Attached files
file | filename |
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EX-32.1 - EX-32.1 - Calamos Asset Management, Inc. /DE/ | c54394exv32w1.htm |
EX-31.2 - EX-31.2 - Calamos Asset Management, Inc. /DE/ | c54394exv31w2.htm |
EX-31.1 - EX-31.1 - Calamos Asset Management, Inc. /DE/ | c54394exv31w1.htm |
EX-32.2 - EX-32.2 - Calamos Asset Management, Inc. /DE/ | c54394exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED: September 30, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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.) |
|
2020 Calamos Court, Naperville, Illinois | 60563 | |
(Address of Principal Executive Offices) | (Zip Code) |
(630) 245-7200
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
At October 26, 2009, the company had 19,621,037 shares of Class A common stock and 100 shares of
Class B common stock outstanding.
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 129,469 | $ | 59,425 | ||||
Receivables: |
||||||||
Affiliates and affiliated funds |
15,377 | 13,187 | ||||||
Customers |
8,369 | 6,862 | ||||||
Investment securities |
200,184 | 173,155 | ||||||
Derivative assets |
3,742 | 14,288 | ||||||
Partnership investments |
36,475 | 28,471 | ||||||
Prepaid expenses |
2,580 | 2,607 | ||||||
Deferred tax assets, net |
10,407 | 11,837 | ||||||
Other current assets |
17,039 | 21,766 | ||||||
Total current assets |
423,642 | 331,598 | ||||||
Non-current assets |
||||||||
Deferred tax assets, net |
78,262 | 83,769 | ||||||
Deferred sales commissions |
13,622 | 18,414 | ||||||
Property and equipment, net of accumulated depreciation ($39,424 at 9/30/09
and $31,719 at 12/31/08) |
35,397 | 41,058 | ||||||
Other non-current assets |
1,347 | 1,034 | ||||||
Total non-current assets |
128,628 | 144,275 | ||||||
Total assets |
552,270 | 475,873 | ||||||
LIABILITIES |
||||||||
Current liabilities |
||||||||
Accounts payable: |
||||||||
Brokers |
11,879 | 10,239 | ||||||
Affiliates and affiliated funds |
50 | 283 | ||||||
Accrued compensation and benefits |
14,349 | 10,419 | ||||||
Interest payable |
1,968 | 3,025 | ||||||
Derivative liabilities |
8,396 | | ||||||
Accrued expenses and other current liabilities |
4,771 | 5,889 | ||||||
Total current liabilities |
41,413 | 29,855 | ||||||
Long-term liabilities |
||||||||
Long-term debt |
125,000 | 125,000 | ||||||
Other long-term liabilities |
10,153 | 9,971 | ||||||
Total long-term liabilities |
135,153 | 134,971 | ||||||
Total liabilities |
176,566 | 164,826 | ||||||
STOCKHOLDERS EQUITY |
||||||||
Class A Common Stock, $0.01 par value; authorized 600,000,000 shares; 23,621,037
shares issued and 19,621,037 shares outstanding at September 30, 2009;
23,497,687 shares issued and 19,497,687 shares outstanding at December 31, 2008 |
236 | 235 | ||||||
Class B Common Stock, $0.01 par value; authorized 1,000 shares; 100 shares issued
and outstanding at September 30, 2009 and December 31, 2008 |
0 | 0 | ||||||
Additional paid-in capital |
209,761 | 207,844 | ||||||
Retained earnings |
42,441 | 38,010 | ||||||
Accumulated other comprehensive income (loss) |
3,789 | (101 | ) | |||||
Treasury stock at cost; 4,000,000 shares at September 30, 2009 and December 31,
2008 |
(95,215 | ) | (95,215 | ) | ||||
Calamos Asset Management, Inc. stockholders equity |
161,012 | 150,773 | ||||||
Non-controlling interest in partnership investments |
1,619 | 1,289 | ||||||
Non-controlling interest in Calamos Holdings LLC |
213,073 | 158,985 | ||||||
Total non-controlling interest |
214,692 | 160,274 | ||||||
Total stockholders equity |
375,704 | 311,047 | ||||||
Total liabilities and stockholders equity |
$ | 552,270 | $ | 475,873 | ||||
See accompanying notes to consolidated financial statements.
-2-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2009 and 2008
(in thousands, except share data)
(unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2009 and 2008
(in thousands, except share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues |
||||||||||||||||
Investment management fees |
$ | 52,868 | $ | 71,479 | $ | 142,362 | $ | 227,202 | ||||||||
Distribution and underwriting fees |
20,271 | 29,446 | 56,287 | 94,734 | ||||||||||||
Other |
659 | 882 | 1,797 | 2,802 | ||||||||||||
Total revenues |
73,798 | 101,807 | 200,446 | 324,738 | ||||||||||||
Expenses |
||||||||||||||||
Employee compensation and benefits |
17,686 | 16,547 | 53,155 | 60,001 | ||||||||||||
Distribution and underwriting expense |
15,713 | 21,922 | 42,473 | 70,955 | ||||||||||||
Amortization of deferred sales commissions |
2,494 | 6,002 | 9,710 | 18,088 | ||||||||||||
Marketing and sales promotion |
2,627 | 3,527 | 8,089 | 9,598 | ||||||||||||
General and administrative |
7,904 | 9,698 | 25,071 | 28,445 | ||||||||||||
Total operating expenses |
46,424 | 57,696 | 138,498 | 187,087 | ||||||||||||
Operating income |
27,374 | 44,111 | 61,948 | 137,651 | ||||||||||||
Non-operating Activities |
||||||||||||||||
Net interest expense |
(1,764 | ) | (7,634 | ) | (5,284 | ) | (22,556 | ) | ||||||||
Investment and other income (loss) |
(6,208 | ) | (71,010 | ) | 1,669 | (93,829 | ) | |||||||||
Total non-operating loss |
(7,972 | ) | (78,644 | ) | (3,615 | ) | (116,385 | ) | ||||||||
Income (loss) before income taxes |
19,402 | (34,533 | ) | 58,333 | 21,266 | |||||||||||
Income taxes |
1,670 | (394 | ) | 5,096 | 11,744 | |||||||||||
Net income (loss) |
17,732 | (34,139 | ) | 53,237 | 9,522 | |||||||||||
Net (income) loss attributable to
non-controlling interest in partnership
investments |
(141 | ) | 27,659 | (330 | ) | 40,928 | ||||||||||
Net (income) loss attributable to
non-controlling interest in Calamos Holdings
LLC |
(15,001 | ) | 5,681 | (45,178 | ) | (48,904 | ) | |||||||||
Net income (loss) attributable to Calamos
Asset Management, Inc. |
$ | 2,590 | $ | (799 | ) | $ | 7,729 | $ | 1,546 | |||||||
Earnings (loss) per share |
||||||||||||||||
Basic |
$ | 0.13 | $ | (0.04 | ) | $ | 0.39 | $ | 0.08 | |||||||
Diluted |
$ | 0.13 | $ | (0.05 | ) | $ | 0.39 | $ | 0.06 | |||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
19,621,137 | 19,453,173 | 19,616,455 | 19,842,888 | ||||||||||||
Diluted (1) |
20,090,555 | 96,829,687 | 19,948,616 | 97,160,244 | ||||||||||||
Cash dividends per share |
$ | 0.055 | $ | 0.11 | $ | 0.165 | $ | 0.33 | ||||||||
(1) | See Note 8 to the consolidated financial statements. |
See
accompanying notes to consolidated financial statements.
-3-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2009
(in thousands)
(unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2009
(in thousands)
(unaudited)
Calamos Asset Management, Inc. Stockholders | Non-controlling | |||||||||||||||||||||||||||||||
Additional | Accumulated Other | interest in | Non-controlling | |||||||||||||||||||||||||||||
Common | Paid-in | Retained | Comprehensive | Treasury | partnership | interest in Calamos | ||||||||||||||||||||||||||
Stock | Capital | Earnings | Income (Loss) | Stock | investments | Holdings LLC | Total | |||||||||||||||||||||||||
Balance at Dec. 31, 2008 |
$ | 235 | $ | 207,844 | $ | 38,010 | $ | (101 | ) | $ | (95,215 | ) | $ | 1,289 | $ | 158,985 | $ | 311,047 | ||||||||||||||
Net income |
| | 7,729 | | | 330 | 45,178 | 53,237 | ||||||||||||||||||||||||
Changes in unrealized
gains on available-for-
sale securities, net of
income taxes |
| | | 4,391 | | | 24,466 | 28,857 | ||||||||||||||||||||||||
Reclassification of
unrealized loss on
securities contributed to
Holdings |
| 501 | | (501 | ) | | | | | |||||||||||||||||||||||
Total comprehensive
income |
82,094 | |||||||||||||||||||||||||||||||
Issuance of common stock
(123,350 Class A common
shares) |
1 | (1 | ) | | | | | | | |||||||||||||||||||||||
Cumulative impact of
changes in ownership of
Calamos Holdings LLC |
| 78 | (1 | ) | | | | (390 | ) | (313 | ) | |||||||||||||||||||||
Compensation expense
recognized under stock
incentive plans |
| 1,339 | | | | | 4,909 | 6,248 | ||||||||||||||||||||||||
Dividend equivalent accrued
under stock incentive plans |
| | (61 | ) | | | | (217 | ) | (278 | ) | |||||||||||||||||||||
Dividends declared |
| | (3,236 | ) | | | | (19,858 | ) | (23,094 | ) | |||||||||||||||||||||
Balance at Sept. 30, 2009 |
$ | 236 | $ | 209,761 | $ | 42,441 | $ | 3,789 | $ | (95,215 | ) | $ | 1,619 | $ | 213,073 | $ | 375,704 | |||||||||||||||
See accompanying notes to consolidated financial statements.
