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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 001-13459
AFFILIATED MANAGERS GROUP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 04-3218510
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
TWO INTERNATIONAL PLACE, BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 747-3300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK ($.01 PAR VALUE) NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. [ ]
Aggregate market value of the voting and non-voting Common Stock held by
non-affiliates of the Registrant, based upon the closing price of $50.00 on
March 23, 2000 on the New York Stock Exchange was $1,032,445,400. Calculation of
holdings by non-affiliates is based upon the assumption, for these purposes
only, that executive officers, directors, and persons holding 10% or more of the
Registrant's Common Stock (including the Registrant's Common Stock and Class B
Non-Voting Common Stock as if they were a single class) are affiliates. Number
of shares of the Registrant's Common Stock outstanding at March 23, 2000:
22,417,889 including 971,929 shares of Class B Non-Voting Common Stock. Unless
otherwise specified, the term Common Stock includes both Common Stock and
Class B Non-Voting Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this report on Form 10-K is
incorporated by reference from certain portions of the Proxy Statement of the
Registrant to be filed pursuant to Regulation 14A and sent to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 25, 2000.
Such Proxy Statement, except for the parts therein which have been specifically
incorporated herein by reference, shall not be deemed "filed" as part of this
report on Form 10-K.
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FORM 10-K
TABLE OF CONTENTS
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PART I........................................................................ 3
ITEM 1. BUSINESS.................................................... 3
ITEM 2. PROPERTIES.................................................. 21
ITEM 3. LEGAL PROCEEDINGS........................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 21
PART II....................................................................... 22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 22
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA.......................... 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 56
PART III...................................................................... 56
PART IV....................................................................... 56
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON 8-K... 56
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
We buy and hold equity interests in mid-sized investment management firms
(our "Affiliates") and currently derive all of our revenues from those firms. We
hold investments in 15 Affiliates that in aggregate managed $87.0 billion in
assets at December 31, 1999. Our most recent investments were in Rorer Asset
Management, LLC (January 1999), The Managers Funds LLC (April 1999), and
Frontier Capital Management Company, LLC (January 2000).
We were founded in 1993 to address the succession and ownership transition
issues facing the founders and principal owners of many mid-sized investment
management firms. We did this because we believed that many wanted a new
alternative for shifting ownership to the next generation of management. We
developed an innovative transaction structure to serve as a succession planning
alternative for these firms.
A key component of our transaction structure is our purchase of majority
interests in these firms, with certain exceptions (such as The Managers Funds
LLC ("Managers")) as further described below. Within this structure, we allow
ongoing managers to keep a significant ownership interest in their firms which
they may sell to us in the future, we give management autonomy over the
day-to-day operations of their firm, and we allow management to decide how to
spend a fixed portion of revenues on salaries, bonuses and other operating
expenses.
We implement our structure through a revenue sharing arrangement with each
of our Affiliates (other than Managers). This arrangement allocates a specified
percentage of revenues, typically 50-70%, for use by the Affiliate's management
in paying the salaries, bonuses and other operating expenses (the "Operating
Allocation") of the Affiliate. The remaining portion of revenues, typically
30-50% (the "Owners' Allocation"), is allocated to the owners of that Affiliate,
including us, generally in proportion to ownership of the Affiliate. At some
Affiliates, we receive a guaranteed payment for the use of our capital or a
license fee which in each case is paid from that portion of revenues which we
refer to as our Owners' Allocation. We believe that our structure is
particularly appealing to managers of firms which anticipate strong future
growth, because it gives them the opportunity to profit from an Affiliate's
growth through this revenue sharing arrangement. Unlike all other Affiliates,
Managers is not subject to a revenue sharing arrangement since we own
substantially all of the firm. As a result, we participate fully in any increase
or decrease in the revenues or expenses of the firm.
We generally seek to acquire interests in investment management firms with
$500 million to $15 billion of assets under management. The growth in the
investment management industry has resulted in a significant increase in the
number of firms in this size range. We have identified over 1,300 of these firms
in the United States, Canada and the United Kingdom. We believe that a
substantial number of investment opportunities will continue to arise as
founders of these firms approach retirement age and begin to plan for
succession. We also anticipate significant additional investment opportunities
in firms that are currently wholly-owned by larger entities. We believe that we
can take advantage of these investment opportunities because our management team
has substantial industry experience and expertise in structuring and negotiating
transactions, as well as a highly organized process for identifying and
contacting investment prospects.
HOLDING COMPANY OPERATIONS
Our management performs two primary functions:
- implementing our strategy of growth through acquisitions of interests in
prospective Affiliates; and
- supporting, enhancing, and monitoring the activities of our existing
Affiliates.
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ACQUISITION OF INTERESTS IN PROSPECTIVE AFFILIATES
The acquisition of interests in new Affiliates is a primary element of our
growth strategy. Our management takes responsibility for each step in this
process, including identification and contact of potential Affiliates, and the
valuation, structuring and negotiation of transactions. While we try to initiate
our discussions with potential Affiliates on an exclusive basis, we have been
competitive in cases where investment bankers have been involved.
Our management identifies and develops relationships with promising
potential Affiliates based on a thorough understanding of the universe of
mid-sized investment management firms derived from our proprietary database made
up of data from third party vendors, public and industry sources and our own
research. We use this database to screen and prioritize investment prospects. We
also use the database to monitor the level and frequency of interaction with
potential Affiliates. This database and our related contact management system
help us to identify promising potential Affiliates and to develop and maintain
relationships with these firms.
We try to increase awareness of our approach to investing by actively
participating in conferences and seminars related to succession planning for
investment management firms. These activities lead to a substantial number of
unsolicited calls from firms considering succession planning issues. In
addition, our management maintains an active calling program in order to develop
relationships with prospective Affiliates. In the past four years, our
management has visited approximately 475 firms. We believe we have established
ongoing relationships with a substantial number of firms which will be
considering succession planning alternatives in the future.
Once discussions with a target firm lead to transaction negotiations, our
management team performs all of the functions related to the valuation,
structuring and negotiation of the transaction. Our management team includes
professionals with substantial experience in mergers and acquisitions of
investment management firms.
Upon the negotiation and execution of definitive agreements, the target firm
contacts its clients to notify them and seek their consent to the transaction
(which constitutes an assignment of the firm's investment advisory contracts),
as required by the Investment Advisers Act of 1940, as amended. If the firm has
mutual fund clients, the firm seeks new contracts with those funds, as required
by the Investment Company Act of 1940, as amended. The new contracts must be
approved by the funds' shareholders through a proxy process.
Descriptions of our most recently completed Affiliate investments in Rorer
Asset Management, LLC ("Rorer"), Managers and Frontier Capital Management
Company, LLC ("Frontier") are set forth below.
RORER ASSET MANAGEMENT, LLC
Rorer is a value-oriented equity and fixed income manager based in
Philadelphia which offers four types of investment management accounts:
large-capitalization equity, mid-capitalization equity, balanced and fixed
income. Founded in 1978, Rorer is led by its founder, Chairman and Chief
Investment Officer Edward C. Rorer, and a committee including James G. Hesser,
President, and Clifford B. Storms, Jr., Director of Research.
THE MANAGERS FUNDS LLC
Managers is a mutual fund company based in Norwalk, Connecticut which
employs an innovative business model for The Managers Funds, a no-load mutual
fund family it manages and distributes, whereby it selects sub-advisers from a
universe of over a thousand investment managers. Managers also manages and
distributes Managers AMG Funds, a no-load mutual fund family. Essex Aggressive
Growth Fund, the first series of Managers AMG Funds, commenced operations on
November 1, 1999. The mutual funds advised by Managers are distributed to retail
and institutional clients directly and through intermediaries
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including independent investment advisers, 401(k) plan sponsors and alliances,
broker-dealers, major fund programs, and bank trust departments.
FRONTIER CAPITAL MANAGEMENT COMPANY, LLC
Frontier is a Boston-based investment adviser, which provides investment
services to a diverse client base including corporate, public and multi-employer
pension and profit sharing plans, foundations, endowment and high net worth
individuals. Frontier employs a disciplined stock selection process driven by
internal research which targets companies with prospects for above-average
earnings growth over extended time periods. The firm offers a broad range of
investment management products, including small-cap growth equity, growth
equity, capital appreciation, mid-cap growth equity, large-cap growth equity,
balanced, and long/short investment partnerships. Frontier was founded in 1980
by the firm's Chairman, J. David Wimberly, who, along with President Thomas W.
Duncan and Frontier's other management partners, continue to lead the firm.
AFFILIATE DEVELOPMENT
In addition to pursuing new investments, we seek to support and enhance the
growth and operations of our Affiliates. We believe that the management of each
Affiliate is in the best position to assess its firm's needs and opportunities,
and that the autonomy and culture of each Affiliate should be preserved.
However, we provide strategic, marketing and operational assistance to our
Affiliates, and believe that our Affiliates find these support services
attractive because the services otherwise may not be as accessible or affordable
to mid-sized investment management firms.
One way we support the growth and operations of our Affiliates is by
providing a cost-effective way to access the mutual fund marketplace through our
Affiliate, Managers. In November 1999, we launched Managers AMG Funds, a no-load
mutual fund family managed by Managers and distributed to retail and
institutional clients directly by Managers and through intermediaries. The first
series in this family of funds is the Essex Aggressive Growth Fund, which is
sub-advised by our Affiliate, Essex Investment Management Company, LLC.
Another way we seek to enhance the growth of our Affiliates is by helping
them acquire smaller investment management firms or teams which are not suitable
as stand-alone investments for us. Mid-sized firms may have difficulty finding
and capitalizing on these opportunities on their own. As an example, in
December 1999, we assisted our Affiliate, First Quadrant, L.P. in the
acquisition of Objective Asset Management Ltd. ("Objective").
Other initiatives to support our Affiliates have included:
- new product development,
- marketing material development,
- institutional sales assistance,
- recruiting,
- compensation evaluation,
- development of client servicing technology,
- regulatory compliance audits, and
- client satisfaction surveys.
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We also work to obtain discounts on some of the products and services that
our Affiliates need, such as:
- sales training seminars,
- public relations services,
- insurance, and
- retirement benefits.
OUR STRUCTURE AND RELATIONSHIP WITH AFFILIATES
As part of our investment structure, each of our Affiliates is organized as
a separate and largely autonomous limited liability company or partnership. Each
Affiliate operates under its own organizational document, either a limited
liability company agreement or partnership agreement, which includes provisions
regarding the use of the Affiliate's revenues and the management of the
Affiliate. The organizational document also generally gives management owners
the ability to realize the value of their retained equity interests in the
future. While the organizational document of each Affiliate is agreed upon at
the time of our investment, from time to time we agree to amendments to
accommodate our business needs or those of our Affiliates.
OPERATIONAL AUTONOMY OF AFFILIATES
We develop the management provisions in each organizational document jointly
with the Affiliate's senior management at the time we make our investment. Each
organizational document has provisions that differ from the others. However, all
of them (with the exception of the organizational documents of Managers) give
the Affiliate's management team the power and authority to carry on the
day-to-day operations and management of the Affiliate, including matters
relating to:
- personnel,
- investment management,
- policies and fee structures,
- product development,
- client relationships, and
- employee compensation programs.
In the case of Managers, the organizational documents do not provide such
operational and management autonomy.
We retain, however, the authority to prevent specified types of actions
which we believe could adversely affect cash distributions to us, as well as the
authority to cause certain types of actions to protect our interests. For
example, none of the Affiliates may incur material indebtedness without our
consent. We do not directly engage in the business of providing investment
advice and, therefore, are not registered as an investment adviser.
REVENUE SHARING ARRANGEMENTS
When we make an investment in an Affiliate (other than Managers), we
negotiate a revenue sharing arrangement with that Affiliate, which we place in
its organizational document. The revenue sharing arrangement allocates a
percentage of revenues (typically 50-70%) for use by management of that
Affiliate in paying operating expenses of the Affiliate, including salaries and
bonuses. We call this the "Operating Allocation". We determine the percentage of
revenues designated as Operating Allocation for each
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Affiliate in consultation with senior management of the Affiliate at the time of
our investment based on the Affiliate's historical and projected operating
margins. The organizational document of each Affiliate allocates the remaining
portion of the Affiliate's revenues (typically 30-50%) to the owners of that
Affiliate (including us), generally in proportion to their ownership of the
Affiliate. We call this the "Owners' Allocation" because it is the portion of
revenues which the Affiliate's management is prohibited from spending on
operating expenses without our prior consent. Each Affiliate distributes its
Owners' Allocation to its management owners and us generally in proportion to
our respective ownership interests in that Affiliate. At some Affiliates, we
receive a guaranteed payment for the use of our capital or a license fee which
in each case is paid from that portion of revenues which we refer to as our
Owners' Allocation. Unlike all other Affiliates, Managers is not subject to a
revenue sharing arrangement since we own substantially all of the firm. As a
result, we participate fully in any increase or decrease in the revenues or
expenses of Managers.
Before agreeing to these allocations, we examine the revenue and expense
base of the firm. We only agree to a division of revenues if we believe that the
Operating Allocation will cover operating expenses of the Affiliate, including
in cases involving a foreseeable increase in expenses, or a likely decrease in
revenues without a corresponding decrease in operating expenses. While our
management has significant experience in the asset management industry, we
cannot be certain that we will successfully anticipate changes in the revenue
and expense base of any firm. Therefore, we cannot be certain that the
agreed-upon Operating Allocation will be large enough to pay for all operating
expenses, including salaries and bonuses of the Affiliate.
One of the purposes of our revenue sharing arrangements is to provide
ongoing incentives for the managers of each Affiliate by allowing them:
- to participate in their firm's growth through their compensation from the
Operating Allocation,
- to receive a portion of the Owners' Allocation based on their ownership
interest in the Affiliate, and
- to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and bonuses
for management of the Affiliate.
The managers of each Affiliate, therefore, have an incentive to both
increase revenues (thereby increasing the Operating Allocation and their Owners'
Allocation) and to control expenses (thereby increasing the excess Operating
Allocation).
The revenue sharing arrangements allow us to participate in the revenue
growth of each Affiliate because we receive a portion of the additional revenue
as our share of the Owners' Allocation. However, we participate in that growth
to a lesser extent than the managers of the Affiliate, because we do not share
in the growth of the Operating Allocation.
Under the organizational documents of each Affiliate (other than Managers),
the allocations and distributions of cash to us generally take priority over the
allocations and distributions to the management owners of each Affiliate. This
further protects us if there are any expenses in excess of the Operating
Allocation of an Affiliate. Thus, if an Affiliate's expenses exceed its
Operating Allocation, the excess expenses first reduce the portion of the
Owners' Allocation allocated to the Affiliate's management owners until that
portion is eliminated, and then reduce the portion allocated to us. Any such
reduction in our portion of the Owners' Allocation is required to be paid back
to us out of the portion of future Owners' Allocation allocated to the
Affiliate's management owners. Unlike all other Affiliates, Managers is not
subject to a revenue sharing arrangement since we own substantially all of the
firm. As a result, we participate fully in any increase or decrease in the
revenues or expenses of Managers.
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OUR PURCHASE OF ADDITIONAL INTERESTS IN OUR EXISTING AFFILIATES
Under our transaction structure, the management team at each Affiliate
retains an ownership interest in its own firm. We consider this a key way that
we provide management owners with incentives to grow their firms. In order to
provide as much incentive as we can, we include in the organizational documents
of each Affiliate (other than Paradigm Asset Management Company, LLC) "put"
rights for its management owners. The put rights require us periodically to buy
part of the management owners' interests in the Affiliate for cash, shares of
our Common Stock or a combination of both. In this way, the management owners
can realize a portion of the equity value that they have created in their firm.
In addition, the organizational documents of some of our Affiliates provide us
with "call" rights that let us require the management owners to sell us portions
of their interests in the Affiliate. Finally, the organizational documents of
each Affiliate include provisions obligating each such owner to sell his or her
remaining interests at a point in the future, generally after the termination of
his or her employment with the Affiliate. Underlying all of these provisions is
our basic philosophy that management owners of each Affiliate should maintain an
ownership level in that Affiliate within a range that offers them sufficient
incentives to grow and improve their business to create equity value for
themselves.
PUT RIGHTS
The put rights are designed to let the management owners sell portions of
their retained ownership interest for cash, shares of our Common Stock or a
combination of both, prior to their retirement. In addition, as an alternative
to simply purchasing all of a management owner's interest in the Affiliate
following the termination of his or her employment, the put rights enable us to
purchase additional interests in the Affiliates at a more gradual rate. We
believe that a more gradual purchase of interests in Affiliates will make it
easier for us to keep our ownership of each Affiliate within a desired range. We
intend to continue providing equity participation opportunities in our
Affiliates to more junior members of their management as well as to key new
hires.
