10-QPeriod: Q2 FY2007

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 9, 2007For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported solid financial performance for the quarter and six months ended June 30, 2007. Revenue and net income saw substantial year-over-year increases, driven by a significant rise in average assets under management across all distribution channels. This growth was fueled by positive investment performance, net client cash flows, and strategic acquisitions, notably the investment in Chicago Equity Partners. The company's balance sheet remains robust, with total assets slightly increasing and a significant improvement in total stockholders' equity. While debt levels are substantial due to various convertible securities and a revolving credit facility, AMG's leverage ratios appear manageable, supported by strong EBITDA performance. Investors should note the significant contingent liabilities related to potential purchases of affiliate equity interests, which represent a substantial financial commitment, though the timing and occurrence are uncertain.

Key Highlights

  • 1Revenue increased by 17% to $331.5 million for the three months ended June 30, 2007, compared to the same period in 2006.
  • 2Net income rose by 24% to $41.9 million for the three months ended June 30, 2007, compared to the prior year.
  • 3Average assets under management grew by 28% to $258.8 billion for the three months ended June 30, 2007.
  • 4Total stockholders' equity increased significantly from $591.9 million at the end of 2006 to $634.1 million as of June 30, 2007.
  • 5The company repurchased 24,007 shares of common stock during June 2007 under its announced repurchase program.
  • 6Interest expense increased by 22% to $18.4 million for the three months ended June 30, 2007, reflecting higher borrowings and interest rates on convertible securities.
  • 7Potential future purchases of affiliate equity interests are estimated at approximately $1.47 billion as of June 30, 2007.

Frequently Asked Questions

Revenue increased primarily due to a 28% rise in average assets under management, driven by positive investment performance, net client cash flows, and strategic investments, most notably in Chicago Equity Partners. The growth was observed across all three distribution channels: Mutual Fund, Institutional, and High Net Worth.

AMG's debt includes a senior revolving credit facility of $389.5 million, senior convertible securities totaling $408.9 million (zero coupon and floating rate), mandatory convertible securities of $300 million, and junior convertible trust preferred securities of $300 million. While total liabilities decreased slightly, the company has substantial convertible debt obligations. Interest expense increased due to higher borrowings and interest rates on floating rate convertible securities.

AMG has conditional rights to purchase equity interests from its affiliate management partners, and these partners also have rights to require AMG to purchase their interests. As of June 30, 2007, the estimated aggregate amount for these potential purchases was approximately $1.47 billion. While the exact timing and amount are uncertain, this represents a significant potential future financial commitment for the company.

AMG's liquidity is managed through cash generated from operations and financing activities. Key uses of cash include investments in affiliates, distributions to affiliate managers, debt servicing, and share repurchases. The company has a senior revolving credit facility available for borrowings and utilizes a cash management program for affiliates' excess cash. They assess leverage using a debt-to-EBITDA ratio, which was 1.7:1 at June 30, 2007.