01—Abstract
Summary
Summary of the 10-K/A filed April 1, 2019. Cited figures are marked; the original filing is the authoritative source.
This Form 10-K/A is a supplemental filing by Affiliated Managers Group (AMG) that adds audited financial statements of AQR Capital Management Holdings, LLC, an affiliate in which AMG holds a minority interest.
It does not contain AMG's own financial statements, which were filed in the original 10-K on February 22, 2019. The AQR statements show a weaker 2018: total revenues fell about 12.9% to $1.14 billiona from $1.31 billion, and net income fell about 35% to $524.5 million from $806.6 million. Operating expenses rose about 18.5% to $605.4 million, led by compensation and benefits, which grew about 15.7% to $424.6 million.
Pre-tax margin compressed from roughly 62% to roughly 47%. The balance sheet shrank meaningfully. Total assets dropped to $436.9 millionb from $659.4 million, driven mainly by a sharp decline in fee receivables from affiliated funds (down to $33.8 million from $235.1 million) and lower redeemable members' interest, which fell to $45.8 million from $284.3 million after about $190 million was reclassified to members' equity effective January 1, 2018.
Debt rose to $118.1 millionc from $50.3 million, reflecting an $85 million term loan outstanding after a $115 million partial repayment in October 2018. Distributions to members increased about 19% to $776.0 million, which exceeded net income and was funded in part by operating cash flow and debt. For AMG investors, the key takeaways are that AQR's fee base and earnings declined in 2018, its cash generation remained strong at $774.6 million of operating cash flow, and the company disclosed that it expects the ASC 606 adoption to change the presentation of certain costs on a gross versus net basis, though not the timing of fee revenue recognition.
02—Key points
Key Highlights
- This 10-K/A supplies AQR Capital Management Holdings, LLC's audited financials (PwC, unqualified opinion dated April 1, 2019) under Item 15; AMG's own financials are in the original 10-K filed February 22, 2019.
- AQR total revenues declined about 12.9% to $1,141.2 million in 2018 from $1,310.1 million in 2017, with affiliate fees falling to $836.3 million from $976.4 million.
- Net income fell about 35% to $524.5 million, while total expenses rose about 18.5% to $605.4 million, with compensation and benefits up about 15.7% to $424.6 million.
- Total assets fell about 34% to $436.9 million, mainly from a drop in affiliate fee receivables to $33.8 million from $235.1 million, as cash collections of $201.3 million came in.
- Redeemable members' interest fell to $45.8 million from $284.3 million after a $190.0 million reclassification to members' equity following a March 2018 operating agreement amendment.
- Debt increased to $118.1 million from $50.3 million, including an $85.0 million term loan, while AQR distributed $776.0 million to members, roughly 19% more than in 2017.
- Operating cash flow was $774.6 million, up from $715.5 million, and AQR expects ASC 606 to change gross versus net presentation of certain costs, though not the timing of fee revenue recognition.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2018filed April 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.38B$2.31B | +3.2% |
| SG&A Expenses | $417.70M$373.10M | +12.0% |
| Operating Expenses | $1.69B$1.60B | +5.4% |
| Interest Expense | $80.60M$87.80M | −8.2% |
| Net Income | $243.60M$689.50M | −64.7% |
| EPS (Basic) | $4.55$12.30 | −63.0% |
| EPS (Diluted) | $4.52$12.03 | −62.4% |
| Shares Outstanding (Basic) | 53.60M56.00M | −4.3% |
| Shares Outstanding (Diluted) | 53.80M58.60M | −8.2% |
05—Questions
Frequently Asked Questions
Why was this 10-K/A filed, and does it contain AMG's own financial results?
The amendment was filed to add separate audited financial statements of AQR Capital Management Holdings, LLC, an affiliate in which AMG owns a minority interest, under Item 15 and Exhibit 99.1. It does not include AMG's consolidated financial statements, which were in the original 10-K filed February 22, 2019. The amendment also re-files certain exhibits, such as consents and certifications, by reference.
Why did AQR's revenue and net income decline in 2018?
The filing reports lower affiliate fees ($836.3 million vs. $976.4 million) and lower managed account fees ($302.2 million vs. $331.0 million), which together reduced total fees by about $169 million. The filing does not explicitly attribute the decline to a single cause, but the affiliate fee decrease is the largest driver. Expenses rose at the same time, so net income fell more sharply than revenue.
Why did AQR's total assets and redeemable members' interest drop so much?
Total assets fell to $436.9 million from $659.4 million, primarily because affiliate fee receivables decreased by about $201 million as they were collected. Redeemable members' interest fell to $45.8 million from $284.3 million mainly because $190.0 million was reclassified to members' equity effective January 1, 2018, following a March 2018 amendment to the operating agreement. This was a non-cash reclassification.
How did AQR fund its 2018 distributions and debt activity?
AQR distributed $776.0 million to members in 2018, exceeding net income of $524.5 million. Operating cash flow of $774.6 million covered much of this, while the company also drew $220.1 million in new debt, including a $200 million term loan entered in March 2018, and repaid $152.3 million of debt. Year-end debt totaled $118.1 million, including an $85.0 million term loan balance after a $115 million repayment in October 2018.
What accounting changes could affect how AQR's results are presented going forward?
AQR adopted ASC 606 on a modified retrospective basis effective January 1, 2019. Management does not expect a significant impact on the timing of fee revenue recognition or capitalized revenue costs. However, under the principal versus agent guidance, certain costs are expected to be presented gross when AQR acts as principal and net when it acts as agent, which will change reported revenue and expense line items. ASC 842 leases, effective for periods beginning after December 15, 2019, are still being evaluated.
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