In most cases, the put rights do not become exercisable for a period of
several years from the date of our investment in an Affiliate. Once exercisable,
the put rights generally are limited in the aggregate to a percentage of the
management owner's ownership interests. The most common formulation among all
the Affiliates is that a management owner's put rights:
- do not commence for five years from the date of our investment (or, if
later, the date he or she purchased his or her interest in the Affiliate),
- are limited, in the aggregate, to fifty percent of the management owner's
interests in the Affiliate, and
- are limited, in any twelve-month period, to ten percent of the greatest
interest he or she held in the Affiliate. In addition, the organizational
documents of the Affiliates often contain a limitation on the maximum
total amount that management of any Affiliate may require us to purchase
pursuant to their put rights in any given twelve-month period.
The purchase price under the put rights is generally based on a multiple of
the Affiliate's Owners' Allocation at the time the right is exercised, with the
multiple generally having been determined at the time we made our initial
investment.
CALL RIGHTS
The call rights are designed to assure us and the management members of some
of our Affiliates that we can facilitate some transition within the senior
management team after an agreed-upon period of time. The call rights vary in
each specific instance, but in all cases the timing, mechanism and price are
agreed upon when we make our investment. The price is payable in cash, shares of
our Common Stock or a combination of both.
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BUY-OUT RIGHTS
The organizational documents of each Affiliate provide that the management
owners will realize the remaining equity value they have created generally
following the termination of their employment with the Affiliate. In general,
upon a management owner's retirement after an agreed-upon number of years, or
upon his or her earlier death, permanent incapacity or termination without cause
(but with our consent), that management owner is required to sell to us (and we
are required to purchase from the management owner) his or her remaining
interests. The purchase price in these cases is payable either in cash, shares
of our Common Stock or a combination of both. The purchase price is generally
based on the same formulas that apply to put rights. In general, if a management
owner quits early or is terminated for cause, his or her interests will be
purchased by us for cash at a substantial discount to the price that he or she
would otherwise be paid. Also, if a management owner quits or is terminated for
cause within the first several years following our investment (or, if later, the
date the management owner purchased his or her interest in the Affiliate), the
management owner generally receives nothing for his or her retained interest.
If an Affiliate collects any key-man life insurance or lump-sum disability
insurance proceeds upon the death or permanent incapacity of a management owner,
the Affiliate must use that money to purchase his or her interests. A purchase
by an Affiliate would have the effect of ratably increasing our ownership
percentage as well as each of the remaining management owners. By contrast, the
purchase of interests by us only increases our ownership percentage. The
organizational documents of most of the Affiliates provide for the purchase of
such insurance, to the extent we have requested it. The premium costs are
subtracted from the Owners' Allocation of the Affiliate, so all of the
Affiliate's owners (including AMG and management) bear this cost.
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THE AFFILIATES
In general, our Affiliates derive revenues by charging fees to their clients
that are typically based on the market value of assets under management. In some
instances, however, the Affiliates may derive revenues from fees based on
investment performance.
Our Affiliates are listed below in alphabetical order and include Frontier
Capital Management Company, LLC, in which we invested in January 2000. We own a
majority interest of each of our Affiliates other than Paradigm, and as
described above, we own substantially all interests in Managers.
<TABLE>
<CAPTION>
PRINCIPAL DATE OF
AFFILIATE LOCATION(S) INVESTMENT
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The Burridge Group LLC ("Burridge") Chicago; Seattle December 1996
Davis Hamilton Jackson & Associates, L.P. ("DHJA") Houston December 1998
Essex Investment Management Company, LLC ("Essex") Boston March 1998
First Quadrant, L.P.; First Quadrant Limited Pasadena, CA;
(collectively, "First Quadrant") London March 1996
Frontier Capital Management Company, LLC ("Frontier") Boston January 2000
GeoCapital, LLC ("GeoCapital") New York September 1997
Gofen and Glossberg, L.L.C. ("Gofen and Glossberg") Chicago May 1997
J.M. Hartwell Limited Partnership ("Hartwell") New York May 1994
The Managers Funds LLC ("Managers") Norwalk, CT April 1999
Paradigm Asset Management Company, L.L.C. ("Paradigm") New York May 1995
Renaissance Investment Management ("Renaissance") Cincinnati November 1995
Rorer Asset Management, LLC ("Rorer") Philadelphia January 1999
Skyline Asset Management, L.P. ("Skyline") Chicago August 1995
Systematic Financial Management, L.P. ("Systematic") Teaneck, NJ May 1995
Tweedy, Browne Company LLC ("Tweedy, Browne") New York; London October 1997
</TABLE>
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The following table provides the pro forma composition of our assets under
management and relative EBITDA Contribution of our Affiliates for the year ended
December 31, 1999. All amounts below are pro forma for the inclusion of the
Rorer, Managers and Frontier investments and financing transactions as if such
transactions occurred on January 1, 1999.
PRO FORMA
ASSETS UNDER MANAGEMENT AND EBITDA CONTRIBUTION(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------
ASSETS
UNDER PERCENTAGE EBITDA PERCENTAGE
MANAGEMENT OF TOTAL CONTRIBUTION OF TOTAL
------------- ---------- -------------- ----------
(IN MILLIONS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
CLIENT TYPE:
Institutional................................... $ 59,724 69% $128,104 63%
Mutual fund..................................... 7,474 9 31,936 16
High net worth.................................. 15,926 18 36,912 18
Other........................................... 3,904 4 5,994 3
-------- --- -------- ---
Total......................................... $ 87,028 100% $202,946 100%
======== === ======== ===
ASSET CLASS:
Equity.......................................... $ 56,420 65% $179,240 88%
Fixed income.................................... 4,495 5 10,808 5
Tactical asset allocation....................... 26,113 30 12,898 7
-------- --- -------- ---
Total......................................... $ 87,028 100% $202,946 100%
======== === ======== ===
GEOGRAPHY:
Domestic investments............................ $ 63,557 73% $157,141 77%
Global investments.............................. 23,471 27 45,805 23
-------- --- -------- ---
Total......................................... $ 87,028 100% $202,946 100%
======== === ======== ===
OTHER PRO FORMA FINANCIAL DATA:
RECONCILIATION OF EBITDA CONTRIBUTION TO EBITDA:
Total EBITDA Contribution (as above).......... $202,946
========
Less holding company expenses................. (17,653)
========
EBITDA(2)..................................... $185,293
========
Cash Net Income(3)............................ $112,593
========
HISTORICAL FINANCIAL DATA:
Cash flow from operating activities........... $ 89,119
Cash flow used in investing activities........ (112,939)
Cash flow from financing activities........... 54,035
EBITDA(2)..................................... $166,801
Cash Net Income(3)............................ 98,318
========
</TABLE>
- ------------------------
(1) EBITDA Contribution represents the portion of an Affiliate's revenues that
is allocated to us, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate.
EBITDA Contribution does not include holding company expenses. We believe
that EBITDA Contribution may be useful to investors as an indicator of our
Affiliate contribution to our ability to service debt, to
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make new investments and to meet working capital requirements. EBITDA
Contribution is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. EBITDA Contribution, as
calculated by us, may not be consistent with comparable computations by
other companies.
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and extraordinary items. We believe EBITDA may
be useful to investors as an indicator of our ability to service debt, to
make new investments and to meet working capital requirements. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of operating performance or to cash flows from operating activities
as a measure of liquidity. EBITDA, as calculated by us, may not be
consistent with computations of EBITDA by other companies.
(3) Cash Net Income represents net income plus depreciation and amortization
and extraordinary items. We believe that this measure may be useful to
investors as another indicator of funds available to the Company, which may
be used to make new investments, repay debt obligations, repurchase shares
of Common Stock or pay dividends on Common Stock. Cash Net Income is not a
measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of operating performance or to cash flows from operating activities
as a measure of liquidity. Cash Net Income, as calculated by us, may not be
consistent with computations of Cash Net Income by other companies. Cash Net
Income as defined herein has historically been referred to by us as "EBITDA
as adjusted".
INDUSTRY
ASSETS UNDER MANAGEMENT
The investment management sector is one of the fastest growing sectors in
the financial services industry with record performance and growth in recent
years. As one example of this growth, the assets under management of mutual
funds increased 24% to $6.8 trillion in 1999, the fifth consecutive year of more
than 20% growth, according to the Investment Company Institute. Mutual fund
assets represent only a portion of the funds available for investment
management, as substantial assets are managed on behalf of individuals in
separate accounts, for foundations and endowments, as a portion of certain
insurance contracts such as variable annuity plans and on behalf of corporations
and other financial intermediaries. We believe that demographic trends and the
ongoing disintermediation of bank deposits and life insurance reserves will
result in continued growth of the investment management industry.
INVESTMENT ADVISERS
The growth in industry assets under management has resulted in a significant
increase in the number of investment management firms within our principal
targeted size range of $500 million to $15 billion of assets under management.
Within this size range, we have identified over 1,300 investment management
firms in the United States, Canada and the United Kingdom. We believe that, in
the coming years, a substantial number of investment opportunities will arise as
founders of such firms approach retirement age and begin to plan for succession.
We also anticipate that there will be significant additional investment
opportunities among firms which are currently wholly-owned by larger entities.
We believe that we are well positioned to take advantage of these investment
opportunities because we have a management team with substantial industry
experience and expertise in structuring and negotiating transactions, as well as
a highly organized process for identifying and contacting investment prospects.
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COMPETITION
We operate as an asset management holding company organized to buy and hold
equity interests in mid-sized investment management firms. We are aware of
several other holding companies that have been organized to invest in or acquire
investment management firms and we view these firms as among our competitors. We
believe that the market for investments in asset management companies is and
will continue to remain highly competitive. We compete with many purchasers of
investment management firms, including other investment management holding
companies, insurance companies, broker-dealers, banks and private equity firms.
Many of these companies, both privately and publicly held, have longer operating
histories and greater resources than we do, which may make them more attractive
to the owners of firms in which we are considering an investment and may enable
them to offer greater consideration to such owners. Certain of our principal
stockholders also pursue investments in, and acquisitions of, investment
management firms, and we may, from time to time, encounter competition from such
principal stockholders with respect to certain investments. We believe that
important factors affecting our ability to compete for future investments are
(i) the degree to which target firms view our investment structure as
preferable, financially and operationally, to acquisition or investment
arrangements offered by other potential purchasers, and (ii) the reputation and
performance of the existing and future Affiliates, by which target firms will
judge us and our future prospects.
Our Affiliates compete with a large number of domestic and foreign
investment management firms, including public companies, subsidiaries of
commercial banks, and insurance companies. Many of these firms have greater
resources and assets under management than any of our Affiliates, and offer a
broader array of investment products and services than any of our Affiliates.
From time to time, our Affiliates may also compete with each other for clients.
In addition, there are relatively few barriers to entry by new investment
management firms, especially in the institutional managed accounts business. We
believe that the most important factors affecting our Affiliates' ability to
compete for clients are (i) the products offered, (ii) the abilities,
performance records and reputation of the particular Affiliate and its
management team, (iii) the management fees charged, (iv) the level of client
service offered, and (v) the development of new investment strategies and
marketing. The relative importance of each of these factors can vary depending
on the type of investment management service involved. Each Affiliate's ability
to retain and increase assets under management would be adversely affected if
client accounts underperform in comparison to relevant benchmarks, or if key
management or employees leave the Affiliate. The ability of each Affiliate to
compete with other investment management firms is also dependent, in part, on
the relative attractiveness of its investment philosophies and methods under
then prevailing market conditions.
GOVERNMENT REGULATION
Our Affiliates' businesses are highly regulated, primarily by U.S. federal
authorities and to a lesser extent by other authorities including non-U.S.
authorities. The failure of our Affiliates to comply with laws or regulations
could result in fines, suspensions of individual employees or other sanctions,
including revocation of an Affiliate's registration as an investment adviser,
commodity trading advisor or broker/ dealer. Each of our Affiliates (other than
First Quadrant Limited) is registered as an investment adviser with the
Securities and Exchange Commission under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and is subject to the provisions of the
Investment Advisers Act and related regulations. The Investment Advisers Act
requires registered investment advisers to comply with numerous obligations,
including record keeping requirements, operational procedures and disclosure
obligations. Each of our Affiliates (other than First Quadrant Limited) is also
subject to regulation under the securities laws and fiduciary laws of several
states. Moreover, some of our Affiliates, including Tweedy, Browne, Managers and
Skyline, act as advisers or sub-advisers to mutual funds which are registered
with the Securities and Exchange Commission pursuant to the Investment Company
Act of 1940, as amended (the "1940 Act"). As an adviser or sub-adviser to a
registered investment company, each of these Affiliates must comply with the
requirements of the 1940 Act and related regulations. In addition, an adviser or
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subadviser to a registered investment company generally has obligations with
respect to the qualification of the registered investment company under the
Internal Revenue Code of 1986, as amended.
Our Affiliates are also subject to the Employee Retirement Income Security
Act of 1974 ("ERISA"), and related regulations, to the extent they are
"fiduciaries" under ERISA with respect to some of their clients. ERISA and
related provisions of the Internal Revenue Code of 1986, as amended, impose
duties on persons who are fiduciaries under ERISA, and prohibit some
transactions involving the assets of each ERISA plan which is a client of an
Affiliate, as well as some transactions by the fiduciaries (and several other
related parties) to such plans. Two of our Affiliates, First Quadrant and
Renaissance, are also registered with the Commodity Futures Trading Commission
as commodity trading advisers and are members of the National Futures
Association. Finally, Tweedy, Browne and Managers are registered under the
Exchange Act as a broker-dealers and, therefore, are subject to extensive
regulation relating to sales methods, trading practices, the use and safekeeping
of customers' funds and securities, capital structure, record keeping and the
conduct of directors, officers and employees.
Furthermore, the Investment Advisers Act and the 1940 Act provide that each
investment management contract under which our Affiliates manage assets for
other parties either terminates automatically if assigned, or must state that it
is not assignable without consent. In general, the term "assignment" includes
not only direct assignments, but also indirect assignments which may be deemed
to occur upon the direct or indirect transfer of a "controlling block" of our
voting securities or the voting securities of one of our Affiliates. The 1940
Act provides that all investment contracts with mutual fund clients may be
terminated by such clients, without penalty, upon no later than 60 days' notice.
Several of our Affiliates are also subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies. For example, First Quadrant
Limited, located in London, is a member of the Investment Management Regulatory
Organization of the United Kingdom, and some of our other Affiliates are
investment advisers to funds which are organized under non-U.S. jurisdictions,
including Luxembourg (where the funds are regulated by the Institute Monetaire
Luxembourgeois) and Bermuda (where the funds are regulated by the Bermuda
Monetary Authority).
The foregoing laws and regulations generally grant supervisory agencies and
bodies broad administrative powers, including the power to limit or restrict any
of the Affiliates from conducting their business in the event that they fail to
comply with such laws and regulations. Possible sanctions that may be imposed in
the event of such noncompliance include the suspension of individual employees,
limitations on the Affiliate's business activities for specified periods of
time, revocation of the Affiliate's registration as an investment adviser,
commodity trading adviser and/or other registrations, and other censures and
fines. Changes in these laws or regulations could have a material adverse impact
on our profitability and mode of operations.
Our officers, directors and employees and the officers and employees of each
of the Affiliates may own securities that are also owned by one or more of the
Affiliates' clients. We and each Affiliate have internal policies with respect
to individual investments and require reports of securities transactions and
restrict certain transactions so as to minimize possible conflicts of interest.
EMPLOYEES
As of December 31, 1999, we had 25 employees and our Affiliates employed
approximately 571 persons, approximately 518 of which were full-time employees.
Neither we nor any of our Affiliates is subject to any collective bargaining
agreements and we believe that our labor relations are good.
CORPORATE LIABILITY AND INSURANCE
Our Affiliates' operations entail the inherent risk of liability related to
litigation from clients and actions taken by regulatory agencies. In addition,
we face liability both directly as a control person of our
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Affiliates, and indirectly as a general partner of certain of our Affiliates. To
protect our overall operations from such liability, we maintain errors and
omissions and general liability insurance in amounts which we and our Affiliates
consider appropriate. There can be no assurance, however, that a claim or claims
will not exceed the limits of available insurance coverage, that any insurer
will remain solvent and will meet its obligations to provide coverage, or that
such coverage will continue to be available with sufficient limits or at a
reasonable cost. A judgment against one of our Affiliates in excess of available
coverage could have a material adverse effect on us.