-4-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2009 and 2008
(in thousands)
(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2009 and 2008
(in thousands)
(unaudited)
2009 | 2008 | |||||||
Cash and cash equivalents at beginning of year |
$ | 59,425 | $ | 108,441 | ||||
Cash flows from operating activities: |
||||||||
Net income |
53,237 | 9,522 | ||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Amortization of deferred sales commissions |
9,710 | 18,088 | ||||||
Other depreciation and amortization |
7,823 | 8,000 | ||||||
Unrealized depreciation (appreciation) on CFS securities,
derivative assets, derivative liabilities and partnership
investments |
(17,396 | ) | 122,678 | |||||
Net realized loss (gain) on sale of investment
securities, derivative assets and derivative liabilities |
18,565 | (20,663 | ) | |||||
Deferred taxes |
4,518 | 5,536 | ||||||
Stock-based compensation |
6,248 | 5,441 | ||||||
Employee taxes paid on vesting under stock incentive plans |
(175 | ) | (1,715 | ) | ||||
(Increase) decrease in assets: |
||||||||
Accounts receivable: |
||||||||
Affiliates and affiliated mutual funds, net |
(2,190 | ) | 6,910 | |||||
Customers |
(1,507 | ) | 2,275 | |||||
Deferred sales commissions |
(4,918 | ) | (6,582 | ) | ||||
Other assets |
4,112 | (1,627 | ) | |||||
Increase (decrease) in liabilities: |
||||||||
Accounts payable |
1,407 | (3,866 | ) | |||||
Accrued compensation and benefits |
3,930 | (16,554 | ) | |||||
Other liabilities and accrued expenses |
(2,172 | ) | (5,890 | ) | ||||
Net cash provided by operating activities |
81,192 | 121,553 | ||||||
Cash flows provided by (used in) investing activities: |
||||||||
Net additions to property and equipment |
(2,069 | ) | (4,503 | ) | ||||
Purchase of investment securities |
(2,358 | ) | (173,325 | ) | ||||
Proceeds from sale of investment securities |
15,073 | 113,331 | ||||||
Net (purchases) sales of derivatives |
1,405 | | ||||||
Net changes in partnership investments and offshore funds |
(241 | ) | 2,862 | |||||
Net cash provided by (used in) investing activities |
11,810 | (61,635 | ) | |||||
Cash flows used in financing activities: |
||||||||
Capital contribution received |
| 31,317 | ||||||
Deferred tax benefit on vesting under stock incentive plans |
136 | 192 | ||||||
Repurchase of common stock |
| (34,612 | ) | |||||
Cash distributions paid to non-controlling interests |
(19,858 | ) | (80,894 | ) | ||||
Cash dividends paid to common stockholders |
(3,236 | ) | (6,519 | ) | ||||
Net cash used in financing activities |
(22,958 | ) | (90,516 | ) | ||||
Net increase (decrease) in cash |
70,044 | (30,598 | ) | |||||
Cash and cash equivalents at end of period |
$ | 129,469 | $ | 77,843 | ||||
See accompanying notes to consolidated financial statements.
-5-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Description of Business
Calamos Asset Management, Inc. (CAM), together with its subsidiaries (the Company), primarily
provides investment advisory services to individuals and institutional investors through open-end
funds, closed-end funds, separate accounts, offshore funds and partnerships. CAM operates and
controls all of the business and affairs of Calamos Holdings LLC (Holdings) and, as a result of
this control, consolidates the financial results of Holdings with its own financial results.
(2) Basis of Presentation
The consolidated financial statements as of September 30, 2009 and for the nine months ended
September 30, 2009 and 2008 have not been audited by the Companys independent registered public
accounting firm. In the opinion of management, these statements contain all adjustments, including
those of a normal recurring nature, necessary for fair presentation of the financial condition and
results of operations. The results for the interim periods ended September 30 are not necessarily
indicative of the results to be obtained for a full fiscal year. The Company evaluated subsequent
events through November 4, 2009, which represents the date that these financial statements were issued.
Certain amounts for the prior year have been reclassified to conform to the current years
presentation. This Form 10-Q filing should be read in conjunction with the Companys Annual Report
on Form 10-K for the year ended December 31, 2008.
Calamos Family Partners, Inc.s (CFP) and John P. Calamos, Sr.s (collectively, the Calamos
Interests) combined 78.6% interest in Holdings at September 30, 2009 and 2008 is represented as
non-controlling interest in Calamos Holdings LLC in the Companys financial statements.
Non-controlling interest in Calamos Holdings LLC is derived by multiplying the historical equity of
Holdings by the Calamos Interests aggregate ownership percentage for the periods presented.
Issuances and repurchases of CAMs common stock may result in changes to CAMs ownership percentage
and to the non-controlling interests ownership percentage of Holdings. The Companys corresponding
changes to stockholders equity are reflected in the consolidated statements of changes in
stockholders equity. Income is allocated to non-controlling interests based on the average
ownership interest during the period in which the income is earned.
CAM wholly owns assets for which the non-controlling interests have no rights. CAMs wholly-owned
net assets include cash and cash equivalents of $12.4 million, net deferred tax assets of $88.7
million and current income taxes receivable of $1.8 million and are reported together with the
Holdings consolidated assets in the consolidated statements of financial condition.
Calamos Partners LLC, a subsidiary of Holdings, is the general partner of Calamos Market Neutral
Opportunities Fund LP (the Partnership) a private investment partnership that is primarily
comprised of highly liquid marketable securities. Substantially all the activities of the
Partnership are conducted on behalf of the Company and its related parties; therefore, the Company
consolidates the financial results of the Partnership into its results.
In the fourth quarter of 2007, the Company established Calamos Global Funds PLC (Offshore Funds),
which is comprised of four Ireland-based offshore mutual funds. Until December 2008 the Offshore
Funds were majority-owned by the Company and, as a result, the Company consolidated the results of
the Offshore Funds with its own results. During December 2008, the Offshore Funds were no longer
majority-owned by the Company; therefore, the Company no longer consolidates the financial results
of the Offshore Funds with its own results.
Beginning in December 2008, the Companys investment in the Offshore Funds is classified as an
available-for-sale security and reported as investment securities in the consolidated statement of
financial condition. Unrealized gains and losses from the Offshore Funds are excluded from earnings
and are reported, net of income tax, as a separate component of stockholders equity.
The assets and liabilities of the Partnership and of the Offshore Funds, when consolidated, are
presented on a net basis as partnership investments in the consolidated statements of financial
condition, the net income (loss) is included in investment and other income (loss) in the
consolidated statements of operations, and the change in partnership investments is included in the
net changes in partnership investments and offshore funds in the consolidated statements of cash
flows. The Partnership is presented on a net basis in order to provide more clarity to the
financial position and results of the core operations of the
6
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company. The underlying assets and liabilities that are being consolidated are described in Note 5.
The non-controlling interests of the Partnership and of the Offshore Funds, when consolidated, are
presented as non-controlling interests in partnership investments in the respective 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
these estimates.
During the second quarter, the Company changed the estimated remaining useful lives on the portion
of its deferred sales commission assets related to Class B mutual fund shares. This change in
estimate reduced the amortization of deferred sales commissions by $1.7 million, or $0.01 per
diluted share, for the second quarter of 2009.
(3) Investment Securities
The following table provides a summary of investment securities owned as of September 30, 2009 and
December 31, 2008. As a registered broker-dealer, Calamos Financial Services LLC is required to
mark to market all investment securities it owns (CFS Securities) and record all changes in fair
value through current earnings. As such, unrealized gains and losses on CFS securities are included
in investment and other income (loss) together with realized gains and losses on all investment
securities in the consolidated statements of operations.
September 30, 2009 | ||||||||||||
Total | ||||||||||||
Available-for- | CFS | Investment | ||||||||||
(in thousands) | Sale | Securities | Securities | |||||||||
Mutual Funds |
||||||||||||
Equity |
$ | 91,659 | $ | 26,292 | $ | 117,951 | ||||||
Balanced |
628 | | 628 | |||||||||
Fixed income |
80,725 | | 80,725 | |||||||||
High yield |
564 | | 564 | |||||||||
Other |
205 | | 205 | |||||||||
Total mutual funds |
173,781 | 26,292 | 200,073 | |||||||||
Common stock |
| 111 | 111 | |||||||||
$ | 173,781 | $ | 26,403 | $ | 200,184 | |||||||
December 31, 2008 | ||||||||||||
Total | ||||||||||||
Available-for- | CFS | Investment | ||||||||||
(in thousands) | Sale | Securities | Securities | |||||||||
Mutual Funds |
||||||||||||
Equity |
$ | 66,947 | $ | 32,671 | $ | 99,618 | ||||||
Balanced |
436 | | 436 | |||||||||
Fixed income |
72,418 | | 72,418 | |||||||||
High yield |
380 | | 380 | |||||||||
Other |
172 | | 172 | |||||||||
Total mutual funds |
140,353 | 32,671 | 173,024 | |||||||||
Common stock |
| 131 | 131 | |||||||||
$ | 140,353 | $ | 32,802 | $ | 173,155 | |||||||
The Company held $162.8 million and $140.9 million in affiliated mutual funds at September 30, 2009
and December 31, 2008, respectively.
7
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes information on available-for-sale securities as well as unrealized
gains (losses) on CFS securities for the three and nine months ended September 30, 2009 and 2008.
No losses were realized on available-for-sale securities for the periods presented below and, as a
result, gross realized gains on sales of such securities represent the amount reclassified out of
accumulated other comprehensive income into earnings.
Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Available-for-sale securities: |
||||||||||||||||
Proceeds from sale |
$ | | $ | | $ | | $ | 113,329 | ||||||||
Gross realized gains on sales |
| | | 20,234 | ||||||||||||
Unrealized gains (losses) |
16,648 | (60,651 | ) | 30,638 | (105,254 | ) | ||||||||||
CFS securities: |
||||||||||||||||
Unrealized gains (losses) |
4,151 | (8,982 | ) | 8,361 | (9,935 | ) | ||||||||||
The cumulative net unrealized gains (losses) on available-for-sale securities consisted of the
following as of September 30, 2009 and December 31, 2008:
September 30, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Total cumulative unrealized gains on available-for-sale securities
with net gains: |
||||||||
Mutual Funds |
||||||||
Equity |
$ | 24,900 | $ | 160 | ||||
Fixed income |
7,195 | 1,681 | ||||||
Total gains |
32,095 | 1,841 | ||||||
Total cumulative unrealized losses on available-for-sale securities
with net losses: |
||||||||
Mutual Funds |
||||||||
Equity |
(35 | ) | (75 | ) | ||||
Balanced |
(183 | ) | (346 | ) | ||||
High yield |
(122 | ) | (272 | ) | ||||
Other |
(15 | ) | (46 | ) | ||||
Total losses |
(355 | ) | (739 | ) | ||||
Total cumulative net unrealized gains on available-for-sale securities |
$ | 31,740 | $ | 1,102 | ||||
The aggregate fair value of available-for-sale investment securities that were in an unrealized
loss position at September 30, 2009 and December 31, 2008 was $1.5 million and $1.1 million,
respectively. The cumulative losses on securities that had been in a continuous loss position for
12 months or longer were immaterial as of the end of each reporting period.
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 is recognized as a charge to net
income in the period in which the other-than-temporary decline in value occurs, as well as an
accompanying permanent adjustment to accumulated other comprehensive income. At September 30, 2009,
the Company believes all unrealized losses to be only temporary and has the intent and ability to
hold these securities for a period of time sufficient to allow for recovery in market value.
8
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Derivative Assets and Liabilities
In order to reduce the volatility in fair value of the Calamos corporate investment portfolio, the
Company uses exchange traded equity option contracts as an economic hedge against price changes in
its investment securities portfolio. The Companys investment securities, totaling $200.2 million
at September 30, 2009, consists primarily of positions in several Calamos equity, convertible and
fixed income mutual funds. The equity price risk in the investment portfolio is hedged using
exchange-traded put and call option contracts on several major equity market indices that correlate
most closely with the change in value of the portfolio being hedged. The use of both purchased put
and sold call options is part of a single strategy to minimize downside risk in the hedged
portfolio, while participating in a portion of the upside of a market rally. The Company may adjust
its hedge position in response to movement and volatility in prices and changes in the composition
of the hedged portfolio, but generally is not actively buying and selling contracts.
The fair value of purchased puts and sold call contracts are reported in derivative assets and
derivative liabilities, respectively, in the consolidated statements of financial condition. Net
gains and losses on these contracts are reported in investment and other income (loss) in the
consolidated statements of operations with net losses of $16.4 million and $17.5 million for the
three and nine months ended September 30, 2009, respectively. The Company is using these
derivatives for risk management purposes but has not designated the contracts as hedges for
accounting purposes.
(5) Partnership Investments
Presented below are the underlying assets and liabilities of the partnerships that the Company
reports on a net basis and the investments accounted for under the equity method. These investments
are presented as partnership investments in its consolidated statements of financial condition as
of September 30, 2009 and December 31, 2008.
September 30, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Calamos Market Neutral Opportunities Fund LP: |
||||||||
Securities owned |
$ | 23,207 | $ | 27,038 | ||||
Securities sold but not yet purchased |
(10,236 | ) | (5,697 | ) | ||||
Accrued expenses and other current liabilities |
(272 | ) | (7,525 | ) | ||||
Other current assets |
6,205 | 886 | ||||||
Calamos Market Neutral Opportunities Fund LP securities, net |
18,904 | 14,702 | ||||||
Investment in other partnerships |
17,571 | 13,769 | ||||||
Partnership investments |
$ | 36,475 | $ | 28,471 | ||||
As of September 30, 2009 and December 31, 2008, the Company held a controlling net interest of
$17.3 million (91.4%) and $13.4 million (91.2%), respectively, in Calamos Market Neutral
Opportunities Fund LP. The non-controlling interests totaled 8.6% and 8.8% of Calamos Market
Neutral Opportunities Fund LP at September 30, 2009 and December 31, 2008, respectively, and are
presented in the consolidated statements of financial condition as non-controlling interest in
partnership investments.
As of September 30, 2009 and December 31, 2008, the Company held a non-controlling interest in
certain other partnership investments and accounted for these investments using the equity method.
These investments are presented collectively as investments in other partnerships in the table
above.
9
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Fair Value Measurements
The Company utilizes a three-tier fair value hierarchy which prioritizes the inputs used in
measuring fair value as follows: Level 1 observable inputs such as quoted prices in active
markets; Level 2 inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and Level 3 unobservable inputs in which there is little or no
market data, and require the reporting entity to develop its own assumptions. At September 30,
2009, the Company did not have any positions in Level 3 securities. For assets recorded at fair
value, the Company uses a market approach.
The following provides the hierarchy of inputs used to derive the fair value of the Companys
investment securities, securities owned by the Partnership Investments and securities sold but not
yet purchased as of September 30, 2009. Foreign currency contracts are presented on a net basis
where the right of offset exists, and no impact of these positions exists at September 30, 2009.
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
(in thousands) | September | Identical Assets | Inputs | Inputs | ||||||||||||
Description | 30, 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Investment securities (Note 3) |
||||||||||||||||
Mutual funds |
$ | 200,073 | $ | 200,073 | $ | | $ | | ||||||||
Common stocks |
111 | 111 | | | ||||||||||||
200,184 | 200,184 | | | |||||||||||||
Derivative assets (Note 4) |
||||||||||||||||
Exchange-traded put option contracts |
3,742 | 3,742 | | | ||||||||||||
Derivative liabilities (Note 4) |
||||||||||||||||
Exchange-traded call option contracts |
(8,396 | ) | (8,396 | ) | | | ||||||||||
Securities and derivatives owned by the
Partnership |
||||||||||||||||
Investments (Note 5) |
||||||||||||||||
Common stocks |
531 | 531 | | | ||||||||||||
Convertible preferred stocks |
634 | 634 | | | ||||||||||||
Purchased options |
108 | 108 | | | ||||||||||||
Convertible bonds |
19,761 | | 19,761 | | ||||||||||||
Corporate bonds |
1,115 | | 1,115 | | ||||||||||||
Convertible preferred stocks |
1,058 | | 1,058 | | ||||||||||||
23,207 | 1,273 | 21,934 | | |||||||||||||
Securities sold but not yet purchased
(Note 5) |
||||||||||||||||
Common stocks |
(10,170 | ) | (10,170 | ) | | | ||||||||||
Exchange-traded call option contracts |
(66 | ) | (66 | ) | | | ||||||||||
(10,236 | ) | (10,236 | ) | | | |||||||||||
Total |
$ | 208,501 | $ | 186,567 | $ | 21,934 | $ | | ||||||||
10
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) Fair Value of Financial Instruments
The fair value of long-term debt, which has a carrying value of $125 million, was approximately
$137.4 million at September 30, 2009. Fair value estimates are calculated using discounted cash
flows based on the Companys incremental borrowing rates for the debt and market prices for similar
bonds at the measurement date. This method of assessing fair value may differ from the actual
amount realized.
The carrying value of all other financial instruments approximates fair value due to the short
maturities of these financial instruments.
(8) Earnings Per Share
The following table reflects the calculation of basic and diluted earnings per share:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands, except per share data) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Earnings per share basic |
||||||||||||||||
Earnings available to common shareholders |
$ | 2,590 | $ | (799 | ) | $ | 7,729 | $ | 1,546 | |||||||
Weighted average shares outstanding |
19,621 | 19,453 | 19,616 | 19,843 | ||||||||||||
Earnings per share basic |
$ | 0.13 | $ | (0.04 | ) | $ | 0.39 | $ | 0.08 | |||||||
Earnings per share diluted |
||||||||||||||||
Income before income taxes |
$ | (34,533 | ) | $ | 21,266 | |||||||||||
Non-controlling interest in partnership investments |
27,659 | 40,928 | ||||||||||||||
Less: Impact of revaluation of net deferred tax
assets |
| 32,888 | ||||||||||||||
Less: Impact of income taxes |
(2,270 | ) | 23,260 | |||||||||||||
Earnings available to common shareholders |
$ | 2,590 | $ | (4,604 | ) | $ | 7,729 | $ | 6,046 | |||||||
Weighted average shares outstanding |
19,621 | 19,453 | 19,616 | 19,843 | ||||||||||||
Exchange of Calamos Interests ownership for common
stock |
| 77,019 | | 77,006 | ||||||||||||
Dilutive impact of restricted stock units |
470 | 358 | 333 | 311 | ||||||||||||
Dilutive impact of stock options |
| | | | ||||||||||||
Weighted average diluted shares outstanding |
20,091 | 96,830 | 19,949 | 97,160 | ||||||||||||
Earnings per share diluted |
$ | 0.13 | $ | (0.05 | ) | $ | 0.39 | $ | 0.06 | |||||||
Diluted earnings per share is calculated (a) assuming the Calamos Interests exchanged all of their
ownership interest in Holdings and their CAM Class B common stock for shares of CAMs Class A
common stock (collectively, the Exchange) and (b) including the effect of outstanding dilutive
equity incentive compensation awards.
Effective March 1, 2009, the Company amended its certificate of incorporation requiring that the
Exchange be based on a fair value approach (details of the amendment are set forth in the Companys
Schedule 14C filed with the Securities and Exchange Commission on January 12, 2009). The amendment
results in the same or fewer shares of Class A common stock being issued at the time of the
Exchange. The effects of the Exchange are anti-dilutive and are therefore excluded from the
calculation of diluted earnings per share for the three and nine months ended September 30, 2009.
