10-QPeriod: Q2 FY2001

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2001

Filed August 14, 2001For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported mixed financial results for the quarter and six months ended June 30, 2001. While net income saw a slight decrease compared to the prior year, reflecting market pressures on asset-based fees, the company strategically managed its expenses and executed significant financing activities. Notably, AMG raised substantial capital through a zero-coupon senior convertible note issuance, utilizing a portion to repay existing debt and bolstering its financial flexibility for future investments. The company also announced a pending acquisition of a majority stake in Welch & Forbes, indicating continued strategic growth initiatives. Investors should monitor the impact of new accounting standards (FAS 141 and FAS 142) on goodwill and intangible assets, which are expected to positively affect future earnings by ceasing amortization. Despite a decline in revenues primarily due to market conditions impacting asset-based fees, AMG demonstrated effective cost management, particularly in compensation and related expenses. The balance sheet shows a significant increase in cash and cash equivalents, driven by financing activities. The company's forward-looking statements highlight potential risks related to market conditions, capital availability, and integration of new investments, but also underscore a strategy focused on acquiring and holding equity interests in investment management firms.

Key Highlights

  • 1Net income for the six months ended June 30, 2001, was $25.0 million, a decrease from $27.5 million in the same period of 2000, primarily due to lower asset-based fees stemming from market declines.
  • 2Total revenues for the six months decreased by $24.6 million to $201.1 million, largely attributed to the impact of equity market performance on asset-based fees.
  • 3Operating expenses decreased by $13.9 million for the six months, primarily driven by a reduction in compensation and related expenses.
  • 4The company successfully raised approximately $221 million (net proceeds) from a zero-coupon senior convertible note issuance in May 2001, using $101 million to repay debt.
  • 5As of June 30, 2001, AMG had $175.8 million in cash and cash equivalents, a significant increase from $31.6 million at the end of 2000, due to financing activities.
  • 6AMG announced a definitive agreement to acquire a majority equity interest (60%) in Welch & Forbes, Inc., a firm with approximately $4.3 billion in assets under management.
  • 7The adoption of new accounting standards (FAS 141 and FAS 142) is anticipated to cease the amortization of goodwill and certain other intangible assets from 2002 onwards, which the company expects to increase net income and earnings per share.

Frequently Asked Questions

AMG's revenues are primarily derived from investment management fees charged by its affiliated firms, typically as a percentage of assets under management. Revenues have been impacted by broader equity market declines, which have reduced the value of assets under management and, consequently, the asset-based fees. This was particularly evident in the first half of 2001 compared to the same period in 2000.

AMG demonstrated effective cost management. For the six months ended June 30, 2001, total operating expenses decreased by $13.9 million compared to the prior year. This reduction was largely driven by a decrease in compensation and related expenses, reflecting the impact of lower revenues on the Affiliates' Operating Allocation.

AMG completed a significant financing event in May 2001 by issuing $251 million principal amount at maturity of zero-coupon senior convertible notes, realizing net proceeds of approximately $221 million. A portion of these proceeds ($101 million) was used to repay existing debt, enhancing the company's financial flexibility and reducing interest expense.

AMG adopted FAS 133 in early 2001. Looking ahead, the adoption of FAS 141 and FAS 142, effective January 1, 2002 (with some provisions effective earlier), will require goodwill and other intangible assets with indefinite lives to be tested for impairment rather than amortized. As goodwill amortization was a significant expense (57% of total amortization expense in Q2 2001), AMG expects this change to increase future net income and earnings per share, as this non-cash expense will be eliminated.