CAUTIONARY STATEMENTS
Our growth strategy includes acquiring ownership interests in mid-sized
investment management firms. To date, we have invested in 15 such firms. We
intend to continue this investment program in the future, assuming that we can
find suitable firms to invest in and that we can negotiate agreements on
acceptable terms. We cannot be certain that we will be successful in finding or
investing in such firms or that they will have favorable operating results.
We have been in operation for six years and had net losses in the first four
years. While historically our growth came largely from making new investments,
in recent periods the performance of our existing Affiliates has become
increasingly important to our growth. We may not be successful in making new
investments and the firms we invest in may fail to carry out their growth or
management succession plans. As we continue to execute our business strategy, we
may experience net losses in the future, which could have an adverse effect on
our financial condition and prospects.
A large part of the purchase price we pay for the firms in which we invest
usually consists of cash. We believe that our existing cash resources and cash
flow from operations will be sufficient to meet our working capital needs for
normal operations for the foreseeable future. However, we expect that these
sources of capital will not be sufficient to fund anticipated investments in
firms. Therefore, we will need to raise capital by making additional long-term
or short-term borrowings or by selling shares of our stock, either publicly or
privately, in order to complete further investments. This could increase our
interest expense, decrease our net income or dilute the interests of our
existing shareholders. Moreover, we may not be able to obtain financing for
future investments on acceptable terms, if at all.
In January 2000, we closed our most recent investment in Frontier. After
borrowings from our credit facility related to Frontier and other borrowing and
repayment activity after December 31, 1999, we had $240.5 million of outstanding
debt and $89.5 million available to borrow under our credit facility at
March 23, 2000. We can use borrowings under our credit facility for future
investments and for our working capital needs only if we continue to meet the
financial tests under the terms of our credit facility. We may also expand our
credit facility by an additional $70 million with the consent of our lenders. We
anticipate that we will borrow more in the future when we invest in additional
investment management firms. This will subject us to the risks normally
associated with debt financing.
Our credit facility contains provisions for the benefit of our lenders which
could operate in ways that restrict the manner in which we can conduct our
business or may have an adverse impact on the interests of our stockholders. For
example:
- Our borrowings under the credit facility are collateralized by pledges of
all of our interests in our Affiliates (including all interests indirectly
held through wholly-owned subsidiaries).
- Our credit facility contains, and future debt instruments may contain,
restrictive covenants that could limit our ability to obtain additional
debt financing and could adversely affect our ability to make future
investments in investment management firms.
- Our credit facility prohibits us from paying dividends and other
distributions to our stockholders and restricts us, our Affiliates and any
other subsidiaries we may have from incurring indebtedness,
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incurring liens, disposing of assets and engaging in extraordinary
transactions. We are also required to comply with the credit facility's
financial covenants on an ongoing basis.
- We cannot borrow under our credit facility unless we comply with its
requirements.
Because indebtedness under our credit facility bears interest at variable
rates, interest rate increases will increase our interest expense, which could
adversely affect our cash flow and ability to meet our debt service obligations.
Although we have entered into interest rate "hedging" contracts designed to
offset a portion of our exposure to interest rate fluctuations above specified
levels, we cannot be certain that we will continue to maintain such hedging
contracts at their existing levels of coverage, the coverage maintained will
cover all our indebtedness outstanding at any such time, or that this strategy
will be effective. If prevailing interest rates drop below levels set in our
hedging contracts, we may have to pay higher interest rates under the hedging
contracts than would otherwise apply under the actual indebtedness.
Our credit facility matures in December 2002. We may not be able to obtain
new financing at terms similar to our current facility, which may have the
effect of increasing our interest expense, decreasing our net income or diluting
the interests of our existing shareholders.
At December 31, 1999, our total assets were $909.1 million, of which
$574.9 million were intangible assets consisting of acquired client
relationships and goodwill. We cannot be certain that we will ever realize the
value of such intangible assets. We are amortizing (writing off) these
intangible assets on a straight-line basis over periods ranging from eight to
28 years in the case of acquired client relationships and 15 to 35 years in the
case of goodwill. Pro forma for all investments in our Affiliates to date,
amortization of intangible assets, including goodwill, would have resulted in a
charge to operations of $26.9 million for the year ended December 31, 1999.
We evaluate each investment and establish appropriate amortization periods
based on a number of factors including:
- the firm's historical and potential future operating performance and rate
of attrition among clients,
- the stability and longevity of existing client relationships,
- the firm's recent, as well as long-term, investment performance,
- the characteristics of the firm's products and investment styles,
- the stability and depth of the firm's management team, and
- the firm's history and perceived franchise or brand value.
After making each investment, we reevaluate these and other factors on a
regular basis to determine if the related intangible assets continue to be
realizable and if the amortization period continues to be appropriate. In 1995
and 1996, our reevaluations resulted in the write-off of approximately
$2.5 million and $4.6 million of unamortized goodwill, respectively.
Any future determination requiring the write-off of a significant portion of
unamortized intangible assets could adversely affect our results of operations
and financial position. In addition, we intend to invest in additional
investment management firms in the future. While these firms may contribute
additional revenue to us, they will also result in the recognition of additional
intangible assets which will cause further increases in amortization expense.
In September 1999, the Financial Accounting Standards Board ("FASB")
released for preliminary public comment its new approach to the accounting for
business combinations and intangible assets. The FASB's approach provides for
one method of accounting, the purchase method, for business combinations
consummated after the approach is effective. The FASB's approach will also limit
the goodwill amortization period to 20 years. As proposed, the new approach will
not apply to goodwill recorded on transactions
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initiated before the approach is effective. The final statement on this issue,
which is expected to be released and effective in the fourth quarter of 2000,
may present a different approach.
We currently amortize goodwill purchased in our 15 investments on a straight
line basis ranging from 15 to 35 years. As a result of the FASB approach or
otherwise, any changes in generally accepted accounting principles ("GAAP") that
reduce the period over which we may amortize goodwill may impact our acquisition
strategy and have an adverse effect our financial results. A shorter goodwill
amortization period would increase annual amortization expense and reduce our
net income over the amortization period.
We depend on the efforts of William J. Nutt, our Chairman and Chief
Executive Officer, Sean M. Healey, our President and Chief Operating Officer,
and our other officers. Messrs. Nutt and Healey, in particular, play an
important role in identifying suitable investment opportunities for us.
Messrs. Nutt and Healey do not have employment agreements with us, although each
of them has a significant equity interest in us (including options subject to
vesting provisions).
In addition, Essex and Tweedy, Browne, our largest two Affiliates based on
revenue, depend heavily on the services of key principals, who have managed
their firms for over 20 years and are primarily responsible for all investment
decisions. Although each of the principals has a significant equity interest in
their firm and has entered into an employment agreement with their respective
firm providing for continued employment until October 2007 (in the case of
Tweedy, Browne) and March 2008 (in the case of Essex), these arrangements are
not a guarantee that such principals will remain with their firms until that
date.
Our loss of key management personnel or our inability to attract, retain and
motivate sufficient numbers of qualified management personnel may adversely
affect our business. The market for investment managers is extremely competitive
and is increasingly characterized by frequent movement by investment managers
among different firms. In addition, because individual investment managers at
our Affiliates often maintain a strong, personal relationship with their clients
based on the clients' trust in individual managers, the loss of a key investment
manager at an Affiliate could jeopardize the Affiliate's relationships with its
clients and lead to the loss of client accounts. Losing client accounts in these
circumstances could have a material adverse effect on the results of our
operations and our financial condition and that of our Affiliates. Although we
use a combination of economic incentives, vesting provisions, and, in some
instances, non-solicitation agreements and employment agreements in an attempt
to retain key management personnel, we cannot guarantee that key managers will
remain with us.
Because our Affiliates offer a broad range of investment management services
and utilize a number of distribution channels, changing conditions in the
financial and securities markets directly affect our performance.
The financial markets and the investment management industry in general have
experienced both record performance and record growth in recent years. For
example, for the five years ended December 31, 1999, the S&P 500 Index
appreciated at an average annual rate of 28.6%. The assets under management of
mutual funds increased 24% to $6.8 trillion in 1999, the fifth consecutive year
of more than 20% growth, according to the Investment Company Institute. Domestic
and foreign economic conditions and general trends in business and finance,
among other factors, affect the financial markets and businesses operating in
the securities industry. We cannot guarantee that broader market performance
will be favorable in the future. Any decline in the financial markets or a lack
of sustained growth may result in a corresponding decline in our Affiliates'
performance and may cause our Affiliates to experience declining assets under
management and/or fees, which would reduce cash flow distributable to us.
Our Affiliates derive almost all of their revenues from investment
management contracts. These contracts are typically terminable without penalty
upon 60 days' notice in the case of mutual fund clients or upon 30 days' notice
in the case of individual and institutional clients. As a result, our
Affiliates' clients
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may withdraw funds from accounts managed by the Affiliates at their election. In
addition, these contracts generally provide for payment based on the market
value of assets under management, although a portion also provide for payment
based on investment performance. Because most of these contracts provide for
payments based on market values of securities, fluctuations in securities prices
will directly affect our consolidated results of operations and financial
condition. Changes in our clients' investment patterns will also affect the
total assets under management. Moreover, some of our Affiliates' fees are higher
than those of other investment managers for similar types of investment
services. The ability of each of our Affiliates to maintain its fee levels in a
competitive environment depends on its ability to provide clients with
investment returns and services which are satisfactory to its clients. We cannot
be certain that our Affiliates will be able to retain their existing clients or
to attract new clients at their current fee levels.
As noted above, investment management contracts at certain of our Affiliates
provide that fees are paid on the basis of investment performance. Fees based on
investment performance are inherently dependent on investment results, and
therefore may vary substantially from year to year. In particular,
performance-based fees have been of an unusual magnitude in recent years, and
may not recur to the same magnitude in future years, if at all. In addition,
while the performance-based fee contracts of our Affiliates apply to investment
management services in a range of investment management styles and securities
market sectors, such contracts may be concentrated in certain styles and
sectors. For example, in each of 1998 and 1999 we benefited from a concentration
of such products in technology sectors which performed well in those years. To
the extent such contracts are concentrated within styles or sectors, they are
subject to the continuing impact of fluctuating securities prices in such styles
and sectors as well as the performance of the relevant Affiliates.
Because we are a holding company, we receive all of our cash from
distributions made to us by our Affiliates. All of our Affiliates (other than
Managers) have entered into agreements with us pursuant to which they have
agreed to pay to us a specified percentage of their gross revenues on a
quarterly basis. In our agreements with our Affiliates, the distributions made
to us by our Affiliates represent only a portion of our Affiliates' gross
revenues. Our Affiliates use the portion of their revenues not required to be
distributed to us to pay their operating expenses and distributions to their
management teams. The payment of distributions to us by our Affiliates may be
subject to the claims of our Affiliates' creditors and to limitations applicable
to our Affiliates under state laws governing corporations, partnerships and
limited liability companies, state and federal regulatory requirements for the
securities industry and bankruptcy and insolvency laws. As a result, we cannot
guarantee that our Affiliates will always make these distributions. See
"Business--Our Structure and Relationship with Affiliates--Revenue Sharing
Arrangements".
When we made our original investments in our Affiliates, we agreed to
purchase the additional ownership interests in each Affiliate from the owners of
these interests on pre-negotiated terms which are subject to several conditions
and limitations. Consequently, we may have to purchase some of these interests
from time to time for cash (which we may have to borrow) or in exchange for
newly issued shares of our Common Stock. These purchases may result in us having
more interest expense and less net income or in our existing stockholders
experiencing a dilution of their ownership of us. In addition, these purchases
may result in our ownership of larger portions of our Affiliates, which may have
an adverse effect on our cash flow and liquidity. See "Business--Our Structure
and Relationship with Affiliates--Our Purchase of Additional Interests in Our
Existing Affiliates".
Although our agreements with our Affiliates give us the authority to control
some types of business activities undertaken by them and we have voting rights
with respect to significant decisions, our Affiliates manage and control their
own day-to-day operations, including all investment management policies and fee
levels, product development, client relationships, compensation programs and
compliance activities. As a result, we may not become aware, for example, of one
of our Affiliates' non-compliance with a regulatory requirement as quickly as if
we were involved in the day-to-day business of the Affiliate or we may not
become aware of such non-compliance. In such situations, our financial condition
and results of operations
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may be adversely affected by problems stemming from the day-to-day operations of
our Affiliates. See "Business--Government Regulation". In addition, because our
Affiliates conduct their own marketing and client relations, they may from time
to time compete with each other for clients. See "Business--Our Structure and
Relationship with Affiliates".
Some of our existing Affiliates are partnerships of which we are the general
partner. Consequently, to the extent any of these Affiliates incurs liabilities
or expenses which exceed its ability to pay for them, we are liable for their
payment. In addition, with respect to all of our Affiliates we may be held
liable in some circumstances as a control person for their acts as well as those
of their employees. We and our Affiliates maintain errors and omissions and
general liability insurance in amounts which we and they believe to be adequate
to cover many potential liabilities. We cannot be certain, however, that we will
not have claims which exceed the limits of our available insurance coverage,
that our insurers will remain solvent and will meet their obligations to provide
coverage, or that insurance coverage will continue to be available to us with
sufficient limits or at a reasonable cost. A judgment against us or any of our
Affiliates in excess of our available coverage could have a material adverse
effect on us.
We are an asset management holding company which invests in mid-sized
investment management firms. The market for partial or total acquisitions of
interests in investment management firms is highly competitive. We have several
competitors which are also set up as holding companies and invest in or buy
investment management firms. In addition, many other public and private
companies, including commercial and investment banks, insurance companies and
investment management firms, most of which have longer operating histories and
significantly greater resources than us, invest in or buy investment management
firms. Moreover, some of our principal stockholders also invest in or buy
investment management firms and may compete with us as we pursue additional
investments. We cannot guarantee that we will be able to compete effectively
with such competitors, that new competitors will not enter the market or that
such competition will not make it more difficult or impracticable for us to make
new investments in investment management firms.
The investment management business is also highly competitive. Our
Affiliates compete with a broad range of investment managers, including public
and private investment advisers as well as firms associated with securities
broker-dealers, banks, insurance companies and other entities. From time to
time, our Affiliates may also compete with each other for clients. Many of our
Affiliates' competitors have greater resources than do we and our Affiliates. In
addition to competing directly for clients, competition may reduce the fees that
our Affiliates can obtain for their services. We believe that each Affiliate's
ability to compete effectively with other firms is dependent upon the
Affiliate's products, level of investment performance and client service, as
well as the marketing and distribution of its investment products. We cannot be
certain that our Affiliates will be able to achieve favorable investment
performance and retain their existing clients.
Some of our Affiliates operate or advise clients outside of the United
States. Furthermore, in the future we may invest in investment management firms
which operate or advise clients outside of the United States and our existing
Affiliates may expand their non-U.S. operations. Our Affiliates take risks
inherent in doing business internationally, such as changes in applicable laws
and regulatory requirements, difficulties in staffing and managing foreign
operations, longer payment cycles, difficulties in collecting investment
advisory fees receivable, political instability, fluctuations in currency
exchange rates, expatriation controls and potential adverse tax consequences. We
cannot be certain that one or more of these risks will not have an adverse
effect on our Affiliates, including investment management firms in which we may
invest in the future, and, consequently, on our consolidated business, financial
condition and results of operations.
Many aspects of our Affiliates' businesses are subject to extensive
regulation by various U.S. federal regulatory authorities, certain state
regulatory authorities, and non-U.S. regulatory authorities. There is no
assurance that our Affiliates will fulfill all applicable regulatory
requirements. The failure of any Affiliate
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to meet regulatory requirements could subject such Affiliate to sanctions which
might materially impact the Affiliate's business and our business. For further
information concerning the regulations to which we and our Affiliates are
subject, see "Business--Government Regulation".
Several provisions of our Amended and Restated Certificate of Incorporation,
our Amended and Restated By-laws and Delaware law may, together or separately,
prevent a transaction which is beneficial to our stockholders from occurring.
These provisions may discourage potential purchasers from presenting acquisition
proposals, delay or prevent potential purchasers from acquiring a controlling
interest in us, block the removal of incumbent directors or limit the price that
potential purchasers might be willing to pay in the future for shares of our
Common Stock. These provisions include the issuance, without further stockholder
approval, of preferred stock with rights and privileges which could be senior to
the Common Stock. We are also subject to Section 203 of the Delaware General
Corporation Law which, subject to a few exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder.
