |
|
|
|
0.53 |
|
|
Convertible funds |
|
|
64 |
|
|
|
5 stars |
|
|
Multi-cap core
funds |
|
|
3
5
10 |
|
|
28/514
49/347
6/118 |
Convertible
1985(5) |
|
|
1.2 |
|
|
|
0.56 |
|
|
Convertible funds |
|
|
64 |
|
|
|
4 stars |
|
|
Convertible
funds |
|
|
3
5
10 |
|
|
25/62
11/54
1/26 |
Market Neutral
1990(6) |
|
|
0.5 |
|
|
|
0.07 |
|
|
Conservative
allocation funds |
|
|
228 |
|
|
|
4 stars |
|
|
Flexible income
funds |
|
|
3
5
10 |
|
|
5/12
3/8
1/6 |
Global Growth and Income
1996 |
|
|
0.3 |
|
|
|
0.49 |
|
|
World stock
funds |
|
|
274 |
|
|
|
3 stars |
|
|
Global multi-cap
core funds |
|
|
3
5 |
|
|
24/49
10/26 |
High Yield
1999 |
|
|
0.2 |
|
|
|
0.37 |
|
|
High yield bond
funds |
|
|
347 |
|
|
|
4 stars |
|
|
High yield funds |
|
|
3
5 |
|
|
101/346
10/275 |
Blue Chip
2003 |
|
|
0.1 |
|
|
|
n/a |
|
|
Large blend |
|
|
|
|
|
|
Not rated |
|
|
Multi-cap core funds |
|
|
1 |
|
|
462/722 |
Value
2002 |
|
|
0.1 |
|
|
|
n/a |
|
|
Mid-cap blend |
|
|
|
|
|
|
Not rated |
|
|
Multi-cap core funds |
|
|
1
2 |
|
|
190/722
111/631 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Performance of the Blue Chip and Value funds reflects the
effects of an expense reimbursement, which improved results. For
some funds, performance shown includes the effects of an
overpayment of dividends and/or capital gains distribution to
shareholders of certain classes of shares of the fund (and a
corresponding capital contribution by Calamos Advisors), which
increased certain return figures. |
| |
| (2) |
Source: Russell/ Mellon Analytical Services LLC. Beta is a
historic measure of a fund’s relative volatility. A beta of
0.5 reflects one-half of the market’s volatility, while a
beta of 2.0 reflects twice the market’s |
7
|
|
|
volatility. This column shows risk as measured by the
fund’s beta (3 year) compared to the S&P 500
Index, which is an unmanaged index generally considered
representative of the U.S. stock market. |
| |
| (3) |
For a description of overall Morningstar ratings, see
“Mutual Fund Ratings and Rankings.” Rankings are
for Class A shares. As of December 31, 2004: Growth
Fund: 5 stars for 3, 5 and 10 years out of 641, 430
and 160 mid-cap growth funds, respectively; Growth and Income
Fund: 4 stars for 3 years, 4 stars for 5 years and 5
stars for 10 years out of 64, 56 and 27 convertible funds,
respectively; Global Growth and Income Fund: 3 stars for
3 years and 4 stars for 5 years out of 274 and 208
world stock funds, respectively; High Yield Fund: 3 stars for
3 years and 5 stars for 5 years out of 347 and 274
high yield bond funds, respectively; Convertible Fund: 3 stars
for 3 years and 5 years, 5 stars for 10 years out
of 64, 56 and 27 convertible funds, respectively; Market Neutral
Fund: 4 stars for 3, 5 and 10 years out of 228, 164
and 53 conservative allocation funds, respectively. |
| |
| (4) |
For a description of Lipper rankings, see “Mutual
Fund Ratings and Rankings.” Rankings are for
Class A shares. |
| |
| (5) |
Closed to new investments, effective April 30, 2003. |
| |
| (6) |
Closed to new investments, effective March 14, 2003. |
Since 1985, we have actively expanded our open-end fund products
to include new strategies that we believe offer attractive
risk-adjusted return potential when managed in a manner that is
consistent with our core investment philosophy and process. The
strategic focus of our sales and marketing effort has been on
broadening the number of our products, including open-end funds,
offered by each financial intermediary. Additionally, we have
proactively responded to changing market conditions by
repositioning certain existing open-end funds. For example, in
2003, we renamed the Convertible Growth and Income Fund as the
Growth and Income Fund and broadened its investment flexibility
in seeking to achieve its investment objectives. We expect to
continue to seek opportunities to expand and develop the
investment strategies offered in our open-end fund products as
market conditions change.
At December 31, 2004, we had $6.0 billion of assets
under management in closed-end funds, representing approximately
16% of our total assets under management. Closed-end funds
typically sell a finite number of shares to investors through
underwritten public offerings, unlike open-end funds, which
continually offer new shares to investors. After the public
offerings, investors buy closed-end fund shares from, and sell
those shares to, other investors through an exchange or
broker-dealer market.
We introduced our first closed-end fund, the Convertible
Opportunities and Income Fund (NYSE: CHI), in 2002. With this
fund, we were among the first managers to combine different
asset classes in a single closed-end offering, seeking to
enhance returns and limit risk. We have since expanded our
closed-end fund products and currently act as the investment
advisor to three closed-end funds, each of which trades on the
New York Stock Exchange.
Since 2002, we have sought to capitalize on the success, as
measured by risk-adjusted returns and share price performance,
achieved by our first closed-end fund, Convertible Opportunities
and Income Fund. In 2003, we introduced the Convertible and High
Income Fund (NYSE: CHY), to create a product that combines our
convertible and high yield strategies. In 2004, we introduced
the Strategic Total Return Fund (NYSE: CSQ) to create a product
that seeks total return through a combination of our equity,
convertible and high yield strategies. Under favorable market
conditions, we expect to continue to seek opportunities to
8
introduce our investment strategies through new closed-end funds
that we believe will offer attractive risk-adjusted return
potential.
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Assets Under | |
|
|
|
|
| |
|
Management at | |
|
Year of | |
|
|
| Fund and Ticker |
|
December 31, 2004 | |
|
Inception | |
|
Description |
| |
|
| |
|
| |
|
|
| |
|
(In billions) | |
|
|
|
|
Convertible Opportunities and Income
CHI |
|
$ |
1.2 |
|
|
|
2002 |
|
|
Seeks total return through a combination of capital appreciation
and current income by investing in convertible and
non-convertible income securities, maintaining at least 35% of
managed assets in convertible securities. |
Convertible and High Income
CHY |
|
|
1.4 |
|
|
|
2003 |
|
|
Seeks total return through a combination of capital appreciation
and current income by investing in convertible and high yield
securities, maintaining at least 20% of managed assets in each
of the above categories. |
Strategic Total Return
CSQ |
|
|
3.4 |
|
|
|
2004 |
|
|
Seeks total return through a combination of capital appreciation
and current income by investing in equity, convertible and high
yield securities, maintaining at least 50% of managed assets in
equity securities and in securities that are convertible into
equity securities. |
| |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6.0 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Each of the closed-end funds employs leverage in its capital
structure through the issuance of preferred shares to increase
its total assets. The dividends paid to preferred shareholders
are based on short-term interest rates, while the proceeds from
the issuance of preferred shares are invested by the funds in
longer-term taxable securities. In this manner, we seek to
generate additional dividend potential for the common
shareholders based on historical differences between short-term
and long-term taxable interest rates. Our existing closed-end
funds have entered into various interest rate transactions
designed to manage leverage costs in order to help insulate the
funds’ common shareholders from increased preferred
dividends during a period of rising short-term interest rates.
Separate accounts include institutional accounts, managed
accounts, private client accounts and alternative investments.
At December 31, 2004, we had $3.3 billion of assets
under management in institutional accounts, representing
approximately 9% of our total assets under management.
Institutional accounts are separately managed accounts for
institutional investors such as public and private pension
funds, public funds and endowment funds.
Our first institutional account mandate was initiated in 1981
for a pension fund account that remains a client today. Since
initially offering convertible investment strategies to
institutions, we have broadened our mandates to include a
variety of investment strategies in other asset classes, such as
equity, balanced and high yield. Currently our convertible
strategies are closed to new accounts. Our subsidiaries act as
investment advisor to approximately 100 institutional accounts.
9
We focus on growing our institutional business through equity
and high yield mandates, managed under both domestic and global
objectives. Our target mandates allow for sufficient investment
flexibility by which to achieve the objectives of our clients
under changing market conditions. We expect to continue to
dedicate personnel to support these efforts, in both a sales and
service function.
At December 31, 2004, we had $7.1 billion of assets
under management in managed accounts, representing approximately
19% of our total assets under management. Managed accounts are
separately managed accounts for individual and institutional
investors, offered primarily through national and regional
broker-dealers. Managed accounts may be structured as investment
management agreements between us and the investor directly or us
and the broker-dealer.
We first introduced a managed account through a broker-dealer
sponsored platform in 1989. Since initially offering convertible
investment strategies to our managed account customers, we have
broadened our mandates to include a variety of investment
strategies within the balanced, equity and high yield asset
classes. Currently our convertible strategies are closed to new
accounts. Our subsidiaries act as investment advisor to
approximately 25,000 managed accounts, including approximately
74 institutional managed accounts held through 18
broker-sponsored managed account programs. We focus on
selectively growing our managed account business through
expanded participation in broker-sponsored managed account
programs. For programs in which we have a relationship directly
with the investor, we target mandates that allow for greater
investment flexibility under changing market conditions. We
expect to continue to devote personnel resources to support our
relationships with broker-dealers, in both a sales and client
service function.
At December 31, 2004, we had $527 million of assets
under management in private client accounts, representing
approximately 1% of our total assets under management. Private
client accounts are separately managed accounts offered directly
by us.
The origins of our private client business date back to 1977.
Under this business, we provide customized asset allocation
advice to our clients, under the guidance of our investment
management team. Our subsidiaries currently act as investment
advisor to approximately 800 private client accounts. For our
private client accounts, we offer a Managed Mutual
Fund Program, providing customized portfolios drawn from
our mutual fund family, as well as separately managed accounts.
Our private client account group will continue to develop the
Managed Mutual Fund Program and will increasingly emphasize
our alternative investment products.
At December 31, 2004, we had $74 million of assets
under management in alternative investments. Alternative
investments include non-registered investment vehicles,
primarily hedge funds, offered directly by us to qualified
individual and institutional investors.
Building upon our expertise in risk management, we introduced
our first alternative investment product, a multi-strategy hedge
fund (originally a convertible arbitrage fund), in 1989.
Continued development of alternative products is a key strategic
priority for us. We believe that the combination of our
investment team approach and analytical resources give us the
ability to further excel in this arena, particularly in
specialized and underserved market segments. We expect to
introduce multiple new alternative products in the form of
private investment partnerships in the future, under a variety
of strategies that are consistent with our core investment
philosophy and process.
Mutual Fund Ratings And Rankings
This report includes references to ratings and rankings by
Morningstar, Inc. and Lipper Analytical Services, Inc., which
were derived from information published by them. Overall
Morningstar ratings of mutual
10
funds reflect historical risk-adjusted performance as of a
particular date and are subject to change every month. Overall
Morningstar ratings of mutual funds are calculated from a
fund’s three-, five- and 10-year average annual returns, as
available, in excess of 90-day T-bill returns with appropriate
fee adjustments and a risk factor that reflects fund performance
below 90-day T-bill returns. The top 10% of the funds in an
investment category receive five stars, the next 22.5% receive
four stars, the next 35% receive three stars, the next 22.5%
receive two stars and the last 10% receive one star. Each share
class of a fund is counted as a fraction of one fund within this
scale and rated separately, which may cause slight variations in
the distribution percentages.
Lipper rankings of funds are based on net total return
performance with dividends reinvested and do not take into
account or reflect sales charges; if the rankings did reflect
sales charges, the results might be less favorable. Each fund is
ranked within a universe of funds similar in investment
objective as determined by Lipper.
All overall Morningstar ratings and Lipper rankings of the
open-end funds managed by Calamos Advisors cited in this report
are for Class A shares of those funds. The other classes of
shares of those funds may have different performance
characteristics.
The ratings and rankings included in this report are subject to
change without notice and are based on past performance, which
may not be predictive of future results.
Technology and Intellectual Property
Our investment approach demands specific requirements for all
aspects of the investment process, including risk management,
security analysis and trade processing. Our use of in-house
technology and software — in particular, our
proprietary Calamos Corporate System, or CCS — is a
result of this view, enabling customization of systems across
our company. Extending beyond the proprietary software used by
our investment team, all of our internal systems are geared to
the underlying assumptions that guide the investment process,
allowing for a more seamless integration of security analysis,
trade processing, accounting and the portfolio administration of
nearly 26,000 separate accounts.
We developed CCS internally and it forms the basis of our risk
management/metric system. It is highly integrated into our
system for communicating with our clients and suppliers and for
automating trade settlements and daily reconciliations. We also
have back-up and disaster recovery systems in place. If we fail
to improve, protect or enforce our intellectual property rights
or if CCS or our software systems do not function properly, we
could suffer business disruptions, financial losses, liability
to clients and damage to our reputation or be subject to
regulatory intervention.
Trademarks, service marks and brand-name recognition are
important to our business. We have rights to the trade and
service marks under which our products are offered in connection
with financial analysis and consultation, financial portfolio
management and financial investment. We have registered certain
service marks in the United States and will continue to do so as
new trademarks and service marks are developed or acquired. We
have taken, and will continue to take, action to protect our
interest in these service marks.
Distribution, Sales and Client Service
We distribute our products to individuals and institutions,
primarily through financial intermediaries. Our objective is to
attract long-term investors with an investment horizon in excess
of five years. Consequently, our sales and client service
efforts focus on educating our distribution partners and
investors on our investment process and philosophy and providing
a high level of ongoing client service. We organize our sales
and client services into three primary segments based on whether
we are serving financial intermediaries, institutions or private
clients.
Our products are distributed through financial intermediaries to
individual and institutional clients, who are located primarily
throughout the United States. We have developed an extensive
network of third-party
11
financial intermediaries that includes national and regional
broker-dealers, fund supermarkets, independent broker-dealers
and independent financial advisors. Our products are structured
to meet the needs of financial intermediaries and their clients,
and we opportunistically seek to introduce new products that
best deliver our investment strategies to investors through
these distribution channels. We offer the Calamos open-end
funds, closed-end funds and managed accounts to investors
through financial intermediaries in our network.
|
|
|
| |
• |
Open-end funds. All eight of the open-end funds managed
by Calamos Advisors offer share classes with sales charges paid
primarily to the financial intermediary. As such, we believe
this product type is attractive to our network of financial
intermediaries. The open-end funds are offered continuously to
investors through four different shares classes, Class A,
Class B, Class C and Class I, each of which has a
different sales charge structure designed to meet the needs of
our financial intermediaries and their clients. |
| |
| |
• |
Closed-end funds. Calamos Advisors is currently the
investment advisor for three closed-end funds. Historically, we
have used this type of product to take advantage of a market
opportunity and to deliver a timely investment strategy to
investors quickly and efficiently. The closed-end funds are
distributed through national and regional broker-dealers through
underwritten public offerings. As the offering periods for
closed-end funds are limited and are accompanied by intensive
sales efforts, closed-end fund offerings provide us with a
product that allows us to build scale in an investment strategy
and deepen brand recognition in a relatively short period of
time. |
| |
| |
• |
Managed accounts. Since 1989, we have offered separately
managed account products to individual and institutional
investors through national and regional broker-dealers. Managed
accounts are offered by financial intermediaries to individual
and institutional investors. These types of accounts are an
attractive alternative to some investors, as they provide the
opportunity to customize investment guidelines and tax
efficiencies. |
Client accounts held at our top five financial intermediaries
represented approximately 45% of our assets under management as
of December 31, 2004. Merrill Lynch & Co. acted as
intermediary for approximately 14% and 19% of our assets under
management and Citigroup acted as the intermediary for
approximately 9% and 11%, of our assets under management as of
December 31, 2004 and December 31, 2003, respectively.
No other institution or entity acted as an intermediary for more
than 10% of our assets under management in either time period.
Our financial intermediary sales effort is handled by sales
professionals who are located both at our headquarters in
Naperville, Illinois and across the United States. Our sales
professionals develop and maintain relationships with the
registered representatives of financial intermediaries to
facilitate their sales efforts with their clients with respect
to open-end funds, closed-end funds and managed accounts. In
particular, our sales professionals seek to develop the Calamos
brand by deepening the recognition and understanding of our
investment process and strategies among representatives of
financial intermediaries. Our sales professionals act in a
consultative role, conducting investment seminars and training
sessions, as well as providing literature, such as prospectuses
and approved marketing materials. In addition, some of our
client service professionals work directly with our shareholders
and representatives of our financial intermediaries on an
ongoing basis. Our open-end and closed-end fund client service
effort currently is supplemented by a third-party shareholder
service center that handles account-related matters.
Our institutional account products are distributed to
institutions directly or through independent consultants that
are dedicated to advising the institutional investor community.
We have offered institutional account products directly to
public and private pension funds, public funds and endowment
funds since 1981. Our marketing effort is led by our
institutional client relationship management team, which is
responsible for identifying and marketing to prospective
institutional clients, responding to requests for investment
management proposals, providing ongoing client service to
existing institutional accounts and developing relationships
with independent consultants. Our institutional marketing, sales
and client service efforts are supported, as necessary, by
members of our investment management team.
12
Through our Investment Services and Wealth Management Group, we
provide the full array of Calamos products to individual
investors, including mutual funds and alternative investment
products. We also provide a wide range of services to our
private clients, including asset allocation and ongoing
portfolio monitoring. Our private clients include high net worth
individuals, family offices and private foundations, among
others.
To support our distribution, sales and client service efforts
described above, we have developed an investor marketing and
communications group. This group focuses on providing outlooks
and market insights of the investment team, as well as creating
information on our products and strategies tailored to specific
investor segments. The group thus provides support to all of our
financial intermediary, institutional and private client
professionals.
We believe our culture of excellence, our focus on attracting
and retaining long-term investors and our high level of client
service differentiates our distribution, sales and client
service.
Competition
In order to grow our business, we must be able to compete
effectively for assets under management. Historically, we have
competed principally on the basis of:
|
|
|
| |
• |
investment performance; |
| |
| |
• |
quality of service provided to clients; |
| |
| |
• |
brand recognition and business reputation; |
| |
| |
• |
continuity of client relationships and of assets under
management; |
| |
| |
• |
continuity of our selling arrangements with intermediaries; |
| |
| |
• |
the range of products offered; |
| |
| |
• |
level of fees and commissions charged for services; |
| |
| |
• |
level of expenses paid to financial intermediaries related to
administration and/or distribution; and |
| |
| |
• |
financial strength. |
We have succeeded in growing aggregate assets under management,
and we believe that we will continue to be able to do so by
focusing on the client’s best interest, client service and
investment performance; by attracting and retaining long-term
investors; by increasing penetration among financial
intermediaries; by continuing to grow and diversify our products
and investment strategies; and by capitalizing on our recognized
and respected brand.
We compete in all aspects of our business with a large number of
investment management firms, commercial banks, broker-dealers,
insurance companies and other financial institutions. A number
of factors serve to increase our competitive risks:
|
|
|
| |
• |
Some of our competitors have greater capital and other
resources, and offer more comprehensive lines of products and
services, than we do. |
| |
| |
• |
Consolidation within the investment management industry, and the
securities industry in general, has served to increase the size
and strength of a number of our competitors. |
| |
| |
• |
There are relatively few barriers to entry by new investment
management firms, and the successful efforts of new entrants
into our various lines of business, including major banks,
insurance companies and other financial institutions, have
resulted in increased competition. |
| |
| |
• |
Other industry participants will from time to time seek to
recruit our investment professionals and other employees away
from us. |
These and other factors could reduce our earnings and revenues
and materially adversely affect our business.
13
Regulatory Environment
Virtually all aspects of our businesses are subject to extensive
regulation in the United States at both the federal and state
level, as well as by self-regulatory organizations in the case
of our broker-dealer subsidiary. These laws and regulations are
primarily intended to protect investment advisory clients and
shareholders of registered investment companies. Under these
laws and regulations, agencies that regulate investment
advisors, such as Calamos Advisors, have broad administrative
powers, including the power to limit, restrict or prohibit an
investment advisor from carrying on its business in the event
that it fails to comply with such laws and regulations. Possible
sanctions that may be imposed include the suspension of
individual employees, limitations on engaging in certain lines
of business for specified periods of time, revocation of
investment advisor and other registrations, censures and fines.
Calamos Advisors is registered as an investment advisor with the
SEC. As a registered advisor, it is subject to the requirements
of the Investment Advisers Act, and the SEC’s regulations
thereunder, as well as to examination by the SEC’s staff.
The Investment Advisers Act imposes substantive regulation on
virtually all aspects of Calamos Advisors’ advisory
business and its relationship with its clients. Applicable
requirements relate to, among other things, fiduciary duties to
clients, engaging in transactions with clients, maintaining an
effective compliance program, performance fees, solicitation
arrangements, conflicts of interest, advertising, and
recordkeeping, reporting and disclosure requirements. The mutual
funds Calamos Advisors manages are registered with the SEC under
the Investment Company Act. The Investment Company Act imposes
additional obligations, including detailed operational
requirements for both the funds and their advisor. Moreover, an
investment advisor’s contract with a registered fund may be
terminated by the fund on not more than 60 days’
notice, and is subject to annual renewal by the fund’s
board after an initial two-year term. As discussed below, both
the Investment Advisers Act and the Investment Company Act
regulate the “assignment” of advisory contracts by the
advisor. The SEC is authorized to institute proceedings and
impose sanctions for violations of the Investment Advisers Act
and the Investment Company Act, ranging from fines and censures
to termination of an investment advisor’s registration. The
failure of Calamos Advisors or the registered funds advised by
Calamos Advisors to comply with the requirements of the SEC
could have a material adverse effect on us.
In response to recent scandals in the financial services
industry regarding late trading, market timing and selective
disclosure of portfolio information, various legislative and
regulatory proposals are pending in or before, or have been
adopted by, the U.S. Congress and the various regulatory
agencies that supervise our operations, including the SEC.
Additionally, the SEC, the National Association of Securities
Dealers, Inc., or NASD, and other regulators, as well as
Congress, are investigating certain practices within our
industry.
Currently, four bills regarding the mutual fund industry have
been proposed in the U.S. Senate, one of which is the
Mutual Fund Reform Act of 2004, or the Mutual
Fund Reform Act. If enacted, the Mutual Fund Reform
Act would, among other things, eliminate asset-based
distribution fees or Rule 12b-1 fees with respect to
open-end funds. The Mutual Fund Reform Act also would
prohibit revenue sharing, which allows a mutual fund company to
pay for “shelf space” at brokerage firms or other
intermediaries selling mutual funds shares, as well as
“soft dollar” arrangements. If these reforms are
adopted, it may become more expensive for fund sponsors to
distribute and manage funds, since fund assets will not be
available to defray certain costs.
The Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC
have significantly changed the corporate governance requirements
applicable to mutual funds. For example, the SEC has recently
approved a new regulation that generally requires at least
three-quarters of a registered fund’s board of directors to
be independent, i.e., persons that are not interested
persons of the investment company or its investment advisor. The
regulation also requires that the chairman of the fund’s
board be independent. The independent directors must also hold
quarterly meetings without fund executives present.
These regulatory and legislative initiatives, to the extent
enacted or adopted, could have a substantial impact on the
regulation and operation of mutual funds, investment advisors
and broker-dealers and could adversely affect our manner of
operation and profitability.
14
In its capacity as a broker-dealer, Calamos Financial Services
is subject to regulations that cover all aspects of its
business, including sales practices, use and safekeeping of a
client’s funds and securities, the capital structure of
securities firms, recordkeeping and the conduct of directors,
officers and employees. Violation of applicable regulations can
result in the revocation of broker-dealer licenses, the
imposition of censure or fines and the suspension or expulsion
of a firm, its officers or employers. Calamos Financial Services
also is required to maintain certain minimum net capital and
cash reserves for the benefit of its customers.
Under the rules and regulations of the SEC promulgated pursuant
to the federal securities laws, Calamos Advisors and Calamos
Financial Services are subject to periodic examination by the
SEC. Calamos Financial Services also is subject to periodic
examination by the NASD.
Our subsidiaries are subject to the Employee Retirement Income
Security Act of 1974, as amended, or ERISA, and to regulations
promulgated thereunder, insofar as they are
“fiduciaries” under ERISA with respect to benefit plan
clients. ERISA and applicable provisions of the Internal Revenue
Code of 1986, as amended, impose certain duties on persons who
are fiduciaries under ERISA, prohibit certain transactions
involving ERISA plan clients and provide monetary penalties for
violations of these prohibitions. Our failure to comply with
these requirements could have a material adverse effect on our
business.
Employees
At December 31, 2004, we had 264 full-time employees.
In July 2005, the company expects to relocate most of these
employees from two locations to a new headquarters building in
Naperville, Illinois.
SEC Filings
Through our Internet Web site, we make available our annual
report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission. To retrieve any of this information, visit the
Investor Relations section of our web site at
www.calamos.com.
Business Risks
With respect to risks related to our industry, business and
company, please see the sections “Business Risks” and
“Forward-Looking Information” in Item 7 of this
report.
Our principal executive offices are located at
1111 E. Warrenville Road, Naperville, Illinois 60563,
where we occupy approximately 35,000 square feet of space
under a month-to-month lease. A subsidiary of Calamos Property
Holdings LLC, which is owned by the stockholders of Calamos
Family Partners, Inc., is constructing and will own a new,
state-of-the-art office facility at 2020 Calamos Court,
Naperville, Illinois 60563, which will serve as our principal
executive offices upon its expected completion in July 2005. We
have entered into a lease for approximately 140,000 square
feet of office space for our operations. We also have office
space in Lisle, Illinois, where we occupy approximately
27,000 square feet of space under a lease with a third
party.
|
|
| Item 3. |
Legal Proceedings. |
The company was a defendant in a class action complaint filed on
January 10, 2005 (Robert McDermott et al. v Calamos
Asset Management, Inc. et al., No. 05 C 0141 (N.D. Ill.))
by individuals purported to be shareholders of one of the open
end funds sponsored by an indirect subsidiary of the company.
The defendants also included Calamos Holdings LLC and the
individual Calamos fund trustees, including the company’s
Chairman, Chief Executive Officer and Co-Chief Investment
Officer, John P. Calamos, Sr. Plaintiffs purported to sue on
behalf of investors in all Calamos sponsored open-end funds and
alleged that the defendants breached fiduciary duties, duties of
care and sections 36(a), 36(b) and 47(b) of the Investment
15
Company Act of 1940 by failing to ensure that the open-end funds
participated in securities class action settlements for which
those funds were eligible. Plaintiffs sought compensatory
damages, disgorgement of the fees paid to the investment
advisors, punitive damages, attorney’s fees, and other such
other relief as the Court deemed just. On February 9, 2005
the plaintiffs voluntary dismissed the action without prejudice.
In the normal course of business, we may be subject to various
legal proceedings from time to time. Currently, there are no
legal proceedings pending against us or any of our subsidiaries.
|
|
| Item 4. |
Submission of Matters to a Vote of Security
Holders. |
No matters were submitted to a vote of security holders during
the fourth quarter of 2004.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities. |
Our Class A common stock ($0.01 par value) has traded
on the Nasdaq National Market under the symbol “CLMS”
since our initial public offering on October 28, 2004.
