Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

For the quarterly period ended June 30, 2002

OR

For the transition period from                              to                             

Commission File Number 001-13459

Affiliated Managers Group, Inc.
(Exact name of registrant as specified in its charter)

600 Hale Street, Prides Crossing, Massachusetts 01965
(Address of principal executive offices)

(617) 747-3300
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        There were 21,879,137 shares of the Registrant's Common Stock outstanding as of August 9, 2002.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

2

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

3

AFFILIATED MANAGERS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

4

1.    Basis of Presentation

        The consolidated financial statements of Affiliated Managers Group, Inc. (the "Company" or "AMG") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all of the disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. All material intercompany balances and transactions have been eliminated. All dollar amounts in these notes (except per share data) are stated in thousands, unless otherwise indicated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 includes additional information about AMG, its operations and its financial position, and should be read in conjunction with this quarterly report on Form 10-Q.

2.    Goodwill and Other Intangible Assets

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard No. 141 ("FAS 141"), "Business Combinations," and Financial Accounting Standard No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets." FAS 141 limits the method of accounting for business combinations to the purchase method and establishes new criteria for the recognition of other intangible assets. FAS 142 requires that goodwill and other intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. The Company adopted FAS 141 on July 1, 2001 and FAS 142 on January 1, 2002. In accordance with FAS 141, goodwill and any other intangible assets determined to have indefinite lives that were acquired in a purchase business combination after June 30, 2001 (i.e., Friess Associates, LLC and Welch & Forbes LLC) were not amortized from their respective dates of acquisition in the fourth quarter of 2001. All other goodwill and other intangible assets determined to have indefinite lives were no longer amortized beginning January 1, 2002. Pursuant to FAS 142, the Company has reviewed the goodwill acquired in prior business combinations for impairment, and determined that there was no impairment.

        The following table reflects our operating results adjusted as though the Company had not amortized goodwill and other indefinitely lived intangible assets in 2001.

        As further described in Note 4, the Company made payments to acquire interests in existing Affiliates during the six months ended June 30, 2002. The increase in the carrying amount of goodwill

5

associated with such transactions, as well as the carrying amounts of goodwill, are shown in the following table:

        The following table reflects the components of intangible assets as of June 30, 2002:

        The cost of amortizable acquired client relationships is amortized using the straight-line method over a weighted average life of approximately 16 years. Including incremental amortization attributable to the Company's investment in Third Avenue Management, which is described in Note 4, the Company estimates that amortization expense will be $13,800 for 2002, $14,500 for 2003, and $13,500 for 2004, 2005 and 2006.

3.    Derivative Financial Instruments

        On January 1, 2001, the Company adopted Financial Accounting Standard No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended by Financial Accounting Standard No. 138, "Accounting For Certain Derivative Instruments and Certain Hedging Activities." FAS 133 requires that all derivatives be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The cumulative effect of adopting FAS 133 was not material to the Company's consolidated financial statements.

        The Company is exposed to interest rate risk inherent in its debt liabilities. The Company's risk management strategy includes the use of financial instruments, specifically interest rate swap contracts, to hedge certain variable rate interest rate exposures. In entering into these contracts, AMG intends to offset relative cash flow gains and losses that occur due to changes in interest rates on its existing debt liabilities with cash flow losses and gains on the contracts hedging these liabilities. For example, the Company may agree with a counterparty (typically a major commercial bank) to exchange the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount.

        The Company records all derivatives on the balance sheet at fair value. As the Company's hedges are designated and qualify as cash flow hedges, the effective portion of the unrealized gain or loss on the derivative instrument is recorded in accumulated other comprehensive income as a separate component of stockholders' equity and reclassified into earnings when periodic settlement of variable rate liabilities are recorded in earnings. For interest rate swaps, hedge effectiveness is measured by comparing the present value of the cumulative change in the expected future variable cash flows of the hedged contract with the present value of the cumulative change in the expected future variable cash flows of the hedged item, both of which are based on LIBOR rates. To the extent that the critical

6

terms of the hedged item and the derivative are not identical, hedge ineffectiveness is reported in earnings as interest expense. Hedge ineffectiveness was not material in the second quarter of 2002.

        In February 2002, the Company entered into a $25,000 notional amount interest rate swap contract with a major commercial bank as counterparty to exchange the difference between fixed-rate and floating-rate interest amounts calculated by reference to the notional amount. This contract, which did not qualify for hedge accounting, was closed in the second quarter of 2002, and the realized loss, which was not material, was recorded in earnings.

        At June 30, 2002, the net amount of the Company's interest rate swap liability attributable to $25,000 notional amount of interest rate swap contracts outstanding was $400, which was recorded on the consolidated balance sheet in accounts payable and accrued liabilities. AMG estimates the fair values of derivatives based on quoted market prices. At June 30, 2002, the Company had recorded approximately $314 of net unrealized losses on derivative instruments, net of taxes, in accumulated other comprehensive income. AMG expects that 100% of these losses will be reclassified to earnings within one year.

4.    Acquisitions

        During the six months ended June 30, 2002, the Company made payments to acquire interests in existing Affiliates, which were financed through working capital and the issuance of notes.

        On August 8, 2002, the Company completed its acquisition of a majority equity interest in the business of New York-based Third Avenue Management, which serves as the adviser to the Third Avenue family of no-load mutual funds and the sub-adviser to non-proprietary mutual funds and annuities, and also manages separate accounts for high net worth individuals and institutions. The transaction was financed through the Company's working capital and borrowings under the Company's revolving credit facility, as described in greater detail in Note 8.

5.    Comprehensive Income

        The Company's comprehensive income includes net income, changes in unrealized foreign currency gains and losses and changes in unrealized gains and losses on derivative instruments, which also reflect the cumulative effect of adopting FAS 133. Comprehensive income, net of taxes, was as follows:

7

        The components of accumulated other comprehensive income, net of taxes, were as follows:

6.    Income Taxes

        A summary of the provision for income taxes is as follows:

        The components of deferred tax assets and liabilities are as follows:

        The Company's state net operating loss carryforwards expire from 2007 to 2016. The realization of these carryforwards is dependent on generating sufficient taxable income prior to their expiration. The valuation allowances at December 31, 2001 and June 30, 2002 relate to the uncertainty of the realization of these loss carryforwards.

7.    Earnings Per Share

        The calculation of basic earnings per share is based on the weighted average number of shares of the Company's Common Stock outstanding during the period. The calculation of diluted earnings per share gives effect to potential dilution from the Company's stock option plans. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share

8

computations. Unlike all other dollar amounts in these notes, net income in this table is not presented in thousands.