AFFILIATED MANAGERS GROUP, INC. - FORM 8-K - EX-99.2

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8-K - 8-K - AFFILIATED MANAGERS GROUP, INC.	a12-10346_18k.htm
EX-99.1 - EX-99.1 - AFFILIATED MANAGERS GROUP, INC.	a12-10346_1ex99d1.htm

Exhibit 99.2

Affiliated Managers Group, Inc.

Financial Highlights

(in millions, except earnings per share data)

	Three Months		Three Months
	Ended		Ended
	3/31/11		3/31/12

Revenue	$	426.3	$	417.7

Net income (controlling interest)	$	39.1	$	37.4

Economic net income (A)	$	85.1	$	83.5

EBITDA (B)	$	118.2	$	114.1


Average shares outstanding - diluted	53.1		52.9

Earnings per share - diluted	$	0.74	$	0.71

Average shares outstanding - adjusted diluted (C)	53.1		52.9

Economic earnings per share (C)	$	1.60	$	1.58

	December 31, 2011		March 31, 2012

Cash and cash equivalents	$	449.5	$	393.7

Senior bank debt	$	250.0	$	250.0

Senior convertible securities (D)	$	435.6	$	439.2

Junior convertible trust preferred securities (D)	$	512.6	$	513.3

Stockholders’ equity	$	1,866.0	$	1,862.4

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Affiliated Managers Group, Inc.

Reconciliations of Earnings Per Share Calculation

(in millions, except per share data)

	Three Months		Three Months
	Ended		Ended
	3/31/11		3/31/12

Net income (controlling interest)	$	39.1	$	37.4
Convertible securities interest expense, net (E)	—		—
Net income (controlling interest), as adjusted	$	39.1	$	37.4

Average shares outstanding - diluted	53.1		52.9

Earnings per share - diluted	$	0.74	$	0.71

Reconciliations of Average Shares Outstanding

	Three Months	Three Months
	Ended	Ended
	3/31/11	3/31/12

Average shares outstanding - diluted	53.1	52.9
Assumed issuance of 2008 Senior Convertible Notes shares	—	—
Assumed issuance of Trust Preferred shares	—	—
Dilutive impact of 2008 Senior Convertible Notes shares	—	—
Dilutive impact of Trust Preferred shares	—	—
Average shares outstanding - adjusted diluted (C)	53.1	52.9

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Affiliated Managers Group, Inc.

Operating Results

Assets Under Management

(in millions)

Statement of Changes

	Mutual Fund			Institutional			High Net Worth			Total

Assets under management, December 31, 2011	$	85,222		$	205,658		$	36,582		$	327,462
Client cash inflows	6,147			12,290			2,581			21,018
Client cash outflows	(4,751		)	(7,329		)	(1,854		)	(13,934		)
Net client cash flows	1,396			4,961			727			7,084
Investment performance	8,534			17,170			3,681			29,385
Assets under management, March 31, 2012	$	95,152		$	227,789		$	40,990		$	363,931

Financial Results

(in millions)

	Three			Three
	Months			Months
	Ended		Percent	Ended		Percent
	3/31/11		of Total	3/31/12		of Total
Revenue
Mutual Fund	$	184.2	43%	$	175.7	42%
Institutional	207.0		49%	206.8		50%
High Net Worth	35.1		8%	35.2		8%
	$	426.3	100%	$	417.7	100%

EBITDA (B)
Mutual Fund	$	38.5	33%	$	37.1	32%
Institutional	68.9		58%	66.8		59%
High Net Worth	10.8		9%	10.2		9%
	$	118.2	100%	$	114.1	100%

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Affiliated Managers Group, Inc.

Reconciliations of Performance and Liquidity Measures

(in millions)

	Three Months			Three Months
	Ended			Ended
	3/31/11			3/31/12

Net income (controlling interest)	$	39.1		$	37.4
Intangible amortization	27.1			35.0
Intangible-related deferred taxes	12.9			9.9
Imputed interest and contingent payment adjustments	4.4			0.6
Affiliate equity expense	1.6			0.6
Economic net income (A)	$	85.1		$	83.5

Cash flow from operations	$	128.3		$	52.5
Interest expense, net of non-cash items	16.8			16.8
Current tax provision	13.5			8.0
Income from equity method investments, net of distributions	(46.4		)	(14.1		)
Changes in assets and liabilities and other adjustments	6.0			50.9
EBITDA (B)	$	118.2		$	114.1
Holding company expenses	20.1			21.9
EBITDA Contribution	$	138.3		$	136.0

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Affiliated Managers Group, Inc.