-11-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In calculating diluted earnings per share for the 2008 periods, the Company assumes that the net
deferred tax assets will increase at a rate commensurate with the Companys increased ownership of
Holdings at the time of Calamos Interests exchange. As a result of the reduction of the Companys
statutory income tax rate in the second quarter of 2008 (see note 10), the net deferred tax assets
decreased by $32.9 million for the nine months ended September 30, 2008. Additionally, in
calculating diluted earnings per share for the three and nine months ended September 30, 2008,
effective tax rates of 33.0% and 37.4%, respectively, were applied to the sum of income before
income taxes and net income attributable to non-controlling interest in partnership investments.
The Company uses the treasury stock method to reflect the dilutive effect of unvested restricted
stock units (RSUs) and unexercised stock options on diluted earnings per share. Under the treasury
stock method, if the average market price of common stock increases above the options exercise
price, the proceeds that would be assumed to be realized from the exercise of the option would be
used to acquire outstanding shares of common stock. However, the awards may be anti-dilutive even
when the market price of the underlying stock exceeds the options 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. The dilutive effect of such options and RSUs
would increase the weighted average number of shares used in the calculation of diluted earnings
per share.
The following table shows the number of shares which were excluded from the computation of diluted
earnings per share as they were anti-dilutive:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Exchange of Calamos
Interests ownership
interest in Holdings
for shares of Class A
common stock |
53,894,411 | | 53,894,411 | | ||||||||||||
Restricted stock units |
290,699 | 44,083 | 797,813 | 248,168 | ||||||||||||
Stock options |
2,472,381 | 2,681,026 | 2,472,381 | 2,681,026 | ||||||||||||
Total |
56,657,491 | 2,725,109 | 57,164,605 | 2,929,194 | ||||||||||||
Assuming an Exchange at September 30, 2009, 53.9 million shares would be issued to the Calamos
Interests. The formula for exchanging ownership interest in Holdings for shares of CAMs Class A
common stock is set forth in the Companys Second Amended and Restated Certificate of Incorporation
(filed as Exhibit 3(i) to the 2008 Annual Report on Form 10-K). For illustrative purposes the
Exchange is based in part on the NASDAQ Global Select Market closing price of CAMs Class A common
stock on September 30, 2009 and on managements estimation of the fair market value of CAMs net
assets other than its ownership interest in Holdings. In the event of an actual Exchange, the
majority of the Companys independent directors may determine the fair market value of a share of
CAMs Class A common stock to be other than the closing price and will determine the fair market
value of CAMs net assets other than its ownership in Holdings.
(9) Stock Based Compensation
Under the Companys incentive compensation plan, certain employees of the Company receive stock
based compensation comprised of stock options and RSUs. Historically, RSUs have been settled with
newly issued shares so that no cash was used by the Company to settle awards; however, the Company
may also use treasury shares or issue new shares upon the exercise of stock options and upon
conversion of RSUs. The Companys Annual Report on Form 10-K for the year ended December 31, 2008
provides details of this plan and its provisions.
-12-
Table of Contents
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the nine months ended September 30, 2009, the Company granted 705,224 RSUs and participants
forfeited 24,951 RSUs. There were stock option forfeitures of 313,657 that include 264,547 of
options tendered in conjunction with the Companys stock option exchange program approved by the
stockholders in May 2009. On July 23, 2009, the Company granted an aggregate of 197,712 new stock
options in exchange for the eligible stock options surrendered, thus reducing the potentially
dilutive shares by 66,835. The exercise price of the new stock options was $17.80, which is 120% of
the closing price of the Companys Class A common stock as of the exchange date.
During the nine months ended September 30, 2009, 147,038 RSUs vested with 23,688 units withheld for
taxes and 123,350 RSUs converted into an equal number of shares of CAMs Class A common stock. The
total intrinsic value and the fair value of the converted shares was $852,000. The total tax
benefit realized in connection with the vesting of the RSUs during the nine months ended September
30, 2009 was $99,000, as the Company receives tax benefits based upon the portion of Holdings
income that it recognizes.
During the nine months ended September 30, 2009, expense recorded in connection with the RSUs and
stock options was $6.2 million of which $1.3 million, after giving effect to the non-controlling
interests, was credited as additional paid-in capital. During the nine months ended September 30,
2008, expense recorded in connection with the RSUs and stock options was $5.4 million of which $1.1
million, after giving effect to the non-controlling interests, was credited as additional paid-in
capital. The amount of deferred tax asset created was $495,000 and $414,000 during the nine months
ended September 30, 2009 and 2008, respectively. At September 30, 2009, approximately $21.8 million
of total unrecognized compensation expense related to nonvested stock option and RSU awards is
expected to be recognized over a weighted-average period of 3.5 years.
(10) Income Taxes
Holdings is subject to certain income-based state taxes; therefore, income taxes reflect not only
the portion attributed to CAM stockholders but also a portion of income taxes attributable to
non-controlling interests. CAMs effective income tax rate for the three and nine months ended
September 30, 2009 was approximately 37.8% and 38.0%, respectively.
In 2008, developments in the Illinois tax statutes resulted in modifications to the Companys
state tax apportionment methodology that lowered the Companys statutory income tax rate from 40
percent to 37 percent. In the second quarter of 2008, the Company recorded a one-time, non-cash
income tax expense of $6.8 million to revalue its net deferred tax assets to reflect the new
statutory income tax rate.
(11) Non-Operating Activities, Net of Non-Controlling Interest in Partnership Investments
Non-operating loss, net of non-controlling interest in partnership investments, was comprised of
the following components for the three and nine months ended September 30, 2009 and 2008:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Interest income |
$ | 186 | $ | 519 | $ | 566 | $ | 1,859 | ||||||||
Interest expense |
(1,950 | ) | (8,153 | ) | (5,850 | ) | (24,415 | ) | ||||||||
Net interest expense |
(1,764 | ) | (7,634 | ) | (5,284 | ) | (22,556 | ) | ||||||||
Investment income (loss) |
(6,060 | ) | (71,228 | ) | 1,452 | (94,536 | ) | |||||||||
Miscellaneous other income (loss) |
(148 | ) | 218 | 217 | 707 | |||||||||||
Investment and other income (loss) |
(6,208 | ) | (71,010 | ) | 1,669 | (93,829 | ) | |||||||||
Non-operating (loss) |
(7,972 | ) | (78,644 | ) | (3,615 | ) | (116,385 | ) | ||||||||
Net (income) loss attributable to non-controlling
interest in partnership investments |
(141 | ) | 27,659 | (330 | ) | 40,928 | ||||||||||
Non-operating loss, net of non-
controlling interest in partnership investments |
$ | (8,113 | ) | $ | (50,985 | ) | $ | (3,945 | ) | $ | (75,457 | ) | ||||
-13-
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CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS 141(R), Business Combinations, (ASC Topic 805), which
establishes requirements for how the acquirer in a business combination recognizes, measures and
discloses identified assets and goodwill acquired, liabilities assumed, and any non-controlling
interests. SFAS 141(R) became effective in the first quarter of 2009 and did not have a material
impact on the Companys financial statements.
In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated Financial
Statements an amendment of ARB No. 51, (ASC Topic 810), which establishes accounting and
reporting requirements for non-controlling interest, which the Company previously referred to as
minority interest. SFAS 160 requires non-controlling interest to be reported as a component of
equity on the consolidated statements of financial position and the amount of net income
attributable to non-controlling interest to be identified on the consolidated statements of income.
SFAS 160 became effective in the first quarter of 2009 and the Company applied the presentation as
prescribed by SFAS 160 to its consolidated financial statements for all periods presented.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133, (ASC Topic 815), which requires additional
disclosures for derivative instruments and hedging activities. SFAS 161 became effective beginning
January 1, 2009 and did not have a material impact on the Companys financial statements.
In April 2009, the FASB issued FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments, (ASC Topic 825), which requires that annual disclosures required by SFAS
107, Disclosures about Fair Value of Financial Instruments, (ASC Topic 825), be provided in interim
financial statements. FSP 107-1 and APB 28-1 became effective in the second quarter of 2009 and the
Companys financial statements reflect the required disclosures.
In April 2009, the FASB issued FSP 115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, (ASC Topic 320), which amends the guidance for determining
whether an other-than-temporary impairment exists on debt securities. FSP 115-2 and 124-2 became
effective in the second quarter of 2009 and did not have an impact on the Companys financial
statements as it is not currently a direct holder of debt securities.
In April 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly, (ASC Topic 820), which provides guidance for estimating the fair value of assets
and liabilities when the volume and level of activity for the asset or liability have significantly
decreased and emphasizes that fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date under current market conditions. FSP 157-4 became effective in the second quarter
of 2009 and did not impact the Companys financial statements.
In May 2009, the FASB issued SFAS 165, Subsequent Events, (ASC Topic 855), which establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. In accordance with SFAS 165, the rules concerning
recognition and disclosure of subsequent events will remain substantially unchanged from current
generally accepted auditing standards. Additionally, SFAS 165 requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that date. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009. Accordingly, in the
second quarter of 2009, the Company adopted this standard.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162,
(ASC Topic 105), which identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of non-governmental
entities that are presented in conformity with accounting principles generally accepted in the
United States (GAAP). Upon adoption, the FASB Accounting Standards Codification (the Codification)
will become the sole source of authoritative GAAP and will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification will become non-authoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. Accordingly, in
the third quarter of 2009, the Company adopted this standard, which did not materially impact the
Companys financial statements.