Before October 28, 2004, there was no public market for our
Class A common stock. There is no public market for our
Class B common stock ($0.01 par value).
The high and low trade price information for Class A common
stock and dividends per share for each class of common stock
were:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
1st | |
|
2nd | |
|
3rd | |
|
4th | |
| |
|
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
|
|
|
|
| |
|
| |
|
| |
|
| |
| |
2004 |
|
|
|
— |
|
|
High price |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
28.35 |
|
| |
|
|
|
|
|
|
|
Low price |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
18.00 |
|
| |
|
|
|
|
|
|
|
Cash dividends declared |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.07 |
|
On February 28, 2005, there were approximately 69 holders
of record of our outstanding Class A common stock and one
holder of record of our outstanding Class B common stock.
Calamos Asset Management, Inc. expects to declare and pay
quarterly cash dividends during 2005.
Equity Compensation Plan Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of | |
| |
|
|
|
|
|
Securities | |
| |
|
Number of | |
|
Weighted- | |
|
Remaining Available | |
| |
|
Securities to be | |
|
Average Exercise | |
|
for Future Issuance | |
| |
|
Issued upon | |
|
Price of | |
|
Under Equity | |
| |
|
Exercise of | |
|
Outstanding | |
|
Compensation Plans | |
| |
|
Outstanding | |
|
Options, | |
|
(Excluding | |
| |
|
Options, Warrants | |
|
Warrants and | |
|
Securities Reflected | |
| |
|
and Rights | |
|
Rights | |
|
in Column (a)) | |
| Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans approved by security holders
|
|
|
2,070,666 |
|
|
$ |
6.26 |
|
|
|
7,929,334 |
|
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
2,070,666 |
|
|
$ |
6.26 |
|
|
|
7,929,334 |
|
| |
|
|
|
|
|
|
|
|
|
The preceding table includes 1,350,212 restricted stock units
with a weighted average exercise price of $0 and 720,454 stock
options with a weighted average exercise price of $18.00.
We have not repurchased any shares of our common stock since
becoming a public company in October 2004.
16
The effective date of our registration statement filed on
Form S-1 under the Securities Act of 1933 (File
No. 333-117847) relating to our initial public offering of
shares of Class A common stock was October 27, 2004.
We incurred $31.9 million of expenses in connection with
the offering. The net proceeds to us totaled approximately
$382.1 million. We used $332.3 million to
purchase 20 million membership units in Calamos
Holdings LLC from Calamos Family Partners and used
$49.8 million to purchase 3 million membership
units directly from Calamos Holdings LLC. Calamos Holdings LLC
then used $25.0 million to expand our alternative
investment business; $6.7 million for direct payments to
certain employees, including directors, officers and holders of
10% or more of our equity securities, in connection with the
termination of our EAU (Equity Appreciation Unit) Plan; and
$18.1 million for general corporate purposes.
|
|
| Item 6. |
Selected Historical Financial and Other Data. |
The following tables set forth our selected historical
consolidated financial and other data, as well as financial and
other data for our predecessor, Calamos Family Partners, Inc. as
of the dates and for the periods indicated. The selected
historical consolidated income statement data for the period
January 1, 2004 to November 1, 2004 and for each of
the years in the three-year period ended December 31, 2003
and the selected historical consolidated balance sheet data as
of December 31, 2001, 2002 and 2003 have been derived from
the audited consolidated financial statements of Calamos Family
Partners, Inc. (formerly known as Calamos Holdings, Inc.). The
selected historical combined income statement data for the year
ended December 31, 2000 and the selected historical
combined balance sheet data as of December 31, 2000 have
been derived from the unaudited combined financial statements of
entities that are now wholly owned by subsidiaries of Calamos
Holdings LLC.
For all periods presented through November 1, 2004, Calamos
Family Partners, Inc. operated as an S corporation and was
not subject to U.S. federal and certain state income taxes.
Beginning November 2, 2004, we are subject to
U.S. federal and certain state and local income taxes
applicable to C corporations. As a result, income taxes prior to
November 2, 2004 are not indicative of our expected future
income taxes as a public company.
You should read the following selected historical consolidated
financial and other data in conjunction with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the historical
consolidated financial statements and related notes, all
included elsewhere in this Annual Report on Form 10-K.
17
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma | |
| |
|
|
|
|
|
|
|
Combined | |
| |
|
Year Ended December 31, | |
|
|
|
|
|
Year Ended | |
| |
|
| |
|
Jan. 1 to | |
|
Nov. 2 to | |
|
Dec. 31, | |
| |
|
2000(1) | |
|
2001 | |
|
2002 | |
|
2003 | |
|
Nov. 1, 2004 | |
|
Dec. 31, 2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
|
|
| |
|
(In thousands, except per share data) | |
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$ |
26,937 |
|
|
$ |
37,578 |
|
|
$ |
62,594 |
|
|
$ |
109,052 |
|
|
$ |
168,938 |
|
|
$ |
41,787 |
|
|
$ |
210,725 |
|
|
Distribution and underwriting fees
|
|
|
1,012 |
|
|
|
9,309 |
|
|
|
24,883 |
|
|
|
53,005 |
|
|
|
79,578 |
|
|
|
19,350 |
|
|
|
98,928 |
|
|
Other revenue
|
|
|
498 |
|
|
|
454 |
|
|
|
363 |
|
|
|
328 |
|
|
|
1,861 |
|
|
|
633 |
|
|
|
2,494 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
28,447 |
|
|
|
47,341 |
|
|
|
87,840 |
|
|
|
162,385 |
|
|
|
250,377 |
|
|
|
61,770 |
|
|
|
312,147 |
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
13,008 |
|
|
|
26,117 |
|
|
|
28,317 |
|
|
|
33,657 |
|
|
|
53,170 |
|
|
|
12,537 |
|
|
|
65,707 |
|
|
Distribution expenses
|
|
|
1,023 |
|
|
|
3,634 |
|
|
|
7,982 |
|
|
|
22,576 |
|
|
|
39,517 |
|
|
|
11,040 |
|
|
|
50,557 |
|
|
Amortization of deferred sales commissions
|
|
|
— |
|
|
|
3,272 |
|
|
|
11,677 |
|
|
|
19,879 |
|
|
|
24,315 |
|
|
|
5,109 |
|
|
|
29,424 |
|
|
Marketing and sales promotion
|
|
|
3,165 |
|
|
|
2,210 |
|
|
|
6,002 |
|
|
|
8,949 |
|
|
|
16,694 |
|
|
|
2,228 |
|
|
|
18,922 |
|
|
General and administrative
|
|
|
4,340 |
|
|
|
7,300 |
|
|
|
7,849 |
|
|
|
8,906 |
|
|
|
11,445 |
|
|
|
2,622 |
|
|
|
14,067 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,536 |
|
|
|
42,533 |
|
|
|
61,827 |
|
|
|
93,967 |
|
|
|
145,141 |
|
|
|
33,536 |
|
|
|
178,677 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,911 |
|
|
|
4,808 |
|
|
|
26,013 |
|
|
|
68,418 |
|
|
|
105,236 |
|
|
|
28,234 |
|
|
|
133,470 |
|
|
Other income (expense)
|
|
|
528 |
|
|
|
(563 |
) |
|
|
(899 |
) |
|
|
25 |
|
|
|
(1,487 |
) |
|
|
2,338 |
|
|
|
851 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and income taxes
|
|
|
7,439 |
|
|
|
4,245 |
|
|
|
25,114 |
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
30,572 |
|
|
|
134,321 |
|
|
Minority interest in investment in partnerships
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,322 |
|
|
|
1,322 |
|
|
Minority interest in Calamos Holdings LLC
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,609 |
|
|
|
22,609 |
|
|
Income before income tax
|
|
|
7,439 |
|
|
|
4,245 |
|
|
|
25,114 |
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
6,641 |
|
|
|
110,390 |
|
|
Income tax
|
|
|
96 |
|
|
|
69 |
|
|
|
383 |
|
|
|
1,117 |
|
|
|
1,567 |
|
|
|
2,649 |
|
|
|
4,216 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
7,343 |
|
|
$ |
4,176 |
|
|
$ |
24,731 |
|
|
$ |
67,326 |
|
|
$ |
102,182 |
|
|
$ |
3,992 |
|
|
$ |
106,174 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.08 |
|
|
$ |
0.04 |
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.18 |
|
|
|
|
|
| |
Weighted average shares outstanding(2)
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
22,700,100 |
|
|
|
|
|
| |
Diluted
|
|
$ |
0.08 |
|
|
$ |
0.04 |
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.17 |
|
|
|
|
|
| |
Weighted average shares outstanding(3)
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
100,491,409 |
|
|
|
|
|
18
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2000(1) | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
|
Balance Sheet Data (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$ |
6,956 |
|
|
$ |
6,443 |
|
|
$ |
6,860 |
|
|
$ |
10,389 |
|
|
$ |
147,521 |
|
|
Total assets
|
|
|
20,078 |
|
|
|
33,218 |
|
|
|
57,272 |
|
|
|
104,531 |
|
|
|
516,452 |
|
|
Long-term debt
|
|
|
4,014 |
|
|
|
6,866 |
|
|
|
10,945 |
|
|
|
23,008 |
|
|
|
150,000 |
|
|
Total liabilities
|
|
|
8,653 |
|
|
|
18,894 |
|
|
|
32,246 |
|
|
|
58,107 |
|
|
|
191,342 |
|
|
Minority Interest
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
11 |
|
|
|
166,616 |
|
|
Total stockholders’ equity
|
|
|
11,425 |
|
|
|
14,324 |
|
|
|
25,016 |
|
|
|
46,413 |
|
|
|
158,494 |
|
|
Assets Under Management (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$ |
529 |
|
|
$ |
2,241 |
|
|
$ |
5,712 |
|
|
$ |
14,651 |
|
|
$ |
26,951 |
|
|
Separate accounts
|
|
|
5,602 |
|
|
|
7,094 |
|
|
|
7,180 |
|
|
|
9,189 |
|
|
|
11,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under management
|
|
$ |
6,131 |
|
|
$ |
9,335 |
|
|
$ |
12,892 |
|
|
$ |
23,840 |
|
|
$ |
37,975 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Incorporated on December 21, 2001, Calamos Family Partners,
Inc. became the sole stockholder of Calamos Advisors, Calamos
Financial Services and Calamos Property Management when it
acquired each entity under a non-taxable Type D acquisitive
reorganization, effectively transferring stock in exchange for
the assets of each entity. The transaction was accounted for, at
historical cost, as a combination of entities under common
control. As such, for the period ended December 31, 2000,
the financial statements presented are on a combined basis. In
the opinion of management, such information contains all
adjustments, consisting of necessary eliminating adjustments,
necessary for a fair presentation of the financial condition
items presented and results of operations. |
| |
| (2) |
Basic shares for the periods to November 2, 2004 reflect
the 96,800,000 existing after giving effect to the formation
transaction, whereby on October 15, 2004, Calamos Family
Partners, Inc. contributed all of its assets and liabilities,
including all equity interest in its wholly-owned subsidiaries,
to Calamos Holdings LLC in exchange for 96,800,000 of the
membership units of Calamos Holdings LLC. |
| |
| (3) |
Diluted shares outstanding for the period of November 2,
2004 to December 31, 2004 represent our weighted average
Class A common stock after giving effect to the offering as
of November 2, 2004. The diluted shares outstanding are
calculated: (a) assuming Calamos Family Partners, Inc. and
John P. Calamos, Sr. exchanged all of their membership
units in Calamos Holdings LLC for, and converted all outstanding
shares of our Class B common stock into, shares of our
Class A common stock, in each case on a one-for-one basis
and (b) including the effect of outstanding restricted
stock unit and option awards. In calculating diluted earnings
available to common shareholders for the period November 2,
2004 to December 31, 2004, an effective tax rate of 39.89%
was applied to income before minority interest in Calamos
Holdings LLC and income taxes of $29,250, resulting in earnings
available to common shareholders of $17,582. |
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operation. |
We provide investment advisory services through our subsidiaries
to institutions and individuals, managing $38.0 billion in
client assets at December 31, 2004. We offer our clients a
variety of investment products designed to suit their individual
investment needs.
Assets Under Management
Our operating results fluctuate primarily due to changes in the
total value and composition of our assets under management. The
following table details our assets under management, based on
the six types of
19
investment products we offer in the mutual fund and separate
account categories, at December 31, 2002, 2003 and 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, | |
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Open-end funds
|
|
$ |
4,872 |
|
|
$ |
12,130 |
|
|
$ |
20,921 |
|
| |
Closed-end funds
|
|
|
840 |
|
|
|
2,521 |
|
|
|
6,030 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total mutual funds
|
|
|
5,712 |
|
|
|
14,651 |
|
|
|
26,951 |
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Institutional accounts
|
|
|
1,964 |
|
|
|
2,674 |
|
|
|
3,332 |
|
| |
Managed accounts
|
|
|
5,097 |
|
|
|
6,241 |
|
|
|
7,091 |
|
| |
Private client accounts
|
|
|
104 |
|
|
|
258 |
|
|
|
527 |
|
| |
Alternative investments
|
|
|
15 |
|
|
|
16 |
|
|
|
74 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total separate accounts
|
|
|
7,180 |
|
|
|
9,189 |
|
|
|
11,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total assets under management
|
|
$ |
12,892 |
|
|
$ |
23,840 |
|
|
$ |
37,975 |
|
| |
|
|
|
|
|
|
|
|
|
The value and composition of our assets under management are,
and will continue to be, influenced by a variety of factors
including, among other things:
|
|
|
| |
• |
purchases and redemptions of shares of the open-end funds and
other investment products; |
| |
| |
• |
fluctuations in the financial markets around the world that
result in appreciation or depreciation of assets under
management; and |
| |
| |
• |
our introduction of new investment strategies and products. |
In order to increase our assets under management and expand our
business, we must develop and market investment products that
suit the individual investment needs of our target
clients — investors seeking superior risk-adjusted
returns over the long term. The value and composition of our
assets under management and our ability to continue to attract
clients will depend on a variety of factors including, among
other things:
|
|
|
| |
• |
our ability to educate our target clients about our investment
philosophy and provide them with best-in-class service; |
| |
| |
• |
the relative investment performance of our investment products
as compared to competing offerings and market indices; |
| |
| |
• |
competitive conditions in the mutual fund, asset management and
broader financial services sectors; |
| |
| |
• |
investor sentiment and confidence; and |
| |
| |
• |
our decision to close strategies when deemed in the best
interests of our clients. |
Investment Products
Mutual funds include registered open-end funds and registered
closed-end funds.
Open-End Funds. Open-end funds are continually offered
and are not listed on an exchange. Open-end funds issue new
shares for purchase and redeem shares from those shareholders
who sell. The share price for purchases and redemptions of
open-end funds is determined by each fund’s net asset
value, which is calculated at the end of each business day.
Assets under management in open-end funds vary as a result of
both market appreciation and depreciation and the level of new
purchases or redemptions of shares of a fund.
20
Through our subsidiary, Calamos Financial Services LLC, we offer
several share classes in each open-end fund to provide investors
with alternatives to best suit their investment needs.
|
|
|
| |
• |
Class A shares of the open-end funds represented
$13.2 billion and $7.2 billion of our assets under
management as of December 31, 2004 and December 31,
2003, respectively. These shares provide for a front-end sales
charge at the time of investment. The sales charge is equal to a
maximum of 4.75% of the amount invested. We retain an
underwriting fee representing a portion of this sales charge and
pay any remaining amounts to the selling firm, except where our
subsidiary, Calamos Financial Services, is the broker of record,
in which case we retain the entire sales charge. We received
underwriting fees of $9.4 million and $5.7 million for
the year ended December 31, 2004 and the year ended
December 31, 2003, respectively. We receive Rule 12b-1
distribution and service fees on Class A shares at a rate
of 0.25% of Class A share assets under management, which is
generally offset by a 0.25% fee paid to third-party selling
agents. For the year ended December 31, 2004 and the year
ended December 31, 2003, we received Class A share
Rule 12b-1 fees of $25.3 million and
$12.0 million, respectively. For the same periods, we made
Class A share Rule 12b-1 payments to selling firms of
$22.6 million and $10.4 million, respectively. |
| |
| |
• |
Class B shares of the open-end funds represented
$2.1 billion and $1.4 billion of our assets under
management as of December 31, 2004 and December 31,
2003, respectively. Investors in Class B shares do not pay
a sales charge at the time of investment; instead, we pay an
upfront commission equal to 4.0% of the amount invested directly
to the selling firm when the investment is made. This advance
payment is capitalized when paid as a deferred sales commission
asset. For the year ended December 31, 2004 and the year
ended December 31, 2003, we made Class B share
commission payments to selling firms of $22.7 million and
$24.5 million, respectively. If the investor sells
Class B shares within one year of investment, we receive
from the proceeds of the sale a contingent deferred sales
charge, often referred to as a CDSC, equal to 5.0% of the lesser
of the redemption price or purchase price excluding amounts not
subject to the charge. This contingent deferred sales charge
generally decreases by 1.0% per year beginning on the first
anniversary of the investment and terminates completely after
six years of ownership. For the year ended December 31,
2004 and the year ended December 31, 2003, we received
Class B share CDSC payments of $3.4 million and
$2.2 million, respectively. We receive Rule 12b-1 fees
on Class B shares at the rate of 1.0% of Class B share
assets under management (consisting of a 0.75% distribution fee
and a 0.25% service fee) and record these fees as distribution
and underwriting fee revenue. We make Class B share
Rule 12b-1 service fee payments to the selling firm at the
rate of 0.25% of Class B share assets under management and
record these payments as a distribution expense. The
Rule 12b-1 fees that we retain help us recover the upfront
commissions that we paid to the selling firm. Rule 12b-1
payments continue for eight years, at which point Class B
shares automatically convert into Class A shares. For the
year ended December 31, 2004 and the year ended
December 31, 2003, we received Class B share
Rule 12b-1 fees of $17 million and $9.7 million,
respectively. For the same periods, we made Class B share
Rule 12b-1 payments to selling firms of $4.3 million
and $2.4 million, respectively. |
| |
| |
• |
Class C shares of the open-end funds represented
$5.3 billion and $3.4 billion of our assets under
management as of December 31, 2004 and December 31,
2003, respectively. Investors in Class C shares do not pay
a sales charge at the time of investment; instead, we pay an
upfront commission equal to 1.0% of the amount invested directly
to the selling firm when the investment is made. This advance
payment is capitalized when paid as a deferred sales commission
asset. For the year ended December 31, 2004 and the year
ended December 31, 2003, we made Class C share
commission payments to selling firms of $18.9 million and
$16.2 million, respectively. If the investor sells
Class C shares within one year of investment, we receive
from the proceeds of the sale a CDSC equal to 1.0% of the lesser
of the redemption price or purchase price excluding amounts not
subject to the charge. For the year ended December 31, 2004
and the year ended December 31, 2003, we received
Class C share CDSC payments of $0.9 million and
$0.7 million, respectively. We receive Rule 12b-1 fees
on Class C shares at the rate of 1.0% of Class C share
assets under management (consisting of a 0.75% distribution fee
and a 0.25% service fee) and record these fees as distribution
and underwriting fee revenue. We |
21
|
|
|
| |
|
make Class C share Rule 12b-1 distribution and service
fee payments to the selling firm beginning in the second year
following the sale at the rate of 1.0% of Class C share
assets under management and record these payments as a
distribution expense. The first year’s Rule 12b-1 fee
helps us to recoup the up front commission we paid to the
selling firm. For the year ended December 31, 2004 and the
year ended December 31, 2003, we received Class C
share 12b-1 fees of $42.4 million and $22.4 million,
respectively. For the same periods, we made Class C share
Rule 12b-1 payments to selling firms of $22.6 million
and $9.4 million, respectively. |
| |
| |
• |
Class I shares of the open-end funds represented
$0.3 billion and $0.2 billion of our assets under
management as of December 31, 2004 and December 31,
2003, respectively. These shares do not provide for a load and
are generally offered to individual and institutional investors
making initial investments of $5 million or more. |
Closed-End Funds. Closed-end funds typically sell a
finite number of shares to investors through underwritten public
offerings, unlike open-end funds, which continually offer new
shares to investors. After the public offerings, investors buy
closed-end fund shares from, and sell those shares to, other
investors through an exchange or broker-dealer market. All three
of the closed-end funds for which Calamos Advisors is the
investment advisor currently use leverage by issuing preferred
securities to increase their total assets. Assets under
management in closed-end funds vary due to the amount of assets
raised in underwritten public offerings, the amount of leverage
utilized and market appreciation or depreciation. In addition,
in a typical underwritten public offering, investors are charged
a 4.5% commission by the selling firms. We do not receive or pay
commissions in connection with sales of closed-end fund shares,
although we may pay asset based distribution and service fees,
as well as, one-time distribution and service fees to
underwriters of underwritten public offerings of closed-end
funds. We incurred $6 million of these one-time fees during
the year ended December 31, 2004, but did not incur any
such one-time distribution and service fees during the year
ended December 31, 2003.
Separate accounts include institutional accounts, managed
accounts, private client accounts and alternative investments.
Fund flows into and out of such accounts, which we refer to as
purchases and redemptions, affect our level of assets under
management. Assets under management from these accounts also
vary as a result of market appreciation and depreciation. Our
revenues from separate accounts are derived from investment
management fees that we charge. In the case of alternative
investment products, we also may earn performance fees.
|
|
|
| |
• |
Institutional accounts are separately managed accounts
for institutional investors such as public and private pension
funds, public funds and endowment funds. |
| |
| |
• |
Managed accounts are separately managed accounts for
individual and institutional investors offered primarily through
national and regional broker-dealers. Managed accounts may be
structured as investment management agreements between us and
the investor directly or between us and the broker-dealer. |
| |
| |
• |
Private client accounts are separately managed accounts
for individual investors offered directly by us. |
| |
| |
• |
Alternative investments include non-registered investment
vehicles, primarily hedge funds, offered directly by us to
qualified individual and institutional investors. |
Revenues
Our revenues are substantially comprised of investment
management fees earned under contracts with the mutual funds and
separate accounts managed by our subsidiaries. The distribution
of assets under management among our investment products also
will have an impact on our investment management fees, as
22
some products carry different fees than others. Investment
management fees may fluctuate based on a number of factors,
including the following:
|
|
|
| |
• |
total value and composition of our assets under management; |
| |
| |
• |
market appreciation or depreciation; |
| |
| |
• |
level of net purchases and redemptions, which represent the sum
of new client assets, additional funding from existing clients,
withdrawals of assets from and termination of client accounts
and purchases and redemptions of mutual fund shares; |
| |
| |
• |
distribution of assets under management among our investment
products; |
| |
| |
• |
recent regulatory initiatives designed to increase the
independence of mutual fund directors, as well as recent trends
in the investment management industry generally, may result in
downward pressure on our investment management fees; |
| |
| |
• |
a determination by the independent directors of the mutual funds
to terminate or significantly alter the funds’ investment
management agreements with us; and |
| |
| |
• |
increased competition. |
Our revenues also are comprised of distribution and underwriting
fees. Asset-based distribution and/or service fees received
pursuant to Rule 12b-1 plans, discussed below, are a
significant component of distribution and underwriting fees.
Distribution and underwriting fees may fluctuate based on a
number of factors, including the following:
|
|
|
| |
• |
total value and composition of our assets under management
generally and by share class; |
| |
| |
• |
market appreciation or depreciation; |
| |
| |
• |
the level of purchases and redemptions; and |
| |
| |
• |
recent regulatory and legislative initiatives, including the
Mutual Fund Reform Act of 2004, which would, among other
things, eliminate Rule 12b-1 distribution and/or service
fees, if adopted. |
|
|
|
Investment Management Fees |
Investment management fees that we receive from mutual funds for
which our subsidiaries act as investment advisor are computed
monthly on an average daily net asset basis. Investment
management fees that we earn on separate accounts for which our
subsidiaries act as investment advisor are computed quarterly,
either in advance or in arrears, based on the assets under
management balance at the beginning or end of the quarterly
period. We recognize the revenues derived from these fees over
the period during which our subsidiaries render their investment
advisory services. Investment management fees that are
calculated on assets at the beginning of the quarter are the
actual fees billed to clients and are recorded as unearned
income and recognized evenly throughout the quarter.
In the case of our alternative investment products, we may earn
performance fees in addition to investment management fees. A
typical performance fee structure would include an asset-based
fee, as well as a fixed percentage of investment gains.
Historically, performance fees have not been a material source
of revenues for us. However, in the future, as we continue to
expand our alternative product offerings and assets under
management through offerings, such as the Calamos Equity
Opportunities Fund LP, we expect performance fees to become
a more significant source of revenues.
|
|
|
Distribution and Underwriting Fees |
Distribution and underwriting fees include (1) asset-based
distribution and/or service fees received pursuant to
Rule 12b-1 plans, (2) front-end sales charges and
(3) contingent deferred sales charges.
Rule 12b-1 distribution and/or service fees are asset-based
fees that open-end funds pay us over time pursuant to
distribution plans adopted under provisions of Rule 12b-1
under the Investment Company Act.
23
These fees are typically calculated as a percentage of average
daily net assets under management in specific share classes of
the open-end funds. These fees fluctuate with both the level of
average daily net assets under management and the relative mix
of assets between share classes. Rule 12b-1 fees are
generally offset by distribution and service expenses paid
during the period, as well as the amortization of deferred sales
commissions previously paid by us to third parties.
We earn front-end sales charges on the sale of Class A
shares of open-end funds, which provide for a sales charge at
the time of investment. We retain a portion of the applicable
sales charge and, if Calamos Financial Services acts as the
broker-dealer for the account, we would retain the entire sales
charge. Sales charges are waived on sales to shareholders or
intermediaries that exceed specified minimum dollar amounts and
other specified conditions. Sales charges fluctuate with both
the level of Class A share sales and the mix of
Class A shares offered with and without a sales charge.
Contingent deferred sales charges are earned on redemptions of
certain Class B shares within six years of purchase and on
certain redemptions of Class C shares within one year of
purchase. Contingent deferred sales charges fluctuate primarily
based on the length of the investment in Class B and
Class C shares. Waivers of contingent deferred sales
charges apply under certain circumstances.
Since April 1, 2004, other revenues have consisted, and in
future periods are expected to consist, primarily of portfolio
accounting fees, which are contractual payments calculated as a
percentage of combined assets of the mutual funds for financial
accounting services, such as expense accrual and tax
calculations. For the period from April 1, 2004 through
December 31, 2004, we received $1.9 million in
portfolio accounting fees. The fees were calculated using the
daily average assets of the open-end and closed-end funds
managed by Calamos Advisors (excluding the Calamos Convertible
Opportunities and Income Fund) and are based on a declining rate
of 0.0175% to 0.0110% of the combined assets of those funds.