We have never declared or paid a cash dividend on our Common Stock. We
intend to retain earnings to repay debt and to finance the growth and
development of our business and do not anticipate paying cash dividends on our
Common Stock in the foreseeable future. Any declaration of cash dividends in the
future will depend, among other things, upon our results of operations,
financial condition and capital requirements as well as general business
conditions. Our credit facility also contains restrictions which prohibit us
from making dividend payments to our stockholders. See "Market for Registrant's
Common Equity and Related Stockholder Matters".
The market price of our Common Stock has historically experienced and may
continue to experience high volatility. Our quarterly operating results, changes
in general conditions in the economy or the financial markets and other
developments affecting us or our competitors could cause the market price of our
Common Stock to fluctuate substantially. In addition, in recent years, the stock
market has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect
the price of our Common Stock.
If our stockholders sell substantial amounts of our Common Stock (including
shares issued upon the exercise of outstanding options) in the public market,
the market price of our Common Stock could fall. Such sales may also make it
more difficult for us to sell equity or equity-related securities in the public
market in the future at a time and at a price that we deem appropriate.
In addition, we have registered for resale the 3,250,000 shares of our
Common Stock reserved for issuance under our stock plans. As of December 31,
1999, options to purchase 2,015,250 shares of our Common Stock were outstanding
and will be eligible for sale in the public market from time to time subject to
vesting. The possible sale of a significant number of these shares may cause the
price of our Common Stock to fall.
In addition, the holders of certain shares of our Common Stock have the
right in some circumstances to require us to register their shares under the
Securities Act of 1933, as amended (the "Securities Act") for resale to the
public, while those holders as well as others have the right to include their
shares in any registration statement filed by us.
In addition, some of the managers of our Affiliates have the right under
some circumstances to exchange portions of their interests in our Affiliates for
shares of our Common Stock. Some of these managers also have the right to
include these shares in a registration statement filed by us under the
Securities Act. By exercising their registration rights and causing a large
number of shares to be sold in the public market, these holders may cause the
price of our Common Stock to fall. In addition, any demand to
20
<PAGE>
include shares in our registration statements could have an adverse effect on
our ability to raise needed capital.
We and our Affiliates transitioned into the Year 2000 without material
disruption to or adverse effect on our businesses. While our Year 2000 related
remediation efforts are complete, we cannot guarantee that additional Year 2000
issues will not arise (either within our operations or associated with third
party service providers).
ITEM 2. PROPERTIES
Our executive offices are located at Two International Place, 23rd Floor,
Boston, Massachusetts 02110. In Boston, we occupy 10,569 square feet under a
lease that expires in March 2003. Each of our Affiliates also leases office
space in the city or cities in which it conducts business.
In December 1999, we signed a purchase and sale agreement to acquire
property in Prides Crossing, Massachusetts in anticipation of the development of
our future corporate headquarters. We intend to close our acquisition of the
property in the second quarter of the year 2000 and to develop the site within
twenty-four months after closing. We believe this site will provide suitable
capacity for our future business activities.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we and our Affiliates may be parties to various claims,
suits and complaints. Currently, there are no such claims, suits or complaints
that, in our opinion, would have a material adverse effect on our financial
position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of the year covered by this Annual Report on Form 10-K.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the New York Stock Exchange (symbol: AMG). The
following table sets forth the high and low closing prices as reported on the
New York Stock Exchange composite tape during the last two years.
<TABLE>
<CAPTION>
HIGH LOW
------------ -------------
<S> <C> <C>
1999
First Quarter........................................ $33 1/16 $24
Second Quarter....................................... 32 1/4 25
Third Quarter........................................ 31 3/8 24 7/8
Fourth Quarter....................................... 40 7/16 23
1998
First Quarter........................................ $37 3/16 $27 1/4
Second Quarter....................................... 39 3/16 34 1/16
Third Quarter........................................ 37 7/16 13 11/16
Fourth Quarter....................................... 30 3/4 13 11/16
</TABLE>
The closing price for the shares on the New York Stock Exchange on
March 23, 2000 was $50.00.
As of March 23, 2000, we had repurchased 681,600 shares of Common Stock
since December 31, 1999 at an average price per share of $37.44 under the share
repurchase program.
As of December 31, 1999 there were 101 stockholders of record. As of
March 23, 2000 there were 85 stockholders of record.
We have not declared a dividend with respect to the periods presented. We
intend to retain earnings to finance investments in new Affiliates, repay
indebtedness, pay interest and income taxes, repurchase our Common Stock when
appropriate, and develop our existing business and do not anticipate paying cash
dividends on our Common Stock in the foreseeable future. Our credit facility
also prohibits us from making dividend payments to our stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources".
22
<PAGE>
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected financial data for the last five years. This
data should be read in conjunction with, and is qualified in its entirety by
reference to, the financial statements and accompanying notes included elsewhere
in this Form 10-K.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT AS INDICATED AND PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA
Revenues................................... $14,182 $ 50,384 $ 95,287 $238,494 $518,726
Net income (loss).......................... (2,936) (2,372) (8,368) 25,551 72,188
Earnings per share--diluted................ (2.95) (5.49) (1.02) 1.33 $ 3.18
Average shares outstanding--diluted(1)..... 996 432 8,236 19,223 22,693
OTHER FINANCIAL DATA
Assets under management (at period end, in
millions)................................ $ 4,615 $ 19,051 $ 45,673 $ 57,731 $ 82,041
EBITDA(2).................................. 3,321 10,524 20,044 76,312 166,801
Cash Net Income(3)......................... 1,371 7,596 10,201 45,675 98,318
BALANCE SHEET DATA
Intangible assets(4)....................... $44,485 $ 71,472 $392,573 $490,949 $574,881
Total assets............................... 64,699 101,335 456,990 605,334 909,073
Senior debt................................ 18,400 33,400 159,500 212,500 174,500
Stockholders' equity(1).................... 36,867 36,989 259,740 313,655 477,986
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-K AND IN OUR FUTURE FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, IN OUR PRESS RELEASES AND IN ORAL STATEMENTS MADE WITH
THE APPROVAL OF AN AUTHORIZED OFFICER, THE WORDS OR PHRASES "WILL LIKELY
RESULT", "ARE EXPECTED TO", "WILL CONTINUE", "IS ANTICIPATED", "BELIEVES",
"ESTIMATE", "PROJECT" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED UNDER THE CAPTION "BUSINESS--CAUTIONARY
STATEMENTS" THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. WE WISH TO CAUTION
READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE MADE. WE WISH TO ADVISE READERS THAT THE FACTORS
UNDER THE CAPTION "BUSINESS--CAUTIONARY STATEMENTS" COULD AFFECT OUR FINANCIAL
PERFORMANCE AND COULD CAUSE OUR ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER
MATERIALLY FROM ANY OPINIONS OR STATEMENTS EXPRESSED WITH RESPECT TO FUTURE
PERIODS IN ANY CURRENT STATEMENTS.
WE WILL NOT UNDERTAKE AND WE SPECIFICALLY DISCLAIM ANY OBLIGATION TO RELEASE
PUBLICLY THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS
OR TO REFLECT THE OCCURRENCE OF EVENTS, WHETHER OR NOT ANTICIPATED.
- ------------------------
(1) In connection with out initial public offering in November 1997, we raised
$189 million from the sale of 8.7 million shares of Common Stock and
8.0 million shares of preferred stock converted to shares of Common Stock.
In March 1999, we raised $102.3 million from our sale of an additional
4.0 million shares of Common Stock.
(2) As defined by Note(2) on page 12.
(3) As defined by Note(3) on page 12.
(4) Intangible assets have increased with each new investment in an Affiliate.
From our inception through December 31, 1999, we made investments in
fourteen Affiliates.
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OVERVIEW
We buy and hold equity interests in mid-sized investment management firms
(our "Affiliates") and currently derive all of our revenues from those firms. We
hold investments in 15 Affiliates that in aggregate managed $87.0 billion in
assets at December 31, 1999. Our most recent investments were Rorer
(January 1999), Managers (April 1999) and Frontier (January 2000).
We have a revenue sharing arrangement with each of our Affiliates (other
than Managers) which allocates a specified percentage of revenues (typically
50-70%) for use by management of that Affiliate in paying operating expenses,
including salaries and bonuses (the "Operating Allocation"). The remaining
portion of revenues of each such Affiliate, typically 30-50% (the "Owners'
Allocation"), is allocated to the owners of that Affiliate (including AMG),
generally in proportion to their ownership of the Affiliate. At some Affiliates,
we receive a guaranteed payment for the use of our capital or a license fee
which in each case is paid from that portion of revenues which we refer to as
our Owners' Allocation. One of the purposes of our revenue sharing arrangements
is to provide ongoing incentives for the managers of these Affiliates by
allowing them:
- to participate in their firm's growth through their compensation from the
Operating Allocation,
- to receive a portion of the Owners' Allocation based on their ownership
interest in the Affiliate, and
- to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and bonuses
for management of such Affiliate.
Under the revenue sharing arrangements, the managers of our Affiliates have
an incentive to both increase revenues of the Affiliate (thereby increasing the
Operating Allocation and their Owners' Allocation) and to control expenses of
the Affiliate (thereby increasing the excess Operating Allocation).
The revenue sharing arrangements allow us to participate in the revenue
growth of our Affiliates because we receive a portion of the additional revenue
as our share of the Owners' Allocation. However, we participate in that growth
to a lesser extent than the managers of our Affiliates, because we do not share
in the growth of the Operating Allocation.
Under the organizational documents of the Affiliates (other than Managers),
the allocations and distributions of cash to us generally take priority over the
allocations and distributions to the other owners of the Affiliates. This
further protects us if there are any expenses in excess of the Operating
Allocation of an Affiliate. Thus, if an Affiliate's expenses exceed its
Operating Allocation, the excess expenses first reduce the portion of the
Owners' Allocation allocated to the Affiliate's management owners, until that
portion is eliminated, and then reduce the portion allocated to us. Any such
reduction in our portion of the Owners' Allocation is required to be paid back
to us out of future Affiliate management Owners' Allocation. Unlike all other
Affiliates, Managers is not subject to a revenue sharing arrangement since we
own substantially all of the firm. As a result, we participate fully in any
increase or decrease in the revenues or expenses of Managers.
The portion of our Affiliates' revenues which is included in their Operating
Allocation and retained by them to pay salaries, bonuses and other operating
expenses, as well as the portion of our Affiliates' revenues which are included
in their Owners' Allocation and distributed to us and the other owners of the
Affiliates, are included as "revenues" in our Consolidated Statements of
Operations. The expenses of our Affiliates which are paid out of the Operating
Allocation, as well as our holding company expenses which we pay out of the
amounts of the Owners' Allocation which we receive from the Affiliates, are both
included in "operating expenses" on our Consolidated Statements of Operations.
Since Managers is not subject to a revenue sharing arrangement, all revenues and
expenses of Managers are consolidated into the revenues and operating expenses
in our Consolidated Statements of Operations. The portion of our
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<PAGE>
Affiliates' revenues which is allocated to owners of the Affiliates other than
us is included in "minority interest" on our Consolidated Statements of
Operations.
The EBITDA Contribution of an Affiliate represents the Owners' Allocation of
that Affiliate allocated to AMG (or, in the case of Managers, the income
allocated to AMG) before interest, taxes, depreciation and amortization of that
Affiliate. EBITDA Contribution does not include our holding company expenses.
Our revenues are generally derived from the provision of investment
management services for fees by our Affiliates. Investment management fees are
usually determined as a percentage fee charged on periodic values of a client's
assets under management. Certain of the Affiliates bill advisory fees for all or
a portion of their clients based upon assets under management valued at the
beginning of a billing period ("in advance"). Other Affiliates bill advisory
fees for all or a portion of their clients based upon assets under management
valued at the end of the billing period ("in arrears"), while mutual fund
clients are billed based upon daily assets. Advisory fees billed in advance will
not reflect subsequent changes in the market value of assets under management
for that period. Conversely, advisory fees billed in arrears will reflect
changes in the market value of assets under management for that period. In
addition, several of the Affiliates charge performance-based fees to certain of
their clients; these performance-based fees result in payments to the applicable
Affiliate based on levels of investment performance achieved. While the
Affiliates bill performance-based fees at various times throughout the year, the
greatest portion of these fees have historically been billed in the fourth
quarter in any given year. All references to "assets under management" include
assets directly managed as well as assets underlying overlay strategies which
employ futures, options or other derivative securities to achieve a particular
investment objective.
Our level of profitability will depend on a variety of factors including
principally: (i) the level of Affiliate revenues, which is dependent on the
ability of our existing and future Affiliates to maintain or increase assets
under management by maintaining their existing investment advisory relationships
and fee structures, marketing their services successfully to new clients, and
obtaining favorable investment results; (ii) a variety of factors affecting the
securities markets generally, which could potentially result in considerable
increases or decreases in the assets under management at our Affiliates;
(iii) the receipt of Owners' Allocation, which is dependent on the ability of
our existing and future Affiliates to maintain certain levels of operating
profit margins; (iv) the availability and cost of the capital with which we
finance our existing and new investments; (v) our success in attracting new
investments and the terms upon which such transactions are completed; (vi) the
level of intangible assets and the associated amortization expense resulting
from our investments; (vii) the level of expenses incurred for holding company
operations, including compensation for its employees; and (viii) the level of
taxation to which we are subject. In addition, our profitability will depend
upon fees paid on the basis of investment performance at certain of our
Affiliates. Fees based on investment performance are inherently dependent on
investment results, and therefore may vary substantially from year to year. In
particular, performance-based fees have been of an unusual magnitude in recent
years, and may not recur to the same magnitude in future years, if at all. In
addition, while the performance-based fee contracts of our Affiliates apply to
investment management services in a range of investment management styles and
securities market sectors, such contracts may be concentrated in certain styles
and sectors. For example, in each of 1998 and 1999 we benefited from a
concentration of such products in technology sectors which performed well in
those years. To the extent such contracts are concentrated within styles or
sectors, they are subject to the continuing impact of fluctuating securities
prices in such styles and sectors as well as the performance of the relevant
Affiliates.
Assets under management on a historical basis increased by $24.3 billion to
$82.0 billion at December 31, 1999 from $57.7 billion at December 31, 1998. The
increase in assets under management during the year was principally due to
investment performance of $17.4 billion. Assets under management at our new
Affiliates at the time of investment ($4.4 billion at Rorer, $1.7 billion at
Managers) and First Quadrant's purchase of Objective ($1.4 billion) also
contributed to the increase in assets under management. Net
25
<PAGE>
client cash flows for directly managed assets increased by $0.5 billion, offset
by a decline in overlay assets (which generally carry lower fees than directly
managed assets) of $1.1 billion for the year.
Our investments have been accounted for using the purchase method of
accounting under which goodwill is recorded for the excess of the purchase price
for the acquisition of interests in Affiliates over the fair value of the net
assets acquired, including acquired client relationships.
As a result of our investments, intangible assets, consisting of acquired
client relationships and goodwill, constitute a substantial percentage of our
consolidated assets. As of December 31, 1999, our total assets were
approximately $909.1 million, of which approximately $186.5 million consisted of
acquired client relationships and $385.4 million consisted of goodwill.
The amortization period for intangible assets for each investment is
assessed individually, with amortization periods for our investments to date
ranging from eight to 28 years in the case of acquired client relationships and
15 to 35 years in the case of goodwill. In determining the amortization period
for intangible assets acquired, we consider a number of factors including: the
firm's historical and potential future operating performance and rate of
attrition among clients; the stability and longevity of existing client
relationships; the firm's recent, as well as long-term, investment performance;
the characteristics of the firm's products and investment styles; the stability
and depth of the firm's management team and the firm's history and perceived
franchise or brand value. We perform a quarterly evaluation of intangible assets
on an investment-by-investment basis to determine whether there has been any
impairment in their carrying value or their useful lives. If impairment is
indicated, then the carrying amount of intangible assets, including goodwill,
will be reduced to their fair values.
While amortization of intangible assets has been charged to the results of
operations and is expected to be a continuing material component of our
operating expenses, management believes it is important to distinguish this
expense from other operating expenses since such amortization does not require
the use of cash. Because of this, and because our distributions from our
Affiliates are based on their Owners' Allocation, we have provided additional
supplemental information in this report for "cash" related earnings, as an
addition to, but not as a substitute for, measures related to net income. Such
measures are (i) EBITDA, which we believe is useful to investors as an indicator
of our ability to service debt, to make new investments and meet working capital
requirements, and (ii) Cash Net Income, which we believe is useful to investors
as another indicator of funds available which may be used to make new
investments, to repay debt obligations, to repurchase shares of our Common Stock
or pay dividends on our Common Stock (although the Company has no current plans
to pay dividends). Cash Net Income has historically been referred to by us as
"EBITDA as adjusted".