-14-
Table of Contents
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, an amendment to Subtopic
820-10, Fair Value Measurements and Disclosures, which provides clarification surrounding
circumstances where a quoted price in an active market for an identical liability is not available,
a reporting entity is required to measure fair value using the quoted price of the identical
liability when traded as an asset, quoted price for similar liabilities or similar liabilities when
traded as an asset, or the valuation techniques outlined in Topic 820. The update is effective for
the first reporting period (including interim periods) beginning after issuance. Accordingly, in
the third quarter of 2009, the Company adopted the update, which had no impact on the Companys
financial statements.
In September 2009, the FASB issued Accounting Standards Update No. 2009-12, an amendment to
Subtopic 820-10, Fair Value Measurements and Disclosures, which permits, as a practical expedient,
a reporting entity to measure the fair value of an investment in certain entities on the basis of
the net asset value per share of the investment. The update is effective for interim and annual
periods ending after December 15, 2009. Early application is permitted in financial statements for
earlier interim and annual periods that have not been issued. The Company is evaluating the impact
this update will have on its financial statements.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which modifies
the analysis required to determine whether a companys variable interest(s) give it a controlling
financial interest in a variable interest entity. SFAS 167 is effective January 1, 2010. The
Company is evaluating the impact that this standard will have on its financial statements.
(13) Subsequent Events
On October 29, 2009, Holdings made a pro-rata cash distribution to the Calamos Interests and CAM,
its owners, totaling $20.0 million. Holdings must adhere to certain debt covenants under the terms
of the long-term note agreements and continues to be in compliance with all such requirements
following this distribution.
-15-
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We are a firm of 320 full-time associates that provides investment advisory services to
institutions and individuals, managing $30.5 billion in assets at September 30, 2009. Our operating
results fluctuate primarily due to changes in the total value and composition of our assets under
management. The value and composition of our assets under management are, and will continue to be,
influenced by a variety of factors, including purchases and redemptions of shares of mutual funds
and separate accounts that we manage, fluctuations in the financial markets around the world that
result in appreciation or depreciation of assets under management and the number and types of our
investment strategies and products.
We market our investment strategies to our clients through a variety of products designed to suit
their investment needs. We currently manage four types of mutual fund and separate account
investment products. The following table details our assets under management at September 30, 2009
and 2008.
September 30, | ||||||||
(in millions) | 2009 | 2008 | ||||||
Mutual Funds |
||||||||
Open-end funds |
$ | 18,092 | $ | 19,110 | ||||
Closed-end funds |
4,764 | 5,738 | ||||||
Total mutual funds |
22,856 | 24,848 | ||||||
Separate Accounts |
||||||||
Institutional accounts |
4,219 | 4,271 | ||||||
Managed accounts |
3,468 | 4,210 | ||||||
Total separate accounts |
7,687 | 8,481 | ||||||
Total assets under management |
$ | 30,543 | $ | 33,329 | ||||
Our revenues are substantially comprised of investment management fees earned under contracts with
the mutual funds and separate accounts that we manage. Our revenues are also comprised of
distribution and underwriting fees, including asset-based distributions and/or service fees
received pursuant to Rule 12b-1 plans. Investment management fees and distribution and underwriting
fees may fluctuate based on a number of factors, including the total value and composition of our
assets under management, market appreciation or depreciation and the level of net purchases and
redemptions, which represent the sum of new client investments, additional funding from existing
clients, withdrawals of assets from and termination of client accounts and purchases and
redemptions of mutual fund shares. The mix of assets under management among our investment products
also has an impact on our revenues as our fee schedules vary by product.
Our largest operating expenses are typically related to the distribution of mutual funds, including
Rule 12b-1 payments, and the amortization of deferred sales commissions for open-end mutual funds,
as well as to employee compensation and benefits expense, which includes salaries, incentive
compensation and related benefits costs. Operating expenses may fluctuate due to a number of
factors, including changes in distribution expense as a result of fluctuations in mutual fund sales
and market appreciation or depreciation, variations in staffing and compensation, marketing-related
expenses that include supplemental distribution payments, and depreciation and amortization
relating to capital expenditures incurred to maintain and enhance our administrative and operating
services infrastructure.
Overall, the quarterly operating results are positive and continue to reflect the improving
financial markets during the third quarter. Our assets under management continued to rise over each
of the last two quarters yielding increased revenues and net operating income. Additionally, our
third quarter operating margin improved from recent quarters. We continue to report positive
results from our cost containment efforts and, in line with those efforts, have successfully
outsourced our back office operations during the quarter.
Going forward, we remain committed to managing discretionary spending and identifying or
implementing operational and personnel efficiencies where possible, including the outsourcing of
our middle office operations. However, we are committed to further developing our sales and
distribution channels, both domestically and internationally, and will reinvest in our business to
successfully achieve this goal.
-16-
Table of Contents
Operating Results
Third Quarter and Nine Months Ended September 30, 2009 Compared to Third Quarter and Nine Months
Ended September 30, 2008
Assets Under Management
Assets under management decreased by $2.8 billion, or 8%, to $30.5 billion at September 30, 2009
from $33.3 billion at September 30, 2008. Our assets under management consisted of 75% mutual funds
and 25% separate accounts at September 30, 2008 and 2009.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
($ in millions) | 2009 | 2008 | Amount | Percent | 2009 | 2008 | Amount | Percent | ||||||||||||||||||||||||
Mutual Funds |
||||||||||||||||||||||||||||||||
Beginning assets under management |
$ | 20,003 | $ | 30,693 | $ | (10,690 | ) | (35 | )% | $ | 17,498 | $ | 34,835 | $ | (17,337 | ) | (50 | )% | ||||||||||||||
Net purchases (redemptions) |
21 | (1,011 | ) | 1,032 | * | 95 | (1,742 | ) | 1,837 | * | ||||||||||||||||||||||
Market appreciation (depreciation) |
2,832 | (4,834 | ) | 7,666 | * | 5,263 | (8,245 | ) | 13,508 | * | ||||||||||||||||||||||
Ending assets under management |
22,856 | 24,848 | (1,992 | ) | (8 | ) | 22,856 | 24,848 | (1,992 | ) | (8 | ) | ||||||||||||||||||||
Average assets under management |
21,382 | 28,649 | (7,267 | ) | (25 | ) | 19,092 | 30,714 | (11,622 | ) | (38 | ) | ||||||||||||||||||||
Institutional |
||||||||||||||||||||||||||||||||
Beginning assets under management |
3,898 | 5,284 | (1,386 | ) | (26 | )% | 3,498 | 5,333 | (1,835 | ) | (34 | )% | ||||||||||||||||||||
Net purchases (redemptions) |
(217 | ) | (158 | ) | (59 | ) | (37 | ) | (274 | ) | 255 | 529 | * | |||||||||||||||||||
Market appreciation (depreciation) |
538 | (855 | ) | 1,393 | * | 995 | (1,317 | ) | 2,312 | * | ||||||||||||||||||||||
Ending assets under management |
4,219 | 4,271 | (52 | ) | (1 | ) | 4,219 | 4,271 | (52 | ) | (1 | ) | ||||||||||||||||||||
Average assets under management |
4,044 | 4,908 | (864 | ) | (18 | ) | 3,774 | 5,093 | (1,319 | ) | (26 | ) | ||||||||||||||||||||
Managed Accounts |
||||||||||||||||||||||||||||||||
Beginning assets under management |
3,131 | 5,233 | (2,102 | ) | (40 | )% | 3,044 | 6,040 | (2,996 | ) | (50 | )% | ||||||||||||||||||||
Net purchases (redemptions) |
(85 | ) | (202 | ) | 117 | 58 | (436 | ) | (426 | ) | (10 | ) | (2 | ) | ||||||||||||||||||
Market appreciation (depreciation) |
422 | (821 | ) | 1,243 | * | 860 | (1,404 | ) | 2,264 | * | ||||||||||||||||||||||
Ending assets under management |
3,468 | 4,210 | (742 | ) | (18 | ) | 3,468 | 4,210 | (742 | ) | (18 | ) | ||||||||||||||||||||
Average assets under management |
3,295 | 4,859 | (1,564 | ) | (32 | ) | 3,085 | 5,272 | (2,187 | ) | (41 | ) | ||||||||||||||||||||
Total Separate Accounts |
||||||||||||||||||||||||||||||||
Beginning assets under management |
7,029 | 10,517 | (3,488 | ) | (33 | ) | 6,542 | 11,373 | (4,831 | ) | (42 | ) | ||||||||||||||||||||
Net redemptions |
(302 | ) | (360 | ) | 58 | 16 | (710 | ) | (171 | ) | (539 | ) | * | |||||||||||||||||||
Market appreciation (depreciation) |
960 | (1,676 | ) | 2,636 | * | 1,855 | (2,721 | ) | 4,576 | * | ||||||||||||||||||||||
Ending assets under management |
7,687 | 8,481 | (794 | ) | (9 | ) | 7,687 | 8,481 | (794 | ) | (9 | ) | ||||||||||||||||||||
Average assets under management |
7,339 | 9,767 | (2,428 | ) | (25 | ) | 6,859 | 10,365 | (3,506 | ) | (34 | ) | ||||||||||||||||||||
Total Assets Under Management |
||||||||||||||||||||||||||||||||
Beginning assets under management |
27,032 | 41,210 | (14,178 | ) | (34 | ) | 24,040 | 46,208 | (22,168 | ) | (48 | ) | ||||||||||||||||||||
Net redemptions |
(281 | ) | (1,371 | ) | 1,090 | * | (615 | ) | (1,913 | ) | 1,298 | * | ||||||||||||||||||||
Market appreciation (depreciation) |
3,792 | (6,510 | ) | 10,302 | * | 7,118 | (10,966 | ) | 18,084 | * | ||||||||||||||||||||||
Ending assets under management |
30,543 | 33,329 | (2,786 | ) | (8 | ) | 30,543 | 33,329 | (2,786 | ) | (8 | ) | ||||||||||||||||||||
Average assets under management |
$ | 28,721 | $ | 38,416 | $ | (9,695 | ) | (25 | ) | 25,951 | $ | 41,079 | $ | (15,128 | ) | (37 | ) | |||||||||||||||
* | Not meaningful. |
During the third quarter of 2009, net purchases in our mutual funds were $21 million and represent
a favorable change of $1.0 billion from net redemptions of $1.0 billion in the third quarter of
2008. This improvement in net flows was primarily due to increasing purchases of our Global Growth
and Income Fund, Market Neutral Income Fund and Convertible Fund, which was reopened to new
investors in October of 2008. Additionally, decreasing redemptions within our equity, defensive
equity and market neutral products contributed to the improvement. Mutual funds were positively
impacted by market appreciation of $2.8 billion during the three months ended September 30, 2009
compared to market depreciation of $4.8 billion during the three months ended September 30, 2008.