Operating Expenses
Our operating expenses may fluctuate due to a number of factors,
including the following:
|
|
|
| |
• |
variations in the level of total compensation expense due to,
among other things, bonuses, changes in our employee count and
mix, and competitive factors; |
| |
| |
• |
changes in distribution expense as a result of fluctuations in
mutual fund sales, level of redemptions and market appreciation
or depreciation of assets under management |
| |
| |
• |
the amount of Rule 12b-1 distribution and/or service fees
that we receive, as well as our continued ability to receive
those fees in the future, which would affect the amortization
expenses associated with the receipt of these fees; |
| |
| |
• |
changes in the level of our marketing and promotion expenses in
response to market conditions, including our efforts to further
penetrate our existing distribution channels; |
| |
| |
• |
expenses and capital costs, such as technology assets,
depreciation, amortization, and research and development,
incurred to maintain and enhance our administrative and
operating services infrastructure; |
| |
| |
• |
unanticipated costs that may be incurred to protect investor
accounts and the goodwill of our clients; and |
| |
| |
• |
disruptions of services, including those provided by third
parties, such as facilities, communications, power, and the
mutual fund transfer agent and accounting systems. |
|
|
|
Employee Compensation and Benefits |
Our largest operating expense is employee compensation and
benefits expense, which includes salaries, deferred and
incentive compensation and related benefits costs. Employee
compensation and benefits,
24
including the compensation of our executive officers, are
benchmarked against industry compensation standards. Our
operating expenses through November 1, 2004 reflect changes
in the value of our equity appreciation units, or EAUs. In order
to attract and retain qualified personnel, we must maintain
competitive employee compensation and benefits. We have
experienced a general rise in employee compensation and benefits
expenses over time and expect this trend to continue.
We use a fair value method in recording compensation expense for
restricted stock units and stock options granted under our
incentive stock plans. Under the fair value method, compensation
expense is measured at the grant date based on the estimated
fair value of the award and is recognized as an expense over the
vesting period. Fair value is determined on the date granted
using the Black-Scholes option pricing model for the stock
options and is determined by the market value of the underlying
stock for restricted stock units.
Distribution expense includes payments we make to broker-dealers
and other intermediaries for selling, underwriting, servicing
and administering mutual funds. This expense is influenced by
new mutual funds sales, levels of redemptions and market
appreciation or depreciation of assets under management in these
products. With respect to open-end funds, this expense is
comprised of Rule 12b-1 distribution and/or service fee
payments to the selling firms.
|
|
|
Amortization of Deferred Sales Commissions |
As discussed above, we pay commissions to selling firms upon the
sale of Class B and C shares of open-end funds. As we pay
these commissions, we create a deferred sales commission asset
on our balance sheet. We amortize this asset over the period in
which we receive related asset-based distribution and/or service
fees pursuant to Rule 12b-1 plans. Amortization expenses
generally offset the Rule 12b-1 fees we receive from the
funds’ shareholders over this same period. In addition,
because Rule 12b-1 fees cease upon the redemption of
open-end fund shares, amortization expenses are accelerated when
shares are redeemed, resulting in the reduction of the deferred
sales commission asset. For more information on our financing of
the sales of Class B and Class C shares in the
open-end funds, see “— Liquidity and Capital
Resources.”
Other operating expenses include marketing and sales promotion
expenses and general and administrative expenses. Marketing and
sales promotion expenses generally vary based on the type and
level of marketing, educational, sales or other programs in
operation and include closed-end fund marketing costs and
ongoing and one-time payments to broker-dealers. In addition, we
are subject to supplemental compensation payments to third-party
selling agents, which are a component of marketing and sales
promotion expense. As the mutual funds managed by Calamos
Advisors have grown in size and recognition, beginning in 1998 a
limited number of our third-party selling agents began
requesting supplemental compensation payments, and subsequently,
certain of those agents have requested increases in the amounts
of such payments. However, as a percentage of revenues,
supplemental compensation payments have been decreasing over
time. We expect this trend to continue as we seek to expand our
distribution efforts to channels that do not require such
payments. In connection with closed-end funds, we make fee
payments to certain underwriters for distribution, consulting
and/or support services rendered during or after the offering
period of each closed-end fund. These fees are based on
contractual agreements with various underwriting firms and are
either paid over time based on the average daily net assets of
such funds or are paid at the close of the offering period based
on the amount of assets raised during the offering. General and
administrative expenses primarily include occupancy-related
costs and professional and business services and generally
increase and decrease in relative proportion to the number of
employees retained by us and the overall size and scale of our
business operations. We expect that the expenses associated with
leasing our new headquarters beginning in mid-2005 will increase
our occupancy expense by approximately $3 million per year.
25
Other Income (Expense), Net
Other income (expense), net represents net investment gains or
losses from our investment portfolio, as well as dividends and
net interest income or expense. Historically, other income
(expense), net has not been a material portion of our pre-tax
earnings. However, because a significant portion of the net
proceeds from the debt offering that we completed in April 2004
and the net proceeds from our initial public offering constitute
corporate capital that will be invested into products generating
investment income, we expect that the impact of other income
(expense), net will be more significant in future periods. For
more information on our liquidity and capital resources, see
“— Liquidity and Capital Resources.”
Minority Interest
As sole manager of Calamos Holdings LLC, we consolidate the
financial results of Calamos Holdings LLC with ours. In light of
Calamos Family Partners, Inc.’s and John P. Calamos,
Sr.’s 77% aggregate ownership interest in Calamos Holdings
LLC as of December 31, 2004, we reflect their ownership as
a minority interest in our statements of financial condition and
statements of income. Our historical results are those of
Calamos Family Partners, Inc., as our predecessor company. As a
result, our income before income taxes, after excluding Calamos
Family Partners, Inc.’s and John P. Calamos, Sr.’s
minority interest, represent approximately 23% of Calamos
Holdings LLC’s net income, and similarly, outstanding
shares of our Class A common stock represent 23% of the
outstanding membership units of Calamos Holdings LLC.
Calamos Partners is the general partner of the Calamos Equity
Opportunities Fund LP, an unregistered investment partnership,
and beginning in December 2004 certain subsidiaries of the
company have an interest (45.5%) in this partnership. At
December 31, 2004 the limited partners in Calamos Equity
Opportunities Fund LP did not have “important rights,”
as defined by AICPA Statement of Position No. 78-9, due to
their affiliation with the company. As a result, the company is
deemed to have control of this partnership and is required to
consolidate the financial statements of Calamos Equity
Opportunities Fund LP with the company’s results. As
partnerships are created to launch new products, subsidiaries of
the company as well as affiliates may invest in these entities.
As with Calamos Equity Opportunities Fund LP, the size of
affiliated investments relative to the investments by third
parties may require us to consolidate the financial statements
of new partnerships into the company’s results as well.
Income Taxes
Prior to our initial public offering, Calamos Family Partners,
Inc. elected to be taxed as an “S” corporation under
the Internal Revenue Code. Therefore, the income and expenses of
Calamos Family Partners, Inc. were included in the income tax
returns of its stockholders. Calamos Family Partners, Inc. was
subject only to Illinois replacement tax and other state taxes,
resulting in an effective tax rate of 1.5%. The Company,
however, is subject to income taxes applicable to C
corporations. We have determined our effective tax rate to be
39.9% for the period November 2, 2004 through
December 31, 2004.
The IRS has determined that for tax purposes, effective
December 30, 2003, investment managers can immediately
expense upfront sales commission payments on Class B and
Class C open-end fund shares. Prior to this ruling, we
capitalized those payments and amortized the expenses for Class
B and Class C shares over a five-year and one-year period,
respectively. As a result, our current tax obligations will be
reduced.
Dilutive Effect of Issuance of New Shares of Class A
Common Stock
When we issue new shares of Class A common stock, including
upon the exercise or conversion of options or restricted stock
units granted pursuant to our incentive compensation plan, our
existing Class A common stockholders will experience
dilution with regard to their indirect ownership interest in the
equity of Calamos Holdings LLC.
In accordance with our amended and restated certificate of
incorporation and the amended and restated limited liability
company agreement pursuant to which Calamos Holdings LLC is
governed, the net cash proceeds received by us from any future
issuance of shares of Class A common stock, including upon
the
26
exercise or conversion of options or restricted stock units
granted under our incentive compensation plan, will be
concurrently transferred to Calamos Holdings LLC in exchange for
newly issued membership units equal in number to such number of
shares of Class A common stock issued by us. The number of
outstanding membership units owned by us will, therefore, equal
the number of outstanding shares of our Class A common
stock at all times. As a result, the amount of dilution that
existing Class A common stockholders will experience with
regard to their equity interest in Calamos Holdings LLC as a
result of the issuance of additional shares of our Class A
common stock will not be adversely affected by our holding
company structure.
The foregoing can be illustrated by considering the dilutive
effect on existing Class A common stockholders of the
issuance of the 2,070,666 shares of Class A common
stock that were issued in connection with our initial public
offering if the 720,454 options and the 1,350,212 restricted
stock units were exercised or converted. Upon exercise and
conversion of the 2,070,666 shares, our existing public
stockholders’ ownership of our capital stock would decline
from approximately 100% to 91.74%, but, as a result of the
issuance of 2,070,666 additional membership units to us, our
ownership interest in Calamos Holdings LLC would increase from
23.0% to 24.56%. Accordingly, our existing public
stockholders’ indirect ownership interest in the equity of
Calamos Holdings LLC would decline from 23.0% to approximately
22.53%, representing dilution of approximately 2.03%.
Alternatively, assume that Calamos Family Partners, Inc. and
John P. Calamos, Sr. exchanged all of their membership units in
Calamos Holdings LLC for, and Calamos Family Partners, Inc.
converted all of its shares of our Class B common stock
into, shares of Class A common stock. In this event,
Calamos Family Partners, Inc. and John P. Calamos, Sr. would own
77.0% of our outstanding Class A common stock, the existing
public holders of our Class A common stock would own 23.0%
of our Class A common stock, and we would own 100% of the
equity interest in Calamos Holdings LLC. Upon the issuance of
the 2,070,666 new shares of Class A common stock described
above, the percentage of our capital stock, and therefore the
percentage of Calamos Holdings LLC’s equity, owned by our
existing public stockholders would decline from 23.0% to 22.53%,
representing the same 2.03% dilution illustrated above.
Recent Developments in the Regulation of the Mutual
Fund Industry
There have been significant recent developments in the
regulation of the mutual fund industry in response to
improprieties that have recently been discovered in the
industry. We are uncertain as to the implementation of new rules
and requirements and the impact these rules and requirements may
have on our business and expenses. For additional information
about the regulations applicable to our business, see
“Regulatory Environment.”
Reorganization and Holding Company Structure
Prior to our initial public offering, our business was conducted
by Calamos Family Partners, Inc. (formerly known as Calamos
Holdings, Inc.), which is wholly-owned by members of the Calamos
family and Calamos family trusts. On October 15, 2004,
Calamos Family Partners, Inc. contributed all of its assets and
liabilities, including all of the equity interests in its
wholly-owned subsidiaries, to Calamos Holdings LLC in exchange
for 100% of the membership units in Calamos Holdings LLC. This
transaction established Calamos Holdings LLC as the owner and
operator of the business conducted by Calamos Family Partners,
Inc. and its subsidiaries.
On November 2, 2004, we closed our initial public offering
of 20.0 million shares of Class A common stock and
received $335.7 million in proceeds, net of the
underwriting discount. On November 8, 2004, we sold an
additional 3.0 million shares of common stock pursuant to
the exercise of the underwriters’ over-allotment option and
received net proceeds of $50.4 million, net of the
underwriter’s discount. We used $49.8 million of the
proceeds to purchase 3.0 million newly issued
membership units directly from Calamos Holdings LLC and $332.3
to purchase 20.0 million membership units
(3.0 million of which were purchased in connection with the
over-allotment option) in Calamos Holdings LLC from Calamos
Family Partners, Inc. In connection with our initial acquisition
of membership units, we became the sole manager of Calamos
Holdings
27
LLC and are conducting the business previously conducted by
Calamos Family Partners, Inc. and its subsidiaries.
Operating Results
|
|
|
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003 |
On Nov. 2, 2004, we became the sole manager of Calamos Holdings
LLC and are now conducting the business previously conducted by
Calamos Family Partners, Inc. Accordingly, reported results for
the periods from January 1, 2004 through November 1,
2004 reflect the operations for Calamos Family Partners, Inc.
and its subsidiaries (Predecessor). Reported results for the
period from November 2, 2004 through December 31, 2004
reflect the results of operations for Calamos Asset Management,
Inc. We have combined the periods in the table below. We believe
that the combined results of these two periods provide a more
meaningful basis for period-to-period comparisons of the
company’s results.
28
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Pro Forma | |
| (In thousands except per share and share data) |
|
|
|
|
|
|
|
Combined Year | |
| |
|
Year Ended | |
|
January 1 to | |
|
November 2 to | |
|
Ended | |
| |
|
December 31, | |
|
November 1, | |
|
December 31, | |
|
December 31, | |
| |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment management fees
|
|
$ |
109,052 |
|
|
$ |
168,938 |
|
|
$ |
41,787 |
|
|
$ |
210,725 |
|
| |
Distribution and underwriting fees
|
|
|
53,005 |
|
|
|
79,578 |
|
|
|
19,350 |
|
|
|
98,928 |
|
| |
Other
|
|
|
328 |
|
|
|
1,861 |
|
|
|
633 |
|
|
|
2,494 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total revenues
|
|
|
162,385 |
|
|
|
250,377 |
|
|
|
61,770 |
|
|
|
312,147 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Employee compensation and benefits
|
|
|
33,657 |
|
|
|
53,170 |
|
|
|
12,537 |
|
|
|
65,707 |
|
| |
Distribution and underwriting expenses
|
|
|
22,576 |
|
|
|
39,517 |
|
|
|
11,040 |
|
|
|
50,557 |
|
| |
Amortization of deferred sales commissions
|
|
|
19,879 |
|
|
|
24,315 |
|
|
|
5,109 |
|
|
|
29,424 |
|
| |
Marketing and sales promotion
|
|
|
8,949 |
|
|
|
16,694 |
|
|
|
2,228 |
|
|
|
18,922 |
|
| |
General and administrative
|
|
|
8,906 |
|
|
|
11,445 |
|
|
|
2,622 |
|
|
|
14,067 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total expenses
|
|
|
93,967 |
|
|
|
145,141 |
|
|
|
33,536 |
|
|
|
178,677 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
68,418 |
|
|
|
105,236 |
|
|
|
28,234 |
|
|
|
133,470 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense
|
|
|
(999 |
) |
|
|
(4,627 |
) |
|
|
(1,339 |
) |
|
|
(5,966 |
) |
| |
Investment income and other income
|
|
|
1,024 |
|
|
|
3,140 |
|
|
|
3,677 |
|
|
|
6,817 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total other income (expenses), net
|
|
|
25 |
|
|
|
(1,487 |
) |
|
|
2,338 |
|
|
|
851 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income before minority interest and income taxes
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
30,572 |
|
|
|
134,321 |
|
| |
|
|
Minority interest in partnership investments
|
|
|
— |
|
|
|
— |
|
|
|
1,322 |
|
|
|
1,322 |
|
| |
|
|
Income before minority interest in Holdings and income taxes
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
29,250 |
|
|
|
132,999 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in Holdings
|
|
|
— |
|
|
|
— |
|
|
|
22,609 |
|
|
|
22,609 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Income before income taxes
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
6,641 |
|
|
|
110,390 |
|
|
Income taxes
|
|
|
1,117 |
|
|
|
1,567 |
|
|
|
2,649 |
|
|
|
4,216 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
67,326 |
|
|
$ |
102,182 |
|
|
$ |
3,992 |
|
|
$ |
106,174 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.18 |
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
22,700,100 |
|
|
|
|
|
|
Earnings per share, diluted
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.17 |
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
100,491,409 |
|
|
|
|
|
Assets under management increased by $14.1 billion, or 59%,
to $38.0 billion at December 31, 2004 from
$23.8 billion at December 31, 2003. At
December 31, 2004, our assets under management consisted of
71%
29
mutual funds and 29% separate accounts, as compared to 61%
mutual funds and 39% separate accounts at December 31, 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2003 | |
|
2004 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(In millions) | |
|
|
| |
|
(In millions) | |
|
|
|
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
$ |
5,712 |
|
|
$ |
14,651 |
|
|
$ |
8,939 |
|
|
|
156 |
% |
| |
Net purchases
|
|
|
6,556 |
|
|
|
9,776 |
|
|
|
3,220 |
|
|
|
49 |
% |
| |
Market appreciation
|
|
|
2,383 |
|
|
|
2,524 |
|
|
|
141 |
|
|
|
6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
14,651 |
|
|
|
26,951 |
|
|
|
12,300 |
|
|
|
84 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
|
9,752 |
|
|
|
20,850 |
|
|
|
11,098 |
|
|
|
114 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
|
7,180 |
|
|
|
9,189 |
|
|
|
2,009 |
|
|
|
28 |
% |
| |
Net purchases
|
|
|
475 |
|
|
|
804 |
|
|
|
329 |
|
|
|
69 |
% |
| |
Market appreciation
|
|
|
1,534 |
|
|
|
1,031 |
|
|
|
(503 |
) |
|
|
33 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
9,189 |
|
|
|
11,024 |
|
|
|
1,835 |
|
|
|
20 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
|
8,085 |
|
|
|
9,857 |
|
|
|
1,772 |
|
|
|
22 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Under Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
|
12,892 |
|
|
|
23,840 |
|
|
|
10,948 |
|
|
|
85 |
% |
| |
Net purchases
|
|
|
7,031 |
|
|
|
10,580 |
|
|
|
3,549 |
|
|
|
50 |
% |
| |
Market appreciation
|
|
|
3,917 |
|
|
|
3,555 |
|
|
|
(362 |
) |
|
|
9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
23,840 |
|
|
|
37,975 |
|
|
|
14,135 |
|
|
|
59 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
$ |
17,837 |
|
|
$ |
30,707 |
|
|
$ |
12,870 |
|
|
|
72 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund net purchases increased by $3.2 billion, or
49%, to $9.8 billion for the year ended December 31,
2004 from $6.6 billion for the prior year. The increase in
mutual fund net purchases was largely attributable to a large
closed-end fund offering during 2004 and to increased sales of
Calamos Growth Fund and Calamos Growth and Income Fund. We
expect future mutual fund purchases to be offset by an
increasing amount of redemptions, which generally result from
increasing mutual fund assets under management. Closed-end fund
offerings contributed significantly to net purchases for the
year ended December 31, 2004, with $3.3 billion in
closed-end fund assets under management added during that
period, as compared to $1.5 billion added for the year
ended December 31, 2003. Because closed-end funds do not
continually offer new shares to investors, increases in net
purchases of closed-end funds are entirely dependent on our
ability to consummate closed-end fund offerings. Market demand
for closed-end fund offerings is difficult to predict. We intend
to monitor the market and pursue opportunities as they present
themselves and when doing so would be consistent with our
business strategy. Open-end fund net purchases increased to
$6.5 billion for the year ended December 31, 2004 from
$5.1 billion for the prior year. Separate account net
purchases increased to $804 million for the year ended
December 31, 2004 from $475 million for the prior
year. Although our convertible strategy was closed to new
accounts in mid-2003 and remained closed throughout 2004, sales
of equity separate accounts drove an overall increase in net
purchases. We have closed certain separate account strategies to
new accounts in the past and may do so in the future as
conditions require.
Total revenues increased by $149.8 million, or 92%, to
$312.1 million for the year ended December 31, 2004
from $162.4 million for the year ended December 31,
2003. The increase was due to increases in both investment
management fees and distribution and underwriting fees. We
expect revenues to increase during
30
2005 as we earn investment management fees on the significant
amount of assets under management added in 2004. We also expect
to continue to emphasize sales of investment products that allow
us to generate higher fees, although we cannot be certain that
we will be able to do so successfully.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2003 | |
|
2004 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Investment management fees
|
|
$ |
109,052 |
|
|
$ |
210,725 |
|
|
$ |
101,673 |
|
|
|
93 |
% |
|
Distribution and underwriting fees
|
|
|
53,005 |
|
|
|
98,928 |
|
|
|
45,923 |
|
|
|
87 |
% |
|
Other
|
|
|
328 |
|
|
|
2,494 |
|
|
|
2,166 |
|
|
|
660 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
$ |
162,385 |
|
|
$ |
312,147 |
|
|
$ |
149,762 |
|
|
|
92 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees increased by $101.7 million, or
93%, to $210.7 million for the year ended December 31,
2004 from $109.0 million for the prior year as a result of
a $12.9 billion increase in average assets under
management. The overall growth in investment management fees was
due primarily to an increase in mutual fund investment
management fees, which increased to $162.7 million for the
year ended December 31, 2004 from $72.1 million for
the prior-year. Open-end fund investment management fees
increased to $123.3 million for the year ended
December 31, 2004 from $61.9 million for the prior
year as a result of an increase in open-end fund average assets
under management of $7.9 billion. Closed-end fund
investment management fees increased to $39.4 million for
the year ended December 31, 2004 from $10.2 million
for the prior year as a result of an increase in closed-end fund
average assets under management of $3.2 billion. Investment
management fees as a percentage of average assets under
management increased to an annualized rate of 0.69% at
December 31, 2004 from an annualized rate of 0.61% at
December 31, 2003 as the mutual fund assets under
management, which generally carry higher investment management
fees than our separate accounts, increased as a percentage of
our total assets under management.
Distribution and underwriting fees increased by
$45.9 million, or 87%, to $98.9 million for the year
ended December 31, 2004 from $53.0 million for the
prior year, primarily due to an increase in sales of open-end
fund shares and a $7.9 billion increase in open-end funds
average assets under management.
Other revenues were $2.5 million for the year ended
December 31, 2004, including $1.9 million of portfolio
accounting fees earned from mutual funds based on an agreement
beginning April 1, 2004.
Operating expenses increased by $84.7 million, or 90%, to
$178.7 million for the year ended December 31, 2004
from $94.0 million for the year ended December 31,
2003. The increase was primarily due to increases in employee
compensation and benefits and distribution expenses.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2003 | |
|
2004 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Employee compensation and benefits
|
|
$ |
33,657 |
|
|
$ |
65,707 |
|
|
$ |
32,050 |
|
|
|
95 |
% |
|
Distribution expense
|
|
|
22,576 |
|
|
|
50,557 |
|
|
|
27,981 |
|
|
|
124 |
% |
|
Amortization of deferred sales commissions
|
|
|
19,879 |
|
|
|
29,424 |
|
|
|
9,545 |
|
|
|
48 |
% |
|
Marketing and sales promotion
|
|
|
8,949 |
|
|
|
18,922 |
|
|
|
9,973 |
|
|
|
111 |
% |
|
General and administrative
|
|
|
8,906 |
|
|
|
14,067 |
|
|
|
5,161 |
|
|
|
58 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total operating expenses
|
|
$ |
93,967 |
|
|
$ |
178,677 |
|
|
$ |
84,710 |
|
|
|
90 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits increased by
$32.1 million, primarily due to additional expense of
$12.1 million related to salary and benefits as we
continued to expand our staffing levels to support our growth,
as well as $20.0 million for incentive compensation based
primarily on our financial performance, with $6.3 million
of this increase related to the increase in value of the EAU
plan, which was terminated in October
31
2004. Although we expect our employee compensation and benefits
expense to increase as we expand our alternative investment
business, we do not anticipate the fluctuation in compensation
expense as a result of the changes in the enterprise value that
we experienced with the variable EAU plan, because our new
incentive stock plans are accounted for using fair value
provisions that are fixed on the grant date. Only new issuances
and forfeitures will impact the future expense associated with
the incentive stock plans. Distribution expense increased by
$28.0 million, or 124%, primarily due to growth of average
open-end fund assets under management, as well as the aging of
open-end fund Class C shares. Of the $28.0 million
increase in distribution expense, $14.9 million was
primarily due to the growth of average open-end fund assets
under management and $13.2 million was primarily due to the
aging of Class C shares. Class C share assets do not
generate distribution expense in the first year following their
sale because we retain the Rule 12b-1 fees during that
first year (to offset the upfront commissions that we pay), but
they do generate a distribution expense in subsequent years as
we pay the Rule 12b-1 fees to the selling firms. Although
the Rule 12b-1 fee rates we paid to broker-dealers and
other intermediaries in the year ended December 31, 2004
did not change from the rates paid in the prior year, we expect
distribution expense to increase to the extent our sales of
mutual funds and assets under management continue to grow.
Amortization of deferred sales commissions increased by
$9.5 million, or 48%, primarily due to increased
commissions advanced on purchases of Class B and C shares
of open-end funds. Purchases of Class B and C shares
increased by 11% over the prior year. Marketing and sales
promotion expense increased to $18.9 million for the year
ended December 31, 2004 from $8.9 million for the
prior year. The increase of $10.0 million is attributable
to supplemental compensation payments to third-party selling
agents, which increased by $9.8 million to
$15.1 million, including a $6.0 million one-time fee
to underwriters of a closed-end fund offering that we incurred
during the period. We expect supplemental compensation payments
to continue to increase to the extent that our funds gain
assets. General and administrative expense increased by
$5.2 million primarily due to a $2.1 million increase
in professional and business services expenses.
|
|
|
Other Income (Expense), Net |
Other income (expense), net was a net other income of
$0.9 million for the year ended December 31, 2004 as
compared to a net other income of approximately $25,000 for the
year ended December 31, 2003. Investment and other income
included a gain of approximately $2.0 million related to
the Real Estate Distribution and other investment income of
$3.8 million. These gains were partially offset by a
$5.0 million increase in interest expense resulting from
our repayment in April 2004 of $25.8 million of outstanding
debt with a LIBOR based variable rate and issuance of
$150.0 million aggregate principal amount of Senior
Unsecured Notes due 2011 with a fixed rate of 5.24%.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2003 | |
|
2004 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Investment and other income
|
|
$ |
1,024 |
|
|
$ |
6,817 |
|
|
$ |
5,793 |
|
|
|
566 |
% |
|
Interest expense
|
|
|
(999 |
) |
|
|
(5,966 |
) |
|
|
(4,967 |
) |
|
|
497 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total other income (expense), net
|
|
$ |
25 |
|
|
$ |
851 |
|
|
$ |
826 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Management believes that pro forma results provide a more
meaningful representation of the company’s performance for
the 12 months ended December 31, 2004. The following
pro forma results give effect to the company’s 2004
reorganization, including its initial public offering, as if it
had occurred at the beginning of the year
presented.1,
2, 3 In addition, pro forma diluted earnings per share
reflect the effect of exchanging all membership interests in
Calamos Holdings LLC not held by the company for Class A
shares of the company. The most significant pro forma
adjustments relate to the minority interest of Calamos Family
Partners, Inc. and to income taxes, as Calamos Family Partners,
Inc. historically operated as an S corporation.