RESULTS OF OPERATIONS
SUPPLEMENTAL PRO FORMA INFORMATION
Affiliate operations are included in our historical financial statements
from their respective dates of investment. We consolidate Affiliates when we own
a controlling interest and include in minority interest the portion of capital
and Owners' Allocation owned by persons other than us.
Because we have made investments in each of the periods for which financial
statements are presented, we believe that the operating results for these
periods are not directly comparable. We have provided the following pro forma
data, which should be read with our consolidated financial statements and the
notes to such statements, which are included elsewhere in this report.
26
<PAGE>
All amounts below are pro forma for the inclusion of all investments made as
of December 31, 1999 and the Frontier investment completed on January 18, 2000
as if such investments occurred on January 1, 1998.
UNAUDITED PRO FORMA SUPPLEMENTAL INFORMATION
(IN THOUSANDS UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
PRO FORMA ASSETS UNDER MANAGEMENT DATA (IN MILLIONS):
Assets under management--beginning.......................... $ 60,524 $ 68,877
Net client cash flows--directly managed assets.............. 4,127 644
Net client cash flows--overlay assets(1).................... (1,572) (1,142)
Market appreciation......................................... 5,798 18,649
-------- --------
Assets under management--ending............................. $ 68,877 $ 87,028
======== ========
PRO FORMA FINANCIAL DATA:
Revenues.................................................... $321,488 $550,139
Owners' Allocation(2)....................................... 155,624 284,586
EBITDA Contribution(3)...................................... 109,391 202,946
EBITDA(4)................................................... 101,743 185,293
Cash Net Income(5).......................................... 58,351 112,593
RECONCILIATION OF EBITDA CONTRIBUTION TO EBITDA
Total EBITDA Contribution (as above)........................ $109,391 $202,946
Less holding company expenses............................... (7,648) (17,653)
-------- --------
EBITDA(4)................................................... $101,743 $185,293
======== ========
HISTORICAL FINANCIAL DATA:
Cash flow from operating activities......................... $ 45,424 $ 89,119
Cash flow used in investing activities...................... (72,665) (112,939)
Cash flow from financing activities......................... 28,163 54,035
EBITDA(4)................................................... 76,312 166,801
Cash Net Income(5).......................................... 45,674 98,318
</TABLE>
- ------------------------
(1) Overlay assets are assets managed subject to strategies which employ
futures, options or other derivative securities to add incremental value to
directly managed portfolios. These strategies generate fees which are
generally at the low end of the range of fees generated in other investment
management strategies.
(2) As defined in "Revenue Sharing Arrangements" on page 6.
(3) As defined by Note(1) on page 11.
(4) As defined by Note(2) on page 12.
(5) As defined by Note(3) on page 12.
27
<PAGE>
HISTORICAL
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998
We had net income of $72.2 million for the year ended December 31, 1999
compared to net income of $25.6 million for the year ended December 31, 1998.
The increase in net income resulted primarily from a growth in the EBITDA
Contribution of our Affiliates. This growth resulted from a substantial increase
in performance-based fees earned by several Affiliates (principally Essex), as
well as growth in asset-based fees resulting from positive investment
performance. In addition, the new investments we made in 1998 and 1999
significantly contributed to the growth in EBITDA Contribution. We invested in
Essex in March 1998, DHJA in December 1998, Rorer in January 1999 and Managers
in April 1999 and have included their results from the respective dates of
investment.
Revenues for the year ended December 31, 1999 were $518.7 million, an
increase of $280.2 million over the year ended December 31, 1998. The increase
in revenues resulted from a substantial increase in performance-based fees
earned by several Affiliates, as well as growth in asset-based fees resulting
from positive investment performance and investments in new Affiliates. Revenues
from performance-based fees increased from approximately 18% of total revenues
for the year ended December 31, 1998 to approximately 39% of total revenues for
the year ended December 31, 1999. The increase in performance-based fees is
primarily the result of performance-based fee contracts in place at Essex.
Performance-based fees realized during the year were of an unusual magnitude,
and, as they are inherently dependent on investment results, they may not recur
to the same magnitude in future years.
Operating expenses increased by $160.4 million to $306.1 million for the
year ended December 31, 1999 over the year ended December 31, 1998. Compensation
and related expenses increased by $130.1 million to $217.8 million, amortization
of intangible assets increased by $4.8 million to $22.2 million, selling,
general and administrative expenses increased by $21.6 million to
$53.3 million, and other operating expenses increased by $2.6 million to
$8.9 million. The growth in operating expenses was principally a result of an
increase in Affiliates' Operating Allocation due to a substantial increase in
performance-based fees earned by several Affiliates, growth in asset-based fees
resulting from positive investment performance and investments in new
Affiliates.
Investment and other income increased by $12.0 million to $14.2 million for
the year ended December 31, 1999 over the year ended December 31, 1998,
substantially from our allocation of income from capital maintained in Affiliate
private partnerships.
Minority interest increased by $47.4 million to $86.2 million for the year
ended December 31, 1999 over the year ended December 31, 1998, primarily as a
result of the increase in Affiliates' Owners' Allocation due to a substantial
increase in performance-based fees earned by several Affiliates, growth in
asset-based fees resulting from positive investment performance and investments
in new Affiliates.
Interest expense decreased by $1.8 million to $11.8 million for the year
ended December 31, 1999 over the year ended December 31, 1998. The reduction in
interest expense resulted from repayments of senior bank debt with the net
proceeds from our public offering of Common Stock in March 1999 and cash flow
from ongoing operations, and was partially offset by borrowings related to new
investments. In addition, interest expense decreased due to the favorable impact
of the public offering on our LIBOR margin as well as a favorable interest rate
environment.
Income tax expense was $56.7 million for the year ended December 31, 1999
compared to $17.0 million for the year ended December 31, 1998. The change in
income tax expense is related principally to the increase in income before taxes
in the year ended December 31, 1999.
EBITDA increased by $90.5 million to $166.8 million for the year ended
December 31, 1999 over the year ended December 31, 1998, resulting from a
substantial increase in performance-based fees earned by
28
<PAGE>
several Affiliates, growth in asset-based fees resulting from positive
investment performance and investments in new Affiliates.
Cash Net Income increased by $52.6 million to $98.3 million for the year
ended December 31, 1999 over the year ended December 31, 1998 as a result of the
factors affecting net income as described above, with the exception of the
amortization of intangible assets.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997
We had net income of $25.6 million for the year ended December 31, 1998
compared to net income before extraordinary item of $1.6 million for the year
ended December 31, 1997. The increase in net income resulted substantially from
net income from new investments. We invested in Gofen and Glossberg in
May 1997, GeoCapital in September 1997, Tweedy, Browne in October 1997, and
Essex in March 1998 (collectively, the "New Affiliates") and included their
results from the respective dates of investment. Our net loss after
extraordinary item of $8.4 million for the year ended December 31, 1997 resulted
from a $10.0 million extraordinary item, net of related tax benefit, from the
write-off of debt issuance costs related to the early extinguishment of debt.
Revenues for the year ended December 31, 1998 were $238.5 million, an
increase of $143.2 million over the year ended December 31, 1997. Such increase
was primarily a result of the addition of the New Affiliates. Performance-based
fees earned by our Affiliates were approximately 18% of revenues, increasing
$26.8 million to $44.0 million for the year ended December 31, 1998 compared to
$17.2 million for the year ended December 31, 1997, primarily as a result of the
addition of the New Affiliates.
Operating expenses increased by $73.0 million to $145.7 million for the year
ended December 31, 1998 over the year ended December 31, 1997. Compensation and
related expenses increased by $46.1 million to $87.7 million, amortization of
intangible assets increased by $10.8 million to $17.4 million, selling, general
and administrative expenses increased by $12.7 million to $31.6 million, and
other operating expenses increased by $2.6 million to $6.3 million. The growth
in operating expenses was primarily a result of the addition of the New
Affiliates.
Minority interest increased by $26.6 million to $38.8 million for the year
ended December 31, 1998 over the year ended December 31, 1997, primarily as a
result of the addition of the New Affiliates.
Interest expense increased by $5.1 million to $13.6 million for the year
ended December 31, 1998 over the year ended December 31, 1997, as a result of
the increased indebtedness incurred in connection with the investments in the
New Affiliates.
Income tax expense was $17.0 million for the year ended December 31, 1998
compared to $1.4 million for the year ended December 31, 1997. The change in
income tax expense is principally related to the increase in income before taxes
in the year ended December 31, 1998.
EBITDA increased by $56.3 million to $76.3 million for the year ended
December 31, 1998 over the year ended December 31, 1997, primarily as a result
of the inclusion of the New Affiliates.
Cash Net Income increased by $35.5 million to $45.7 million for the year
ended December 31, 1998 over the year ended December 31, 1997 as a result of the
factors affecting net income as described above, before non-cash expenses such
as amortization of intangible assets and depreciation of $20.1 million for the
year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have met our cash requirements primarily through cash generated by
operating activities, bank borrowings, and the issuance of equity securities in
public transactions. We anticipate that we will use cash flow from our operating
activities to repay debt, pay interest and income taxes and to finance our
working capital needs, and we will use bank borrowings and issue equity and debt
securities to finance future
29
<PAGE>
investments. Our principal uses of cash have been to make investments, retire
indebtedness, pay income taxes, repurchase shares and support our and our
Affiliates' operating activities. We expect that our principal use of funds for
the foreseeable future will be for additional investments, repayments of debt,
including interest payments on outstanding debt, payment of income taxes,
repurchase of shares, capital expenditures, distributions to management owners
of Affiliates, additional investments in existing Affiliates, including our
purchase of management owners' retained equity, and for working capital
purposes.
At December 31, 1999, we had outstanding borrowings of senior debt under our
credit facility of $174.5 million. In January 2000, we financed our investment
in Frontier with a borrowing under the credit facility. Giving effect to the
Frontier transaction and other borrowing and repayment activity, at March 23,
2000, we had outstanding borrowings under our credit facility of $240.5 million,
and the ability to borrow an additional $89.5 million. We have the option, with
the consent of our lenders, to increase the facility by another $70 million to a
total of $400 million.
Our borrowings under the credit facility are collateralized by pledges of
all of our interests in Affiliates (including all interests which are directly
held by us, as well as all interests which are indirectly held by us through
wholly-owned subsidiaries), which interests represent substantially all of our
assets. Our credit facility contains a number of negative covenants, including
those which generally prevent us and our Affiliates from: (i) incurring
additional indebtedness (other than subordinated indebtedness), (ii) creating
any liens or encumbrances on material assets (with certain enumerated
exceptions), (iii) selling assets outside the ordinary course of business or
making certain fundamental changes with respect to our businesses, including a
restriction on our ability to transfer interests in any majority owned Affiliate
if, as a result of such transfer, we would own less than 51% of such firm, and
(iv) declaring or paying dividends on our Common Stock. Our credit facility
bears interest at either LIBOR plus a margin or the Prime Rate plus a margin. We
pay a commitment fee on the daily unused portion of the facility. In order to
partially offset our exposure to changing interest rates we have entered into
interest rate hedging contracts. See "Interest Rate Hedging Contracts". The
credit facility matures during December 2002.
In order to provide the funds necessary for us to continue to acquire
interests in investment management firms, including our existing Affiliates upon
the management owners' sales of their retained equity to us, it will be
necessary for us to incur, from time to time, additional long-term bank debt
and/or issue equity or debt securities, depending on market and other
conditions. There can be no assurance that such additional financing will be
available or become available on terms acceptable to us.
Net cash flow from operating activities was $89.1 million, $45.4 million and
$16.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase in net cash flow from operating activities from 1998
to 1999 resulted from a substantial increase in performance-based fees earned by
several Affiliates, as well as growth in asset-based fees resulting from
positive investment performance. In addition, the new investments made in 1999
contributed to the increase in these cash flows.
Net cash flow used in investing activities was $112.9 million,
$72.7 million and $327.3 million for the years ended December 31, 1999, 1998 and
1997, respectively. Of these amounts, $103.5 million, $66.6 million, and
$325.9 million, respectively, were used to make investments in Affiliates.
In January 1999, we acquired an approximately 65% interest in Rorer, a
Philadelphia based investment adviser. We paid $65 million in cash for our
investment in Rorer. In April 1999, we acquired substantially all of the
interests in Managers. We financed these two investments with borrowings under
our credit facility. In addition, in January 2000, we acquired an approximately
70% interest in Frontier. The investment in Frontier was also financed with a
borrowing under our credit facility.
Net cash flow from financing activities was $54.0 million, $28.2 million and
$327.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The principal sources of cash from financing activities have been
borrowings under senior credit facilities and subordinated debt, and our public
offerings. The uses of cash from financing activities during these periods were
for the repayment of debt
30
<PAGE>
and notes issued as purchase price consideration and for the repurchase of
Common Stock and payment of debt issuance costs.
In March 1999, we completed a public offering of Common Stock. In the
offering, 5,529,954 shares of Common Stock were sold, of which 4,000,000 shares
were sold by the Company and 1,529,954 shares were sold by selling stockholders.
We used the net proceeds from the offering to reduce indebtedness under our
credit facility and did not receive any proceeds from the sale of Common Stock
by the selling stockholders.
In October 1999, our Board of Directors authorized a share repurchase
program (the "Share Repurchase Program") pursuant to which we can repurchase up
to five percent of our issued and outstanding shares of Common Stock in open
market transactions, with the timing of purchases and the amount of stock
purchased determined at our discretion. As of December 31, 1999, we had
repurchased 346,900 shares of Common Stock at an average price per share of
$26.83.
In December 1999, we signed a purchase and sale agreement to acquire
property in Prides Crossing, Massachusetts in anticipation of the development of
our future corporate headquarters. We intend to close our acquisition of the
property in the second quarter of the year 2000 and to develop the site within
twenty-four months after closing.
YEAR 2000
We and our Affiliates transitioned into the Year 2000 without material
disruption to or adverse effect on our businesses. Our Year 2000 related
remediation efforts are complete, although we cannot guarantee that additional
Year 2000 issues will not arise (either within our operations or associated with
third party service providers).
AMG'S HOLDING COMPANY AND AFFILIATES' REMEDIATION EFFORTS
In anticipation of the Year 2000 problem, we modified, upgraded or replaced
computers, software applications and related equipment to the extent required to
minimize the probability of a material disruption to our business. We incurred
$500,000 of costs in remediating the Year 2000 problem in the last four years.
Each of our Affiliates completed its assessment and renovation or replacement of
all non-compatible systems and the subsequent testing of such systems.
OUTSIDE SERVICE PROVIDERS
In preparing for the Year 2000, we closely monitored the progress of all
outsider service providers, and we believe our third party service providers
have resolved all of their Year 2000 related issues. We have to date experienced
no material disruptions in service provider operations as a result of the onset
of the Year 2000 and we have no reason to believe that we will experience any
disruptions as a result of Year 2000 issues in the future. However, as described
above, we cannot guarantee that additional Year 2000 issues will not arise as
associated with third party service providers.
INTEREST RATE SENSITIVITY
Our revenues are derived primarily from fees which are based on the values
of assets managed. Such values are affected by changes in the broader financial
markets which are, in part, affected by changing interest rates. We cannot
predict the effects that interest rates or changes in interest rates may have on
either the broader financial markets or our Affiliates' assets under management
and associated fees.
With respect to our debt financing, we are exposed to potential fluctuations
in the amount of interest expense resulting from changing interest rates. We
seek to offset such exposure in part by entering into interest rate hedging
contracts. See "Interest Rate Hedging Contracts".
31
<PAGE>
Our annual interest expense increases or decreases by $221,155 for each 1/8
of 1% change in interest rates assuming LIBOR is between 5% and 6.78% and
assuming current interest rate margins on current bank debt.
INTEREST RATE HEDGING CONTRACTS
We seek to offset our exposure under our debt financing arrangements to
changing interest rates by entering into interest rate hedging contracts. As of
December 31, 1999, we were a party, with two major commercial banks as
counterparties, to $185 million notional amount of swap contracts which are
designed to limit interest rate increases on our borrowings and are linked to
the three-month LIBOR. These swap contracts, upon quarterly reset dates, cap
interest rates on the notional amounts at rates ranging between 6.67% and 6.78%.