During the nine months ended September 30, 2009, net purchases in our mutual funds of $95 million
represent a favorable change of $1.8 billion from net redemptions of $1.7 billion in the first
three quarters of 2008. This improvement was primarily due to an increase of $1.6 billion in net
purchases of our Convertible Fund, as well as to improving net purchases into our high yield,
defensive equity and fixed income funds. Mutual funds were positively impacted by market
appreciation of $5.3 billion during the nine months ended September 30, 2009 compared to market
depreciation of $8.2 billion during the nine months ended September 30, 2008.
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Separate accounts had net redemptions of $302 million and $710 million during the third quarter and
year-to-date periods ended September 30, 2009, respectively, compared to net redemptions of $360
million and $171 million during the prior-year periods due to outflows within our managed accounts
where the convertible strategy remains closed to new investments. Separate accounts were positively
impacted by market appreciation of $960 million and $1.9 billion during the three and nine months
ended September 30, 2009, respectively, compared to market depreciation of $1.7 billion and $2.7
billion for the respective periods in 2008.
Impact of One-Time Items
Results of operations for the nine months ended September 30, 2008 were significantly impacted by a
one-time expense adjustment. In 2008, developments in the Illinois tax statutes resulted in
modifications to the Companys state tax apportionment methodology that lowered the Companys
statutory income tax rate from 40 percent to 37 percent. While we view this to be beneficial for
the long term by reducing income taxes, we recorded a one-time, non-cash income tax expense of $6.8
million, or $0.34 per diluted share, in the second quarter of 2008 to revalue our net deferred tax
assets to reflect the new statutory income tax rate.
Management considers results adjusted for this one-time expense, as presented below, to provide a
better indication of the Companys operations. These adjusted items are considered non-GAAP
financial measures as defined by Regulation S-K of the Securities and Exchange Commission. In
evaluating operating performance, management considers net income attributable to Calamos Asset
Management, Inc. and diluted earnings per share, each calculated in accordance with accounting
principles generally accepted in the United States (GAAP), and each item on an as-adjusted basis,
which constitute non-GAAP financial measures. Items presented on an as-adjusted basis exclude the
impact of the revaluation of the net deferred tax assets in the second quarter of 2008. As this
one-time item is not expected to recur, management believes that excluding this item better enables
it to evaluate the Companys operating performance relative to the prior periods. Management
considers these non-GAAP financial measures when evaluating the performance of the Company and
believes the presentation of these amounts provides the reader with information necessary to
analyze the Companys operations for the periods compared.
Reconciliations of these measurements from their most directly comparable GAAP financial measures
for the three and nine months ended September 30, 2009 and 2008 are provided in the table below and
should be carefully evaluated by the reader:
Nine Months Ended | ||||||||
September 30, | ||||||||
($ in thousands) | 2009 | 2008 | ||||||
Net income attributable to Calamos Asset Management, Inc. |
$ | 7,729 | $ | 1,546 | ||||
Net deferred tax assets revaluation |
| 6,771 | ||||||
Net income attributable to Calamos Asset
Management, Inc. as adjusted |
$ | 7,729 | $ | 8,317 | ||||
Diluted earnings per share |
$ | 0.39 | $ | 0.06 | ||||
Net deferred tax assets revaluation |
| 0.34 | ||||||
Diluted earnings per share, as adjusted |
$ | 0.39 | $ | 0.40 | ||||
Financial Overview
Operating income was $27.4 million and $61.9 million for the three and nine months ended September
30, 2009, respectively, compared with $44.1 million and $137.7 million for the same periods a year
ago. Operating margin was 37.1% and 31.0% for the third quarter and first nine months of 2009
compared to 43.3% and 42.4% for the year-earlier periods.
In order to gather assets under management, we engage in distribution and underwriting activities,
principally with respect to our family of open-end mutual funds. Generally accepted accounting
principles require that we present distribution fees earned by us as revenues and distribution fees
paid to selling firms and the amortization of our deferred sales commissions as expenses in the
consolidated statements of operations. However, when analyzing our business, we consider the result
of these distribution activities as a net amount of revenue as they are typically a result of a
single open-end mutual fund share purchase. Hence, the result of presenting this information in
accordance with generally accepted accounting principles is a reduction to our overall operating
margin, as the margin on distribution activities is generally lower than the margins on the
remainder of
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our business. The following table summarizes the net distribution fee margin for the three and nine
months ended September 30, 2009 and 2008:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
($ in thousands) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Distribution and underwriting fees |
$ | 20,271 | $ | 29,446 | $ | 56,287 | $ | 94,734 | ||||||||
Distribution and underwriting expense |
15,713 | 21,922 | 42,473 | 70,955 | ||||||||||||
Amortization of deferred sales commissions |
2,494 | 6,002 | 9,710 | 18,088 | ||||||||||||
Net distribution fees |
$ | 2,064 | $ | 1,522 | $ | 4,104 | $ | 5,691 | ||||||||
Net distribution fee margin |
10 | % | 5 | % | 7 | % | 6 | % |
Net distribution fee margin varies by share class because each share class has different
distribution and underwriting activities, which are described in our 2008 Annual Report on Form
10-K. Distribution fee revenues and expenses vary with our average assets under management and
deferred sales commissions are typically amortized on a straight-line basis with adjustments made
upon redemption of existing assets. As a result, in periods of declining assets under management,
our distribution margin will be more severely impacted by amortization expense.
Non-operating activities, net of non-controlling interests reduced income by $8.1 million and $3.9
million for the three and nine months ended September 30, 2009, respectively, and reduced income by
$51.0 million and $75.5 million for the same periods a year ago. Changes in non-operating
activities were due primarily to unrealized gains in the investment portfolio for 2009 versus
unrealized losses for 2008. The reduction of interest expense in 2009 as a result of the repayment
of long-term debt in December 2008 further contributed to this improvement.
Revenues
Total revenues decreased by $28.0 million, or 28%, to $73.8 million for the three months ended
September 30, 2009 from $101.8 million for the prior year. For the nine months ended September 30,
2009, total revenues decreased by $124.3 million, or 38%, to $200.4 million from $324.7 million for
the prior year. The decrease was primarily due to lower investment management fees and distribution
and underwriting fees.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
($ in thousands) | 2009 | 2008 | Amount | Percent | 2009 | 2008 | Amount | Percent | ||||||||||||||||||||||||
Investment management fees |
$ | 52,868 | $ | 71,479 | $ | (18,611 | ) | (26 | )% | $ | 142,362 | $ | 227,202 | $ | (84,840 | ) | (37 | )% | ||||||||||||||
Distribution and
underwriting fees |
20,271 | 29,446 | (9,175 | ) | (31 | ) | 56,287 | 94,734 | (38,447 | ) | (41 | ) | ||||||||||||||||||||
Other |
659 | 882 | (223 | ) | (25 | ) | 1,797 | 2,802 | (1,005 | ) | (36 | ) | ||||||||||||||||||||
Total revenues |
$ | 73,798 | $ | 101,807 | $ | (28,009 | ) | (28 | )% | $ | 200,446 | $ | 324,738 | $ | (124,292 | ) | (38 | )% | ||||||||||||||
Investment management fees decreased 26% in the third quarter of 2009 primarily due to a $9.7
billion decrease in average assets under management across all products for the third quarter 2009
versus 2008. Investment management fees from open-end funds decreased to $32.7 million for the
three months ended September 30, 2009 from $43.2 million for the prior-year period, a result of a
$5.3 billion decrease in open-end fund average assets under management. Investment management fees
from our closed-end funds decreased to $10.2 million for the third quarter of 2009 from $14.4
million for the prior-year quarter, due to a $1.9 billion decrease in closed-end fund average
assets under management. Investment management fees from our separately managed accounts decreased
to $9.9 million for the three months ended September 30, 2009 from $13.9 million in the prior year
again due to a $2.4 billion decrease in average assets under management. Investment management fees
as a percentage of average assets under management was 0.73% and 0.74% for the three months ended
September 30, 2009 and 2008, respectively.
Compared to the prior year, investment management fees decreased 37% in the first nine months of
2009 primarily due to a $15.1 billion decrease in average assets under management. Investment
management fees from open-end funds decreased to $86.7 million for the nine months ended September
30, 2009 from $138.2 million for the prior-year period, as a result of an $8.9 billion decrease in
open-end fund average assets under management. Investment management fees from our closed-end funds
decreased to $27.5 million for the first three quarters of 2009 from $45.1 million for the
prior-year quarter, due to a $2.7 billion decrease in closed-end fund average assets under
management. Investment management fees from our separately managed accounts decreased to $28.2
million for the nine months ended September 30, 2009 from $43.9 million in the prior
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year again due to a $3.5 billion decrease in average assets under management. Investment management
fees as a percentage of average assets under management was 0.73% and 0.74% for the first nine
months of 2009 and 2008, respectively.