32
Comparing pro forma net income for 2004 with net income for 2003
is not meaningful due to different tax treatments for these two
periods. The reorganization and change in ownership made the
company subject to additional income taxes for the period
November 2, 2004 through December 31, 2004 that did
not apply to 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In thousands except per share and share |
|
|
|
|
|
Pro Forma | |
|
|
|
|
| data) |
|
|
|
|
|
Combined | |
|
|
|
Pro Forma | |
| |
|
Jan. 1 to | |
|
Nov. 2 to | |
|
Year Ended | |
|
Pro Forma | |
|
Year Ended | |
| |
|
Nov. 1, 2004 | |
|
Dec. 31, 2004 | |
|
Dec. 31, 2004 | |
|
Adjustments | |
|
Dec. 31, 2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
|
|
|
|
|
|
|
|
Total revenues(1)
|
|
$ |
250,377 |
|
|
$ |
61,770 |
|
|
$ |
312,147 |
|
|
$ |
(157 |
) |
|
$ |
311,990 |
|
|
Total expenses(1)
|
|
|
145,141 |
|
|
|
33,536 |
|
|
|
178,677 |
|
|
|
(8 |
) |
|
|
178,669 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
|
105,236 |
|
|
|
28,234 |
|
|
|
133,470 |
|
|
|
(149 |
) |
|
|
133,321 |
|
| |
Total other income (expense), net(1)
|
|
|
(1,487 |
) |
|
|
2,338 |
|
|
|
851 |
|
|
|
(1,808 |
) |
|
|
(957 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income before minority interest and income taxes
|
|
|
103,749 |
|
|
|
30,572 |
|
|
|
134,321 |
|
|
|
(1,957 |
) |
|
|
132,364 |
|
|
Minority interest in partnership investments
|
|
|
— |
|
|
|
(1,322 |
) |
|
|
(1,322 |
) |
|
|
— |
|
|
|
(1,322 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before minority interest in Calamos Holdings LLC and
income taxes
|
|
|
103,749 |
|
|
|
29,250 |
|
|
|
132,999 |
|
|
|
(1,957 |
) |
|
|
131,042 |
|
| |
Minority interest in Calamos Holdings LLC(2)
|
|
|
— |
|
|
|
(22,609 |
) |
|
|
(22,609 |
) |
|
|
(78,293 |
) |
|
|
(100,902 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before income taxes
|
|
|
103,749 |
|
|
|
6,641 |
|
|
|
110,390 |
|
|
|
(80,250 |
) |
|
|
30,140 |
|
|
Income taxes(3)
|
|
|
1,567 |
|
|
|
2,649 |
|
|
|
4,216 |
|
|
|
7,805 |
|
|
|
12,021 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
102,182 |
|
|
$ |
3,992 |
|
|
$ |
106,174 |
|
|
$ |
(88,055 |
) |
|
$ |
18,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, basic
|
|
$ |
1.06 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
$ |
0.79 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic(4)
|
|
|
96,800,000 |
|
|
|
22,700,100 |
|
|
|
|
|
|
|
|
|
|
|
23,000,100 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Calculation of pro forma earnings per share, diluted, assuming
exchange of membership units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest in Calamos Holdings LLC and
income taxes
|
|
|
|
|
|
$ |
29,250 |
|
|
|
|
|
|
|
|
|
|
$ |
131,042 |
|
|
Impact of income taxes
|
|
|
|
|
|
|
11,668 |
|
|
|
|
|
|
|
|
|
|
|
52,273 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proforma net income
|
|
|
|
|
|
$ |
17,582 |
|
|
|
|
|
|
|
|
|
|
$ |
78,769 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share, diluted
|
|
$ |
1.06 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
$ |
0.79 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted(5)
|
|
|
96,800,000 |
|
|
|
100,491,409 |
|
|
|
|
|
|
|
|
|
|
|
100,080,642 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Pro Forma Adjustments:
|
|
| (1) |
Represents the adjustment related to the Real Estate
Distribution based on actual amounts recorded during the periods
presented. |
| |
| (2) |
Represents an adjustment to increase Calamos Asset Management,
Inc.’s minority interest allocation to 77 percent.
Minority interest was determined by multiplying the combined
income before minority interest and taxes by Calamos Family
Partners, Inc.’s and John P. Calamos, Sr.’s
77 percent aggregate |
33
|
|
|
ownership. The minority interest adjustment is presented based
on the combined income for the periods presented. |
| |
| (3) |
Reflects the impact of federal and state income taxes on the
income allocated from Calamos Holdings LLC to Calamos Asset
Management, Inc. Historically, Calamos Family Partners, Inc.
operated as an “S” corporation and was not subject to
U.S. federal and certain state income taxes, but was
subject to Illinois replacement taxes. The amount of pro forma
adjustment was determined by eliminating the Illinois
replacement tax and applying the combined projected federal
corporate income tax rate and applicable state tax rates to
income before income taxes. |
| |
| (4) |
Represents 23,000,000 shares of Class A common stock,
which represents 23.0 percent of the outstanding shares
after the offering. In addition to shares of Class A common
stock, there are 100 shares of Class B common stock
outstanding. |
| |
| (5) |
Diluted shares outstanding for each period presented represent
our weighted average Class A common stock after giving
effect to the offering as of the beginning of each period
presented. The diluted shares outstanding are calculated:
(a) including the effect of outstanding restricted stock
unit and option awards and (b) assuming Calamos Family
Partners, Inc. and John P. Calamos, Sr. exchanged all of
their membership units in Calamos Holdings LLC for, and
converted all outstanding shares of our Class B common
stock into, shares of our Class A common stock, in each
case on a one-for-one basis. In calculating diluted earnings per
share an effective tax rate of 39.89 percent was applied to
income before minority interest and income taxes. |
Pro Forma combined net income totaled $106.2 million for
the year ended December 31, 2004 as compared to
$67.3 million for the year ended December 31, 2003, an
increase of 58%.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
|
|
Pro Forma | |
|
|
| |
|
2003 | |
|
2004 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Total revenues
|
|
$ |
162,385 |
|
|
$ |
312,147 |
|
|
$ |
149,762 |
|
|
|
92 |
% |
|
Total operating expenses
|
|
|
93,967 |
|
|
|
178,677 |
|
|
|
84,710 |
|
|
|
90 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
|
68,418 |
|
|
|
133,470 |
|
|
|
65,052 |
|
|
|
95 |
% |
|
Other income (expense), net
|
|
|
25 |
|
|
|
851 |
|
|
|
826 |
|
|
|
* |
|
|
Minority interest
|
|
|
— |
|
|
|
23,931 |
|
|
|
23,931 |
|
|
|
* |
|
|
Income taxes
|
|
|
1,117 |
|
|
|
4,216 |
|
|
|
3,099 |
|
|
|
277 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
67,326 |
|
|
$ |
106,174 |
|
|
$ |
38,848 |
|
|
|
58 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
During the year end December 31, 2003 and for the period
January 1, 2004 to November 1, 2004, our business was
operated as an S corporation. As a result, our effective
tax rate for these periods was 1.5%, while our effective tax
rate for the period November 2, 2004 to December 31,
2004 was 39.9%.
|
|
|
Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002 |
Assets under management increased by $10.9 billion, or 85%,
to $23.8 billion at December 31, 2003 from
$12.9 billion at December 31, 2002. At
December 31, 2003, our assets under management consisted of
61% mutual funds and 39% separate accounts, as compared to 44%
mutual funds and 56% separate accounts at December 31, 2002.
34
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
(In millions) | |
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
$ |
2,241 |
|
|
$ |
5,712 |
|
|
$ |
3,471 |
|
|
|
155 |
% |
| |
Net purchases
|
|
|
3,928 |
|
|
|
6,556 |
|
|
|
2,628 |
|
|
|
67 |
% |
| |
Market appreciation
|
|
|
(457 |
) |
|
|
2,383 |
|
|
|
2,840 |
|
|
|
621 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
5,712 |
|
|
|
14,651 |
|
|
|
8,939 |
|
|
|
156 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
|
4,091 |
|
|
|
9,752 |
|
|
|
5,661 |
|
|
|
138 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
|
7,094 |
|
|
|
7,180 |
|
|
|
86 |
|
|
|
1 |
% |
| |
Net purchases
|
|
|
469 |
|
|
|
475 |
|
|
|
6 |
|
|
|
1 |
% |
| |
Market appreciation
|
|
|
(383 |
) |
|
|
1,534 |
|
|
|
1,917 |
|
|
|
501 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
7,180 |
|
|
|
9,189 |
|
|
|
2,009 |
|
|
|
28 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
|
7,037 |
|
|
|
8,085 |
|
|
|
1,048 |
|
|
|
15 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Under Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning assets under management
|
|
|
9,335 |
|
|
|
12,892 |
|
|
|
3,557 |
|
|
|
38 |
% |
| |
Net purchases
|
|
|
4,397 |
|
|
|
7,031 |
|
|
|
2,634 |
|
|
|
60 |
% |
| |
Market appreciation
|
|
|
(840 |
) |
|
|
3,917 |
|
|
|
4,757 |
|
|
|
566 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Ending assets under management
|
|
|
12,892 |
|
|
|
23,840 |
|
|
|
10,948 |
|
|
|
85 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average assets under management
|
|
$ |
11,128 |
|
|
$ |
17,837 |
|
|
$ |
6,709 |
|
|
|
60 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund net purchases increased by $2.6 billion, or
67%, to $6.6 billion for the year ended December 31,
2003 from $3.9 billion for the prior year, primarily as the
result of sales of open-end mutual fund shares and the launch of
new closed-end funds. Open-end fund net purchases increased to
$5.1 billion for the year ended December 31, 2003 from
$3.2 billion for the year ended December 31, 2002.
Closed-end fund offerings contributed to net purchases for the
year ended December 31, 2003, with $1.5 billion in
assets under management added in 2003 as compared to
$738.4 million added in the prior year. Separate account
net purchases increased to $474.6 million for the year
ended December 31, 2003 from $469.1 million for the
prior year. Although our convertible strategy was closed to new
accounts in mid-2003, sales of equity separate accounts resulted
in the overall increase in net purchases.
Total revenues increased by $74.5 million, or 85%, to
$162.4 million for the year ended December 31, 2003
from $87.8 million for the year ended December 31,
2002. This increase was due to increases in both investment
management fees and distribution and underwriting fees.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Investment management fees
|
|
$ |
62,594 |
|
|
$ |
109,052 |
|
|
$ |
46,458 |
|
|
|
74 |
% |
|
Distribution and underwriting fees
|
|
|
24,883 |
|
|
|
53,005 |
|
|
|
28,122 |
|
|
|
113 |
% |
|
Other
|
|
|
363 |
|
|
|
328 |
|
|
|
(35 |
) |
|
|
10 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
$ |
87,840 |
|
|
$ |
162,385 |
|
|
$ |
74,545 |
|
|
|
85 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
35
Investment management fees increased by $46.5 million, or
74%, to $109.1 million for the year ended December 31,
2003 from $62.6 million for the prior year as a result of a
$6.7 billion increase in average assets under management.
The increase was primarily due to an increase in mutual fund
investment management fees to $72.1 million for the year
ended December 31, 2003 from $31.9 million for the
prior year. Open-end fund investment management fees increased
to $61.9 million for the year ended December 31, 2003
from $29.9 million for the prior year as a result of an
increase in open-end fund average assets under management of
$4.4 billion. Closed-end fund investment management fees
increased to $10.2 million for the year ended
December 31, 2003 from $2.0 million for the prior year
as a result of an increase in closed-end fund average assets
under management of $1.3 billion. Investment management
fees as a percentage of average assets under management
increased to 0.61% at December 31, 2003 from 0.56% at
December 31, 2002, as the mutual fund assets under
management, which generally carry higher investment management
fees than our separate accounts, increased as a percentage of
our total assets under management.
Distribution and underwriting fees increased by
$28.1 million, or 113%, to $53.0 million for the year
ended December 31, 2003 from $24.9 million for the
prior year, primarily due to increased sales of open-end fund
shares and a $4.4 billion increase in average assets under
management.
Operating expenses increased by $32.1 million, or 52%, to
$94.0 million for the year ended December 31, 2003
from $61.8 million for the year ended December 31,
2002. The increase was largely due to increased distribution
expense resulting from higher mutual funds assets.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Employee compensation and benefits
|
|
$ |
28,317 |
|
|
$ |
33,657 |
|
|
$ |
5,340 |
|
|
|
19 |
% |
|
Distribution expense
|
|
|
7,982 |
|
|
|
22,576 |
|
|
|
14,594 |
|
|
|
183 |
% |
|
Amortization of deferred sales commissions
|
|
|
11,677 |
|
|
|
19,879 |
|
|
|
8,202 |
|
|
|
70 |
% |
|
Marketing and sales promotion
|
|
|
6,002 |
|
|
|
8,949 |
|
|
|
2,947 |
|
|
|
49 |
% |
|
General and administrative
|
|
|
7,849 |
|
|
|
8,906 |
|
|
|
1,057 |
|
|
|
13 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total operating expenses
|
|
$ |
61,827 |
|
|
$ |
93,967 |
|
|
$ |
32,140 |
|
|
|
52 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits increased by
$5.3 million, primarily due to additional incentive
compensation of $2.7 million based on our improved
financial performance. Distribution expense increased by
$14.6 million, or 183%, primarily due to growth of average
open-end fund assets under management, as well as the aging of
open-end fund Class C shares. Of the $14.6 million
increase in distribution expense, $7.7 million was
primarily due to the growth of average open-end fund assets
under management and $6.9 million was primarily due to the
aging of Class C shares. Class C share assets do not
generate a distribution expense in the first year following
their sale because we retain the Rule 12b-1 fees during
that first year (to offset the upfront commissions that we pay).
Class C share assets do generate distribution expense in
subsequent years as we pay the Rule 12b-1 fees to the
selling firms. The Rule 12b-1 fee rates we paid to
broker-dealers and other intermediaries in 2003 did not change
from the rates paid in 2002. Amortization of deferred sales
commissions increased by $8.2 million as a result of
increased commissions advanced on purchases of Class B and
C shares of open-end funds. Purchases of Class B and C
shares increased by 59% over the prior year. Marketing and sales
promotion expense increased by $2.9 million primarily due
to an increase in supplemental compensation payments to
third-party selling agents of $2.3 million to
$5.4 million for the year ended December 31, 2003.
General and administrative expense increased by
$1.1 million, primarily due to a $0.6 million increase
in professional and business services expenses and a
$0.7 million increase in ongoing fund administration
expenses for one closed-end fund.
36
|
|
|
Other Income (Expense), Net |
Other income (expense), net was a net other income of
approximately $25,000 for the year ended December 31, 2003
as compared to a net other expense of $0.9 million for the
year ended December 31, 2002. The change was primarily due
to net gains from investments.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Investment and other income
|
|
$ |
18 |
|
|
$ |
1,024 |
|
|
$ |
1,006 |
|
|
|
* |
|
|
Interest expense
|
|
|
(917 |
) |
|
|
(999 |
) |
|
|
(82 |
) |
|
|
9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total other income (expense), net
|
|
$ |
(899 |
) |
|
$ |
25 |
|
|
$ |
924 |
|
|
|
103 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net income totaled $67.3 million for the year ended
December 31, 2003 as compared to $24.7 million for the
year ended December 31, 2002, an increase of 172%.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
| |
|
December 31, | |
|
Period-to-Period | |
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
$ Change | |
|
% Change | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(In thousands) | |
|
|
|
Total revenues
|
|
$ |
87,840 |
|
|
$ |
162,385 |
|
|
$ |
74,545 |
|
|
|
85 |
% |
|
Total operating expenses
|
|
|
61,827 |
|
|
|
93,967 |
|
|
|
32,140 |
|
|
|
52 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
|
26,013 |
|
|
|
68,418 |
|
|
|
42,405 |
|
|
|
163 |
% |
|
Other income (expense), net
|
|
|
(899 |
) |
|
|
25 |
|
|
|
924 |
|
|
|
103 |
% |
|
Income tax expense
|
|
|
383 |
|
|
|
1,117 |
|
|
|
734 |
|
|
|
192 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
24,731 |
|
|
$ |
67,326 |
|
|
$ |
42,595 |
|
|
|
172 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
During both years, our business operated as an
S corporation. As a result, income taxes during these
periods are not indicative of our expected future income taxes
as a public company.
Quarterly Results of Operations
The following table presents our quarterly results of operations
from the quarter ended March 31, 2003 to the quarter ended
December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At or for the Quarter Ended | |
| |
|
| |
| |
|
March 31, | |
|
June 30, | |
|
Sept. 30, | |
|
Dec. 31, | |
| |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
| |
|
(In thousands) | |
|
Assets under management (in millions)
|
|
$ |
14,140 |
|
|
$ |
17,756 |
|
|
$ |
20,191 |
|
|
$ |
23,840 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
28,926 |
|
|
$ |
35,327 |
|
|
$ |
44,647 |
|
|
$ |
53,485 |
|
|
Total operating expenses
|
|
|
18,774 |
|
|
|
21,271 |
|
|
|
24,247 |
|
|
|
29,675 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
10,152 |
|
|
$ |
14,056 |
|
|
$ |
20,400 |
|
|
$ |
23,810 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
9,802 |
|
|
$ |
14,055 |
|
|
$ |
19,974 |
|
|
$ |
23,495 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1)
|
|
$ |
0.10 |
|
|
$ |
0.15 |
|
|
$ |
0.21 |
|
|
$ |
0.24 |
|
|
Diluted shares outstanding
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
[Additional columns below]
[Continued from above table, first column and heading repeated]
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At or for the Quarter Ended | |
|
For the Period | |
| |
|
| |
|
| |
| |
|
|
|
Oct. 1 through | |
|
Nov. 2 through | |
| |
|
March 31, | |
|
June 30, | |
|
Sept. 30, | |
|
Nov. 1, | |
|
Dec. 31, | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
| |
|
(In thousands) | |
|
Assets under management (in millions)
|
|
$ |
28,973 |
|
|
$ |
32,262 |
|
|
$ |
33,248 |
|
|
$ |
33,909 |
|
|
$ |
37,975 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
63,660 |
|
|
$ |
75,854 |
|
|
$ |
81,231 |
|
|
$ |
29,632 |
|
|
$ |
61,770 |
|
|
Total operating expenses
|
|
|
39,557 |
|
|
|
42,554 |
|
|
|
45,776 |
|
|
|
17,254 |
|
|
|
33,536 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
24,103 |
|
|
$ |
33,300 |
|
|
$ |
35,455 |
|
|
$ |
12,378 |
|
|
$ |
28,234 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
23,732 |
|
|
$ |
33,417 |
|
|
$ |
33,107 |
|
|
$ |
11,926 |
|
|
$ |
3,992 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1)
|
|
$ |
0.25 |
|
|
$ |
0.35 |
|
|
$ |
0.34 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
|
Diluted shares outstanding
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
100,491,409 |
|
|
|
| (1) |
Diluted shares outstanding for each period presented represent
our weighted average Class A common stock after giving
effect to the offering as of the beginning of each period
presented. The diluted shares |
37
|
|
|
outstanding are calculated: (a) including the effect of
outstanding restricted stock unit and option awards and
(b) assuming Calamos Family Partners, Inc. and John P.
Calamos, Sr. exchanged all of their membership units in
Calamos Holdings LLC for, and converted all outstanding shares
of our Class B common stock into, shares of our
Class A common stock, in each case on a one-for-one basis.
In calculating diluted earnings per share for the period
November 2 through December 31, 2004, an effective tax rate
of 39.89 percent was applied to income before minority
interest and income taxes to determine the earnings available to
common stockholders. |
Liquidity and Capital Resources
Our current financial condition is highly liquid, with the
majority our assets comprised of cash and cash equivalents and
investment securities. Investment securities are principally
comprised of company-sponsored mutual funds and other highly
liquid exchange traded securities. Our working capital
requirements historically have been met through cash generated
by our operations and bank borrowings.
The following tables summarize key statements of financial
condition data relating to our liquidity and capital resources.
| |
|
|
|
|
|
|
|
|
|
| |
|
At December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Statements of financial condition data:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
5,073 |
|
|
$ |
149,768 |
|
| |
Receivables
|
|
|
23,093 |
|
|
|
27,234 |
|
| |
Investments
|
|
|
10,389 |
|
|
|
147,521 |
|
| |
Deferred sales commissions
|
|
|
49,236 |
|
|
|
61,417 |
|
| |
Current portion of bank debt
|
|
|
15,676 |
|
|
|
— |
|
| |
Long-term debt
|
|
|
23,008 |
|
|
|
150,000 |
|
Cash flows are shown below as combined for the year ended
December 31, 2004 as management believes this is the most
appropriate for comparison purposes.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Pro Forma | |
| |
|
Year Ended | |
|
January 1 | |
|
November 2 | |
|
Combined | |
| |
|
December 31, | |
|
through | |
|
through | |
|
Year Ended | |
| |
|
| |
|
November 1, | |
|
December 31, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash provided by (used in) operating activities
|
|
$ |
9,275 |
|
|
$ |
36,825 |
|
|
$ |
111,866 |
|
|
$ |
21,288 |
|
|
$ |
133,154 |
|
| |
Net cash provided by (used in) investing activities
|
|
|
(2,161 |
) |
|
|
(7,903 |
) |
|
|
(57,499 |
) |
|
|
(49,851 |
) |
|
|
(107,350 |
) |
| |
Net cash provided by (used in) financing activities
|
|
|
(4,836 |
) |
|
|
(26,497 |
) |
|
|
73,536 |
|
|
|
45,355 |
|
|
|
118,891 |
|
Net cash provided by operating activities increased by
$96.3 million, to $133.2 million for the combined year
ended December 31, 2004 from $36.8 million for the
year ended December 31, 2003, primarily as a result of
increased net income of $38.8 million, increased
liabilities of $16.5 million, and decreases in receivables
and other assets of $9.7 million. Net cash provided by
operating activities increased by $27.6 million, to
$36.8 million for the year ended December 31, 2003
from $9.3 million for the year ended December 31,
2002, primarily as a result of increased net income of
$42.6 million, partially offset by increased receivables of
$10.4 million.
The payment of deferred sales commissions by us to financial
intermediaries who sell Class B and C shares of open-end
funds is a significant use of our operating cash flows. Use of
cash for deferred sales commissions increased by
$0.4 million to $41.6 million for the combined year
ended December 31, 2004 from
38
$41.2 for the year ended December 31, 2003. Use of cash for
deferred sales commissions increased by $13.1 million to
$41.2 million for the year ended December 31, 2003
from $28.1 million for the year ended December 31,
2002. We expect that the payment of deferred sales commissions
will continue to increase in the future to the extent sales of
Class B and C shares of open-end funds continue to
increase. The amortization of deferred sales commissions will
similarly be affected.
Investing activities typically consist of investments in
products that we sponsor and of the purchase of property and
equipment. Net cash used in investing activities increased to
$107.4 million for combined year ended December 31,
2004 from $7.9 million for the year ended December 31,
2003 largely as a result of our investments in products managed
by our subsidiaries of $96.0 million and construction
payments on our new headquarters facility, which were
distributed to the stockholders of Calamos Family Partners, Inc.
in June 2004 in connection with the Real Estate Distribution.
Net cash used in investing activities increased to
$7.9 million for the year ended December 31, 2003 from
$2.2 million for the year ended December 31, 2002
primarily due to net additions to property and equipment of
$6.5 million. We anticipate increasing the future level of
investments in products managed by our subsidiaries and expect
to use a portion of our net proceeds from our initial public
offering to launch new products, including open-end funds and
alternative investments.
Net cash provided by financing activities was
$118.9 million for combined year ended December 31,
2004, as compared to net cash used in financing activities of
$26.5 million for the year ended December 31, 2003.
The change resulted from net proceeds from our initial public
offering of $49.8 million, the issuance of
$150.0 million aggregate principal amount of Senior
Unsecured Notes, offset by the repayment of $30.2 million
of bank debt and a $4.9 million increase in distributions
to owners, including distributions for their tax liabilities.
Net cash used in financing activities increased to
$26.5 million for the year ended December 31, 2003
from $4.8 million for the year ended December 31,
2002, primarily due to an increase in distribution to owners of
$33.6 million offset by an increase in net proceeds from
borrowing of $9.1 million.
On April 29, 2004, we issued $150.0 million aggregate
principal amount of 5.24% Senior Unsecured Notes due 2011.
We used a portion of those net proceeds to repay and terminate a
credit facility of approximately $30.0 million, which we
entered into during 2002, primarily to finance our payment of
deferred sales commissions with respect to open-end funds
managed by Calamos Advisors. We currently fund the payment of
deferred sales commissions from operating cash flows and expect
to continue to do so in future periods.
We expect our cash and liquidity requirements will be met with
the cash on hand remaining from the proceeds from our sale of
Senior Unsecured Notes and our initial public offering and
through cash generated by operations. We intend to satisfy our
capital requirements over the next 12 months through these
sources of liquidity.
Contractual Obligations
The following table contains supplemental information regarding
our total contractual obligations as of December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Pay Period | |
| |
|
| |
| |
|
|
|
Less Than | |
|
|
|
More Than | |
| |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Long-term debt obligations
|
|
$ |
150,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
150,000 |
|
|
Operating lease obligations
|
|
|
77,982 |
|
|
|
3,041 |
|
|
|
5,991 |
|
|
|
6,248 |
|
|
|
62,702 |
|
|
Purchase obligations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other long-term liabilities reflected on balance sheet under GAAP
|
|
|
263 |
|
|
|
— |
|
|
|
212 |
|
|
|
31 |
|
|
|
20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
228,245 |
|
|
$ |
3,041 |
|
|
$ |
6,203 |
|
|
$ |
6,279 |
|
|
$ |
212,722 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in
accordance with accounting principles generally accepted in the
United States requires management to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under current circumstances, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
available from other sources. We evaluate our estimates on an
ongoing basis. Actual results may differ from these estimates
under different assumptions or conditions.
Accounting policies are an integral part of our consolidated
financial statements. A thorough understanding of these
accounting policies is essential when reviewing our reported
results of operations and our financial position. Management
believes that the critical accounting policies and estimates
discussed below involve additional management judgment due to
the sensitivity of the methods and assumptions used.
|
|
|
Deferred Sales Commissions |
Deferred sales commissions are commissions advanced by us on our
sale of Class B and Class C shares of open-end funds.
Deferred sales commissions are amortized on a straight-line
basis over the period in which 12b-1 fees are received. Because
12b-1 fees cease upon redemption of shares, amortization expense
is accelerated when shares are redeemed, resulting in the
reduction of the deferred sales commission asset. These
redemptions result in an amortization period not to exceed
12 months for Class C shares and 96 months (eight
years) for Class B shares.
We evaluate the carrying value of our deferred sales commissions
for impairment purposes on a quarterly basis. Significant
assumptions utilized by us to estimate future average assets
under management include expected future market performance and
redemption rates. Estimates of undiscounted future cash flows
and the remaining life of the deferred sales commission asset
are made from these assumptions. Market performance assumptions
are selected using expected average market returns based on
long-term historical returns for each asset class held within
the fund. At December 31, 2004, we used average market
return assumptions of 5% for fixed income assets, 6% for
convertible assets and 8% for equity assets. Higher actual
average market returns would increase undiscounted cash flows,
while lower actual average market returns would decrease
undiscounted future cash flows. Future redemption assumptions
were determined by using the actual redemption rates that each
fund experienced over the prior 24-month period. For
Class B shares and Class C shares, we used average
historical redemption rates of between 7% and 11%, respectively,
at December 31, 2004. An increase in the actual rate of
redemptions would decrease the undiscounted future cash flows,
while a decrease in the actual rate of redemptions would
increase undiscounted cash flows. These assumptions are reviewed
and updated quarterly, or monthly when events or changes in
circumstances occur that could significantly increase the risk
of impairment of the asset.
If we determine that the deferred sales commission asset is not
recoverable, an impairment condition would exist and a loss
would be measured as the amount by which the recorded amount of
the asset exceeds its estimated fair value. If the carrying
value of the deferred sales commission asset exceeds the
undiscounted cash flow, the asset is written down to fair value
based on discounted cash flows. Impairment adjustments are
recognized in the statement of income as a component of
amortization of deferred sales commissions. As of each reporting
period presented, we determined that no impairment of the
deferred commission asset existed, but due to the volatility of
the capital markets and the changes in redemption rates, we are
unable to predict whether or when future impairment of the
deferred sales commission asset might occur.