Consolidated Statements of Income

(in millions, except per share data)

	Three Months Ended
	March 31,
	2011			2012

Revenue	$	426.3		$	417.7

Operating expenses:
Compensation and related expenses	179.5			181.1
Selling, general and administrative	87.5			85.0
Amortization of intangible assets (F)	22.1			30.4
Depreciation and other amortization	3.8			3.4
Other operating expenses	8.5			9.0
	301.4			308.9
Operating income	124.9			108.8

Non-operating (income) and expenses:
Investment and other income	(8.7		)	(10.4		)
Income from equity method investments	(10.2		)	(14.5		)
Interest expense	19.4			18.6
Imputed interest expense and contingent payment arrangements (G)	8.3			(2.5		)
	8.8			(8.8		)

Income before income taxes	116.1			117.6

Income taxes (H)	26.7			24.6
Net income	89.4			93.0

Net income (non-controlling interests)	(50.3		)	(55.6		)

Net income (controlling interest)	$	39.1		$	37.4

Average shares outstanding - basic	51.8			51.6
Average shares outstanding - diluted	53.1			52.9

Earnings per share - basic	$	0.76		$	0.72
Earnings per share - diluted	$	0.74		$	0.71

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Affiliated Managers Group, Inc.

Consolidated Balance Sheets

(in millions)

	December 31,			March 31,
	2011			2012
Assets
Current assets:
Cash and cash equivalents	$	449.5		$	393.7
Investment advisory fees receivable	214.9			224.6
Investments in marketable securities	100.4			122.6
Unsettled fund share receivables	34.5			80.7
Prepaid expenses and other current assets	77.1			73.6
Total current assets	876.4			895.2

Fixed assets, net	69.1			70.2
Equity investments in Affiliates	615.8			599.2
Acquired client relationships, net	1,321.1			1,298.8
Goodwill	2,117.3			2,125.8
Other assets	219.2			220.7
Total assets	$	5,218.9		$	5,209.9

Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	343.6		$	246.2
Unsettled fund share payables	40.8			83.7
Payables to related party	33.2			17.1
Total current liabilities	417.6			347.0

Senior bank debt	250.0			250.0
Senior convertible securities (D)	435.6			439.2
Junior convertible trust preferred securities (D)	512.6			513.3
Deferred income taxes	506.0			525.8
Other long-term liabilities	145.7			151.4
Total liabilities	2,267.5			2,226.7

Redeemable non-controlling interests	451.8			509.6

Equity:
Common stock	0.5			0.5
Additional paid-in capital	927.5			876.2
Accumulated other comprehensive income	50.0			71.7
Retained earnings	1,176.7			1,214.1
	2,154.7			2,162.5
Less treasury stock, at cost	(288.7		)	(300.1		)
Total stockholders’ equity	1,866.0			1,862.4

Non-controlling interests	633.6			611.2
Total equity	2,499.6			2,473.6
Total liabilities and equity	$	5,218.9		$	5,209.9

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Affiliated Managers Group, Inc.

Consolidated Statements of Cash Flow

(in millions)

	Three Months Ended
	March 31,
	2011			2012

Cash flow from operating activities:
Net income	$	89.4		$	93.0
Adjustments to reconcile Net income to net cash flow from operating activities:
Amortization of intangible assets	22.1			30.4
Amortization of issuance costs	2.6			1.8
Depreciation and other amortization	3.8			3.4
Deferred income tax provision	9.6			13.4
Imputed interest expense and contingent payment arrangements	8.3			(2.5		)
Income from equity method investments, net of amortization	(10.2		)	(14.5		)
Distributions received from equity method investments	64.9			36.8
Tax benefit from exercise of stock options	0.8			0.4
Share-based compensation	6.1			8.2
Affiliate equity expense	3.5			2.2
Other adjustments	(2.4		)	(6.0		)
Changes in assets and liabilities:
(Increase) decrease in investment advisory fees receivable	3.0			(12.5		)
Increase in prepaids and other current assets	(2.5		)	(9.1		)
Increase in other assets	(1.6		)	(0.5		)
Increase in unsettled fund shares receivable	(60.7		)	(45.2		)
Increase in unsettled fund shares payable	54.5			41.6
Decrease in accounts payable, accrued liabilities and other long-term liabilities	(62.9		)	(88.4		)
Cash flow from operating activities	128.3			52.5

Cash flow from (used in) investing activities:
Investments in Affiliates	(13.3		)	—
Purchase of fixed assets	(1.7		)	(1.3		)
Purchase of investment securities	(6.6		)	(9.5		)
Sale of investment securities	10.3			12.9
Cash flow from (used in) investing activities	(11.3		)	2.1