When LIBOR is below 5%, our floating interest rate debt is swapped for fixed
rate debt at rates ranging between 6.67% and 6.78%. We generally borrow at LIBOR
and pay an additional interest margin as described above. The hedging contracts
limit the effects of our payment of interest at equivalent LIBOR rates of 6.78%
or less on up to $185 million of indebtedness.
As of December 31, 1999, we were also a party to a $75 million notional swap
contract that limited interest rates on $75 million of the $185 million of swap
contracts identified above at 5.99%. This contract was designed to limit
interest rate increases if floating rate debt was swapped for higher fixed rate
debt under the terms of the original swap contracts. On January 15, 2000, this
interest rate swap contract expired.
There can be no assurance that we will continue to maintain such hedging
contracts at their existing levels of coverage or that the amount of coverage
maintained will cover all of our indebtedness outstanding at any such time. In
addition, as noted above, our existing hedging contracts subject us to the risk
of payments of higher interest rates when prevailing LIBOR rates are less than
5%. Therefore, there can be no assurance that the hedging contracts will meet
their overall objective of reducing our interest expense. In addition, there can
be no assurance that we will be successful in obtaining hedging contracts in the
future on our existing or any new indebtedness.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("FAS 133"). FAS 133 standardizes the accounting for derivative instruments by
requiring that all derivatives be recognized as assets and liabilities and
measured at fair value. In June 1999, Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of Effective Date of FASB Statement No 133--an amendment to
FASB Statement 133" deferred the effective date of FAS 133 to financial
statements for fiscal years beginning after June 15, 2000.
We do not believe that the implementation of FAS 133 will have a material
impact on our financial statements.
ECONOMIC AND MARKET CONDITIONS
The financial markets and the investment management industry in general have
experienced both record performance and record growth in recent years. As one
example of investment management industry growth, the assets under management of
mutual funds increased 24% to $6.8 trillion in 1999, the fifth consecutive year
of more than 20% growth, according to the Investment Company Institute. Domestic
and foreign economic conditions and general trends in business and finance,
among other factors, affect the financial markets and businesses operating in
the securities industry. We cannot guarantee that broader market performance
will be favorable in the future. Any decline in the financial markets or a lack
of sustained growth may result in a corresponding decline in our Affiliates'
performance and may cause our
32
<PAGE>
Affiliates to experience declining assets under management and/or fees, which
would reduce cash flow distributable to us.
INTERNATIONAL OPERATIONS
First Quadrant Limited, a sister company to First Quadrant, L.P., is
organized and headquartered in London, England. During 1999, First Quadrant
acquired Objective Asset Management Ltd., a London-based money manager, and
merged it into the operations of First Quadrant Limited. Tweedy, Browne, based
in New York, also maintains a research office in London. In the future, we may
seek to invest in other investment management firms which are located and/or
conduct a significant part of their operations outside of the United States.
There are certain risks inherent in doing business internationally, such as
changes in applicable laws and regulatory requirements, difficulties in staffing
and managing foreign operations, longer payment cycles, difficulties in
collecting investment advisory fees receivable, political instability,
fluctuations in currency exchange rates, expatriation controls and potential
adverse tax consequences. There can be no assurance that one or more of such
factors will not have a material adverse effect on First Quadrant Limited or
other non-U.S. investment management firms in which we may invest in the future
and, consequently, on our business, financial condition and results of
operations.
INFLATION
We do not believe that inflation or changing prices have had a material
impact on our results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use interest rate swaps to manage market exposures associated with our
variable rate debt by creating offsetting market exposures. These instruments
are not held for trading purposes. In the normal course of operations, we also
face risks that are either nonfinancial or nonquantifiable. Such risks
principally include country risk, credit risk, and legal risk, and are not
represented in the analysis that follows.
At December 31, 1999, $185 million was subject to interest rate swaps (the
"Original Swaps"), and our exposure was to changes in three-month LIBOR rates.
In January 1999, we became a party to additional contracts with a $75 million
notional amount (the "Subsequent Swaps"). The Subsequent Swaps expired on
January 15, 2000.
This analysis presents the hypothetical loss in earnings of the derivative
instruments we held at December 31, 1999 that are sensitive to changes in
interest rates. Interest rate swaps allow us to achieve a level of variable-rate
and fixed-rate debt that is acceptable to us, and to reduce interest rate
exposure. In each of our interest rate swaps, we have agreed with another party
to exchange the difference between fixed-rate and floating rate interest amounts
calculated by reference to an agreed notional principal amount. Under the
Original Swaps, our interest rates on the notional amounts are capped at rates
ranging between 6.67% and 6.78% upon quarterly reset dates. In addition, if
LIBOR falls below 5% at a quarterly reset date, we are required to make a
payment to our counterparty equal to the difference between the interest rate on
our floating rate LIBOR debt on an annualized rate of between 6.67% and 6.78%,
multiplied by the notional principal amount. The Subsequent Swaps were designed
to limit interest rate increases to 5.99% on $75 million of the original
$185 million notional amount if three-month LIBOR rates fell below 5%.
Under these derivative instruments, a hypothetical change of 10 percent in
three-month LIBOR rates, sustained for three months, would have resulted in no
loss in earnings. Because our net-earnings exposure under the combined debt and
interest rate swap was to three-month LIBOR rates, any hypothetical loss would
be calculated as follows: multiplying the notional amount of the swap by the
effect of a 10% reduction in LIBOR under the Original Swaps and interest savings
on the underlying debt.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders of
Affiliated Managers Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
statements of operations, comprehensive income, changes in stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Affiliated Managers Group, Inc. at December 31, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 25, 2000
34
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,735 $ 53,879
Investment advisory fees receivable....................... 66,939 239,383
Other current assets...................................... 5,137 6,705
-------- --------
Total current assets.................................... 95,811 299,967
Fixed assets, net........................................... 8,001 12,321
Equity investment in Affiliate.............................. 1,340 1,563
Acquired client relationships, net of accumulated
amortization of $13,870 in 1998 and $23,202 in 1999....... 169,065 186,499
Goodwill, net of accumulated amortization of $23,206 in 1998
and $36,103 in 1999....................................... 321,884 385,382
Notes receivable from related parties....................... 1,700 5,411
Other assets................................................ 7,533 17,930
-------- --------
Total assets............................................ $605,334 $909,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 42,617 $170,299
Notes payable to related parties.......................... 22,000 --
-------- --------
Total current liabilities............................... 64,617 170,299
Senior bank debt............................................ 190,500 174,500
Deferred taxes.............................................. 10,410 25,346
Other long-term liabilities................................. 1,204 1,346
Subordinated debt........................................... 800 800
-------- --------
Total liabilities....................................... 267,531 372,291
Minority interest........................................... 24,148 58,796
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock............................................. -- --
Convertible stock........................................... 30,992 --
Common stock................................................ 177 235
Additional paid-in capital.................................. 273,413 405,883
Accumulated other comprehensive income...................... 16 (55)
Retained earnings........................................... 11,669 83,857
-------- --------
316,267 489,920
Less treasury shares........................................ (2,612) (11,934)
-------- --------
Total stockholders' equity.............................. 313,655 477,986
-------- --------
Total liabilities and stockholders' equity.............. $605,334 $909,073
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................... $ 95,287 $ 238,494 $ 518,726
Operating expenses:
Compensation and related expenses.................... 41,619 87,669 217,780
Amortization of intangible assets.................... 6,643 17,417 22,229
Depreciation and other amortization.................. 1,915 2,707 3,901
Selling, general and administrative.................. 18,912 31,643 53,251
Other operating expenses............................. 3,637 6,278 8,906
---------- ----------- -----------
72,726 145,714 306,067
---------- ----------- -----------
Operating income................................... 22,561 92,780 212,659
Non-operating (income) and expenses:
Investment and other income.......................... (1,174) (2,251) (14,237)
Interest expense..................................... 8,479 13,603 11,764
---------- ----------- -----------
7,305 11,352 (2,473)
---------- ----------- -----------
Income before minority interest, income taxes and
extraordinary item................................... 15,256 81,428 215,132
Minority interest...................................... (12,249) (38,843) (86,225)
---------- ----------- -----------
Income before income taxes and Extraordinary item...... 3,007 42,585 128,907
Income taxes........................................... 1,364 17,034 56,719
---------- ----------- -----------
Income before extraordinary item....................... 1,643 25,551 72,188
---------- ----------- -----------
Extraordinary item, net................................ (10,011) -- --
---------- ----------- -----------
Net income (loss)...................................... $ (8,368) $ 25,551 $ 72,188
========== =========== ===========
Earnings (loss) per share--basic:
Income before extraordinary item..................... $ 0.72 $ 1.45 $ 3.25
Extraordinary item, net.............................. (4.41) -- --
---------- ----------- -----------
Earnings (loss)...................................... $ (3.69) $ 1.45 $ 3.25
========== =========== ===========
Earnings (loss) per share--diluted:
Income before extraordinary item..................... $ 0.20 $ 1.33 $ 3.18
Extraordinary item, net.............................. (1.22) -- --
---------- ----------- -----------
Earnings (loss)...................................... $ (1.02) $ 1.33 $ 3.18
========== =========== ===========
Average shares outstanding--basic...................... 2,270,684 17,582,900 22,180,112
Average shares outstanding--diluted.................... 8,235,529 19,222,831 22,693,016
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)...................................... $(8,368) $25,551 $72,188
Foreign currency translation adjustment, net of
taxes................................................ (52) 46 (71)
---------- ----------- -----------
Comprehensive income (loss)............................ $(8,420) $25,597 $72,117
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)......................................... $ (8,368) $25,551 $ 72,188
Adjustments to reconcile net income (loss) to net cash flow
from operating activities:
Amortization of intangible assets......................... 6,643 17,417 22,229
Extraordinary item........................................ 10,011 -- --
Depreciation and other amortization....................... 1,915 2,707 3,901
Deferred income tax provision............................. 1,012 10,410 14,936
Changes in assets and liabilities:
Increase in investment advisory fees receivable........... (3,980) (38,053) (163,262)
Increase in other current assets.......................... (977) (2,766) (1,260)
Increase in non-current other receivables................. -- -- (10,779)
Increase (decrease) in accounts payable, accrued expenses
and other liabilities................................... (3,159) 22,489 116,518
Minority interest......................................... 13,108 7,669 34,648
-------- ------- --------
Cash flow from operating activities..................... 16,205 45,424 89,119
-------- ------- --------
Cash flow used in investing activities:
Purchase of fixed assets.................................. (1,648) (4,313) (6,050)
Costs of investments, net of cash acquired................ (325,896) (66,577) (103,500)
Distributions received from Affiliate equity investment... 229 675 550
Decrease (increase) in other assets....................... 40 (750) (486)
Loans to employees........................................ -- (1,700) (3,453)
-------- ------- --------
Cash flow used in investing activities...................... (327,275) (72,665) (112,939)
-------- ------- --------
Cash flow from financing activities:
Borrowings of senior bank debt............................ 303,900 78,800 155,800
Repayments of senior bank debt............................ (177,800) (47,800) (171,800)
Repayments of notes payable to related parties............ (5,878) -- (22,000)
Borrowings of subordinated bank debt...................... 58,800 -- --
Repayments of subordinated bank debt...................... (60,000) -- --
Issuances of equity securities............................ 217,021 (62) 101,536
Issuance of warrants...................................... 1,200 -- --
Repurchase of stock....................................... -- (2,612) (9,322)
Debt issuance costs....................................... (10,131) (163) (179)
-------- ------- --------
Cash flow from financing activities..................... 327,112 28,163 54,035
Effect of foreign exchange rate changes on cash flow........ (43) 47 (71)
Net increase in cash and cash equivalents................... 15,999 969 30,144
Cash and cash equivalents at beginning of year.............. 6,767 22,766 23,735
-------- ------- --------
Cash and cash equivalents at end of year.................... $ 22,766 $23,735 $ 53,879
======== ======= ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 8,559 $11,780 $ 11,654
Income taxes paid......................................... 256 3,358 20,576
Supplemental disclosure of non-cash investing activities:
Decrease in liabilities related to acquisitions........... (3,200) -- --
Supplemental disclosure of non-cash financing activities:
Stock issued in acquisitions.............................. 11,101 30,992 --
Common stock issued in exchange for Affiliate equity
interests............................................... 1,849 -- --
Notes issued in acquisitions.............................. -- 22,000 --
Conversion of preferred stock to common stock............. 83,576 -- --
Conversion of convertible stock to common stock........... -- -- 30,992
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON CONVERTIBLE PREFERRED COMMON CONVERTIBLE PAID-IN RETAINED
SHARES SHARES SHARES STOCK STOCK STOCK CAPITAL EARNINGS
---------- ---------- ------------ ---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996..... 113,534 987,500 -- $42,476 $ -- $ -- $ 5 $ (5,492)
Issuance of common
stock............... -- 8,753,667 -- -- 98 -- 188,773 --
Issuance of preferred
stock and
warrants............ 45,715 -- -- 41,100 -- -- 1,200 --
Conversion of
preferred stock..... (159,249) 7,962,450 -- (83,576) 79 -- 83,497 --
Net loss.............. -- -- -- -- -- -- -- (8,368)
Other comprehensive
income.............. -- -- -- -- -- -- -- (52)
-------- ---------- ---------- ------- ----- ------- -------- --------
December 31, 1997..... -- 17,703,617 -- -- 177 -- 273,475 (13,912)
Issuance of common
stock............... -- -- -- -- -- -- (62) --
Issuance of
convertible stock... -- -- 1,750,942 -- -- 30,992 -- --
Purchase of common
stock............... -- -- -- -- -- -- -- --
Net income............ -- -- -- -- -- -- -- 25,551
Other comprehensive
income.............. -- -- -- -- -- -- -- 46
-------- ---------- ---------- ------- ----- ------- -------- --------
December 31, 1998..... -- 17,703,617 1,750,942 -- 177 30,992 273,413 11,685
Issuance of common
stock............... -- 4,000,938 -- -- 40 -- 101,496 --
Conversion of
convertible stock... -- 1,750,942 (1,750,942) -- 18 (30,992) 30,974 --
Purchase of common
stock............... -- -- -- -- -- -- -- --
Net income............ -- -- -- -- -- -- -- 72,188
Other comprehensive
income.............. -- -- -- -- -- -- -- (71)
-------- ---------- ---------- ------- ----- ------- -------- --------
December 31, 1999..... -- 23,455,497 -- $ -- $ 235 $ -- $405,883 $ 83,802
======== ========== ========== ======= ===== ======= ======== ========
<CAPTION>
TREASURY
SHARES
TREASURY AT
SHARES COST
--------- ---------
<S> <C> <C>
December 31, 1996..... -- $ --
Issuance of common
stock............... -- --
Issuance of preferred
stock and
warrants............ -- --
Conversion of
preferred stock..... -- --
Net loss.............. -- --
Other comprehensive
income.............. -- --
-------- --------
December 31, 1997..... -- --
Issuance of common
stock............... -- --
Issuance of
convertible stock... -- --
Purchase of common
stock............... (172,000) (2,612)
Net income............ -- --
Other comprehensive
income.............. -- --
-------- --------
December 31, 1998..... (172,000) (2,612)
Issuance of common
stock............... -- --
Conversion of
convertible stock... -- --
Purchase of common
stock............... (346,900) (9,322)
Net income............ -- --
Other comprehensive
income.............. -- --
-------- --------
December 31, 1999..... (518,900) $(11,934)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
The principal business activity of Affiliated Managers Group, Inc. ("AMG" or
the "Company") is the acquisition of equity interests in investment management
firms ("Affiliates"). AMG's Affiliates operate in one industry segment, that of
providing investment management services, primarily in the United States and
Europe, to mutual funds, partnerships and institutional and individual clients.
Affiliates are either organized as limited partnerships, general
partnerships or limited liability companies. AMG has contractual arrangements
with each Affiliate (other than Managers) whereby a percentage of revenues is
allocable to fund Affiliate operating expenses, including compensation (the
Operating Allocation), while the remaining portion of revenues (the Owners'
Allocation) is allocable to AMG and the other partners or members, generally
with a priority to AMG. Unlike all other Affiliates, Managers is not subject to
a revenue sharing arrangement since AMG owns substantially all of the firm. As a
result, the Company participates fully in any increase or decrease in the
revenues or expenses of Managers.
CONSOLIDATION
These consolidated financial statements include the accounts of AMG and each
Affiliate in which AMG has a controlling interest. In each such instance, AMG
is, directly or indirectly, the sole general partner (in the case of Affiliates
which are limited partnerships), sole managing general partner (in the case of
the Affiliate which is a general partnership) or sole manager member (in the
case of Affiliates which are limited liability companies). For Affiliate
operations consolidated into these financial statements, the portion of the
Owners' Allocation allocated to owners other than AMG is included in minority
interest in the statement of operations. Minority interest on the consolidated
balance sheet includes capital and undistributed Owners' Allocation owned by the
owners of consolidated Affiliates.