Effective January 1, 2004, we adopted the fair value
recognition provisions of Statement of Financial Accounting
Standard No. 123 Accounting for Stock Based
Compensation, or SFAS 123. Prior to 2004, we accounted
for the our long-term Equity Appreciation Plans, or EAU plans,
using the accounting methods prescribed by Financial Accounting
Standards Board (FASB) Financial Interpretation
No. 28, Accounting for
40
Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, an Interpretation of APB Opinions No. 15
and 25, or FIN 28, and its related interpretations.
During 2004, we established an incentive stock plan that
provides for grants of restricted stock unit RSU awards, or
RSUs, and stock option awards for certain employees. RSUs are
convertible on a one-for-one basis into shares of our common
stock. Stock option awards are based on shares of our common
stock. We estimated the fair value of the options as of the
grant date using the Black-Scholes option-pricing model with the
following weighted-average assumptions for options granted in
2004: dividend yields of 1.56%; expected volatility factors of
33.0%; risk-free interest rates of 3.74%; and an expected life
of 7.5 years.
The EAU Plans were terminated in October 2004 in connection with
our initial public offering. Prior to their termination,
compensation expense was accrued over the periods in which
employees performed services. As such, changes in the aggregate
unit value, multiplied by the ratio of actual to total number of
service periods in the vesting period were recorded as an
increase or decrease to expense in the current period.
The value of the EAU at the valuation date was derived from an
equally weighted calculation based on multiples of assets under
management, revenue and EBITDA, defined as net income plus
interest expense, income taxes and fixed asset depreciation,
excluding amortization of deferred sales commissions. We used
industry multiples provided by independent third party sources
in computing the values, until the termination or the plan at
which time we used our initial public offering price.
Management judgment is required in developing our provision for
income taxes, including the determination of deferred tax assets
and liabilities and any valuation allowances that might be
required against deferred tax assets. As of December 31,
2004, we have not recorded a valuation allowance on the
$118.1 million in deferred tax assets relating principally
to our step-up in tax basis to fair market value for our
intangible assets under our election to be made under
Section 754 of the Internal Revenue Code. In the event that
sufficient taxable income does not result in future years, among
other things, a valuation allowance for some or all of our
deferred tax assets would be required.
|
|
|
Recently Issued Accounting Pronouncements |
In March 2004, Financial Accounting Standards Board, or FASB,
ratified the consensus of the EITF emerging issues task force
regarding the recognition and measurement of
other-than-temporary impairments of certain investments. The
effective date of the recognition and measurement guidance in
EITF 03-01 has been delayed until FASB finalizes its
implementation guidance. The disclosure guidance was unaffected
by the delay and is effective for fiscal years ended after
June 15, 2004. We have implemented the disclosure
provisions of EITF 03-01 and do not anticipate that the
implementation of the recognition and measurement guidance, when
released, will have a material effect on our financial
statements.
Effective January 1, 2004, we adopted the fair value
recognition provisions of SFAS 123. In December 2004, FASB
revised SFAS 123, requiring public registrants to recognize
the cost resulting from all stock-based compensation
transactions in their financial statements. This guidance is
effective for all reporting periods subsequent to June 15,
2005. We do not believe that the implementation of the revised
SFAS 123 will have a material effect on our financial
statements.
Business Risks
We caution the reader that the following business risks and
those risks described elsewhere in this report and our other
Securities and Exchange Commission, or SEC, filings, could cause
our actual results to differ materially from expectations stated
in our forward-looking statements.
41
Risks Related to Our Industry
|
|
|
Changes in laws or regulations or in governmental policies
could limit the sources and amounts of our revenues, increase
our costs of doing business, decrease our profitability and
materially and adversely affect our business. |
Our business is subject to extensive regulation in the United
States, primarily at the federal level, including regulation by
the SEC under the Investment Company Act of 1940, as amended,
and the Investment Advisers Act of 1940, as amended, by the
Department of Labor under the Employee Retirement Income
Security Act of 1974, as amended, or ERISA, as well as
regulation by the National Association of Securities Dealers,
Inc., or NASD, and state regulators. The mutual funds managed by
Calamos Advisors are registered with the SEC as investment
companies under the Investment Company Act. The Investment
Advisers Act imposes numerous obligations on investment advisors
including record-keeping, advertising and operating
requirements, disclosure obligations and prohibitions on
fraudulent activities. The Investment Company Act imposes
similar obligations, as well as additional detailed operational
requirements, on registered investment companies and investment
advisors. Our failure to comply with applicable laws or
regulations could result in fines, censure, suspensions of
personnel or other sanctions, including revocation of the
registration of any of our subsidiaries as an investment advisor
or broker-dealer. Industry regulations are designed to protect
our clients and investors in our funds and other third parties
who deal with our subsidiaries and us and to ensure the
integrity of the financial markets. They are not designed to
protect our stockholders. Changes in laws or regulations or in
governmental policies could limit the sources and amounts of our
revenues, increase our costs of doing business, decrease our
profitability and materially and adversely affect our business.
In response to scandals in the financial services industry
regarding late trading, market timing and selective disclosure
of portfolio information, various legislative and regulatory
proposals are pending in or before, or have been adopted by, the
U.S. Congress, the legislatures in states in which we
conduct operations and the various regulatory agencies that
supervise our operations, including the SEC. These proposals, to
the extent enacted or adopted, could have a substantial impact
on the regulation and operation of registered funds, investment
advisors and broker-dealers and could adversely affect our
assets under management, revenues and net income. Additionally,
the SEC, the NASD and other regulators, as well as Congress, are
investigating certain practices within our industry. These
investigations could lead to further legislative and regulatory
proposals that, if enacted or adopted, could adversely affect
our business.
|
|
|
To the extent we are forced to compete on the basis of
price, we may not be able to maintain our current fee
structure. |
The investment management business is highly competitive and has
relatively low barriers to entry. To the extent we are forced to
compete on the basis of price, we may not be able to maintain
our current fee structure. Although our investment management
fees vary from product to product, historically we have competed
primarily on the performance of our products and not on the
level of our investment management fees relative to those of our
competitors. In recent years, however, there has been a trend
toward lower fees in the investment management industry. In
order to maintain our fee structure in a competitive
environment, we must be able to continue to provide clients with
investment returns and service that make investors willing to
pay our fees. In addition, the board of directors of each mutual
fund managed by Calamos Advisors must make certain findings as
to the reasonableness of its fees. We cannot assure you that we
will succeed in providing investment returns and service that
will allow us to maintain our current fee structure. Fee
reductions on existing or future new business could have an
adverse effect on our profit margins and results of operations.
|
|
|
Regulatory developments designed to increase the
independence of mutual fund boards of directors may result in
downward pressure on our fees. |
The independent members of the board of directors of each mutual
fund for which Calamos Advisors is the investment adviser must
determine both initially and annually after the initial term
that the mutual fund’s
42
investment advisory fee is reasonable in relation to the
services provided. In making this determination, the directors
will review, among other things, the performance of the mutual
fund, the services provided by the investment advisor, the
investment advisor’s profitability and the advisory fees
charged to comparable mutual funds. The SEC recently approved a
new regulation that will effectively require each mutual fund to
have an independent director as the chair of its board of
directors, generally to require that independent directors
constitute 75% of the board’s directors, hold quarterly
meetings without fund executives. If regulatory developments
designed to increase the independence of mutual fund boards of
directors as well as other market pressures result in
industry-wide reductions in the fees payable to fund managers,
this could in turn result in downward pressure on our fees and
reduce our revenues and net income or, if we are unable to
reduce our fees to the extent required by the mutual fund
boards, in our removal as investment advisor.
|
|
|
We derive a substantial portion of our revenues from
contracts that may be terminated on short notice. |
We derive a substantial portion of our revenues from investment
management agreements with mutual funds that, as required by
law, are generally terminable by the funds’ board of
directors or a vote of the majority of the funds’
outstanding voting securities on not more than
60 days’ written notice. After an initial term, each
fund’s investment management agreement must be approved and
renewed annually by the independent members of such fund’s
board of directors and, in certain cases, by its stockholders,
as required by law. Some of these investment management
agreements may be terminated for any number of reasons,
including investment performance, changes in prevailing interest
rates and financial market performance, or may not be renewed.
If any of these agreements are terminated, we may not be able to
replace these agreements on favorable terms. The decrease in
revenues that could result from any such termination could have
a material adverse effect on our business.
|
|
|
Investors in the open-end funds can redeem their
investments in these funds at any time without prior notice,
which could adversely affect our earnings. |
Open-end fund investors may redeem their investments in those
funds at any time without prior notice. Investors may reduce the
aggregate amount of assets under management for any number of
reasons, including investment performance, changes in prevailing
interest rates and financial market performance. In a declining
stock market, the pace of mutual fund redemptions could
accelerate. Poor performance relative to other asset management
firms tends to result in decreased purchases of mutual fund
shares and increased redemptions of mutual fund shares. The
redemption of investments in mutual funds managed by Calamos
Advisors would adversely affect our revenues, which are
substantially dependent upon the assets under management in our
funds. If redemptions of investments in mutual funds caused our
revenues to decline, it could have a material adverse effect on
our earnings.
|
|
|
The elimination of our ability to receive fees from
open-end funds pursuant to distribution plans adopted under the
Investment Company Act would adversely affect our
revenues. |
Calamos Financial Services distributes the open-end funds
managed by Calamos Advisors pursuant to distribution agreements
with each fund. Under each distribution agreement with an
open-end fund, we offer and sell the fund’s shares on a
continuous basis and pay all of the costs of marketing and
selling the shares. Each open-end fund offers multiple classes
of shares, enabling an investor to select the most desirable
sales charge structure. Each open-end fund pays us asset-based
distribution and/or service fees over time pursuant to plans
adopted under provisions of Rule 12b-1 under the Investment
Company Act. These fees, particularly in combination with
contingent deferred sales charges, are an alternative to
charging investors a front-end sales charge and allow us to pay
or help us recover payments to selling firms. The amounts of
Rule 12b-1 fees we have received have increased as open-end
fund assets under management have grown. Open-end funds,
including two funds that are closed to new investments, paid us
Rule 12b-1 fees of $84.7 million and
$44.0 million for the year ended December 31, 2004 and
December 31, 2003, respectively. In response to
industry-wide inquiries and enforcement actions, a number of
regulatory and legislative initiatives have been introduced,
including the Mutual Fund Reform Act of 2004, which would,
among other things, eliminate Rule 12b-1 fees. We cannot
assure you that the open-end funds managed by Calamos Advisors
will continue
43
to pay us Rule 12b-1 fees in the future. If we are not paid
the level of Rule 12b-1 fees in the future that we receive
now, our ability to pay or recover payments to selling firms
would be adversely affected. As a result, our revenues and net
income would decline materially and our ability to attract and
retain mutual fund assets could be adversely affected. In
addition, if our ability to receive Rule 12b-1 fees were
eliminated altogether, we would be required to write off our
deferred sales commission asset, which was $61.4 million as
of December 31, 2004, and recognize an equivalent expense.
|
|
|
Regulatory developments designed to increase oversight of
hedge funds may adversely affect our business. |
The SEC has adopted a rule that, upon effectiveness, will
require registration of many hedge fund managers. Registration
under the rule will require hedge fund managers to adopt certain
compliance controls in order to ensure compliance with
applicable securities laws and will permit increased oversight
of hedge fund managers by the SEC. Any regulations applicable to
hedge funds that may be adopted pursuant to this rule could have
a substantial impact on our operations and may adversely affect
our hedge fund business and decrease our future income.
|
|
|
Legislation eliminating joint management of mutual funds
and hedge funds could adversely affect our business. |
Proposed legislation could prohibit an individual from serving
as an advisor or portfolio manager of both registered and
unregistered funds. Such legislation, if adopted, could affect
our ability to attract and retain qualified investment
management personnel and could cause us to incur additional
expenses in hiring such personnel, which could materially
adversely affect our business.
|
|
|
Failure to comply with “fair value” pricing and
late trading policies and procedures may adversely
affect us. |
The SEC has adopted rules requiring mutual funds to disclose
information concerning “fair value” pricing procedures
to address time zone arbitrage, selective disclosure procedures
to protect mutual fund portfolio information and procedures to
ensure compliance with the mutual fund’s disclosed market
timing policy. The SEC has proposed further rule amendments to
eliminate the potential for late trading (i.e., after
4:00 p.m. ET) of open-end fund shares. New SEC rules will
require mutual funds to ensure compliance with their own market
timing policies. The mutual funds managed by Calamos Advisors
are subject to these rules. In the event of non-compliance, we
could be subject to action by the SEC or civil litigants and
might be required to disgorge certain revenues or pay fines or
penalties, which could have a material adverse effect on our
business.
Risks Related to Our Business
|
|
|
Control by Calamos family members of a majority of the
combined voting power of our common stock may give rise to
conflicts of interests. |
As of December 31, 2004, Calamos Family Partners, Inc. and
John P. Calamos owned 77% of the membership units in Calamos
Holdings LLC and all of our Class B common stock,
representing more than 97% of the combined voting power of all
classes of our voting stock. Pursuant to the terms of our
amended and restated certificate of incorporation, Calamos
Family Partners, Inc. retains a majority of the combined voting
power of our common stock until the number of outstanding shares
of our Class B common stock, plus the number of membership
units in Calamos Holdings LLC and shares of our Class A
common stock held by holders of our Class B common stock,
falls below 15% of the total number of outstanding membership
units in Calamos Holdings LLC, at which time all outstanding
shares of our Class B common stock automatically will
convert into shares of our Class A common stock.
Accordingly, as long as Calamos Family Partners, Inc. maintains
the requisite ownership interests in our Class B common
stock and our Class A common stock and in membership units
of Calamos Holdings LLC, Calamos family members and their
trusts, through their beneficial ownership of Calamos Family
Partners, Inc., will continue to have the ability to elect all
of the members of our board of directors and thereby control our
management and affairs, including determinations
44
with respect to acquisitions, dispositions, borrowings,
issuances of common stock or other securities, and the
declaration and payment of dividends on our common stock. In
addition, they will continue to be able to determine the outcome
of all matters requiring stockholder approval and will continue
to be able to cause or prevent a change of control of our
company or a change in the composition of our board of directors
and could preclude any unsolicited acquisition of our company.
The concentration of ownership could deprive our Class A
stockholders of an opportunity to receive a premium for their
common stock as part of a sale of our company and might
ultimately negatively affect the market price of our
Class A common stock. As a result of the control exercised
by Calamos family members and their trusts over us, none of our
agreements with them and other companies controlled by them have
been negotiated on “arm’s length” terms.
|
|
|
A decline in the prices of securities would lead to a
decline in our assets under management, revenues and
earnings. |
Substantially all of our revenues are determined by the amount
of our assets under management. Under our subsidiaries’
investment advisory contracts with our clients, the investment
management fee we receive is typically based on the market value
of assets under management. In addition, we receive asset-based
distribution and/or service fees with respect to the open-end
funds managed by Calamos Advisors over time pursuant to
distribution plans adopted under provisions of Rule 12b-1
under the Investment Company Act. Rule 12b-1 fees typically
are based on the market value of assets under management and
represented approximately 27% of our revenues for the year ended
December 31, 2004 and December 31, 2003. Accordingly,
a decline in the prices of securities generally may cause our
revenues and net income to decline by either causing the value
of our assets under management to decrease, which would result
in lower investment advisory and Rule 12b-1 fees, or
causing our clients to withdraw funds in favor of investments
they perceive to offer greater opportunity or lower risk, which
would also result in lower fees. The securities markets are
highly volatile, and securities prices may increase or decrease
for many reasons, including economic and political events and
acts of terrorism beyond our control. If a decline in securities
prices caused our revenues to decline, it could have a material
adverse effect on our earnings.
|
|
|
The loss of key executives could have a material adverse
affect on our business. |
We are dependent on the efforts of John P. Calamos, Sr., our
Chairman, Chief Executive Officer and Co-Chief Investment
Officer, and Nick P. Calamos, our Senior Executive Vice
President and Co-Chief Investment Officer, and other key
executives. These executives have been responsible for
determining the strategic direction of our business, are
integral to our brand and the positive business reputation we
enjoy and, having overseen the management of all of our
investment portfolios and the research teams responsible for
each of our portfolio strategies, have been responsible for the
historically strong investment performance that allows us to
compete successfully. Although we have employment agreements
with John P. Calamos, Sr. and Nick P. Calamos, we cannot assure
you that they will continue to act in their positions with us.
If we lose the services of any of these key executives, it would
have a material adverse effect on our business. We do not
maintain any “key person” insurance with respect to
any of our personnel.
|
|
|
We depend on third-party distribution channels to market
our investment products and access our client base. |
The potential investor base for mutual funds and separate
accounts is limited, and our ability to distribute mutual funds
and access clients for separate accounts is highly dependent on
access to the retail distribution systems and client bases of
national and regional securities firms, banks, insurance
companies, defined contribution plan administrators and other
intermediaries, which generally offer competing internally and
externally managed investment products. For open-end funds, such
intermediaries are paid for their services to fund shareholders,
in part, through Rule 12b-1 fees and/or upfront commission
payments by us, for which we receive Rule 12b-1 payments in
the future. Those future payments allow us to pay or help us
recover payments to selling firms, access to such distribution
systems and client bases is substantially dependent upon our
ability to charge Rule 12b-1 fees to our funds. To the
extent that recent regulatory initiatives prohibit or limit the
imposition of Rule 12b-1 or similar fees, our access to
these distribution systems and client bases may be
45
foreclosed in the future. To a lesser extent, our institutional
separate account business depends on referrals from financial
planners and other professional advisors, as well as from our
existing clients. We cannot assure you that these channels and
client bases will continue to be accessible to us. The inability
to have such access could have a material adverse effect on our
earnings.
While we continue to diversify and add new distribution channels
for mutual funds and managed accounts. A significant portion of
the growth in our assets under management in recent years has
been accessed through intermediaries. Merrill Lynch &
Co. acted as the intermediary for approximately 14% and 19% of
our assets under management, and Citigroup acted as the
intermediary for approximately 9% and 11% of our assets under
management, as of December 31, 2004 and December 31,
2003, respectively. As of December 31, 2004, substantially
all of our assets under management were attributable to accounts
that we accessed through third-party intermediaries. These
intermediaries generally may terminate their relationships with
us on short notice. Loss of any of the distribution channels
afforded by these intermediaries, and the inability to access
clients through new distribution channels, could decrease our
assets under management and adversely affect our results of
operations and growth. In addition, in the case of managed
accounts offered through intermediaries to their customers, such
intermediaries may reduce the fees that they remit to us as part
of the arrangements they have with us. For the year ended
December 31, 2004 and December 31, 2003, the fees we
received from managed accounts through intermediaries were
$28.5 million and $24.1 million, respectively. A
substantial reduction in fees received from third-party
intermediaries could have a material adverse affect on our
business.
|
|
|
Our ability to operate our company effectively could be
impaired if we are unable to attract and retain qualified
personnel. |
Our investment management business depends on the expertise of
our personnel and their ability to work together as an effective
team. Our future success depends to a substantial degree on our
ability to attract and retain qualified personnel. In
particular, we anticipate that it will be necessary for us to
add investment professionals as we further diversify our
investment products and strategies. Competition for employees
with the necessary qualifications is intense and we may not be
successful in our efforts to recruit and retain the required
personnel.
We cannot guarantee that our compensation methods will allow us
to recruit and retain the required personnel we need. In
particular, the use of equity compensation may be ineffective if
the market price of our Class A common stock declines. The
inability to recruit and retain qualified personnel could affect
our ability to provide an acceptable level of service to our
clients and funds and our ability to attract new clients and
investors in our funds, each of which could have a material
adverse effect on our business.
|
|
|
We derive a substantial portion of our revenues from a
limited number of our products. |
As of December 31, 2004, 36% of our assets under management
were concentrated in the Calamos Growth Fund, and 38% of our
investment management fees were attributable to that fund. As a
result, our operating results are particularly exposed to the
performance of that fund and our ability to minimize redemptions
from and maintain assets under management in that fund. If
investors in our Growth Fund decided to withdraw their
investments for any reason, including poor investment
performance or market conditions under which this investment
strategy is out of favor, our revenues from that fund would
decline and it could have an adverse effect on our earnings.
Similarly, if our investment management agreement with our
Growth Fund were terminated for any reason, the decrease in
revenues that would result from any such termination would
materially impact our earnings. We cannot assure you that
investors will continue to maintain their investments in, and
that we will be able to maintain our investment management
agreement with, our Growth Fund. We also may close funds and
investment strategies to new investors, which could inhibit our
growth and could lead to redemptions by existing investors, and
could thereby cause a decrease in our revenues.
46
|
|
|
Our failure to comply with guidelines set by our clients
and the boards of mutual funds could result in damage awards
against us and a loss of assets under management, either of
which could cause our earnings to decline. |
As an investment advisor, we have a fiduciary duty to our
clients. When clients retain us to manage assets on their
behalf, they may specify certain guidelines regarding investment
allocation and strategy that we are required to observe in the
management of their portfolios. In addition, the boards of
mutual funds may establish similar guidelines regarding the
investment of assets in those funds and we are required to
invest the mutual funds’ assets in accordance with
limitations under the Investment Company Act and applicable
provisions of the Internal Revenue Code. Our failure to comply
with these guidelines and other limitations could result in
losses to a client or a fund that the client or investors in the
fund, as the case may be, could seek to recover from us and
could result in the client withdrawing its assets from our
management or the fund terminating our management agreement. Any
of these events could cause our earnings to decline.
|
|
|
We are dependent on Calamos Holdings LLC to distribute
cash to us in amounts sufficient to pay our tax liabilities and
other expenses. |
We are a holding company, and our membership units in Calamos
Holdings LLC are our sole asset. We have no independent means of
generating revenues. Calamos Holdings LLC is treated as a
partnership for U.S. federal income tax purposes and, as
such, is not itself subject to U.S. federal income tax.
Instead, its taxable income is allocated on a pro rata basis to
Calamos Asset Management, Inc., Calamos Family Partners, Inc.
and John P. Calamos, Sr. Accordingly, we incur income taxes on
our proportionate share of any net taxable income of Calamos
Holdings LLC, and also incur expenses related to our operations.
We caused and in the future intend to cause Calamos Holdings LLC
to distribute cash to its members to the extent necessary to
cover their tax liabilities, if any. To the extent we need funds
to pay such taxes, or for any other purpose, and Calamos
Holdings LLC is unable to provide such funds, it could have a
material adverse effect on our business, financial condition or
results of operations.
|
|
|
We intend to pay regular dividends to our stockholders,
but our ability to do so is subject to the discretion of our
board of directors and may be limited by our holding company
structure and applicable provisions of Delaware law. |
To date, we have paid one quarterly cash dividend and intend to
continue to pay dividends on a quarterly basis. Our board of
directors may, in its discretion, decrease the level of
dividends or discontinue the payment of dividends entirely. In
addition, as a holding company, we are dependent upon the
ability of Calamos Holdings LLC to generate earnings and cash
flows and distribute them to us so that we may pay our
obligations and expenses and pay dividends to our stockholders.
We caused and expect to cause Calamos Holdings LLC to make
distributions to its members, including us. However, the ability
of Calamos Holdings LLC to make such distributions is subject to
its operating results, cash requirements and financial
condition, the applicable laws of the State of Delaware (which
may limit the amount of funds available for distribution to its
members), its compliance with covenants and financial ratios
related to existing or future indebtedness, including its
existing Senior Unsecured Notes, and its other agreements with
third parties. If, as a consequence of these various limitations
and restrictions, we are unable to generate sufficient
distributions from our business, we may not be able to make or
may have to reduce or eliminate the payment of dividends on our
shares.
|
|
|
Our business is dependent on the performance of
third-party vendors and if they fail to perform properly, we may
suffer financial loss and liability to our clients. |
The mutual funds managed by Calamos Advisors outsource various
important activities and functions, particularly mutual fund
accounting, transfer agency and custodian services, to
third-party vendors. The ability of the third-party vendors to
perform their functions properly is highly dependent on their
communication and information systems and on the proper
functioning of their computer systems. If the communication,
information or computer systems of the third-party vendors do
not function properly, or if the third-party vendors fail to
perform their functions properly or choose to discontinue
providing services to the mutual funds
47
for any reason, we could suffer financial losses, business
disruption, liability to clients, regulatory intervention or
damage to our reputation.
|
|
|
A change of control of our company would automatically
terminate our investment management agreements with our clients,
unless our separate account clients consent and, in the case of
fund clients, the funds’ boards of directors and
shareholders voted to continue the agreements, and could prevent
us for a two-year period from increasing the investment advisory
fees we are able to charge our mutual fund clients. |
Under the Investment Company Act, an investment management
agreement with a fund must provide for its automatic termination
in the event of its assignment. The fund’s board and
shareholders must vote to continue the agreement following its
assignment, the cost of which ordinarily would be borne by us.
Under the Investment Advisers Act, a client’s investment
management agreement may not be “assigned” by the
investment advisor without the client’s consent. An
investment management agreement is considered under both acts to
be assigned to another party when a controlling block of the
advisor’s securities is transferred. In our case, an
assignment of our investment management agreements may occur if,
among other things, we sell or issue a certain number of
additional common shares in the future. We cannot be certain
that our clients will consent to assignments of our investment
management agreements or approve new agreements with us if a
change of control occurs. Under the Investment Company Act, if a
fund’s investment advisor engages in a transaction that
results in the assignment of its investment management agreement
with the fund, the advisor may not impose an “unfair
burden” on that fund as a result of the transaction for a
two-year period after the transaction is completed. The term
“unfair burden” has been interpreted to include
certain increases in investment advisory fees. This restriction
may discourage potential purchasers from acquiring a controlling
interest in our company.
Risks Related to the Company
|
|
|
The disparity in the voting rights among the classes of
shares may have a potential adverse effect on the price of our
Class A common stock. |
Shares of our Class A common stock and Class B common
stock entitle the respective holders to identical rights, except
that each share of our Class A common stock entitles its
holder to one vote on all matters to be voted on by stockholders
generally while each share of Class B common stock entitles
its holder to a greater number of votes. The difference in
voting rights could adversely affect the value of our
Class A common stock to the extent that investors view, or
any potential future purchaser of our company views, the
superior voting rights of the Class B common stock to have
value.
|
|
|
Future sales of our Class A common stock in the
public market could lower our stock price, and any additional
capital raised by us through the sale of equity or convertible
securities may dilute our stockholders ownership in us. |
Subject to certain lock-up agreements, we may sell additional
shares of Class A common stock in subsequent public
offerings. We also may issue additional shares of Class A
common stock or convertible debt securities to finance future
acquisitions. We have 23,000,000 outstanding shares of
Class A common stock.
In addition, members of the Calamos family and trusts for their
benefit own, individually and/or through their combined
ownership of Calamos Family Partners, Inc., 77,000,000
membership units in Calamos Holdings LLC. Our amended and
restated certificate of incorporation provides for the exchange
of membership units in Calamos Holdings LLC (other than those
held by us) for shares of our Class A common stock. Subject
to certain selling restrictions, Calamos family members and
their trusts could from time to time and for any reason exchange
their membership units in Calamos Holdings LLC for shares of our
Class A common stock and sell any or all of those shares.
Calamos Family Partners, Inc. and John P. Calamos, Sr. are
parties to a registration rights agreement with us. Under that
agreement, Calamos Family Partners, Inc. and John P. Calamos,
Sr. have the right, after the expiration of a specified lock-up
period to require us to effect the registration of shares of our
Class A
48
common stock that Calamos Family Partners, Inc. or John P.
Calamos, Sr. could acquire upon conversion of their Class B
common shares or exchange of their membership units in Calamos
Holdings LLC.