Distribution and underwriting fees decreased by $9.2 million, or 31%, to $20.3 million for the
three months ended September 30, 2009 from $29.4 million for the third quarter 2008. The decrease
for the third quarter was primarily due to an $8.5 million decrease in distribution fees as a
result of a 24% decrease in open-end fund average assets under management and to a decrease of $0.8
million in contingent deferred sales commissions. Distribution and underwriting fees decreased by
$38.4 million, or 41%, to $56.3 million for the nine months ended September 30, 2009 from $94.7
million for the first nine months of 2008. The decrease for the year-to-date period was mainly due
to a $36.9 million decrease in distribution fees as a result of a 37% decrease in open-end average
assets under management and to a $1.3 million reduction in contingent deferred sales commissions.
Operating Expenses
Operating expenses decreased to $46.4 million and $138.5 million for the three months and nine
months ended September 30, 2009, respectively, from $57.7 million and $187.1 million in the
comparable periods of the prior year reflecting our commitment to leveraging our operating expense
structure, lower assets under management, as well as reduced amortization of deferred sales
commissions.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
($ in thousands) | 2009 | 2008 | Amount | Percent | 2009 | 2008 | Amount | Percent | ||||||||||||||||||||||||
Employee compensation and benefits |
$ | 17,686 | $ | 16,547 | $ | 1,139 | 7 | % | $ | 53,155 | $ | 60,001 | $ | (6,846 | ) | (11 | )% | |||||||||||||||
Distribution and underwriting
expense |
15,713 | 21,922 | (6,209 | ) | (28 | ) | 42,473 | 70,955 | (28,482 | ) | (40 | ) | ||||||||||||||||||||
Amortization of deferred sales
commissions |
2,494 | 6,002 | (3,508 | ) | (58 | ) | 9,710 | 18,088 | (8,378 | ) | (46 | ) | ||||||||||||||||||||
Marketing and sales promotion |
2,627 | 3,527 | (900 | ) | (26 | ) | 8,089 | 9,598 | (1,509 | ) | (16 | ) | ||||||||||||||||||||
General and administrative |
7,904 | 9,698 | (1,794 | ) | (18 | ) | 25,071 | 28,445 | (3,374 | ) | (12 | ) | ||||||||||||||||||||
Total operating expenses |
$ | 46,424 | $ | 57,696 | $ | (11,272 | ) | (20 | )% | $ | 138,498 | $ | 187,087 | $ | (48,589 | ) | (26 | )% | ||||||||||||||
Employee compensation and benefits expense increased by $1.1 million, or 7%, to $17.7 million for
third quarter 2009 versus $16.5 million in 2008 as reductions in staffing levels were more than
offset by increases in performance related incentive accruals. In response to the effects on the
Company of the global financial crisis that began in September of 2008, third quarter 2008
compensation expenses were significantly reduced to reflect the reduction in year-to-date annual
incentive compensation expense. The same expense decreased by $6.8 million to $53.2 million for the
first nine months of 2009 compared to the prior-year period, mostly attributable to reduced
staffing levels partially offset by an increase in performance related incentive accruals.
Distribution and underwriting expense decreased by $6.2 million and $28.5 million for the third
quarter and first nine months of 2009 when compared to the prior-year periods due to the decline in
average open-end fund assets under management and to lower average Class C share assets older than
one year. Although the Rule 12b-1 fee rates we paid to broker-dealers and other intermediaries in
the three and nine months ended September 30, 2009 did not change from the rates paid in the prior
year, we expect distribution expense to vary with the change in open-end mutual funds assets under
management and to increase with the age of the Class C share assets.
Amortization of deferred sales commissions decreased $3.5 million and $8.4 million for the three
and nine months ended September 30, 2009, when compared to the third quarter and first nine months
of 2008, mainly due to lower Class C share sales, to lower Class B share redemptions and to our
decision to discontinue Class B share mutual fund sales. As a result of our decision to
discontinue the sales of Class B mutual fund shares during the second quarter of 2009, the deferred
sales commission assets will no longer be replenished by new sales, and as a result, we evaluated
the estimated remaining useful life of the Class B deferred sales commission assets. Based on this
analysis, we increased the lives of these assets thus reducing the amortization expense recognized
for the 2009 periods. This change in estimate reduced quarterly straight-line amortization expense
by approximately $1.7 million per quarter.
General and administrative expense decreased by $1.8 million and $3.4 million for the three and
nine months ended September 30, 2009, respectively, when compared to the same periods of the prior
year. The decrease in expense is mostly due to lower occupancy costs, lower professional services
expense and lower travel and entertainment costs, all of which reflect our continued efforts to
contain costs. Our efforts to internalize certain security and business continuity services, which
are now
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reflected in employee compensation and benefits expenses, are also contributing to the decrease in
general and administrative expenses.
Non-Operating Activities Net of Non-Controlling Interest in Partnership Investments
The following table summarizes our non-operating activities net of non-controlling interest in
partnership investments (Non-Operating Results) for the three and nine months ended September 30,
2009 and 2008:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
($ in thousands) | 2009 | 2008 | Change | 2009 | 2008 | Change | ||||||||||||||||||
Interest income |
$ | 186 | $ | 519 | $ | (333 | ) | $ | 566 | $ | 1,859 | $ | (1,293 | ) | ||||||||||
Interest expense |
(1,950 | ) | (8,153 | ) | 6,203 | (5,850 | ) | (24,415 | ) | 18,565 | ||||||||||||||
Net interest expense |
(1,764 | ) | (7,634 | ) | 5,870 | (5,284 | ) | (22,556 | ) | 17,272 | ||||||||||||||
Investment income (loss) |
(6,060 | ) | (71,228 | ) | 65,168 | 1,452 | (94,536 | ) | 95,988 | |||||||||||||||
Miscellaneous other income (loss) |
(148 | ) | 218 | (366 | ) | 217 | 707 | (490 | ) | |||||||||||||||
Investment and other income (loss) |
(6,208 | ) | (71,010 | ) | 64,802 | 1,669 | (93,829 | ) | 95,498 | |||||||||||||||
Non-operating loss |
(7,972 | ) | (78,644 | ) | 70,672 | (3,615 | ) | (116,385 | ) | 112,770 | ||||||||||||||
Net (income) loss attributable to non-controlling
interest in partnership investments |
(141 | ) | 27,659 | (27,800 | ) | (330 | ) | 40,928 | (41,258 | ) | ||||||||||||||
Non-operating loss net of non-
controlling interest in partnership
investments |
$ | (8,113 | ) | $ | (50,985 | ) | $ | 42,872 | $ | (3,945 | ) | $ | (75,457 | ) | $ | 71,512 | ||||||||
Non-operating activities reduced income by $8.1 million for the three months ended September 30,
2009 and by $51.0 million for the prior-year quarter. Non-operating activities for the first nine
months of 2009 totaled a loss of $3.9 million compared to a loss of $75.5 million for the
prior-year period. Interest expense decreased by $6.2 million and $18.6 million for the three and
nine months ended September 30, 2009 when compared to the prior year periods reflecting the
prepayment of $400 million of outstanding long-term debt in the fourth quarter of 2008.
The following table provides a summary of our investment portfolio returns, combining the
investment income (loss) portion of our non-operating results with the change in fair value of
certain of our investment securities recorded in accumulated other comprehensive income (loss), a
component of stockholders equity, for the three and nine months ended September 30, 2009:
Three Months Ended September 30, 2009 | Nine Months Ended September 30, 2009 | |||||||||||||||||||||||
Change in | Change in | |||||||||||||||||||||||
Non- | Accumulated | Non- | Accumulated | |||||||||||||||||||||
Operating | Other | Operating | Other | |||||||||||||||||||||
Income | Comprehensive | Income | Comprehensive | |||||||||||||||||||||
($ in thousands) | (Loss) | Income | Total | (Loss) | Income | Total | ||||||||||||||||||
Mutual funds and common stock |
$ | 6,408 | $ | 16,648 | $ | 23,056 | $ | 10,963 | $ | 30,638 | $ | 41,601 | ||||||||||||
Partnership investments |
3,931 | | 3,931 | 8,027 | | 8,027 | ||||||||||||||||||
Equity option contracts |
(16,399 | ) | | (16,399 | ) | (17,538 | ) | | (17,538 | ) | ||||||||||||||
Investment income (loss) |
(6,060 | ) | 16,648 | 10,588 | 1,452 | 30,638 | 32,090 | |||||||||||||||||
Non-controlling interest in
partnership investments |
(141 | ) | (141 | ) | (330 | ) | (330 | ) | ||||||||||||||||
Investment portfolio results |
$ | (6,201 | ) | $ | 10,447 | $ | 1,123 | $ | 31,760 | |||||||||||||||
Less:
Non-controlling interest in Calamos Holdings LLC |
(13,474 | ) | (24,465 | ) | ||||||||||||||||||||
Deferred income taxes |
(3,393 | ) | (2,283 | ) | ||||||||||||||||||||
Change in accumulated other
comprehensive income |
$ | (219 | ) | $ | 3,890 | |||||||||||||||||||
Our investment portfolio returned $10.4 million, or 4.6%, and $31.8 million, or 14.6%, in the third
quarter and first nine months of 2009, respectively. These results primarily reflect net unrealized
gains in investment securities, partially offset by net realized and unrealized gains and losses on
equity option contracts used to hedge market value fluctuations in the corporate investment
portfolio.
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Exchange traded equity option contracts are used to economically hedge price changes in the
investment securities portfolio. The hedge position may be adjusted in response to movement and
volatility in prices and changes in the composition of the hedged portfolio, but generally we are
not actively buying and selling contacts.
