10-QPeriod: Q3 FY2003

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 14, 2003For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a solid increase in net income for the third quarter of 2003 compared to the same period in 2002, driven by revenue growth across its distribution channels, particularly in the Mutual Fund and Institutional segments. Despite market volatility, the company successfully grew its assets under management, reflecting positive market performance and strategic investments. The company also demonstrated strong liquidity, with a significant increase in cash and cash equivalents. However, the balance sheet shows a notable increase in total liabilities, primarily due to the issuance of new debt instruments, including floating rate senior convertible securities. While this debt issuance strengthens the company's financial flexibility, investors should closely monitor the growing debt levels and associated interest expenses. The company continues to manage its capital structure through debt issuances and share repurchases, indicating a focus on both growth investment and shareholder returns.

Key Highlights

  • 1Net income increased by 28% to $16.4 million for the three months ended September 30, 2003, compared to $12.8 million in the prior year period.
  • 2Total assets grew to $1.48 billion as of September 30, 2003, from $1.24 billion at the end of 2002, with a significant portion attributed to increases in cash and cash equivalents and fixed assets.
  • 3Total liabilities increased to $848 million from $641 million, largely driven by a substantial rise in senior convertible debt.
  • 4Revenue grew by 11% to $128.5 million for the third quarter of 2003 compared to the prior year, reflecting growth in average assets under management across most distribution channels.
  • 5The company repurchased $116.5 million in principal amount of zero coupon senior convertible notes and also continued its share repurchase program.
  • 6Cash and cash equivalents significantly increased to $231.1 million at September 30, 2003, up from $27.7 million at December 31, 2002.

Frequently Asked Questions

The primary driver of revenue growth was an increase in average assets under management, largely due to positive performance in the equity markets during 2003 and strategic investments such as the one in Third Avenue. Growth was particularly strong in the Mutual Fund and Institutional distribution channels.

AMG's debt structure has evolved with the issuance of $300 million in floating rate senior convertible securities in February 2003, significantly increasing its total liabilities. While this provides financial flexibility, investors should monitor the increased interest expense and the terms of these convertible securities, which could impact future share count upon conversion.

Minority interest represents the portion of profits allocated to the management owners of AMG's affiliated investment management firms. An increase in minority interest, as seen in the third quarter of 2003, generally reflects improved profitability at these affiliates, though it reduces the net income attributable to AMG's shareholders.

AMG's liquidity has improved, evidenced by a significant increase in cash and cash equivalents to $231.1 million. Key uses of cash include investments in new and existing affiliates, debt repayments, share repurchases, and operating expenses. The company has access to a $250 million senior revolving credit facility to support its liquidity needs.