We cannot predict the size of future issuances of our
Class A common stock or the effect, if any, that future
issuances and sales of shares of our Class A common stock,
including by Calamos family members and their trusts, may have
on the market price of our Class A common stock. Sales or
distributions of substantial amounts of our Class A common
stock (including shares issued in connection with an
acquisition), or the perception that such sales could occur, may
cause the market price of our Class A common stock to
decline.
|
|
|
The requirements of being a public company may strain our
resources and distract management. |
As a public company, we are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, and the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act. These requirements may place a strain on our
systems and resources. The Exchange Act requires that we file
annual, quarterly and current reports with respect to our
business and financial condition. The Sarbanes-Oxley Act
principally requires that we maintain effective disclosure
controls and procedures and internal controls for financial
reporting. In order to maintain and improve the effectiveness of
our disclosure controls and procedures and internal control over
financial reporting, significant resources and management
oversight are required. This may divert management’s
attention from other business concerns, which could have a
material adverse effect on our business, financial condition,
results of operations and cash flows. In addition, we may need
to hire additional staff with appropriate public company
experience and technical accounting knowledge, and we cannot
assure you that we will be able to do so in a timely fashion.
|
|
|
The Calamos family’s beneficial ownership of our
Class B common stock, as well as anti-takeover provisions
in our amended and restated certificate of incorporation and
bylaws, could discourage a change of control that our
stockholders may favor, which could negatively affect our stock
price. |
Members of the Calamos family and trusts for their benefit
beneficially own all outstanding shares of our Class B
common stock. As a result, Calamos family members are able to
exercise control over all matters requiring the approval of our
stockholders and would be able to prevent a change in control of
our company. In addition, provisions in our amended and restated
certificate of incorporation and bylaws may make it more
difficult and expensive for a third party to acquire control of
us even if a change of control would be beneficial to the
interests of our stockholders. For example, our amended and
restated certificate of incorporation authorizes the issuance of
preferred stock that could be issued by our board of directors
to thwart a takeover attempt. The market price of our
Class A common stock could be adversely affected to the
extent that the Calamos family’s control over us, as well
as provisions of our amended and restated certificate of
incorporation and bylaws, discourage potential takeover attempts
that our stockholders may favor.
|
|
|
If we were deemed an investment company under the
Investment Company Act as a result of our ownership of Calamos
Holdings LLC, applicable restrictions could make it impractical
for us to continue our business as contemplated and could have a
material adverse effect on our business. |
We do not believe that we are an “investment company”
under the Investment Company Act. Because we, as the sole
manager of Calamos Holdings LLC, control and operate Calamos
Holdings LLC, we believe that our interest in Calamos Holdings
LLC is not an “investment security” as that term is
used in the Investment Company Act. If we were to cease
participation in the management of Calamos Holdings LLC, our
interest in Calamos Holdings LLC could be deemed an
“investment security” for purposes of the Investment
Company Act. Generally, a person is an “investment
company” if it owns investment securities having a value
exceeding 40% of the value of its total assets (exclusive of
U.S. government securities and cash items). Our primary
asset is our equity investment in Calamos Holdings LLC. A
determination that such investment was an investment security
could cause us to be deemed an investment company under the
Investment Company Act and to become subject to the registration
and other requirements of the Investment Company Act. We and
Calamos Holdings LLC conduct and intend to continue to conduct
our operations so that we will not be deemed an investment
company. However, if we were to be deemed an investment company,
restrictions imposed by the Investment Company Act, including
limitations on our capital structure
49
and our ability to transact with affiliates, could make it
impractical for us to continue our business as contemplated and
could have a material adverse effect on our business.
If the Internal Revenue Service disallows all or any
portion of the tax amortization deductions to be allocated to
the company in association with the section 754 election to
be made by Calamos Holdings LLC, this action could have a
material adverse effect on our business.
Calamos Holdings LLC intends to make an election under
section 754 of the Internal Revenue Code of 1986, as
amended (a “section 754 election”). As a result
of the section 754 election, Calamos Holdings LLC will be
able to increase the company’s proportionate share of the
tax basis of the assets of Calamos Holdings LLC to reflect the
purchase price paid by the company for its interest in Calamos
Holdings LLC. For federal income tax purposes, Calamos Holdings
LLC is treated as a partnership and, based upon a third party
valuation, its primary intangible assets include investment
management contracts and distribution agreements. Based on an
opinion of counsel, these types of customer-based intangibles
should be amortizable intangibles for federal income tax
purposes. Therefore, Calamos Holdings LLC will allocate
increased tax amortization deductions to the company, which will
reduce the company’s share of taxable income. However, if
the Internal Revenue Service were to disallow all or any portion
of the tax amortization deductions to be allocated to the
company, based on the valuation or allocation of purchase price
related to the section 754 election, this action could have
a material adverse effect on our business.
Forward-Looking Information
From time to time, information or statements provided by us or
on our behalf, including those within this Annual Report on
Form 10-K, may contain certain forward-looking statements
relating to future events, future financial performance,
strategies, expectations and competitive environment, and
regulations. These forward-looking statements include, without
limitation, statements regarding proposed new products; results
of operations or liquidity; projections, predictions,
expectations, estimates or forecasts as to our business,
financial and operating results and future economic performance;
and management’s goals and objectives and other similar
expressions concerning matters that are not historical facts.
Words such as “may,” “will,”
“should,” “could,” “would,”
“predicts,” “potential,”
“continue,” “expects,”
“anticipates,” “future,”
“intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as
statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of
future performance or results, and will not necessarily be
accurate indications of the times at, or by, which such
performance or results will be achieved. Forward-looking
statements are based on information available at the time those
statements are made and/or management’s good faith belief
as of that time with respect to future events, and are subject
to risks and uncertainties that could cause actual performance
or results to differ materially from those expressed in or
suggested by the forward-looking statements. Important factors
that could cause such differences include, but are not limited
to: adverse changes in applicable laws or regulations; downward
fee pressures and increased industry competition; risks inherent
to the investment management business; the loss of revenues due
to contract terminations and redemptions; our ownership
structure; general declines in the prices of securities; the
loss of key executives; the unavailability of third-party retail
distribution channels; failure to recruit and retain qualified
personnel; a loss of revenues if our largest funds perform
poorly; failure to comply with client and mutual fund board
guidelines; non-performance of third-party vendors and our
holding company structure. Further, the value and composition of
our assets under management are, and will continue to be,
influenced by a variety of factors including, among other
things: purchases and redemptions of shares of the open-end
funds and other investment products; fluctuations in the
financial markets around the world that result in appreciation
or depreciation of assets under management; our introduction of
new investment strategies and products; our ability to educate
our clients about our investment philosophy and provide them
with best-in-class service; the relative investment performance
of our investment products as compared to competing offerings
and market indices; competitive conditions in the mutual fund,
asset management and broader financial services sectors;
investor sentiment and confidence; and our decision to close
strategies when deemed in the best interests of our clients.
50
Forward-looking statements speak only as of the date the
statements are made. Readers should not place undue reliance on
any forward-looking statements. We assume no obligation to
update forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting
forward-looking information, except to the extent required by
applicable securities laws.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk. |
Our exposure to market risk is directly related to the role of
our subsidiaries as investment advisors for the mutual funds and
separate accounts they manage. A significant majority of our
revenue, approximately 95.2% for the year ended
December 31, 2004, is derived from investment advisory,
distribution and portfolio accounting agreements with the mutual
funds and separate accounts. Under these agreements, the fees we
receive are typically based on the market value of the assets
under management. Accordingly, a decline in the prices of
securities generally may cause our revenue and income to decline
by causing the value of the assets we manage to decrease or by
causing our clients to withdraw funds in favor of investments
that they perceive as offering greater opportunity or lower risk.
In addition, a decline in the prices of securities may present
market conditions that could preclude us from increasing assets
under management and prevent us from realizing higher fee
revenue associated with such growth.
We are also subject to market risk due to a decline in the
prices of investment securities. We own investment securities
primarily comprised of mutual funds managed by Calamos Advisors.
At December 31, 2004, the fair value of these investment
securities was $147.5 million. Assuming a 10% increase or
decrease in the value of these investments, the fair value would
increase or decrease by $14.8 million at December 31,
2004. On April 29, 2004, we issued $150 million of
Senior Unsecured Notes due April 29, 2011 to various note
purchasers in a private placement. These notes have a fixed
interest rate of 5.24%, and consequently, we do not believe that
these notes have any interest rate risk. Due to the nature of
our business, we believe that we do not face any material credit
risk, inflation, interest rate or foreign currency rate risk.
51
|
|
| Item 8. |
Financial Statements and Supplementary Data. |
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
|
Consolidated Statements of Financial Condition at
December 31, 2003 and 2004
|
|
|
F-3 |
|
|
Consolidated Statements of Income for the period
November 2, 2004 to December 31, 2004, the period
January 1, 2004 to November 1, 2004 and the two years
ended December 31, 2002 and 2003
|
|
|
F-4 |
|
|
Consolidated Statements of Changes in Stockholders’ Equity
for the period November 2, 2004 to December 31, 2004,
the period January 1, 2004 to November 1, 2004 and the
two years ended December 31, 2002 and 2003
|
|
|
F-5 |
|
|
Consolidated Statements of Cash Flows for the period
November 2, 2004 to December 31, 2004, the period
January 1, 2004 to November 1, 2004 and the two years
ended December 31, 2002 and 2003
|
|
|
F-6 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of
Calamos Asset Management, Inc:
We have audited the accompanying consolidated statements of
financial position of Calamos Asset Management, Inc. (the
Successor) as of December 31, 2004 and of Calamos Holdings,
Inc. (the Predecessor) as of December 31, 2003 and the
related consolidated statements of income, stockholders’
equity, and cash flows for the period November 2, 2004 to
December 31, 2004 (the Successor Period), and the period
January 1, 2004 to November 1, 2004 and each of the
years in the two-year period ended December 31, 2003 (the
Predecessor Periods). The consolidated financial statements are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned Successor consolidated
financial statements present fairly, in all material respects,
the financial position of Calamos Asset Management, Inc. as of
December 31, 2004 and the results of its operations and its
cash flows for the Successor Period in conformity with
U.S. generally accepted accounting principles. Further, in
our opinion, the aforementioned Predecessor consolidated
financial statements present fairly, in all material respects,
the financial position of Calamos Holdings, Inc. as of
December 31, 2003 and the results of its operations and its
cash flows for the Predecessor Periods, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2004, the Company adopted
the fair value recognition provisions of Statement of Financial
Accounting Standard No. 123, Accounting for Stock Based
Compensation.
Chicago, Illinois
March 25, 2005
F-2
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
|
| |
|
(In thousands of dollars) | |
|
ASSETS: |
| |
Current assets
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents
|
|
$ |
5,073 |
|
|
$ |
149,768 |
|
| |
|
Receivables:
|
|
|
|
|
|
|
|
|
| |
|
|
Affiliates and affiliated funds
|
|
|
19,151 |
|
|
|
21,222 |
|
| |
|
|
Customers
|
|
|
3,942 |
|
|
|
6,012 |
|
| |
|
Investment securities, trading and available for sale
|
|
|
10,389 |
|
|
|
147,521 |
|
| |
|
Prepaid expenses
|
|
|
978 |
|
|
|
1,917 |
|
| |
|
Deferred tax asset, net
|
|
|
— |
|
|
|
6,892 |
|
| |
|
Other
|
|
|
2,187 |
|
|
|
4,046 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current assets
|
|
|
41,720 |
|
|
|
337,378 |
|
| |
|
|
|
|
|
|
| |
Non-current assets
|
|
|
|
|
|
|
|
|
| |
|
Deferred tax asset, net
|
|
|
— |
|
|
|
111,186 |
|
| |
|
Deferred sales commissions
|
|
|
49,236 |
|
|
|
61,417 |
|
| |
|
Property and equipment, net
|
|
|
12,260 |
|
|
|
4,902 |
|
| |
|
Other non-current assets
|
|
|
1,315 |
|
|
|
1,569 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total noncurrent assets
|
|
|
62,811 |
|
|
|
179,074 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total assets
|
|
|
104,531 |
|
|
|
516,452 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES: |
| |
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
|
Accounts payable:
|
|
|
|
|
|
|
|
|
| |
|
|
Brokers
|
|
|
6,094 |
|
|
|
12,514 |
|
| |
|
|
Affiliates
|
|
|
20 |
|
|
|
813 |
|
| |
|
Accrued compensation and benefits
|
|
|
3,756 |
|
|
|
9,985 |
|
| |
|
Current portion of debt
|
|
|
15,676 |
|
|
|
— |
|
| |
|
Accrued expenses and other current liabilities
|
|
|
5,343 |
|
|
|
17,767 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total current liabilities
|
|
|
30,889 |
|
|
|
41,079 |
|
| |
|
|
|
|
|
|
| |
Long-term liabilities:
|
|
|
|
|
|
|
|
|
| |
|
Long-term debt
|
|
|
23,008 |
|
|
|
150,000 |
|
| |
|
Other long-term liabilities
|
|
|
4,210 |
|
|
|
263 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total long-term liabilities
|
|
|
27,218 |
|
|
|
150,263 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total liabilities
|
|
|
58,107 |
|
|
|
191,342 |
|
| |
|
|
|
|
|
|
|
Minority interest in partnership investments
|
|
|
11 |
|
|
|
31,322 |
|
|
Minority interest in Holdings
|
|
|
— |
|
|
|
135,294 |
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Class A Voting Common Stock, $0.01 par value.
Authorized 600,000,000 shares; issued and outstanding
23,000,000 shares
|
|
|
|
|
|
|
230 |
|
| |
Class B Non-Voting Common Stock, $0.01 par value.
Authorized 1,000 share; issued and outstanding
100 shares
|
|
|
|
|
|
|
0 |
|
| |
Class A Voting Common Stock, no par value. (Predecessor)
|
|
|
— |
|
|
|
|
|
| |
Class B Non-Voting Common Stock, no par value. (Predecessor)
|
|
|
— |
|
|
|
|
|
| |
Additional paid-in capital
|
|
|
2,274 |
|
|
|
154,156 |
|
| |
Retained earnings
|
|
|
42,094 |
|
|
|
2,364 |
|
| |
Accumulated other comprehensive income
|
|
|
2,045 |
|
|
|
1,744 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total stockholders’ equity
|
|
|
46,413 |
|
|
|
158,494 |
|
| |
|
|
|
|
|
|
| |
|
|
|
Total liabilities, minority interest and stockholders’
equity
|
|
$ |
104,531 |
|
|
$ |
516,452 |
|
| |
|
|
|
|
|
|
See accompanying notes to financial statements.
F-3
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
|
January 1 to | |
|
November 2 to | |
| |
|
| |
|
November 1, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
| |
|
(In thousands of dollars, except per share data) | |
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment management fees
|
|
$ |
62,594 |
|
|
$ |
109,052 |
|
|
$ |
168,938 |
|
|
$ |
41,787 |
|
| |
|
Distribution and underwriting fees
|
|
|
24,883 |
|
|
|
53,005 |
|
|
|
79,578 |
|
|
|
19,350 |
|
| |
|
Other
|
|
|
363 |
|
|
|
328 |
|
|
|
1,861 |
|
|
|
633 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total revenues
|
|
|
87,840 |
|
|
|
162,385 |
|
|
|
250,377 |
|
|
|
61,770 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Employee compensation and benefits
|
|
|
28,317 |
|
|
|
33,657 |
|
|
|
53,170 |
|
|
|
12,537 |
|
| |
|
Distribution and underwriting expenses
|
|
|
7,982 |
|
|
|
22,576 |
|
|
|
39,517 |
|
|
|
11,040 |
|
| |
|
Amortization of deferred sales commissions
|
|
|
11,677 |
|
|
|
19,879 |
|
|
|
24,315 |
|
|
|
5,109 |
|
| |
|
Marketing and sales promotion
|
|
|
6,002 |
|
|
|
8,949 |
|
|
|
16,694 |
|
|
|
2,228 |
|
| |
|
General and administrative
|
|
|
7,849 |
|
|
|
8,906 |
|
|
|
11,445 |
|
|
|
2,622 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total expenses
|
|
|
61,827 |
|
|
|
93,967 |
|
|
|
145,141 |
|
|
|
33,536 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Operating income
|
|
|
26,013 |
|
|
|
68,418 |
|
|
|
105,236 |
|
|
|
28,234 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest expense
|
|
|
(917 |
) |
|
|
(999 |
) |
|
|
(4,627 |
) |
|
|
(1,339 |
) |
| |
|
Investment income and other income
|
|
|
18 |
|
|
|
1,024 |
|
|
|
3,140 |
|
|
|
3,677 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total other income (expenses), net
|
|
|
(899 |
) |
|
|
25 |
|
|
|
(1,487 |
) |
|
|
2,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Income before minority interest and income taxes
|
|
|
25,114 |
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
30,572 |
|
| |
Minority interest in partnership investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,322 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Income before minority interest in Calamos Holdings LLC and
income taxes
|
|
|
25,114 |
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
29,250 |
|
| |
Minority interest in Calamos Holdings LLC
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,609 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income before income taxes
|
|
|
25,114 |
|
|
|
68,443 |
|
|
|
103,749 |
|
|
|
6,641 |
|
| |
Income taxes
|
|
|
383 |
|
|
|
1,117 |
|
|
|
1,567 |
|
|
|
2,649 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
$ |
24,731 |
|
|
$ |
67,326 |
|
|
$ |
102,182 |
|
|
$ |
3,992 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share, basic
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.18 |
|
| |
Weighted average shares outstanding, basic
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
22,700,100 |
|
| |
Earnings per share, diluted
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.17 |
|
| |
Weighted average shares outstanding, diluted
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
96,800,000 |
|
|
|
100,491,409 |
|
See accompanying notes to financial statements.
F-4
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additional | |
|
|
|
Accumulated | |
|
|
| |
|
Common | |
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
|
| |
|
Stock | |
|
Capital | |
|
Earnings | |
|
Income | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands of dollars) | |
|
Balance at December 31, 2001
|
|
$ |
— |
|
|
$ |
2,274 |
|
|
$ |
10,843 |
|
|
$ |
1,206 |
|
|
$ |
14,323 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
24,731 |
|
|
|
— |
|
|
|
24,731 |
|
|
Changes in unrealized gain on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(435 |
) |
|
|
(435 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,296 |
|
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(13,603 |
) |
|
|
— |
|
|
|
(13,603 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
— |
|
|
|
2,274 |
|
|
|
21,971 |
|
|
|
771 |
|
|
|
25,016 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
67,326 |
|
|
|
— |
|
|
|
67,326 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,274 |
|
|
|
1,274 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,600 |
|
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(47,203 |
) |
|
|
— |
|
|
|
(47,203 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
— |
|
|
|
2,274 |
|
|
|
42,094 |
|
|
|
2,045 |
|
|
|
46,413 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
102,182 |
|
|
|
— |
|
|
|
102,182 |
|
|
Changes in unrealized gains on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,854 |
|
|
|
1,854 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,036 |
|
|
Additional capital contributions, in cash
|
|
|
— |
|
|
|
3,300 |
|
|
|
— |
|
|
|
— |
|
|
|
3,300 |
|
|
Classification of EAU liability to additional paid-in-capital
|
|
|
— |
|
|
|
6,679 |
|
|
|
— |
|
|
|
— |
|
|
|
6,679 |
|
|
Compensation expense recognized under stock incentive plans
|
|
|
— |
|
|
|
33 |
|
|
|
— |
|
|
|
— |
|
|
|
33 |
|
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(57,581 |
) |
|
|
— |
|
|
|
(57,581 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 1, 2004
|
|
|
— |
|
|
|
12,286 |
|
|
|
86,695 |
|
|
|
3,899 |
|
|
|
102,880 |
|
|
Reclassify historical retained earnings to additional
paid-in-capital
|
|
|
— |
|
|
|
86,695 |
|
|
|
(86,695 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 2, 2004 after reclassification
|
|
|
— |
|
|
|
98,981 |
|
|
|
— |
|
|
|
3,899 |
|
|
|
102,880 |
|
|
Allocation of 77% to minority interest
|
|
|
— |
|
|
|
(76,215 |
) |
|
|
— |
|
|
|
(3,002 |
) |
|
|
(79,217 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 2, 2004 before proceeds of IPO
|
|
|
— |
|
|
|
22,766 |
|
|
|
— |
|
|
|
897 |
|
|
|
23,663 |
|
|
23% of net proceeds from IPO
|
|
|
230 |
|
|
|
11,231 |
|
|
|
— |
|
|
|
— |
|
|
|
11,461 |
|
|
Impact of overallotment option on allocated income
|
|
|
— |
|
|
|
88 |
|
|
|
— |
|
|
|
— |
|
|
|
88 |
|
|
Initial deferred tax asset
|
|
|
— |
|
|
|
119,934 |
|
|
|
— |
|
|
|
— |
|
|
|
119,934 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
3,992 |
|
|
|
— |
|
|
|
3,992 |
|
|
Changes in unrealized gains on available-for-sale securities,
net of minority interest and taxes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
847 |
|
|
|
847 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,839 |
|
|
Compensation expense recognized under stock incentive plans, net
of minority interest
|
|
|
— |
|
|
|
137 |
|
|
|
— |
|
|
|
— |
|
|
|
137 |
|
|
Dividend equivalent accrued under stock incentive plans, net of
minority interest
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
— |
|
|
|
(18 |
) |
|
Dividends declared
|
|
|
— |
|
|
|
— |
|
|
|
(1,610 |
) |
|
|
— |
|
|
|
(1,610 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
230 |
|
|
$ |
154,156 |
|
|
$ |
2,364 |
|
|
$ |
1,744 |
|
|
$ |
158,494 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
January 1 to | |
|
November 2 to | |
| |
|
Year Ending December 31, | |
|
November 1, | |
|
December 31, | |
| |
|
| |
|
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Predecessor) | |
|
(Predecessor) | |
|
(Predecessor) | |
|
|
| |
|
(In thousands of dollars) | |
|
Cash and cash equivalents at beginning of period
|
|
$ |
370 |
|
|
$ |
2,648 |
|
|
$ |
5,073 |
|
|
$ |
132,976 |
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
24,731 |
|
|
|
67,326 |
|
|
|
102,182 |
|
|
|
3,992 |
|
| |
Adjustments to reconcile income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Minority interest in partnership investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,322 |
|
| |
|
Minority interest in Calamos Holdings LLC
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,609 |
|
| |
|
Amortization of deferred sales commissions
|
|
|
11,677 |
|
|
|
19,879 |
|
|
|
24,315 |
|
|
|
5,109 |
|
| |
|
Other depreciation and amortization
|
|
|
863 |
|
|
|
973 |
|
|
|
1,054 |
|
|
|
248 |
|
| |
|
Unrealized (appreciation) depreciation on trading securities
|
|
|
324 |
|
|
|
(886 |
) |
|
|
(144 |
) |
|
|
(2,801 |
) |
| |
|
Unrealized (appreciation) depreciation on partnership
investments
|
|
|
(177 |
) |
|
|
(86 |
) |
|
|
(57 |
) |
|
|
(11 |
) |
| |
|
Management fees received in partnership units
|
|
|
(100 |
) |
|
|
(155 |
) |
|
|
(134 |
) |
|
|
(27 |
) |
| |
|
Stock based compensation
|
|
|
— |
|
|
|
— |
|
|
|
32 |
|
|
|
595 |
|
| |
|
Deferred taxes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,297 |
|
| |
|
Gain on disposal of property
|
|
|
— |
|
|
|
— |
|
|
|
(1,989 |
) |
|
|
— |
|
| |
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Customers
|
|
|
553 |
|
|
|
(1,423 |
) |
|
|
(8,733 |
) |
|
|
6,663 |
|
| |
|
|
|
Affiliates and affiliated Mutual Funds
|
|
|
(3,894 |
) |
|
|
(12,360 |
) |
|
|
6,395 |
|
|
|
(8,466 |
) |
| |
|
|
Deferred acquisition costs
|
|
|
(28,095 |
) |
|
|
(41,203 |
) |
|
|
(34,441 |
) |
|
|
(7,164 |
) |
| |
|
|
Other assets
|
|
|
(1,203 |
) |
|
|
(396 |
) |
|
|
(865 |
) |
|
|
549 |
|
| |
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts payables
|
|
|
597 |
|
|
|
727 |
|
|
|
7,229 |
|
|
|
(16 |
) |
| |
|
|
Accrued compensation and benefits and deferred compensation
|
|
|
2,132 |
|
|
|
2,120 |
|
|
|
1,212 |
|
|
|
5,017 |
|
| |
|
|
Other liabilities and accrued expenses
|
|
|
1,867 |
|
|
|
2,309 |
|
|
|
15,810 |
|
|
|
(7,628 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
9,275 |
|
|
|
36,825 |
|
|
|
111,866 |
|
|
|
21,288 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net additions to property and equipment
|
|
|
(985 |
) |
|
|
(6,535 |
) |
|
|
(9,090 |
) |
|
|
(909 |
) |
| |
Net purchases of securities and partnership investments
|
|
|
(1,176 |
) |
|
|
(1,368 |
) |
|
|
(48,409 |
) |
|
|
(48,942 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash used in investing activity
|
|
|
(2,161 |
) |
|
|
(7,903 |
) |
|
|
(57,499 |
) |
|
|
(49,851 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net borrowings (payments) on bank debt
|
|
|
7,534 |
|
|
|
16,629 |
|
|
|
(30,199 |
) |
|
|
— |
|
| |
Net borrowings (payments) on mortgage payable
|
|
|
1,233 |
|
|
|
4,077 |
|
|
|
(152 |
) |
|
|
— |
|
| |
Net borrowings on debt offering
|
|
|
— |
|
|
|
— |
|
|
|
148,169 |
|
|
|
47 |
|
| |
Capital contributions received
|
|
|
— |
|
|
|
— |
|
|
|
3,300 |
|
|
|
— |
|
| |
Net proceeds from issuance of common stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
382,131 |
|
| |
Proceeds from issuances of common stock used to purchase
membership units in Calamos Holdings LLC
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(332,300 |
) |
| |
Cash dividends paid to minority interests
|
|
|
(13,603 |
) |
|
|
(47,203 |
) |
|
|
(47,582 |
) |
|
|
(4,523 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by (used in) financing activities
|
|
|
(4,836 |
) |
|
|
(26,497 |
) |
|
|
73,536 |
|
|
|
45,355 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net increase in cash
|
|
|
2,278 |
|
|
|
2,425 |
|
|
|
127,903 |
|
|
|
16,792 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
2,648 |
|
|
$ |
5,073 |
|
|
$ |
132,976 |
|
|
$ |
149,768 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the year for income taxes
|
|
$ |
83 |
|
|
$ |
479 |
|
|
$ |
1,161 |
|
|
$ |
1,356 |
|
| |
Interest paid
|
|
$ |
832 |
|
|
$ |
1,052 |
|
|
$ |
4,432 |
|
|
$ |
— |
|
|
Supplement schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of fixed assets and other assets distributed to
stockholders
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(18,354 |
) |
|
$ |
— |
|
| |
Fair value of mortgage payable and other liabilities assumed by
stockholders
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,355 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of distribution to stockholders
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(9,999 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-6
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(In thousands of dollars except per share data)
|
|
| (1) |
Organization and Description of Business |
Calamos Asset Management, Inc. (CAM), together with its
subsidiaries (the Company), completed an initial public offering
(Offering) of its Class A common stock on November 2,
2004. On October 15, 2004, Calamos Family Partners, Inc.
(formerly known as Calamos Holdings Inc.), (CFP), contributed
all of its assets and liabilities, including all equity
interests in its wholly owned subsidiaries, to Calamos Holdings
LLC (Holdings) in exchange for 96,800,000 of the membership
units of Holdings. On October 20, 2004, Holdings issued
200,000 new membership units for cash to John Calamos, Sr. On
November 2, 2004, CAM applied the net proceeds of the
Offering to acquire 3,000,000 newly issued membership units
directly from Holdings and 20,000,000 membership units from CFP
to become the sole manager of Holdings. As the sole manager, CAM
operates and controls all of the business and affairs of
Holdings, and as a result of this control, CAM consolidates the
financial results of Holdings with its own financial results.