Cash flow used in financing activities:
Repayments of senior bank debt	(120.0		)	—
Issuance of common stock	15.2			15.1
Repurchase of common stock	—			(32.7		)
Issuance costs	(7.7		)	—
Excess tax benefit from exercise of stock options	4.9			3.5
Settlement of treasury lock	4.0			—
Note payments	0.3			(0.2		)
Distributions to non-controlling interests	(68.6		)	(82.0		)
Affiliate equity issuances and repurchases	(7.8		)	(16.9		)
Cash flow used in financing activities	(179.7		)	(113.2		)

Effect of foreign exchange rate changes on cash and cash equivalents	2.2			2.8
Net decrease in cash and cash equivalents	(60.5		)	(55.8		)
Cash and cash equivalents at beginning of period	313.3			449.5
Cash and cash equivalents at end of period	$	252.8		$	393.7

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Affiliated Managers Group, Inc.

Notes

(in millions, except per share data)

(A) Under our Economic net income definition, we add to Net income (controlling interest) amortization (including equity method amortization and reductions in the carrying value of our intangible assets), deferred taxes related to intangible assets, non-cash imputed interest expense (principally related to the accounting for convertible securities and contingent payment arrangements) and Affiliate equity expense. We consider Economic net income an important measure of our financial performance, as we believe it best represents operating performance before non-cash expenses relating to the acquisition of interests in our affiliated investment management firms, and it is therefore employed as our principal performance benchmark. This non-GAAP performance measure is provided in addition to, but not as a substitute for, Net income; Economic net income is not a liquidity measure, and should not be used in place of liquidity measures calculated under GAAP.

We add back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The portion of deferred taxes generally attributable to intangible assets (including goodwill) that are no longer amortized but continue to generate tax deductions is added back because we believe it is unlikely these accruals will be used to settle material tax obligations. We add back non-cash expenses relating to certain transfers of equity between Affiliate management partners when these transfers have no dilutive effect to shareholders.

(B) EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. This supplemental non-GAAP liquidity measure is provided in addition to, but not as a substitute for, cash flow from operations. As a measure of liquidity, we believe EBITDA is useful as an indicator of our ability to service debt, make new investments and meet working capital requirements. EBITDA, as calculated by us, may not be consistent with computations of EBITDA by other companies. In reporting EBITDA by segment, Affiliate expenses are allocated to a particular segment on a pro rata basis with respect to the revenue generated by that Affiliate in such segment.

(C) Economic earnings per share represents Economic net income divided by the adjusted diluted average shares outstanding. In this calculation, the potential share issuance in connection with our convertible securities is measured using a “treasury stock” method. Under this method, only the net number of shares of common stock equal to the value of the contingently convertible securities and the junior convertible trust preferred securities in excess of par, if any, are deemed to be outstanding. We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are converted and we are relieved of our debt obligation. This method does not take into account any increase or decrease in our cost of capital in an assumed conversion. Economic earnings per share is not a liquidity measure, and should not be used in place of liquidity measures calculated under GAAP.

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(D) We have bifurcated our convertible debt securities into their debt and equity components on our balance sheet. The principal amount at maturity of the senior convertible notes due 2038 was $460.0 at December 31, 2011 and March 31, 2012. The principal amount at maturity of the junior convertible trust preferred securities was $730.8 at December 31, 2011 and March 31, 2012, comprised of $300.0 due 2036 and $430.8 due 2037.

(E) Convertible securities interest expense, net, includes the interest expense, net of tax, associated with our dilutive convertible securities.

(F) In the first quarter of 2012, we reduced the carrying value of certain of our indefinite-lived intangible assets and, accordingly, recorded an expense of $8.7.

(G) In the first quarter of 2012, we reduced our current estimate of certain potential contingent payment obligations and, accordingly, recorded a gain of $9.9 (of which $5.0 was attributable to controlling interests).

(H) Our consolidated income tax provision includes taxes attributable to controlling interests, and to a lesser extent, taxes attributable to non-controlling interests, as follows:

	Three Months Ended
	March 31,
	2011			2012
Current income taxes	$	13.5		$	8.0
Intangible-related deferred taxes	12.9			9.9
Other deferred taxes	(2.8		)	2.9
Taxes attributable to controlling interests	23.6			20.8
Taxes attributable to non-controlling interests	3.1			3.8
Total income taxes	$	26.7		$	24.6

Income before taxes (controlling interests)	$	62.7		$	58.2

Effective tax rate*	37.6		%	35.7		%

* Taxes attributable to controlling interests divided by controlling interest share of the consolidated income before taxes.

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