Investments where AMG or an Affiliate does not hold a controlling interest
are accounted for under the equity method of accounting and AMG's portion of net
income is included in investment and other income. All intercompany balances and
transactions have been eliminated. All dollar amounts in the text and tables
herein are stated in thousands unless otherwise indicated. Certain
reclassifications have been made to prior years' financial statements to conform
with the current year's presentation.
SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards (FAS)
131, "Disclosures about Segments of an Enterprise and Related Information".
FAS 131 superseded FAS 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. FAS 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of FAS 131 did not affect results of operations or financial
position (see Note 16).
REVENUE RECOGNITION
The Company's consolidated revenues represent advisory fees billed quarterly
and annually by Affiliates for managing the assets of clients. Asset-based
advisory fees are recognized monthly as services
39
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are rendered and are based upon a percentage of the market value of client
assets managed. Any fees collected in advance are deferred and recognized as
income over the period earned. Performance-based advisory fees are recognized
when earned based upon either the positive difference between the investment
returns on a client's portfolio compared to a benchmark index or indices, or an
absolute percentage of gain in the client's account.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates market value due to the short-term maturity of these
investments.
FIXED ASSETS
Equipment and other fixed assets are recorded at cost and depreciated using
the straight-line method over their estimated useful lives ranging from three to
five years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the lease.
ACQUIRED CLIENT RELATIONSHIPS AND GOODWILL
The purchase price for the acquisition of interests in Affiliates is
allocated based on the fair value of assets acquired, primarily acquired client
relationships. In determining the allocation of purchase price to acquired
client relationships, the Company analyzes the net present value of each
acquired Affiliate's existing client relationships based on a number of factors
including: the Affiliate's historical and potential future operating
performance; the Affiliate's historical and potential future rates of attrition
among existing clients; the stability and longevity of existing client
relationships; the Affiliate's recent, as well as long-term, investment
performance; the characteristics of the firm's products and investment styles;
the stability and depth of the Affiliate's management team and the Affiliate's
history and perceived franchise or brand value. The cost assigned to acquired
client relationships is amortized using the straight-line method over periods
ranging from eight to 28 years. The expected useful lives of acquired client
relationships are analyzed separately for each acquired Affiliate and determined
based on an analysis of the historical and potential future attrition rates of
each Affiliate's existing clients, as well as a consideration of the specific
attributes of the business of each Affiliate.
The excess of purchase price for the acquisition of interests in Affiliates
over the fair value of net assets acquired, including acquired client
relationships, is classified as goodwill. Goodwill is amortized using the
straight-line method over periods ranging from 15 to 35 years. In determining
the amortization period for goodwill, the Company considers a number of factors
including: the firm's historical and potential future operating performance; the
characteristics of the firm's clients, products and investment styles; as well
as the firm's history and perceived franchise or brand value. Unamortized
intangible assets, including acquired client relationships and goodwill, are
periodically re-evaluated and if experience subsequent to the acquisition
indicates that there has been an impairment in value, other than temporary
fluctuations, an impairment loss is recognized. Management evaluates the
recoverability of unamortized intangible assets quarterly for each acquisition
using estimates of undiscounted cash flows factoring in known or expected
trends, future prospects and other relevant information. If impairment is
indicated, the Company measures its loss as the excess of the carrying value of
the intangible assets for each Affiliate
40
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
over its fair value determined using valuation models such as discounted cash
flows and market comparables. Fair value in such cases was determined using
market comparables based on revenues, cash flow and assets under management. No
impairment loss was recorded for in any of the three years ended December 31,
1999.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in securing credit facility financing are
capitalized and subsequently amortized over the term of the credit facility
using the effective interest method. Unamortized debt issuance costs of $10,011,
net of tax were written off as an extraordinary item in 1997 as part of the
Company's replacement of its previous credit facilities with new facilities.
INTEREST RATE HEDGING AGREEMENTS
The Company periodically enters into interest rate hedging agreements to
hedge against potential increases in interest rates on the Company's outstanding
borrowings. The Company's policy is to accrue amounts receivable or payable
under such agreements as reductions or increases in interest expense,
respectively.
INCOME TAXES
In accordance with FAS 109, the Company recognizes deferred tax assets and
liabilities for the expected consequences of temporary differences between the
financial statement basis and tax basis of the Company's assets and liabilities.
A deferred tax valuation allowance is established if, in management's opinion,
it is more likely than not that all or a portion of the Company's deferred tax
assets will not be realized.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of non-U.S. based Affiliates are translated into
U.S. dollars at the exchange rates in effect as of the balance sheet date.
Revenues and expenses are translated at the average monthly exchange rates then
in effect.
PUTS AND CALLS
As further described in Note 10, the Company periodically purchases
additional equity interests in Affiliates from minority interest owners.
Resulting payments made to such owners are generally considered purchase price
for such acquired interests. The estimated cost of purchases from equity holders
who have been awarded equity interests in connection with their employment is
accrued, net of estimated forfeitures, over the service period as equity-based
compensation.
EQUITY-BASED COMPENSATION PLANS
FAS 123, "Accounting for Stock-Based Compensation", encourages but does not
require adoption of a fair value-based accounting method for stock-based
compensation arrangements which include stock option grants and grants of equity
based interests in Affiliates to certain limited partners or members. An entity
may continue to apply Accounting Principles Board Opinion No. 25 ("APB 25") and
related interpretations, provided the entity discloses its pro forma net income
and earnings per share as if the fair
41
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value based method had been applied in measuring compensation cost. The Company
continues to apply APB 25 and related interpretations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts included in the financial
statements and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the FASB issued FAS 133, "Accounting for Derivative
Instruments and Hedging Activities". FAS 133 standardizes the accounting for
derivative instruments by requiring that all derivatives be recognized as assets
and liabilities and measured at fair value. In June 1999, FAS 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of Effective Date of
FASB Statement No 133--an amendment to FASB Statement 133" deferred the
effective date of FAS 133 to financial statements for fiscal years beginning
after June 15, 2000.
The Company does not believe that the implementation of FAS 133 will have a
material impact on the Company's financial statements.
2. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
investment advisory fees receivable. The Company maintains cash and cash
equivalents, short-term investments and certain off-balance-sheet financial
instruments with various financial institutions. These financial institutions
are located in cities in which AMG and its Affiliates operate. For AMG and
certain Affiliates, cash deposits at a financial institution may exceed FDIC
insurance limits.
3. FIXED ASSETS AND LEASE COMMITMENTS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Office equipment........................................ $ 8,282 $ 10,735
Furniture and fixtures.................................. 4,534 7,804
Leasehold improvements.................................. 3,473 3,872
Computer software....................................... 1,742 2,169
-------- --------
Total fixed assets.................................... 18,031 24,580
-------- --------
Accumulated depreciation................................ (10,030) (12,259)
-------- --------
Fixed assets, net..................................... $ 8,001 $ 12,321
======== ========
</TABLE>
42
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FIXED ASSETS AND LEASE COMMITMENTS (CONTINUED)
The Company and its Affiliates lease computer equipment and office space for
their operations. At December 31, 1999, the Company's aggregate future minimum
payments for operating leases having initial or noncancelable lease terms
greater than one year are payable as follows:
<TABLE>
<CAPTION>
REQUIRED
MINIMUM
YEAR ENDING DECEMBER 31, PAYMENTS
- ------------------------ --------
<S> <C>
2000........................................................ $7,213
2001........................................................ 6,270
2002........................................................ 5,752
2003........................................................ 4,225
2004........................................................ 3,507
Thereafter.................................................. 7,658
</TABLE>
Consolidated rent expense for 1997, 1998 and 1999 was $3,637, $6,278 and
$8,906, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Accounts payable......................................... $ 928 $ 2,538
Accrued compensation..................................... 25,201 126,461
Accrued income taxes..................................... 6,297 24,964
Accrued rent............................................. 2,413 2,196
Accrued interest......................................... 1,858 1,731
Deferred revenue......................................... 1,602 1,774
Accrued professional services............................ 524 1,291
Other.................................................... 3,794 9,344
------- --------
$42,617 $170,299
======= ========
</TABLE>
5. BENEFIT PLANS
AMG has a defined contribution retirement plan covering substantially all of
its full-time employees and four of its Affiliates. Eight of AMG's other
Affiliates have separate defined contribution retirement plans. Under each of
the plans, AMG and each Affiliate are able to make discretionary contributions
to qualified plan participants up to IRS limits. Consolidated expenses related
to these plans in 1997, 1998 and 1999 were $1,020, $2,589 and $3,728,
respectively.
In addition to the defined contribution retirement plan, in December 1999,
the Company established a non-qualified defined contribution plan (the "Plan")
for certain senior employees. The initial irrevocable contribution to the Plan
will vest and be distributable to each participant in 12.5% installments on the
second and third anniversary of the contribution and in 37.5% installments on
the fourth and fifth anniversary of the contribution. Such vesting and
distribution is subject to the participant satisfying certain conditions, among
them that the participant has not terminated his employment or been terminated
for cause. Forfeited contributions remain in the Plan and will be reallocated to
the remaining participants. The Company's contribution and expense related to
the Plan was $5,000 for the year ended December 31, 1999.
43
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SENIOR BANK DEBT AND SUBORDINATED DEBT
The Company has a $330 million revolving Credit Facility ("Credit
Facility"), which matures in December 2002. The Company has the option, with the
consent of its lenders, to increase the facility by another $70 million to a
total of $400 million. Interest is payable at rates up to 1.25% over the Prime
Rate or up to 2.25% over LIBOR on amounts borrowed. The Company pays a
commitment fee of up to 1/2 of 1% on the daily unused portion of the facility,
which amounted to $347, $341 and $297 for the years ended December 31, 1997,
1998 and 1999, respectively. The Company had $174.5 million outstanding on the
Credit Facility at December 31, 1999.
The effective interest rates on the outstanding borrowings were 5.7% and
6.7% at December 31, 1998 and 1999, respectively. All borrowings under the
Credit Facility are collateralized by pledges of all capital stock or other
equity interests in each AMG Affiliate owned and to be acquired. The credit
agreement contains certain financial covenants which require the Company to
maintain specified minimum levels of net worth and interest coverage ratios and
maximum levels of indebtedness, all as defined in the credit agreement. The
credit agreement also limits the Company's ability to pay dividends and incur
additional indebtedness.
As of December 31, 1999, the Company was a party, with two major commercial
banks as counterparties, to $185 million notional amount of swap contracts which
are designed to limit interest rate increases on the Company's borrowings and
are linked to the three-month LIBOR. The swap contracts, upon quarterly reset
dates, cap interest rates on the notional amounts at rates ranging between 6.67%
and 6.78%. When LIBOR is below 5%, the Company's floating interest rate debt is
swapped for fixed rate debt at rates ranging between 6.67% and 6.78%. The
Company generally borrows at LIBOR and pays an additional interest margin as
described above. The hedging contracts limit the effects of the Company's
payments of interest at equivalent LIBOR rates of 6.78% or less on up to
$185 million of indebtedness. The contracts mature between March 2001 and
October 2002.
As of December 31, 1999, the Company was also a party to a one-year interest
swap contract that limited interest rates on $75 million of the $185 million of
swap contracts identified above at 5.99%. This contract was designed to limit
interest rate increases if floating rate debt was swapped for higher fixed rate
debt under the terms of the original swap contracts. On January 15, 2000, this
interest rate swap contract expired.
Two of the Company's Affiliates also operate as broker-dealers and must
maintain specified minimum amounts of "net capital" as defined in SEC
Rule 15c3-1. In connection with this requirement, one Affiliate has $800 of
subordinated indebtedness which qualifies as net capital under the net capital
rule, while the second Affiliate maintains no such indebtedness. The
subordinated indebtedness is subordinated to claims of general creditors and is
secured by notes and marketable securities of certain of this Affiliate's
members other than AMG.
44
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current................................................... $ -- $ -- $35,658
Deferred.................................................. 776 10,238 12,762
State:
Current................................................... 352 6,624 6,125
Deferred.................................................... 236 172 2,174
------- ------- -------
Provision for income taxes.................................. $ 1,346 $17,034 $56,719
======= ======= =======
</TABLE>
The effective income tax rate differs from the amount computed on income
before income taxes and extraordinary item by applying the U.S. federal income
tax rate because of the effect of the following items:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax at U.S. federal income tax rate........................ 35% 35% 35%
Nondeductible expenses..................................... 15 2 3
State income taxes, net of federal benefit................. 13 5 7
Valuation allowance........................................ (17) (2) (1)
--- -- --
46% 40% 44%
=== == ==
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred assets (liabilities):
Net operating loss carryforwards...................... $ 6,086 $ 1,326
Intangible amortization............................... (17,455) (26,770)
Accruals.............................................. 2,363 1,271
-------- --------
(9,006) (24,173)
-------- --------
Valuation allowance..................................... (1,404) (1,173)
-------- --------
Net deferred income taxes............................... $(10,410) $(25,346)
======== ========
</TABLE>
At December 31, 1999, the Company had state net operating loss carryforwards
which begin to expire in the year 2000. The realization of these carryforwards
is dependent on generating sufficient taxable income prior to their expiration.
The valuation allowance at December 31, 1999 is related to the uncertainty of
the realization of some of these loss carryforwards.
45
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company and its Affiliates are subject to claims, legal proceedings and
other contingencies in the ordinary course of their business activities. Each of
these matters is subject to various uncertainties, and it is possible that some
of these matters may be resolved unfavorably to the Company or its Affiliates.
The Company and its Affiliates establish accruals for matters that are probable
and can be reasonably estimated. Management believes that any liability in
excess of these accruals upon the ultimate resolution of these matters will not
have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
In December 1999, AMG signed a purchase and sale agreement to acquire
property in Prides Crossing, Massachusetts for the future site of its corporate
headquarters. The Company intends to close on the property in the second quarter
of the year 2000.
9. ACQUISITIONS
1999
On January 6, 1999, the Company acquired an approximately 65% interest in
Rorer, a Philadelphia based investment advisor. On April 1, 1999, the Company
acquired substantially all of the interests in Managers, which serves as the
adviser to a family of nine equity and fixed income no-load mutual funds. AMG
financed these two investments with borrowings under its credit facility.
The results of operations of Rorer and Managers are included in the
consolidated results of operations of the Company from their respective dates of
acquisition, January 6, 1999 and April 1, 1999.
1998
On March 20, 1998, the Company completed its investment in Essex. Essex is a
Boston-based manager which specializes in investing in growth equities, using a
fundamental research driven approach. AMG paid $69.6 million in cash and
1,750,942 shares of its Series C Convertible Non-Voting Stock, for an indirect
68.0% interest in the Owners' Allocation (as defined in Note 1 above) of Essex.
The Series C Stock is non-voting stock and carries no preferences with respect
to dividends or liquidation. Each share of Series C Stock converted into one
share of Common Stock on March 20, 1999.
On December 31, 1998, AMG acquired a 65% interest in DHJA. DHJA is a Houston
based asset management firm with approximately $3.5 billion of assets under
management at December 31, 1998. The Company issued notes to close the
transaction which were settled on January 4, 1999. AMG financed these two
investments with borrowings under its Credit Facility.
The results of operations of Essex and DHJA are included in the consolidated
results of operations of the Company from their respective dates of acquisition,
March 20, 1998 and December 31, 1998.
1997
During 1997, the Company acquired in purchase transactions majority
interests in Gofen and Glossberg, GeoCapital and Tweedy, Browne. The Company
also acquired additional interests in two of its existing Affiliates.
46
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS (CONTINUED)
The Company issued 10,667 shares of Class D Convertible Preferred Stock as
partial consideration in the GeoCapital transaction. The preferred stock was
exchanged for 533,350 shares of the Company's Common Stock in connection with
the Company's initial public offering.
The results of operations of Gofen and Glossberg, GeoCapital and Tweedy,
Browne are included in the consolidated results of operations of the Company
from their respective dates of acquisition, May 7, 1997, September 30, 1997 and
October 9, 1997.