CAM is conducting the business previously conducted by Calamos
Family Partners, Inc. Accordingly, reported results for the
periods prior to November 2, 2004 reflect the operations
for Calamos Family Partners, Inc. and its subsidiaries
(Predecessor). Reported results for the period from
November 2, 2004 through December 31, 2004 reflect the
results of operations for the Company. For more information
regarding the Offering and the reorganization undertaken in
connection therewith (the Reorganization), see CAM’s
Registration Statement on Form S-1 (File
No. 333-117847) (the Registration Statement) filed with the
Securities and Exchange Commission (SEC).
“CAL” refers to (1) Calamos Asset Management,
Inc., an Illinois corporation, registered investment advisor and
wholly owned subsidiary of Calamos Holdings, Inc., before
consummation of the Reorganization, and (2) Calamos
Advisors LLC, a Delaware limited liability company, registered
investment advisor and wholly owned subsidiary of Calamos
Holdings LLC, after consummation of the Reorganization;
“CFS” refers to (1) Calamos Financial Services,
Inc., an Illinois corporation, registered broker-dealer and
wholly owned subsidiary of Calamos Holdings, Inc., before
consummation of the Reorganization, and (2) Calamos
Financial Services LLC, a Delaware limited liability company,
registered broker-dealer and wholly owned subsidiary of Calamos
Holdings LLC, after consummation of the Reorganization;
“CPM” refers to (1) Calamos Property Management,
Inc., an Illinois corporation, and wholly owned subsidiary of
Calamos Holdings, Inc., before consummation of the
Reorganization, and (2) Calamos Property Management LLC, a
Delaware limited liability company and wholly owned subsidiary
of Calamos Holdings LLC, after consummation of the
Reorganization;
“CPL” refers to (1) Calamos Partners, Inc., an
Illinois corporation, and wholly owned subsidiary of Calamos
Holdings, Inc., before consummation of the Reorganization, and
(2) Calamos Partners LLC, a Delaware limited liability
company and wholly owned subsidiary of Calamos Holdings LLC,
after consummation of the Reorganization; and
“CCL” refers Calamos Capital LLC, a Delaware limited
liability company and wholly owned subsidiary of Calamos
Holdings LLC, after consummation of the Reorganization.
The consolidated financial statements include the operations of
CAM as the sole manager of Holdings and Holdings wholly-owned
subsidiaries: CAL, CFS, CPM, CPL and CCL.
CAL, an investment advisor registered with the SEC under the
Investment Adviser’s Act of 1940, serves as an investment
advisor to individual and institutional investors. CAL also
provides investment management services to the Calamos Family of
Funds (the Funds) and to Calamos Convertible Opportunities and
Income Fund, Calamos Convertible and High Income Fund and the
Calamos Strategic Total Return Fund (the Closed-end Funds),
closed-end funds listed on the New York Stock Exchange.
F-7
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
CPL and CCL each are investment advisors that provide investment
management services primarily to alternative investment products.
CFS, a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934, is the sole distributor of the
Funds and an introducing broker-dealer in the purchase and sale
of securities and security options.
CPM provides real estate investment services.
|
|
| (2) |
Summary of Accounting Policies |
|
|
|
Principles of Consolidation |
The consolidated financial statements include the financial
statements of the Company, its five wholly owned subsidiaries,
and its interests in the Calamos Hedge Fund, L.P. and Calamos
Equity Opportunities Fund LP. All significant intercompany
balances and transactions have been eliminated in consolidation.
In November 2004, the Company sold 23,000,000 shares of
Class A Common Stock in its Offering. The Company used net
proceeds of $382,131 from the Offering to acquire its interest
in Holdings. The acquisition of the ownership interest in
Holdings was treated as a reorganization of entities under
common control in a manner similar to a pooling of interests,
analogous to the type of transaction described in Emerging
Issues Task Force Issue (EITF) 94-2. Accordingly, the net assets
of Holdings purchased by the Company were reported in the
consolidated financial statements at Holdings’ historical
cost, and the minority interests in the Company are based on the
net book equity of Holdings (after contribution of the proceeds
from the Offering) multiplied by the ownership percentages of
CFP and John P. Calamos, Sr.
The historical financial information of Holdings’ business,
which previously was conducted by CFP, is included in the
accompanying financial statements as predecessor information.
CFP’s and John P. Calamos, Sr.’s combined 77% interest
in Holdings is represented as a minority interest in the
Company’s financial statements.
CPL is the general partner of the Calamos Equity Opportunities
Fund LP, an unregistered investment partnership, and beginning
in December 2004, subsidiaries of the Company have an interest
(45.5%) in this partnership. Because the limited partners in the
Calamos Equity Opportunities Fund LP do not have
“important rights”, as defined by AICPA Statement of
Position No. 78-9, due to their affiliation with the
Company, the Company is deemed to have control of this
partnership and is required to consolidate the financial results
of Calamos Equity Opportunities Fund LP with the
Company’s results. CFP’s and John P. Calamos,
Sr.’s combined interest (54.5%) in Calamos Equity
Opportunities Fund LP is represented as a minority interest
in the Company’s financial statements.
The Company had a 99% interest in the Calamos Hedge Fund, L.P.
as of December 31, 2003 but did not have any interest at
December 31, 2004.
|
|
|
Cash and Cash Equivalents |
All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of
investments in money market funds, commercial paper and
U.S. government securities, are classified as cash
equivalents in the Company’s financial statements.
|
|
|
Receivables from Customers |
Receivables from customers represent balances arising from
contractual investment advisory services provided to separate
account customers. During each of the periods presented, bad
debt expense and allowance for doubtful accounts were
insignificant.
F-8
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company carries its investments at fair value for both
trading securities and available-for-sale securities. For a
substantial majority of the Company’s investments, fair
values are determined based upon market prices. If quoted market
prices are not available, the Company uses matrix, model or
other similar pricing methods to determine fair value. For the
periods presented, non-readily marketable securities represent
less than 1% of all investment securities. The Company records
investment securities on a trade date basis.
Because CFS is a registered broker-dealer, the Company is
required to classify securities owned by CFS as trading
securities. The Company also classifies securities held by
Calamos Hedge Fund, L.P. and by Calamos Equity Opportunities
Fund LP as trading securities. Unrealized gains and losses
on trading securities and on partnership units are included in
investment income and other income in the statement of income
for all periods presented.
The Company records all securities owned by Holdings, CAL and
CPM as available-for-sale under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, as the Company does not intend to sell these
securities in the near term. Unrealized gains and losses on
available-for-sale securities are excluded from earnings and are
reported, net of tax as a separate component of
stockholders’ equity until realized. Realized gains and
losses from the sale of available-for-sale securities are
determined on a specific identification basis.
On a quarterly basis, the Company conducts regular reviews to
assess whether other-than-temporary impairment exists. Changing
economic conditions, global, regional, or changes related to
specific issuers or industries, could adversely affect these
values.
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis
over the estimated useful lives of the assets, ranging from
three years to seven years. Leasehold improvements are amortized
over the shorter of their estimated useful lives or the
remaining term of the lease.
|
|
|
Internally Developed Software |
In accordance with AICPA Statement of Position 98-1
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1), certain internal
and external development costs incurred in connection with
developing or obtaining software for internal use are
capitalized. These capitalized costs are included in property
and equipment, net on the Consolidated Statement of Financial
Condition and are amortized using the straight-line method over
their estimated useful life.
Deferred debt issuance costs are amortized on a straight-line
basis over the related term of the debt and are included in
other assets in accordance with AICPA Accounting Principles
Board Opinion No. 21 (APB 21) Interest on
Receivables and Payables. In accordance with EITF 95-13
Classification of Debt Issue Costs in the Statement of Cash
Flows, the deferred costs are classified as a financing
activity in the Statements of Cash Flows when amortized.
Effective January 1, 2004, the Company adopted the fair
value recognition provisions of Statement of Financial
Accounting Standard No. 123 Accounting for Stock Based
Compensation (SFAS 123). Prior to 2004, the Company
accounted for a long-term Equity Appreciation Plans (EAU Plans),
using the accounting
F-9
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
methods prescribed by Financial Accounting Standards Board
(FASB) Financial Interpretation No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, an Interpretation of APB Opinions No. 15 and
25 (FIN 28), and its related interpretations. Under the
modified prospective method of adoption selected by the Company
under the provisions of SFAS 148, Accounting for Stock
Based Compensation — Transition and Disclosure,
compensation expense recognized in 2004 is the same as that
which would have been recognized had the fair value recognition
provisions of SFAS 123 been applied from its original
effective date.
During 2004, the Company established an incentive stock plan
that provides for grants of restricted stock unit
(RSU) awards and stock option awards for certain employees
of the Company. RSUs are convertible on a one-for-one basis into
shares of the Company’s common stock. Stock option awards
are based on shares of the Company’s common stock. The
Company records compensation expense on a straight-line basis
over the service period.
Prior to establishing the incentive stock plans, the Company had
long-term Equity Appreciation Unit plans (EAU Plan) for certain
individuals of the Company. These EAU plans were terminated in
October 2004 in connection with the Offering. In accordance with
both SFAS 123 and FIN 28, compensation expense was
accrued over the periods in which employees performed services.
As such, any change in the EAU Plan (based upon the
enterprise’s estimated market value over the originating
value at grant date) was multiplied by the actual number of
service periods divided by the total number of service periods
in the vesting period. This change, whether increase or
decrease, was recorded as expense in the current period.
The Company earns revenue by providing investment management
services to Company-sponsored open-end and closed-end mutual
funds and to separate accounts. This revenue is earned pursuant
to the terms of the underlying advisory contract and is based on
a contractual investment advisory fee applied to the assets in
each portfolio. Any fees collected in advance are deferred and
recognized over the period earned. Performance-based advisory
fees earned from certain separate accounts are recognized
annually upon completion of the contract year and based upon
either (1) the positive difference between the investment
returns on a client’s portfolio compared to a benchmark
index or (2) the absolute percentage of gain in the
client’s account.
Distribution and underwriting fees consist primarily of
Rule 12b-1 distribution and/or service fees from the Funds,
contingent deferred sales charges (CDSC) on the redemption
of fund shares and sales charges that are primarily earned on
the distribution of mutual fund shares. 12b-1 fees are accrued
monthly as services are performed and are based on the average
daily assets of the funds. CDSC fees are recorded on a trade
date basis when earned, and sales charges are recorded on the
settlement date. The use of settlement date rather than trade
date does not have a material effect on the Company’s
financial statements.
Investment and other income includes investment gains (losses),
interest and dividend income, and gain on sale of real estate.
Dividend and interest income are recognized when earned.
|
|
|
Deferred Sales Commissions |
Deferred sales commissions are commissions advanced by the
Company on the sale of Class B and Class C shares of
the Funds. Deferred sales commissions are amortized on a
straight-line basis over the period in which 12b-1 fees are
received. Because 12b-1 fees cease upon redemption of shares,
amortization expense is accelerated when shares are redeemed
resulting in the reduction of the deferred sales commission
asset. These redemptions results in an amortization period not
to exceed 12 months for Class C shares and
96 months (eight years) for Class B shares.
The Company evaluates the carrying value of its deferred sales
commissions on a quarterly basis. In its impairment analysis,
the Company compares the carrying value of the deferred sales
commission asset to the
F-10
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
undiscounted cash flow expected to be generated by the asset
over its remaining useful life to determine whether impairment
has occurred. If the carrying value of the asset exceeds the
undiscounted cash flow, the asset is written down to fair value
based on discounted cash flows. Impairment adjustments are
recognized in the statement of income as a component of
amortization of deferred sales commissions. As of each reporting
period presented, the Company determined that no impairment of
the deferred commission asset existed.
Prior to the Offering, CFP elected to be taxed as an
“S” corporation under the Internal Revenue Code.
Therefore, the income and expenses of CFP were included in the
income tax returns of its stockholders. CFP was subject to only
Illinois replacement tax and other state taxes of $383, $1,117,
and $1,567 for the years ended December 31, 2002, 2003 and
the period ended November 1, 2004, respectively.
Replacement taxes are recorded as income taxes in the
consolidated statement of income.
Effective with the Offering, the Company accounts for income
taxes under the liability method prescribed by
SFAS No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to the differences between
the financial statement carrying amount of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Although
valuation allowances may be established, when necessary, to
reduce the amounts expected to be realized, there were no
deferred tax asset valuation allowances at December 31,
2004.
|
|
|
Investments in Partnerships |
The Company had a $1,127 (99%) and $1,059 (99%) interest in the
Calamos Hedge Fund, L.P. as of December 31, 2003 and 2002,
respectively. In April 2004, the Company liquidated the Calamos
Hedge Fund, L.P., which resulted in a realized gain of $109, as
well as the elimination of the minority interest related to this
investment. This investment was consolidated into the operations
of the Company.
The Company had a $1.7 million (12.7%) and
$3.1 million (18.8%) interest in the Calamos Multi-Strategy
L.P. as of December 31, 2003 and 2004, respectively. This
investment is accounted for using the equity method and is
carried at the net asset value of the partnership units held by
the Company.
The Company had a $26.1 million (45.5%) in the Calamos
Equity Opportunities Fund LP as of December 31, 2004.
Because the limited partners in the Calamos Equity Opportunities
Fund LP do not have “important rights”, as
defined by AICPA Statement of Position No. 78-9, due to
their affiliation with the Company, the Company is deemed to
have control of this partnership and is required to consolidate
the financial results of Calamos Equity Opportunities
Fund LP with the Company’s results.
Earnings per share are calculated in accordance with
SFAS No. 128, Earnings per Share, which
requires that both basic and diluted earnings per share be
presented. Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted average
number of shares of Class A and Class B common stock
outstanding during each year. Shares issued during the year are
weighted for the portion of the year that they were outstanding.
Diluted earnings per share reflects the potential dilution that
would occur if securities, stock options or membership units
held by CFP were exercised or converted into common stock.
F-11
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Use of Estimates in the Preparation of Financial
Statements |
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets
and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could
differ from those estimates.
|
|
| (3) |
Related-Party Transactions |
CAL provides investment management and portfolio accounting
services to the Funds and the Closed-end Funds. CFS acts as the
sole distributor of the Funds. The Company earns management,
distribution and portfolio accounting fees for these services
that are accrued and settled monthly. Subsidiaries of the
Company receive an annual management fee between 1% and 2% of
net assets for their management services to private investment
pools. The management fee is paid on a monthly basis in the form
of additional investment units in the pools. The table below
summarizes the total fees earned from affiliates identified
above during the periods identified below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Investment management fees from:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The Funds
|
|
$ |
29,885 |
|
|
$ |
61,913 |
|
|
$ |
123,264 |
|
| |
The Closed-End Funds
|
|
|
2,011 |
|
|
|
10,204 |
|
|
|
39,439 |
|
| |
Private investment pools
|
|
|
100 |
|
|
|
155 |
|
|
|
162 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Totals
|
|
$ |
31,996 |
|
|
$ |
72,272 |
|
|
$ |
162,865 |
|
| |
|
|
|
|
|
|
|
|
|
|
Distribution and underwriting fees from the Funds
|
|
$ |
19,482 |
|
|
$ |
43,972 |
|
|
$ |
84,666 |
|
| |
|
|
|
|
|
|
|
|
|
|
Portfolio accounting fees from:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The Funds
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,478 |
|
| |
The Closed-End Funds
|
|
|
— |
|
|
|
— |
|
|
|
410 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Totals
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,888 |
|
| |
|
|
|
|
|
|
|
|
|
Dragon Leasing Corp. (Dragon) is an affiliated company solely
owned by John P. Calamos, Sr. CAL is party to a lease agreement
whereby CAL has use of an airplane for business travel. Under
this agreement CAL agrees to pay for transportation services and
other contractual fees reflected in general and administrative
expense. During 2003, CAL provided a loan to Dragon to allow
Dragon the ability to purchase an aircraft. The borrowings to
finance the aircraft purchase were subject to interest that
accrued at LIBOR plus 1.75%. This loan was repaid in full during
2004. The table below summarizes total service fees incurred and
the net receivable (payable) balance during the reporting
periods identified below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
General and administrative
|
|
$ |
639 |
|
|
$ |
242 |
|
|
$ |
459 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
Net receivable from/(payable to) Dragon
|
|
$ |
3,332 |
|
|
$ |
(2 |
) |
| |
|
|
|
|
|
|
F-12
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On June 30, 2004, the Company distributed certain real
estate owned to its stockholders at that time, who collectively
contributed these assets to Calamos Property Holdings LLC (CPH).
CAL is party to a lease with 1111 Warrenville Road LLC, a
subsidiary of CPH, under which CAL is obligated to pay monthly
base rents and operating expenses of $84 to
1111 Warrenville Road LLC. The lease does not have a
specified term and may be cancelled by either party with
30 days notice. See note(5) “Property and
Equipment” for additional information.
On October 7, 2004, Holdings entered into a 20-year lease
with 2020 Calamos Court LLC, a subsidiary of CPH, with respect
to the new corporate headquarters being constructed for the
Company’s occupancy. Rent under the lease will commence on
the first day of the first month after which Holdings receives
possession of the leased premises, expected to be in 2005 and
will end on May 31, 2025. Initial monthly base rent
payments will be $237 through May 1, 2006 and will increase
3% annually, beginning June 1, 2006 for the remaining term
of the lease. Holdings may not terminate the lease unless a
casualty, condemnation or material temporary taking affects all
or a substantial portion of the leased premises. 2020 Calamos
Court LLC may only terminate the lease upon specified events of
default, which are subject to applicable grace periods.
CPM has pledged $328 to secure a letter of credit in the same
amount for the benefit of CPH with respect to the construction
of the new corporate headquarters. CPM collects from CPH an
annual fee equal to 1% of the amount pledged for supporting the
letter of credit.
|
|
| (4) |
Investment Securities |
The following table provides a summary of securities owned as of
December 31, 2003 and 2004. Other investment securities
consist primarily of common stock and stock derivatives, largely
attributable to the consolidation of the partnerships with the
Company’s results. At December 31, 2003 and 2004, the
other investments relating to the consolidation of the
partnerships were $1,093 and $57,078, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
Available | |
|
Trading | |
|
Total | |
| |
|
for Sale | |
|
Securities | |
|
Securities | |
| |
|
| |
|
| |
|
| |
|
Affiliated Mutual Funds
|
|
$ |
6,073 |
|
|
$ |
2,906 |
|
|
$ |
8,979 |
|
|
Treasury securities
|
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
|
Other investment securities
|
|
|
— |
|
|
|
1,160 |
|
|
|
1,160 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
6,323 |
|
|
$ |
4,066 |
|
|
$ |
10,389 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
Available | |
|
Trading | |
|
Total | |
| |
|
for Sale | |
|
Securities | |
|
Securities | |
| |
|
| |
|
| |
|
| |
|
Affiliated Mutual Funds
|
|
$ |
86,689 |
|
|
$ |
3,359 |
|
|
$ |
90,048 |
|
|
Treasury securities
|
|
|
275 |
|
|
|
— |
|
|
|
275 |
|
|
Other investment securities
|
|
|
70 |
|
|
|
57,128 |
|
|
$ |
57,198 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
87,034 |
|
|
$ |
60,487 |
|
|
$ |
147,521 |
|
| |
|
|
|
|
|
|
|
|
|
F-13
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table below summarizes the proceeds from the sale of
available-for-sale securities, unrealized and realized gains
(losses) on available-for-sale securities, and unrealized gains
(losses) on trading securities.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months | |
|
|
|
|
| |
|
Ended | |
|
|
|
|
| |
|
December 31, | |
|
January 1 to | |
|
November 2 to | |
| |
|
| |
|
November 1, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from sale of available-for-sale securities
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Realized gains (losses) from sale of available-for-sale
securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Unrealized gains (losses) on available-for-sale securities
|
|
|
(435 |
) |
|
|
1,274 |
|
|
|
1,854 |
|
|
|
6,113 |
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Unrealized gains (losses) on trading securities
|
|
|
(324 |
) |
|
|
886 |
|
|
|
144 |
|
|
|
2,801 |
|
The cumulative net unrealized gains (losses) on
available-for-sale securities consisted of the following as of
December 31, 2003 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
Total cumulative unrealized gains on available-for-sale
securities with net gains:
|
|
|
|
|
|
|
|
|
| |
Affiliated Mutual Funds
|
|
$ |
1,930 |
|
|
$ |
9,875 |
|
| |
Treasury securities
|
|
|
117 |
|
|
|
143 |
|
| |
|
|
|
|
|
|
| |
|
Total gains
|
|
|
2,047 |
|
|
|
10,018 |
|
|
Total cumulative unrealized losses on available-for-sale
securities with net losses:
|
|
|
|
|
|
|
|
|
| |
Affiliated Mutual Funds
|
|
|
(2 |
) |
|
|
(6 |
) |
| |
|
|
|
|
|
|
|
Total cumulative unrealized gains (losses) on available-for-sale
securities
|
|
$ |
2,045 |
|
|
$ |
10,012 |
|
| |
|
|
|
|
|
|
The Company periodically evaluates its available-for-sale
investments for other-than-temporary declines in value.
Other-than-temporary declines in value may exist when the fair
value of an investment security has been below the carrying
value for an extended period of time. If an other-than-temporary
decline in value is determined to exist, the unrealized
investment loss, net of tax in accumulated other comprehensive
income is realized as a charge to net income in the period in
which the other-than-temporary decline in value occurs. At
December 31, 2004, for those investments that have
unrealized losses, the Company believes that all of these
unrealized losses are only temporary and are due to temporary
market conditions.
|
|
| (5) |
Property and Equipment |
On June 30, 2004, Calamos Property Holdings, Inc., the
predecessor of CPM, distributed equity in all of its owned real
estate assets to its stockholders at that time. Land, building
and furniture, fixtures and equipment with a book value, net of
depreciation, of $16,055 and a fair value of $18,044 as of
June 30, 2004 were distributed, resulting in a gain of
$1,989, which was recorded as other income on the Company’s
consolidated statement of income.
F-14
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2003 and 2004, property and equipment and
related accumulated depreciation were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
|
|
Accumulated | |
|
|
| |
|
Cost | |
|
Depreciation | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
Land
|
|
$ |
4,890 |
|
|
$ |
— |
|
|
$ |
4,890 |
|
|
Building
|
|
|
2,154 |
|
|
|
538 |
|
|
|
1,616 |
|
|
Furniture, fixtures, and equipment
|
|
|
8,737 |
|
|
|
2,983 |
|
|
|
5,754 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
15,781 |
|
|
$ |
3,521 |
|
|
$ |
12,260 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
|
|
Accumulated | |
|
|
| |
|
Cost | |
|
Depreciation | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
Land
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Building
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Furniture, fixtures, and equipment
|
|
|
8,490 |
|
|
|
3,588 |
|
|
|
4,902 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
8,490 |
|
|
$ |
3,588 |
|
|
$ |
4,902 |
|
| |
|
|
|
|
|
|
|
|
|
The table below summarizes the outstanding debt balance at each
period end.
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
Bank debt — term loan
|
|
$ |
24,216 |
|
|
$ |
— |
|
|
Bank debt — revolving loan
|
|
|
2,484 |
|
|
|
— |
|
|
Bank debt — line of credit
|
|
|
3,500 |
|
|
|
— |
|
|
Mortgage — building
|
|
|
4,104 |
|
|
|
— |
|
|
Mortgage — land
|
|
|
4,381 |
|
|
|
— |
|
|
Senior unsecured notes
|
|
|
— |
|
|
|
150,000 |
|
| |
|
|
|
|
|
|
| |
Total debt
|
|
|
38,685 |
|
|
|
150,000 |
|
|
Less current portion
|
|
|
(15,677 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
Total long-term debt
|
|
$ |
23,008 |
|
|
$ |
150,000 |
|
| |
|
|
|
|
|
|
To make payments of advanced commissions, the Company entered
into a financing agreement in 2002 with a commercial bank that
provided a $30 million credit facility. The facility was
comprised of two components: (i) term loans and
(ii) revolving loans. Interest was payable at rates equal
to: (a) the Prime Rate or (b) London Interbank
Offering Rate (LIBOR) plus a LIBOR margin, which varied
between 2.125% and 2.625% as the Company’s credit quality
changed. Additionally, the Company paid an annual commitment fee
between of
1/4
of 1% and
3/8
of 1% on any unused portion of the commitment. The commitment
fee also varied with the Company’s credit quality.
The term loans were to be repaid in 16 equal quarterly
installments. In addition to the $30 million credit
facility, the Company secured a revolving line of credit with a
commercial bank in the amount of $5 million. The Company
paid interest at a rate equal to: (a) the Prime Rate or
(b) London Interbank Offering Rate
F-15
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(LIBOR) plus a LIBOR margin, which varied between 2.125%
and 2.625% as the Company’s credit quality changed. The
Company also paid an annual commitment fee of between
1/4
of 1% and
3/8
of 1% on any unused portion of the commitment that varied with
the Company’s credit quality.
The credit agreements contained certain financial covenants,
which required the Company to maintain specified minimum levels
of net worth and maximum levels of indebtedness and minimum
levels of cash flow and interest coverage ratios. The credit
agreements further limited the Company’s ability to pay
dividends. The Company was in compliance with its debt covenants
at December 31, 2002 and 2003.
At December 31, 2003, the Company financed the office
building via a mortgage. The Company made quarterly principal
payments of $76 and monthly interest payments at a fixed rate
equal to 5.77%. In addition, the Company financed undeveloped
land with a mortgage at December 31, 2003. The Company made
quarterly interest payments at a variable rate equal to LIBOR
plus 1.75% for the undeveloped land. The land mortgage had a
final principal payment of $4,381 due at maturity. On
June 30, 2004, both mortgages were distributed to the
stockholders through the stockholders’ assumption of $8,333
debt. As of December 31, 2004, the Company had no mortgages
outstanding.
On April 29, 2004, the Company refinanced its bank debt
with the issuance of $150 million aggregate principal
amount of 5.24% senior unsecured notes due April 29,
2011 to various note purchasers in a private placement. As of
December 31, 2004, $150 million aggregate principal
senior unsecured notes remained outstanding. These notes are set
to mature on April 29, 2011. As a result of the
$150 million debt offering, the Company incurred $1,997 in
debt issuance costs. The deferred costs are recorded as a
noncurrent asset, and the amortization of the deferred costs is
included in interest expense and is recorded on a straight-line
basis over the seven year (84 month) term of the loan.
