10-QPeriod: Q1 FY2002

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a solid first quarter for 2002, demonstrating revenue growth and improved profitability compared to the prior year. Total revenue increased by 19% to $119.3 million, driven by a notable 10% rise in average assets under management to $80.9 billion. This growth was primarily fueled by the integration of new affiliates and positive net client cash flows. The company successfully navigated a challenging market environment, with a balanced performance across its High Net Worth, Mutual Fund, and Institutional segments. Profitability saw a significant boost, with Net Income rising 22% to $14.5 million, equating to $0.65 per diluted share. This performance was aided by the adoption of FAS 142, which eliminated the amortization of goodwill and certain other intangible assets, leading to a substantial decrease in amortization expenses. The company also managed its debt levels, with a notable increase in cash flow from financing activities primarily due to the issuance of convertible debt securities. Overall, AMG presents a picture of financial strength and strategic growth in its asset management business.

Key Highlights

  • 1Total revenue increased by 19% to $119.3 million in Q1 2002 compared to Q1 2001.
  • 2Average assets under management grew by 10% to $80.9 billion as of March 31, 2002.
  • 3Net income increased by 22% to $14.5 million in Q1 2002.
  • 4Diluted earnings per share rose to $0.63 in Q1 2002, up from $0.53 in Q1 2001.
  • 5Amortization of intangible assets significantly decreased due to the adoption of FAS 142.
  • 6Cash and cash equivalents increased substantially to $110.4 million at March 31, 2002, up from $73.4 million at December 31, 2001.
  • 7The company issued $230 million in mandatory convertible debt securities and $251 million in zero coupon senior convertible notes.

Frequently Asked Questions

The primary drivers for the 19% increase in revenue were a 10% rise in average assets under management, largely due to the integration of new affiliates like Friess and Welch & Forbes, and positive net client cash flows from directly managed assets. While equity market performance was a partial offset, the growth in AUM was the key factor.

The adoption of FAS 142, effective January 1, 2002, eliminated the amortization of goodwill and certain other intangible assets. This led to a significant decrease in amortization expenses, particularly impacting the 'Amortization of intangible assets' line item, which fell by 52% year-over-year. This contributed positively to the company's net income and earnings per share.

AMG has a significant portion of its long-term debt in the form of convertible debt. At March 31, 2002, long-term senior debt included $228.2 million in zero coupon convertible notes and $230 million in mandatory convertible debt. The company's senior revolving credit facility, which matures in December 2002, had $25 million outstanding with $305 million of additional capacity. Management intends to secure new credit financing before the current facility matures, but there is no guarantee it will be on comparable terms.

AMG uses interest rate derivative contracts, primarily interest rate swaps, to manage its exposure to variable rate debt. While some of these are designated as cash flow hedges, a new contract entered into in February 2002 does not qualify for hedge accounting. Sensitivity analysis indicates potential losses from hypothetical adverse movements in LIBOR rates, though the company aims to mitigate these risks through counterparty analysis and ongoing monitoring.