01—Abstract
Summary
Summary of the 10-K/A filed March 29, 2018. Cited figures are marked; the original filing is the authoritative source.
This Form 10-K/A (Amendment, filed March 29, 2018) does not contain Affiliated Managers Group, Inc.'s own financial statements.
Its purpose is to add Exhibit 99.1, the audited consolidated financial statements of AQR Capital Management Holdings, LLC and subsidiaries, which AMG includes under Rule 3-09 of Regulation S-X. AMG's own Item 8 financials remain in its original 10-K filed February 23, 2018. Investors should read this filing as a window into AQR, a significant affiliate, rather than as a restatement or update of AMG's results.
AQR's 2017 results were strong. Total revenues rose about 39% to $1.31 billiona from $941 million in 2016, driven by affiliate fees, which grew about 43% to $976 million, and managed-account fees, which grew about 29% to $331 million. Net income increased about 52% to $806.6 million, a net margin of roughly 62%.
Compensation and benefits grew about 25% to $367 millionb, so operating leverage was significant. Members received $651 million in distributions, up about 7%, while total members' and redeemable members' interests grew substantially on retained earnings. Balance-sheet growth was also notable.
Total assets rose to $659 millionc from $433 million, led by a near doubling of fee receivables to $316 million, mostly from affiliated funds. Debt increased to $50 million, including $37 million of fixed-asset financing, and the $125 million unsecured credit facility carried $38 million outstanding at year-end.
The filing discloses roughly $335 milliond of net future lease commitments, a $25 million unsecured letter of credit tied to a 2017 office lease amendment, and a $13 million forgivable-loan-style Connecticut state loan. Subsequent-event disclosures note a March 2018 amendment to AQR's operating agreement affecting member allocations of future income and sale proceeds, which could matter for AMG's economic share of AQR.
02—Key points
Key Highlights
- AQR's total revenues grew about 39% to $1.31 billion in 2017, with affiliate fees up about 43% to $976 million and managed-account fees up about 29% to $331 million.
- Net income rose about 52% to $806.6 million in 2017, implying a net margin of roughly 62% on a pre-tax, pass-through LLC basis with negligible income tax expense.
- Fee receivables nearly doubled to $316 million at year-end 2017, with affiliate receivables rising to $235 million from $88 million, which bears watching for collection timing.
- Members received $651 million in distributions in 2017, up about 7% from $606 million, while redeemable members' interest grew to $284 million from $164 million.
- Total debt rose to $50 million, including $37 million of fixed-asset financing, and AQR's $125 million unsecured credit facility had $38 million drawn at year-end 2017.
- Future net operating lease payments total about $335 million, and AQR posted a $25 million unsecured letter of credit for a 2017 office lease amendment that renews through 2031.
- A March 2018 operating agreement amendment, effective January 1, 2018, changed certain members' rights to prospective operating income and sale proceeds, which could affect economics for AMG's interest in AQR.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2017filed March 29, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $2.31B$2.19B | +5.0% |
| SG&A Expenses | $373.10M$398.10M | −6.3% |
| Operating Expenses | $1.60B$1.60B | +0.6% |
| Operating Income | $1.11B$1.03B | +7.1% |
| Interest Expense | $87.80M$91.70M | −4.3% |
| Net Income | $689.50M$472.80M | +45.8% |
| EPS (Basic) | $12.30$8.73 | +40.9% |
| EPS (Diluted) | $12.03$8.57 | +40.4% |
| Shares Outstanding (Basic) | 56.00M54.20M | +3.3% |
| Shares Outstanding (Diluted) | 58.60M57.00M | +2.8% |
05—Questions
Frequently Asked Questions
Why does this 10-K/A filing exist, and does it change AMG's reported financial results?
The amendment adds Exhibit 99.1, AQR Capital Management Holdings' audited 2017 financial statements, as required under Rule 3-09 of Regulation S-X for a significant equity affiliate. It does not change AMG's own financial statements, which were reported in the original 10-K filed February 23, 2018.
How strong was AQR's profitability in 2017?
AQR reported 2017 net income of $806.6 million on revenues of $1.31 billion, up from $530.4 million on $941.5 million in 2016. Compensation and benefits of $367 million and G&A of $125 million were the main expenses. AQR is treated as a partnership for U.S. tax purposes, so income tax expense was only $805 thousand, mostly from foreign subsidiaries.
What should investors watch in AQR's balance sheet?
Fee receivables more than doubled to $316 million, with affiliate receivables up sharply, which increases dependence on timely fee collection from AQR funds. Redeemable members' interest grew to $284 million, and cash rose to $201 million. Debt of $50 million and the $38 million credit line balance were modest relative to earnings, and the company reported compliance with its covenants.
Are there any notable post-year-end developments disclosed?
Yes. In March 2018, AQR amended its operating agreement, effective January 1, 2018, to change certain members' rights to prospective operating income and sale proceeds and to revise governance rights. In January 2018, AQR renewed portions of its credit facility, with $31 million maturing May 8, 2018 at 3.1% and $9 million maturing April 24, 2018 at 3.0%.
What future obligations or contingencies does AQR disclose?
AQR has about $335 million in net future minimum lease payments, mostly thereafter. It has $5 million in secured letters of credit backed by restricted cash and a $25 million unsecured letter of credit. It also has a $10 million guarantee on a subsidiary's securities trading obligations and commitments to invest up to $25 million and $20 million in third-party and AQR-sponsored funds, respectively. Management believes pending litigation will not have a material adverse effect.
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