Under the note purchase agreement governing the terms of the
senior unsecured notes, the Company must maintain consolidated
net worth, leverage and interest coverage ratios. The note
purchase agreement also contains other covenants that, among
other things, restrict the ability of the Company’s
subsidiaries to incur debt and restrict the Company’s
ability and the ability of the Company’s subsidiaries to
create liens and to merge or consolidate, or sell or convey all
or substantially all of the Company’s assets. As of
December 31, 2004, the Company was in compliance with all
covenants.
|
|
| (7) |
Fair Value of Financial Instruments |
Because of the short maturity associated with cash and cash
equivalents, the carrying amounts approximate their fair values.
Investment securities are recorded at fair value as described in
Footnote 2 — Summary of Accounting Policies. In
applying the equity method of accounting, the investment in
partnerships reflects the net asset value of the underlying
partnership units, which approximate fair value. As of
December 31, 2003, the carrying values of the current
portion of debt and long-term debt approximate their fair values
because of the variable interest rates associated with these
financial instruments. At December 31, 2004, the fair value
of long-term debt is estimated using discounted cash flows based
on the Company’s incremental borrowing rates for the debt
and market prices for similar bonds at the measurement date. All
methods of assessing fair value result in an estimate of value
that may never be realized.
F-16
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A comparison of the fair values and carrying amounts of these
instruments is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
|
December 31, 2004 | |
| |
|
| |
|
| |
| |
|
Carrying | |
|
|
|
Carrying | |
|
|
| |
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
5,073 |
|
|
$ |
5,073 |
|
|
$ |
149,768 |
|
|
$ |
149,768 |
|
| |
Investment securities, trading and available for sale
|
|
|
10,389 |
|
|
|
10,389 |
|
|
|
147,521 |
|
|
|
147,521 |
|
| |
Investment in partnerships (included in other current assets)
|
|
|
1,713 |
|
|
|
1,713 |
|
|
|
3,072 |
|
|
|
3,072 |
|
| |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current portion of debt
|
|
|
15,676 |
|
|
|
15,676 |
|
|
|
— |
|
|
|
— |
|
| |
Long-term debt
|
|
|
23,008 |
|
|
|
23,008 |
|
|
|
150,000 |
|
|
|
156,056 |
|
|
|
| (8) |
Minority Interest in Calamos Holdings LLC |
Minority interest represents CFP and John Calamos, Sr.’s
aggregate ownership interest of 77% in Holdings and is derived
by multiplying the respective balances of Holdings by their
aggregate 77% ownership, except where described below.
| |
|
|
|
|
|
Minority Interest at November 1, 2004
|
|
$ |
— |
|
|
Historical shareholders’ equity as of November 1, 2004:
|
|
|
79,217 |
|
|
Net proceeds retained from the Offering
|
|
|
38,370 |
|
|
Net income from November 2 to December 31, 2004(1)
|
|
|
22,604 |
|
|
Impact of overallotment option on allocated income(2)
|
|
|
(88 |
) |
|
Compensation expense recognized under stock incentive plans
|
|
|
458 |
|
|
Changes in unrealized gains on available-for-sale securities
|
|
|
4,707 |
|
|
Dividend equivalent accrued under stock incentive plans
|
|
|
(61 |
) |
|
Dividends paid and declared
|
|
|
(9,913 |
) |
| |
|
|
|
|
Minority Interest at December 31, 2004
|
|
$ |
135,294 |
|
| |
|
|
|
|
|
| (1) |
Because CAM owned 20% of Holdings from November 2, 2004 through
November 7, 2004 and 23% from November 8, 2004 through December
31, 2004, the net income allocation of 77.3% is a result of the
weighted average based upon the actual number of days. |
| |
| (2) |
The subsequent purchase of 3,000,000 units on
November 8, 2004, resulting from the underwriter’s
exercise of the overallotment option, increased CAM’s
ownership in Holdings by 3% to 23%. As a result, the 3% of
income from November 2, 2004 through November 7, 2004
is not allocated to CAM in the income statement. However, CAM
purchased 3% of the total equity of Holdings, including 3% of
income from November 2, 2004 through November 7, 2004,
which is reflected as an increase in equity and as a decrease to
minority interest. |
All shares of Class A Common Stock and Class B Common
Stock are identical and shall entitle the holders to the same
rights and privileges, except that the holders of Class B
Voting Common Stock possess super-voting rights in the Company,
except as otherwise required by law.
F-17
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (10) |
Effect of Initial Public Offering to Stockholders’
Equity |
The table below summarizes the net proceeds retained by the
Company from the Offering on November 2, 2004 as presented
in the consolidated statements of changes in stockholders’
equity.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additional | |
|
|
| |
|
|
|
Paid-in- | |
|
|
| |
|
Common | |
|
Capital | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
Net proceeds from issuance of common stock
|
|
$ |
230 |
|
|
$ |
381,901 |
|
|
$ |
382,131 |
|
|
Use of proceeds to purchase membership units from CFP
|
|
|
— |
|
|
|
(332,300 |
) |
|
|
(332,300 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net proceeds retained by the Company
|
|
|
230 |
|
|
|
49,601 |
|
|
|
49,831 |
|
|
Allocation of 77% to minority interest
|
|
|
— |
|
|
|
(38,370 |
) |
|
|
(38,370 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
23% of net proceeds from the Offering
|
|
$ |
230 |
|
|
$ |
11,231 |
|
|
$ |
11,461 |
|
| |
|
|
|
|
|
|
|
|
|
The Company contributes to a profit sharing plan (the PSP Plan)
covering substantially all employees. Contributions to the PSP
Plan are at the discretion of the Board of Directors. For the
years ended December 31, 2002, 2003 and 2004, the Company
recorded expense for the contributions to the PSP Plan in the
amounts of $1,670, $1,816, and $1,440, respectively. This
expense is included in employee compensation and benefits on the
consolidated statement of income.
The company accounts for the following compensation plans: the
Equity Appreciation Units (EAUs), Incentive Stock Plans, which
are comprised of restricted stock units and stock options, and a
Supplemental Incentive Compensation Award Plan (SICA).
|
|
|
Equity Appreciation Units |
EAUs were a form of cash based compensation that were awarded in
accordance with the provisions of the Plan and were intended to
reflect a share in the growth of the equity value of the
Company. Because EAUs were purely a form of cash compensation
and had no conversion features to common stock, EAUs did not
have a dilutive effect on earnings per share. Participants
vested in the EAUs if employed by the Company on the vesting
date. Payouts from the Plan were made from the general assets of
the Company and were based on the value of the awards on the
vesting date.
The EAU plans were terminated in November 2004 in connection
with the Offering. Upon termination of these plans one-half of
each EAU participant’s earned balance was paid in cash to
the participants. The remainder of each participant’s
earned balance was converted into restricted stock units
(RSU) and the corresponding liability of $6,679 was
recorded to additional paid in capital.
Compensation expense of $1,090, $2,846, and $9,148 was
recognized for the years ended and December 31, 2002 and
2003 and for the period ending November 1, 2004,
respectively. The Company had a deferred liability for the
benefit of the EAU Plan’s participants in the amount of
$4,210 and $0 as of December 31, 2003 and December 31,
2004, respectively. In determining the amount of liability
recorded, management made estimates the fair value of the
Company. This estimate was based on the Company’s specific
business and financial condition as well as relevant market
factors. At termination, the enterprise value was estimated to
be $1.8 billion based on the initial offering price of
$18.00 per share.
F-18
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Certain employees of the Company participate in equity
compensation plans which are comprised of restricted stock units
and stock options and are designed to retain key employees. A
total of 10,000,000 shares of CAM’s common stock may
be granted under the plans. During 2004, 1,350,212 restricted
stock units with an estimated fair value of $24,304 and 720,454
stock options with an estimated fair value of $4,633 were
awarded to employees of the Company in accordance with the
provisions of the plan.
RSU’s entitle each recipient to receive a share of
Class A common stock and a dividend equivalent to the
actual dividends declared on CAM’s Class A common
stock. RSU’s are granted with no strike price and,
therefore, the Company receives no proceeds when the RSU’s
vest. These awards, including accrued dividends, vest at the end
of the restriction period, generally between three and six years
and are expensed on a straight line basis over the vesting
period. A summary of the RSU activity for the year ended
December 31, 2004 is as follows:
| |
|
|
|
|
| |
|
Shares | |
| |
|
| |
|
Outstanding, October 26, 2004
|
|
|
— |
|
|
Granted on October 27, 2004
|
|
|
1,350,212 |
|
|
Forfeited
|
|
|
6,700 |
|
|
Exercised
|
|
|
— |
|
| |
|
|
|
|
Outstanding, December 31, 2004
|
|
|
1,343,512 |
|
| |
|
|
|
|
RSUs converted during the year
|
|
|
— |
|
|
Weighted average fair value of RSUs granted
|
|
$ |
18.00 |
|
Stock options entitle each recipient to purchase a share of
Class A common stock in exchange for the stated exercise
price upon vesting of each award. Under the plan, the exercise
price of each option, which has a 10-year life, equals the
market price of the company’s stock on the date of grant.
For awards granted on October 27, 2004, the exercise price
at grant date was $18.00. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model. For options granted during the year, the
weighted average fair value was estimated on the date of the
grant with the following weighted average assumptions: dividend
yield of 1.56%, expected volatility of 33%, risk-free interest
rate of 3.74% and expected life of 7.5 years. These awards,
including accrued dividends, vest at the end of the restriction
period, generally between three and six years. The fair value of
the award is expensed on a straight line basis over the vesting
period.
A summary of the stock option activity for the year ended
December 31, 2004 is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
| |
|
|
|
Average | |
| |
|
Shares | |
|
Exercise Price | |
| |
|
| |
|
| |
|
Outstanding, October 26, 2004
|
|
|
— |
|
|
|
— |
|
|
Granted on October 27, 2004
|
|
|
720,454 |
|
|
$ |
18.00 |
|
|
Forfeited
|
|
|
— |
|
|
|
— |
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
Outstanding, December 31, 2004
|
|
|
720,454 |
|
|
$ |
18.00 |
|
| |
|
|
|
|
|
|
|
Options exercisable at year-end
|
|
|
— |
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$ |
6.43 |
|
|
|
|
|
F-19
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Expense recorded in connection with the RSU and stock option
plans were $32 during the period October 27, 2004 to
November 1, 2004 and $595 during the period
November 2, 2004 to December 31, 2004, of which $137,
net of the minority interest, is credited as additional paid in
capital.
|
|
|
Supplemental Incentive Compensation Award Plan
Units |
Certain officers of the company participate in a long-term,
deferred Supplemental Incentive Compensation Award Plan (SICA).
SICA provides for additional cash compensation payable over a
period of three years beginning three years after granting of
each award. Compensation expense is recognized monthly on a
straight line basis over the first three years immediately
following the granting of each award. Payouts from SICA will be
made from the general assets of the Company.
The provision for income taxes for the years ended
December 31, 2002, 2003 and 2004 consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
January 1 to | |
|
November 2 to | |
| |
|
|
|
|
|
November 1, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,104 |
|
| |
State
|
|
|
383 |
|
|
|
1,117 |
|
|
|
1,567 |
|
|
|
248 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
$ |
383 |
|
|
$ |
1,117 |
|
|
$ |
1,567 |
|
|
$ |
1,352 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,059 |
|
| |
State
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
238 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,297 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$ |
383 |
|
|
$ |
1,117 |
|
|
$ |
1,567 |
|
|
$ |
2,649 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the expected future tax
consequences of temporary differences between carrying amounts
and tax bases of the Company’s assets and liabilities. The
significant components of deferred income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 |
|
2004 | |
| |
|
|
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Intangible assets
|
|
$ |
— |
|
|
$ |
115,586 |
|
| |
Deferred sales commissions
|
|
|
|
|
|
|
2,788 |
|
| |
Other
|
|
|
— |
|
|
|
603 |
|
| |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
— |
|
|
|
118,977 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Unrealized net holding gains
on investments on available for sale securities
|
|
|
|
|
|
|
559 |
|
| |
Other
|
|
|
— |
|
|
|
340 |
|
| |
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
— |
|
|
|
899 |
|
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
— |
|
|
$ |
118,078 |
|
| |
|
|
|
|
|
|
F-20
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred tax assets and liabilities are reflected on the
Company’s Consolidated Statements of Financial Condition at
December 31, 2004 as a net deferred tax asset. The current
and non-current portions of the net deferred tax asset are
$6,892 and $111,186, respectively.
The Company recorded a net deferred income tax asset of
$119.9 million in November 2004 as a result of the purchase
of 20,000,000 membership units from CFP, whereby the Company
will make an election under section 754 of the Internal
Revenue Code to mark to current market value all assets that it
purchased. However, the assets acquired in connection with
purchase of the 3,000,000 membership units directly from
Holdings do not qualify for mark to market treatment under
section 754. Most of the assets receiving the stepped up
basis for tax purposes are in the form of intangible assets,
such as management contracts, distribution contracts and
intellectual property. These intangible assets will generally be
amortized over 15 years, and this amortization will create
a future tax benefit of roughly $8.0 million per year,
expiring in fiscal year 2019. The Company believes that all
deferred income tax assets will be realized; therefore, no
valuation allowances have been established.
The following table reconciles the statutory federal income tax
rate to the effective tax rate.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Twelve Months | |
|
|
|
|
| |
|
Ended | |
|
|
|
|
| |
|
December 31, | |
|
January 1 to | |
|
November 2 to | |
| |
|
| |
|
November 1, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Statutory U.S. federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Income passed through to stockholders
|
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
|
|
(35.0 |
%) |
|
|
— |
|
|
State income taxes, net of federal tax benefits
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.5 |
% |
|
|
4.8 |
% |
|
Other non-deductible items
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Effective income tax rate
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.5 |
% |
|
|
39.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
For the periods ended prior to November 2, 2004, CFP
elected to be taxed as an “S” corporation under the
Internal Revenue Code. Therefore, the income and expenses of CFP
were included in the income tax returns of its stockholders. CFP
was subject to only Illinois replacement tax and certain other
state taxes.
F-21
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table reflects the calculation of basic and
diluted earnings per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
January 1 to | |
|
November 2 to | |
| |
|
|
|
|
|
November 1, | |
|
December 31, | |
| |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Earnings per share — basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings available to common shareholders
|
|
$ |
24,731 |
|
|
$ |
67,326 |
|
|
$ |
102,182 |
|
|
$ |
3,992 |
|
| |
Weighted average shares outstanding
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
22,700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share — basic
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share — diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before minority interest and taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,572 |
|
| |
Less: Minority interest in Calamos Equity Opportunities
Fund LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before minority interest in Calamos Holdings LLC and
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,250 |
|
| |
Less: Impact of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,668 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share available to common shareholders
|
|
$ |
24,731 |
|
|
$ |
67,326 |
|
|
$ |
102,182 |
|
|
$ |
17,582 |
|
| |
Weighted average shares outstanding
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
22,700 |
|
| |
Conversion of membership units for common stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
77,300 |
|
| |
Dilutive impact of RSU’s
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
491 |
|
| |
Dilutive impact of stock options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average shares and potential dilutive shares outstanding
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
100,491 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share — dilutive
|
|
$ |
0.26 |
|
|
$ |
0.70 |
|
|
$ |
1.06 |
|
|
$ |
0.17 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding for the period of November 2,
2004 to December 31, 2004 represent the Company’s
weighted average Class A common stock after giving effect
to the Offering as of November 2, 2004. The diluted shares
outstanding are calculated: (a) assuming Calamos Family
Partners, Inc. and John P. Calamos, Sr. exchanged all of their
membership units in Calamos Holdings LLC for, and converted all
outstanding shares of the Company’s Class B common
stock into, shares of the Company’s Class A common
stock, in each case on a one-for-one basis and
(b) including the effect of outstanding restricted stock
unit and option awards. In calculating diluted earnings
available to common shareholders for the period November 2,
2004 to December 31, 2004, an effective tax rate of 39.89%
was applied to income before minority interest in Calamos
Holdings LLC and income taxes of $29,250, resulting in earnings
available to common shareholders of $17,582.
The Company uses the treasury stock method to reflect the
dilutive effect of unvested restricted stock units and
unexercised stock options in diluted earnings per share. Under
the treasury stock method, if the average market price of common
stock increases above the option’s exercise price, the
proceeds that would be assumed to be realized from the exercise
of the option would be assumed to be used to acquire outstanding
shares of common stock. However, pursuant to SFAS 123, the
awards may be antidilutive even when the market price of the
underlying stock exceeds the related exercise price. This result
is possible because compensation cost attributed to future
services and not yet recognized is included as a component of
the assumed proceeds upon exercise. As such, the dilutive effect
of such options and RSUs would result in the
F-22
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
addition of a net number of shares to the weighted-average
number of shares used in the calculation of diluted earnings per
share. Total RSUs of 1,350,212 were issued in connection with
the Offering and 1,343,512 were outstanding as of
December 31, 2004. Prior to the Offering, no options or
dilutive securities were outstanding. The RSUs were granted with
no strike price and, therefore, the Company will receive no
proceeds when the RSUs are exercised. As a result, the RSUs will
have a dilutive effect on in the computation of earnings per
share. For the period ending December 31, 2004, the
dilutive effect of the RSUs resulted in an additional 491,309
weighted average shares outstanding. Total stock options of
720,454 were issued in connection with the Offering and
outstanding as of December 31, 2004. None of the
outstanding options to purchase 720,454 shares of
Class A common stock with an exercise price of $18.00 were
included in the computation of diluted earnings per share,
because the exercise of the options would have been antidilutive.
|
|
| (15) |
Commitments and Contingencies |
In the normal course of business, the Company enters into
agreements that include indemnities in favor of third parties,
such as engagement letters with advisors and consultants,
distribution agreements and service agreements. In accordance
with the Company’s by-laws, the Company has also agreed to
indemnify its directors, officers, employees and agents in
certain cases. Certain agreements do not contain any limits on
the Company’s liability and, therefore, it is not possible
to estimate the Company’s potential liability under these
indemnities. In certain cases, the Company may have recourse
against third parties with respect to these indemnities.
Further, the Company maintains insurance policies that may
provide coverage against certain claims under these indemnities
In the normal course of business, the Company may be subject to
various legal proceedings from time to time. Currently, there
are no legal proceedings pending against the Company or the
Company’s subsidiaries.
The Company leases computer equipment and office space under
long-term operating leases expiring at various dates throughout
fiscal year 2025. Lease expenses for years ended
December 31, 2002, 2003 and 2004 were $666, $853 and $1,663
respectively. At December 31, 2004 the Company’s
aggregate future minimum payments for operating leases having
initial or non-cancelable terms greater than one year are
payable as follows:
| |
|
|
|
|
|
|
| |
|
Minimum | |
| |
|
Payments | |
| |
|
| |
|
Year ended December 31:
|
|
|
|
|
| |
2005
|
|
|
3,041 |
|
| |
2006
|
|
|
2,990 |
|
| |
2007
|
|
|
3,001 |
|
| |
2008
|
|
|
3,079 |
|
| |
2009
|
|
|
3,169 |
|
| |
Thereafter
|
|
|
62,702 |
|
| |
|
|
|
| |
|
Total minimum lease payments
|
|
$ |
77,982 |
|
| |
|
|
|
|
|
| (16) |
Regulatory and Net Capital Requirements |
As a broker/dealer, CFS is subject to the Securities and
Exchange Commission’s Uniform Net Capital Rule
(Rule 15c3-1), which requires the maintenance of minimum
net capital, as defined, and requires that the ratio of
aggregate indebtedness to net capital (net capital ratio), as
defined, shall not exceed 15 to 1. As of
F-23
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
December 31, 2003 and 2004, the net capital, the excess of
the required net capital and the net capital ratio were as
follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
Net capital
|
|
$ |
3,550 |
|
|
$ |
6,453 |
|
|
Excess of required net capital
|
|
$ |
3,135 |
|
|
$ |
5,502 |
|
|
Net capital ratio
|
|
|
1.75 |
|
|
|
2.21 |
|
CFS is not required to compute the Reserve Requirements under
Exhibit A of Rule 15c3-3(k)(2)(ii) or to include
Information Relating to the Possession or Control Requirements
under Rule 15c3-3, because the Registrant is an introducing
broker and promptly transmits all customer funds and securities
to the clearing broker who carries the accounts of such
customers.
Approximately 40% and 16% of the Company’s total revenue
for the year ended December 31, 2004 was derived from
services provided to the Calamos Growth Fund and the Calamos
Growth and Income Fund, respectively, Company-sponsored mutual
funds. This revenue is largely dependent on the level of assets
under management in numerous individual shareholder accounts.
|
|
| (18) |
Recently Issued Accounting Pronouncements |
In March 2004, the FASB ratified the consensus of the EITF
regarding the recognition and measurement of
other-than-temporary impairments of certain investments. The
effective date of the recognition and measurement guidance in
EITF 03-01 has been delayed until the implementation
guidance provided by a FASB staff position on the issue has been
finalized. The disclosure guidance was unaffected by the delay
and is effective for fiscal years ended after June 15,
2004. The Company has implemented the disclosure provisions of
EITF 03-01 and does not anticipate that the implementation
of the recognition and measurement guidance, when released, will
have a material effect on the Company’s financial
statements.
Effective January 1, 2004, the Company adopted the fair
value recognition provisions of SFAS 123. In December 2004,
FASB revised SFAS 123, requiring public registrants to
recognize the cost resulting from all stock-based compensation
transactions in their financial statements. This guidance is
effective for all reporting periods subsequent to June 15,
2005. The Company does not believe that the implementation of
the revised SFAS 123 will have a material effect on its
financial statements.
F-24
|
|
| Item 9. |
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. |
None
|
|
| Item 9A. |
Controls and Procedures. |
An evaluation was carried out under the supervision and with the
participation of our management, including our chief executive
officer and chief accounting officer, of the effectiveness of
the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation,
the chief executive officer and chief accounting officer
concluded that the design and operation of these disclosure
controls and procedures were effective as of December 31,
2004. No significant changes were made in our internal controls
or in other factors that has materially affected, or is likely
to materially affect, these controls over financial reporting.
Item 9B. Other
Information.
None
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant. |
Information regarding the Directors and Executive Officers of
the Company and compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by
reference from our definitive proxy statement for our 2005
Annual Meeting of Shareholders (the “Proxy Statement”).
The company has adopted a Code of Business Conduct and Ethics
(the Code of Conduct) that applies to our principal executive
officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions.
The Code of Conduct is posted on the Investor Relations section
of our website (www.calamos.com) and available in print free of
charge to any shareholder who requests a copy. Interested
parties may address a written request for a printed copy of the
Code of Conduct to: Secretary, Calamos Asset Management Inc.,
1111 E. Warrenville Road, Naperville, IL 60563. We
intend to satisfy the disclosure requirement regarding any
amendment to, or a waiver of, a provision of the Code of Conduct
by posting such information on our website.
|
|
| Item 11. |
Executive Compensation. |
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management. |
|
|
| Item 13. |
Certain Relationships and Related Transactions. |
|
|
| Item 14. |
Principal Accounting Fees and Services. |
The information set forth in the Proxy Statement is incorporated
by reference for these items.
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules. |
(a) The following documents are filed as part of this
report.
1. Financial Statements: See Item 8 of Part II.
2. Financial Statement Schedules: None.
3. List of Exhibits:
II-1
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibit |
| |
|
|
| |
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Registrant.(1) |
| |
| |
3 |
.2 |
|
Amended and Restated By-Laws of the Registrant.(1) |
| |
| |
4 |
.1 |
|
Stockholders’ Agreement among John P. Calamos, Sr.,
Nick P. Calamos and John P. Calamos, Jr., certain trusts
controlled by them, Calamos Family Partners, Inc. and the
Registrant.(2) |
| |
| |
4 |
.2 |
|
Registration Rights Agreement between Calamos Family Partners,
Inc., John P. Calamos, Sr. and the Registrant.(2) |
| |
| |
10 |
.1 |
|
Employment Agreement between the Registrant and John P.
Calamos, Sr.(2) |
| |
| |
10 |
.2 |
|
Employment Agreement between the Registrant and Nick P.
Calamos.(2) |
| |
| |
10 |
.3 |
|
Employment Agreement between the Registrant and James S.
Hamman, Jr.(2) |
| |
| |
10 |
.4 |
|
Employment Agreement between the Registrant and Patrick H.
Dudasik.(2) |
| |
| |
10 |
.5 |
|
Calamos Asset Management, Inc. Incentive Compensation Plan.(2) |
| |
| |
10 |
.6 |
|
Form of EAU-Based RSU Award Statement.(2) |
| |
| |
10 |
.7 |
|
Form of IPO Equity Award Statement.(2) |
| |
| |
10 |
.8 |
|
Form of Services-Based RSU Award Statement.(2) |
| |
| |
10 |
.9 |
|
Contribution Agreement between the Registrant and Calamos
Holdings, LLC.(2) |
| |
| |
10 |
.10 |
|
Tax Indemnity Agreement among the Registrant, Calamos Family
Partners, Inc. and Calamos Family Holdings LLC.(2) |
| |
| |
10 |
.11 |
|
Second Amended and Restated Limited Liability Company Agreement
of Calamos Holdings LLC effective as of November 2, 2004,
by and among Calamos Family Partners, Inc., John P.
Calamos, Sr. and the Registrant.(2) |
| |
| |
10 |
.12 |
|
Management Services Agreement between the Registrant and Calamos
Family Partners, Inc.(2) |
| |
| |
21 |
.1 |
|
Subsidiaries of the Company. |
| |
| |
23 |
.1 |
|
Consent of Independent Registered Public Accounting Firm, KPMG
LLP. |
| |
| |
24 |
.1 |
|
Power of Attorney (included on signature page of this report). |
| |
| |
31 |
.1 |
|
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a). |
| |
| |
31 |
.2 |
|
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a). |
| |
| |
32 |
.1 |
|
Certification of Principal Executive Officer pursuant to
18 U.S.C. Section 1350. |
| |
| |
32 |
.2 |
|
Certification of Principal Financial Officer pursuant to
18 U.S.C. Section 1350. |
|
|
| (1) |
Incorporated by reference to the Company’s current report
on Form 8-K filed with the Securities and Exchange
Commission on November 2, 2004. |
| |
| (2) |
Incorporated by reference to the Company’s quarterly report
on Form 10-Q filed with the Securities and Exchange
Commission on December 3, 2004. |
II-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 30, 2005.
|
|
| |
CALAMOS ASSET MANAGEMENT, INC. |
|
|
|
| |
By: |
/s/ Patrick H. Dudasik |
|
|
|
| |
Title: |
Executive Vice President, Chief Financial Officer and Treasurer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
| |
|
|
|
|
|
|
|
|
| Signature |
|
Title | |
|
Date |
| |
|
| |
|
|
| |
/s/ John P. Calamos Sr.
John
P. Calamos Sr. |
|
Chairman of the Board, Chief Executive Officer and Co-Chief Investment Officer
(Principal Executive Officer) |
|
March 30, 2005 |
| |
/s/ Patrick H. Dudasik
Patrick
H. Dudasik |
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
March 30, 2005 |
| |
/s/ Nick P. Calamos
Nick
P. Calamos |
|
Senior Executive Vice President,
Co-Chief Investment Officer and Director |
|
March 30, 2005 |
| |
/s/ G. Bradford Bulkley
G.
Bradford Bulkley |
|
|
Director |
|
|
March 30, 2005 |
| |
/s/ Richard W. Gilbert
Richard
W. Gilbert |
|
|
Director |
|
|
March 30, 2005 |
| |
/s/ Arthur L. Knight
Arthur
L. Knight |
|
|
Director |
|
|
March 30, 2005 |
II-3