Income Taxes
Holdings is subject to certain income-based state taxes; therefore, income taxes reflect not only
the portion attributed to us but also income taxes attributable to non-controlling interests. Our
effective income tax rate for the three and nine month periods ended September 30, 2009 was
approximately 37.8% and 38.0%, respectively.
In 2008, developments in the Illinois tax statutes resulted in modifications to the Companys
state tax apportionment methodology that lowered the Companys statutory income tax rate from 40
percent to 37 percent. In the second quarter of 2008, the Company recorded a one-time, non-cash
income tax expense of $6.8 million to revalue its net deferred tax assets to reflect the new
statutory income tax rate.
Net Income
Net income was $2.6 million and $7.7 million for the three and nine months ended September 30,
2009, respectively, compared to a loss of $0.8 million and income of $1.5 million for the same
periods in the prior year.
Net income, as adjusted, was $2.6 million and $7.7 million for the three and nine months ended
September 30, 2009, respectively, compared to a loss of $0.8 million and income of $8.3 million for
the same periods in the prior year.
Liquidity and Capital Resources
We manage our liquidity position to ensure adequate resources are available to fund ongoing
operations of the business, provide seed money for new funds, or invest in other corporate
strategic initiatives. Our principal sources of liquidity are cash flows from operating activities
and our corporate investment portfolio, which is comprised of cash and cash equivalents, investment
securities, derivatives and partnership investments. Investment securities are principally
comprised of Company-sponsored mutual funds. In addition, the individual securities held within our
partnership investments are typically highly liquid exchange-traded securities.
Our working capital requirements historically have been met through cash generated by operations.
We believe cash generated from operations will be sufficient over the foreseeable future to meet
our working capital requirements with respect to the foregoing activities and to support future
growth. The following table summarizes our principal sources of liquidity as of September 30, 2009
and December 31, 2008:
Increase | ||||||||||||
(in thousands) | September 30, 2009 | December 31, 2008 | (Decrease) | |||||||||
Cash and cash equivalents |
$ | 129,469 | $ | 59,425 | $ | 70,044 | ||||||
Investment securities |
200,184 | 173,155 | 27,029 | |||||||||
Derivatives, net |
(4,654 | ) | 14,288 | (18,942 | ) | |||||||
Partnership investments, net of non-controlling interests |
34,856 | 27,182 | 7,674 | |||||||||
Total corporate investment portfolio |
$ | 359,855 | $ | 274,050 | $ | 85,805 | ||||||
The total corporate investment portfolio increased $85.8 million during the nine month period of
2009. The following table summarizes the primary components of the change in our liquidity position
during the nine months ending September 30, 2009:
Increase | ||||
(in thousands) | (Decrease) | |||
Net realized and unrealized gains (losses) on investment securities: |
||||
Mutual funds |
$ | 41,601 | ||
Partnership investments |
7,697 | |||
Equity option contracts |
(17,538 | ) | ||
Other net cash generated by business activities |
54,046 | |||
$ | 85,806 | |||
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To mitigate the impact of further declines in the valuation of our investment portfolio, we
continue to execute a hedge strategy, specifically an equity option collar that is comprised
primarily of selling index-based call options and purchasing index-based put options. This hedge
continued to provide the stability to our portfolio value as intended. We expect to continue to use
hedge strategies to protect our portfolio value as we believe appropriate.
Calamos Holdings LLC is the borrower of our $125 million in long-term debt. The following is a
summary of our covenant compliance as of September 30, 2009 with the defined terms and covenants
having the same meanings set forth under our amended note purchase agreements:
Results as of | ||||
Covenant | September 30, 2009 | |||
EBITDA/interest expense not less than 3.0 |
8.54 | |||
Debt/EBITDA not more than 3.0 |
1.09 | |||
Investment coverage ratio not less than 1.175 |
2.04 | |||
Net worth not less than $160 million |
$271 million |
The following tables summarize key statements of financial condition data relating to our liquidity
and capital resources.
September 30, | December 31, | |||||||
(in thousands) | 2009 | 2008 | ||||||
Statements of financial condition data: |
||||||||
Cash and cash equivalents |
$ | 129,469 | $ | 59,425 | ||||
Receivables |
23,746 | 20,049 | ||||||
Investment securities |
200,184 | 173,155 | ||||||
Derivatives, net |
(4,654 | ) | 14,288 | |||||
Partnership investments |
36,475 | 28,471 | ||||||
Deferred tax assets, net |
88,669 | 95,606 | ||||||
Deferred sales commissions |
13,622 | 18,414 | ||||||
Long-term debt |
125,000 | 125,000 |
Cash flows for the nine months ended September 30, 2009 and 2008 are shown below:
September 30, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Cash flow data: |
||||||||
Net cash provided by operating activities |
$ | 81,193 | $ | 121,553 | ||||
Net cash provided by (used in) investing activities |
11,809 | (61,635 | ) | |||||
Net cash used in financing activities |
(22,958 | ) | (90,516 | ) |
Net cash provided by operating activities totaled $81.2 million for the nine months ended September
30, 2009. These net cash flows are primarily attributable to investment management, distribution
and underwriting fees generated by core business activities, partially offset by staff,
distribution, underwriting and other operating expenses.
Investing activities for the nine months ended September 30, 2009 provided cash totaling $11.8
million. Sales of investment securities and net positive cash flow from related investment hedging
activities comprised the majority of this net inflow. Net cash used in financing activities totaled
$23.0 million for the first nine months of 2009, largely due to dividends paid to non-controlling
interests and common shareholders. We expect our cash and liquidity requirements will be met with
cash on hand and through cash generated by operations.
Recently Issued Accounting Pronouncements
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, an amendment to Subtopic
820-10, Fair Value Measurements and Disclosures, which provides clarification surrounding
circumstances where a quoted price in an active market for an identical liability is not available,
a reporting entity is required to measure fair value using the quoted price of the identical
liability when traded as an asset, quoted price for similar liabilities or similar liabilities when
traded as an asset, or the valuation techniques outlined in Topic 820. The update is effective for
the first reporting period (including interim periods) beginning after issuance. Accordingly, in
the third quarter of 2009, the Company adopted the update, which had no impact on the Companys
financial statements.
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In September 2009, the FASB issued Accounting Standards Update No. 2009-12, an amendment to
Subtopic 820-10, Fair Value Measurements and Disclosures, which permits, as a practical expedient,
a reporting entity to measure the fair value of an investment in certain entities on the basis of
the net asset value per share of the investment. The update is effective for interim and annual
periods ending after December 15, 2009. Early application is permitted in financial statements for
earlier interim and annual periods that have not been issued. The Company is evaluating the impact
this update will have on its financial statements.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which modifies
the analysis required to determine whether a companys variable interest(s) give it a controlling
financial interest in a variable interest entity. SFAS 167 is effective January 1, 2010. The
Company is evaluating the impact that this standard will have on its financial statements.
Critical Accounting Policies
Our significant accounting policies are summarized in note 2 of the Notes to the Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year ended December 31,
2008. A discussion of critical accounting policies is included in Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the
year ended December 31, 2008. There were no significant changes in our significant accounting
policies or critical accounting policies during the nine months ended September 30, 2009.
Forward-Looking Information
From time to time, information or statements provided by us or on our behalf, including those
within this Quarterly Report on Form 10-Q, 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 of our business, financial and operating results
and future economic performance; and managements goals and objectives and other similar
expressions concerning matters that are not historical facts.
Words such as anticipate, assume, believe, continue, could, estimate, expect,
future, intend, may, opportunity, potential, predict, seek, should, trend,
will, would, 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 managements 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; unsatisfactory service levels by third party vendors; the
inability to maintain compliance with financial covenants; the performance of our investment
portfolio; our ownership and organizational structure; general and prolonged declines in the prices
of securities; significant changes in market conditions and the economy that require a modification
to our business plan; catastrophic or unpredictable events; the loss of key executives; the
unavailability, consolidation and elimination of third-party retail distribution channels;
increased costs of and timing of payments related to distribution; failure to recruit and retain
qualified personnel; a loss of assets, and thus revenues; fluctuation in the level of our expenses;
changes in accounting estimates; poor performance of our largest funds; damage to our reputation;
and the extent and timing of any share repurchases. 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 both the underlying value and liquidity of the financial markets around
the world that result in appreciation or depreciation of assets under management; mutual fund
capital gain distributions; our ability to access capital markets; 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 open or close products and strategies. Item 1A of our most recently
filed Annual Report on Form 10-K discusses some of these and other important factors in detail
under the caption Risk Factors.
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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 3. Quantitative and Qualitative Disclosures About Market Risk
An analysis of our market risk was included in our Annual Report on Form 10-K for the year ended
December 31, 2008. There were no material changes to the Companys market risk during the nine
months ended September 30, 2009.
Item 4. Controls and Procedures
Our management, including our principal executive and principal financial officers, has evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934) as of September 30, 2009, and has concluded that such disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms.
There were no changes in the Companys internal control over financial reporting that occurred
during our third quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may be subject to various legal proceedings from time to time.
Currently, there are no material legal proceedings pending against us.
Item 6. Exhibits
3(i)
|
Second Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2009). | |
3(ii)
|
Second Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2009). | |
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 (incorporated by reference to Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 3, 2004). | |
4.2
|
Registration Rights Agreement between Calamos Family Partners, Inc., John P. Calamos, Sr. and the Registrant (incorporated by reference to Exhibit 4.2 to the Registrants Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 3, 2004). | |
10.1
|
Calamos Asset Management, Inc. Incentive Compensation Plan, as amended effective May 22, 2009 (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2009). | |
31.1
|
Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. | |
31.2
|
Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. | |
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements 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.
CALAMOS ASSET MANAGEMENT, INC. (Registrant) |
||||
Date: November 4, 2009 | By: | /s/ Cristina Wasiak | ||
Cristina Wasiak | ||||
Chief Financial Officer | ||||
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