PURCHASE PRICE OF INVESTMENTS
The total purchase price, including cash, notes, common and preferred stock
and capitalized transaction costs, associated with these investments is
allocated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Allocation of Purchase Price:
Tangible equity, net of cash acquired....... $ 5,924 $ 3,776 $ 340
Intangible assets........................... 331,421 115,793 103,160
-------- -------- --------
Total purchase price...................... $337,345 $119,569 $103,500
======== ======== ========
</TABLE>
Unaudited pro forma data for the years ended December 31, 1998 and 1999 are
set forth below, giving consideration to the acquisitions occurring in the
respective two-year period as if such transactions occurred as of the beginning
of 1998, assuming revenue sharing arrangements had been in effect for the entire
period and after making certain other pro forma adjustments.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues................................................ $296,027 $523,894
Net income.............................................. $ 32,817 $ 72,375
Earnings per share--basic............................... 1.87 3.26
Earnings per share--diluted............................. 1.67 3.19
</TABLE>
In conjunction with certain acquisitions, the Company has entered into
agreements and is contingently liable, upon achievement of specified revenue
targets over a five-year period, to make additional purchase payments of up to
$26 million plus interest as applicable. These contingent payments, if achieved,
will be settled for cash with most coming due beginning January 1, 2001 and
January 1, 2002 and will be accounted for as an adjustment to the purchase price
of the Affiliate. In addition, subject to achievement of performance goals,
certain key Affiliate employees have options to receive additional equity
interests in their Affiliates.
47
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PUTS AND CALLS
Affiliate management owners have options ("Puts"), which require the Company
to purchase certain portions of their equity interests at staged intervals. The
Company is also obligated to purchase all remaining management owners' interests
(each, a "Purchase," and collectively, the "Purchases") in Affiliates upon
death, disability or termination of employment. All of the Puts and Purchases
would take place based on a multiple of the respective Affiliate's Owners'
Allocation but using reduced multiples for terminations for cause or for
voluntary terminations occurring prior to agreed upon dates, all as defined in
the general partnership, limited partnership or limited liability company
agreements of the Affiliates. In addition, to ensure the availability of
continued ownership participation to future key employees, Affiliate management
owners have options to repurchase ("Calls") certain equity interests in
Affiliates owned by partners or members.
The Company's contingent obligations under the Put and Purchase arrangements
at December 31, 1999 ranged from $83.6 million on the one hand, assuming all
such obligations occur due to early resignations or terminations for cause, and
$386.9 million on the other hand, assuming all such obligations occur due to
death, disability or terminations without cause. Assuming the closing of all
such Put and Purchase transactions, AMG would own the prospective Owners'
Allocation of all interests owned by Affiliate management described above, an
amount which totalled approximately $86.3 million in the year ended December 31,
1999.
11. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred Stock
in classes or series and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereon as set forth
in the Certificate. Any such Preferred Stock issued by the Company may rank
prior to the Common Stock as to dividend rights, liquidation preference or both,
may have full or limited voting rights and may be convertible into shares of
Common Stock.
CONVERTIBLE STOCK
In March 1998, the Company issued 1,750,942 shares of Series C Convertible
Stock in completing its investment in Essex Investment Management Company, LLC.
This stock is a series of the Preferred Stock described above. Each share of
Series C Stock converted into one share of Common Stock on March 20, 1999.
COMMON STOCK
The Company has 43,000,000 authorized shares of Common Stock (including
Class B Non-Voting Common Stock) with a par value of $0.01 per share. Shares
issued and outstanding at December 31, 1998 and 1999, were 17,531,617 and
22,936,597, respectively, of which 1,886,800 and 1,492,079, respectively, are
Class B Non-Voting Common Stock shares.
On March 3, 1999, the Company completed a public offering of 5,529,954
shares of Common Stock, of which 4,000,000 shares were sold by the Company and
1,529,954 shares were sold by selling stockholders. AMG used the net proceeds
from the offering to reduce indebtedness and did not receive any proceeds from
the sale of Common Stock by the selling stockholders.
48
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
On October 21, 1999, the Company announced that its Board of Directors had
authorized a share repurchase program pursuant to which AMG can repurchase up to
five percent of its issued and outstanding shares of Common Stock in open market
transactions, with the timing of purchases and the amount of stock purchased
determined at the discretion of AMG's management. As of December 31, 1999, AMG
had repurchased 346,900 shares of Common Stock at an average price of $26.83. On
September 11, 1998, the Company's Board of Directors authorized a share
repurchase program pursuant to which the Company could repurchase up to five
percent of its outstanding shares of Common Stock. As of December 31, 1998, the
Company repurchased 147,000 shares at an average price of $17.69.
STOCK INCENTIVE PLANS
The Company has established the 1997 Stock Option and Incentive Plan, under
which it is authorized to grant stock options and to grant or sell shares of
restricted stock to employees and directors. In 1999, shareholders approved an
amendment to increase to 3,250,000 the shares available to be issued under this
plan. The Company has two other incentive stock plans which provide for the
issuance of 550,000 shares of Common Stock. The Company has issued 312,500
shares of restricted stock under these two plans.
The plans are administered by a committee of the Board of Directors. The
exercise price of stock options is the fair market value of the Common Stock on
the date of grant. The stock options generally vest over periods ranging up to
four years and expire ten years after the grant date. In connection with the
Company's initial public offering in 1997, the Company granted stock options
which were exercisable over seven years, subject to acceleration if the Company
achieved certain financial goals. These options became fully vested on
December 31, 1999 when the Company achieved these goals.
The following table summarizes the transactions of the Company's stock
option plans for the two year period ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Unexercised options outstanding--
December 31, 1997........................................ 692,500 $21.60
Options granted............................................ 536,750 32.16
Options exercised.......................................... -- --
Options forfeited.......................................... (57,500) 23.50
--------- ------
Unexercised options outstanding--
December 31, 1998........................................ 1,171,750 $26.34
Options granted............................................ 845,000 28.86
Options exercised.......................................... (938) 21.65
Options forfeited.......................................... (562) 14.25
--------- ------
Unexercised options outstanding--
December 31, 1999........................................ 2,015,250 $27.40
Exercisable options
December 31, 1998........................................ 233,730 $23.90
December 31, 1999........................................ 887,750 $24.62
</TABLE>
49
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about the Company's stock options
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------- -------------------------------
WEIGHTED AVG.
RANGE OF NUMBER REMAINING NUMBER
EXERCISE OUTSTANDING AS CONTRACTUAL WEIGHTED AVG. EXERCISABLE AS WEIGHTED AVG.
PRICES OF 12/31/99 LIFE (YEARS) EXERCISE PRICE OF 12/31/99 EXERCISE PRICE
- -------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
0$-10.. 92,500 7.4 $ 9.10 92,500 $ 9.10
10-20.. 4,500 8.8 14.25 2,250 14.25
20-30.. 1,562,250 9.0 26.88 615,000 24.10
30-40.. 356,000 8.3 34.63 178,000 34.63
--------- ---- ------ ------- ------
2,015,250 8.8 $27.40 887,750 $24.62
========= ==== ====== ======= ======
</TABLE>
SUPPLEMENTAL DISCLOSURE FOR EQUITY-BASED COMPENSATION
The Company continues to apply APB 25 and related interpretations in
accounting for its sales of Restricted Stock, grants of stock options and equity
based interests in Affiliates. FAS 123 defines a fair value method of accounting
for the above arrangements whose impact requires disclosure. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the expected service period. The
required disclosures under FAS 123 as if the Company had applied the new method
of accounting are made below.
Had compensation costs for the Company's equity-based compensation
arrangements been determined based on the fair value at grant date for awards
consistent with the requirements of FAS 123, the Company's net income (loss) and
net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)--as reported........................... $(8,368) $25,551 $72,188
Net income (loss)--FAS 123 pro forma..................... (8,837) 24,408 68,463
Net income (loss) per share--basic--as reported.......... (3.69) 1.45 3.25
Net income (loss) per share--basic--FAS 123 pro forma.... (3.89) 1.39 3.09
Net income (loss) per share--diluted--as reported........ (1.02) 1.33 3.18
Net income (loss) per share--diluted--FAS 123 pro
forma.................................................. (1.07) 1.27 3.02
</TABLE>
The fair value of options granted in the year ended December 31, 1997 was
estimated using the minimum value method prior to the initial public offering in
November 1997 and the Black-Scholes option pricing model after the offering. The
weighted average fair value of options granted in the years ended December 31,
1998 and 1999 were estimated at $14.24 and $15.62 per option, respectively,
using the Black-
50
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Scholes option pricing model. The following weighted average assumptions were
used for the option valuations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Dividend yield.............................................. 0% 0% 0%
Stock price volatility...................................... 26.0% 60.0% 50.8%
Risk-free interest rate..................................... 5.96% 5.38% 5.49%
Expected life of options (in years)......................... 6.7 7.0 8.4
</TABLE>
12. EARNINGS PER SHARE
The calculation for the basic earnings per share is based on the weighted
average of common shares outstanding during the period. The calculation for the
diluted earnings per share is based on the weighted average of common and common
equivalent shares outstanding during the period. All calculations are of
earnings before extraordinary item, if any. The following is a reconciliation of
the numerators and denominators of the basic and diluted earnings per share
computations.
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item............. $1,643,000 $25,551,000 $72,188,000
Denominator:
Average shares outstanding--basic............ 2,270,684 17,582,900 22,180,112
Convertible preferred stock.................. 5,496,330 1,376,768 374,174
Stock options and unvested restricted
stock...................................... 468,515 263,163 138,730
---------- ----------- -----------
Average shares outstanding--diluted.......... 8,235,529 19,222,831 22,693,016
========== =========== ===========
Earnings per share:
Basic........................................ $ 0.72 $ 1.45 $ 3.25
Diluted...................................... $ 0.20 $ 1.33 $ 3.18
</TABLE>
In March 1998, the Company issued 1,750,942 shares of Series C Convertible
Stock in completing its investment in Essex. Each share converted into one share
of Common Stock in March 1999. In March 1999, the Company sold 4,000,000 shares
in a public offering.
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to market risks brought on by changes in interest
rates. Derivative financial instruments are used by the Company to reduce those
risks, as explained in this note.
(A) NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amount of derivatives do not represent amounts that are
exchanged by the parties, and thus are not a measure of the Company's exposure.
The amounts exchanged are calculated on the basis of the notional or contract
amounts, as well as on other terms of the interest rate swap derivatives, and
the volatility of these rates and prices.
51
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The Company would be exposed to credit-related losses in the event of
nonperformance by the counter-parties that issued the financial instruments. The
Company does not expect that the counter-parties to interest rate swaps will
fail to meet their obligations, given their high credit ratings. The credit
exposure of derivative contracts is represented by the positive fair value of
contracts at the reporting date, reduced by the effects of master netting
agreements. The Company generally does not give or receive collateral on
interest rate swaps due to its own credit rating and that of its
counter-parties.
(B) INTEREST RATE RISK MANAGEMENT
The Company enters into interest rate swaps to reduce exposure to
interest-rate risk connected to existing liabilities. The Company does not hold
or issue derivative financial instruments for trading purposes. Interest rate
swaps allow the Company to achieve a level of variable-rate and fixed-rate debt
that is acceptable to management, and to cap interest rate exposure. The Company
agrees with another party to exchange the difference between fixed-rate and
floating rate interest amounts calculated by reference to an agreed notional
principal amount.
(C) FAIR VALUE
FAS 107, "Disclosures about Fair Value of Financial Instruments", requires
the Company to disclose the estimated fair values for certain of its financial
instruments. Financial instruments include items such as loans, interest rate
contracts, notes payable, and other items as defined in FAS 107.
Fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
Quoted market prices are used when available, otherwise, management
estimates fair value based on prices of financial instruments with similar
characteristics or using valuation techniques such as discounted cash flow
models. Valuation techniques involve uncertainties and require assumptions and
judgments regarding prepayments, credit risk and discount rates. Changes in
these assumptions will result in different valuation estimates. The fair value
presented would not necessarily be realized in an immediate sale; nor are there
plans to settle liabilities prior to contractual maturity. Additionally,
FAS 107 allows companies to use a wide range of valuation techniques, therefore,
it may be difficult to compare the Company's fair value information to other
companies' fair value information.
The carrying amount of cash and cash equivalents approximates fair value
because of the short-term nature of these instruments. The carrying value of
notes receivable approximate fair value because interest rates and other terms
are at market rates. The carrying value of notes payable approximates fair value
principally because of the short-term nature of the note. The carrying value of
senior bank debt approximates fair value because the debt is a revolving credit
facility with variable interest based on three-month LIBOR rates. The fair
values of interest rate hedging agreements are quoted market prices based on the
estimated amount necessary to terminate the agreements. The fair market values
of interest rate hedging agreements were $(7,446) and $1,218 at December 31,
1998 and 1999.
52
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
of the Company for 1998 and 1999.
<TABLE>
<CAPTION>
1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................ $45,723 $56,586 $55,892 $80,293
Operating income................................ 16,693 22,233 21,349 32,505
Income before income taxes...................... 7,437 9,858 9,773 15,517
Net Income...................................... 4,462 5,915 5,864 9,310
Earnings per share--diluted..................... $ 0.25 $ 0.30 $ 0.30 $ 0.48
</TABLE>
<TABLE>
<CAPTION>
1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $68,127 $78,577 $85,395 $286,627
Operating income............................... 25,847 30,238 32,254 124,320
Income before income taxes..................... 12,786 16,127 17,722 82,272
Net income..................................... 7,544 9,515 10,456 44,673
Earnings per share--diluted.................... $ 0.36 $ 0.41 $ 0.45 $ 1.92
</TABLE>
During the fourth quarter of 1999, the Company experienced increases in
revenues, operating income and income before income taxes from the same period
in 1998 due to a substantial increase in performance-based fees earned by
several Affiliates, as well as growth in asset-based fees resulting from
positive investment performance. In 1999, revenues from performance-based fees
increased from approximately 18% for the year ended December 31, 1998 to
approximately 39% for the year ended December 31, 1999.
15. RELATED PARTY TRANSACTIONS
During 1998, the Company initiated an employee loan program. Loans to
employees accrue interest at the lower of 6.25% or the Applicable Federal Rate,
have a stated 30-year maturity date and are collateralized by real property.
Outstanding balances are payable in full generally one year after termination of
employment with the Company. At December 31, 1998 and 1999, loans outstanding,
including accrued interest, totaled $1.7 million and $5.4 million, respectively.
16. SEGMENT INFORMATION
The Company and its Affiliates provide investment advisory services to
mutual funds and individual and institutional accounts. The Company's revenues
are generated substantially from providing these investment advisory services to
domestic customers.
The Affiliates are all managed by separate Affiliate management teams in
accordance with the respective agreements between the Company and each
Affiliate. While the Company has determined that each of its Affiliates
represents a separate reportable operating segment, because the Affiliates offer
comparable investment products and services, have similar customers and
distribution channels, and
53
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
operate in a similar regulatory environment, the Affiliates have been aggregated
into one reportable segment for financial statement disclosure purposes.
17. EVENTS SUBSEQUENT TO DECEMBER 31, 1999 (UNAUDITED)
On January 18, 2000, the Company completed its investment in Frontier. The
investment in Frontier was financed with a borrowing under our Credit Facility.
As of March 23, 2000, AMG had repurchased 681,600 shares of Common Stock
since December 31, 1999 at an average price of $37.44 under the share repurchase
program.
Giving effect to the purchase of Frontier and repurchase of shares of Common
Stock, the Company had $240.5 million outstanding on the Credit Facility at
March 23, 2000.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information in Part III (Items 10, 11, 12 and 13) is incorporated by
reference to the Company's definitive Proxy Statement, which will be filed not
later than 120 days after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON 8-K
(a)(1) Financial Statements: See Item 8
(2) Financial Statement Schedules: See Item 8
(3) Exhibits
<TABLE>
<C> <S>
2.1 Purchase Agreement dated August 15, 1997 by and among the
Registrant, Tweedy, Browne Company L.P. and the partners
of Tweedy, Browne Company L.P. (excluding schedules and
exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
2.2 Agreement and Plan of Reorganization dated August 15, 1997
by and among the Registrant, AMG Merger Sub, Inc.,
GeoCapital Corporation, GeoCapital, LLC and the
stockholders of GeoCapital Corporation (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request) (2)
2.3 Stock Purchase Agreement dated as of January 17, 1996 by and
among the Registrant, First Quadrant Holdings, Inc.,
Talegen Holdings, Inc., certain employees of First
Quadrant Corp. and the other parties identified therein
(excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (2)
2.4 Amendment to Stock Purchase Agreement by and among the
Registrant, First Quadrant Holdings, Inc., Talegen
Holdings, Inc., certain managers of First Quadrant Corp.
and the Management Corporations identified therein,
effective as of March 28, 1996 (2)
2.5 Partnership Interest Purchase Agreement dated as of June 6,
1995 by and among the Registrant, Mesirow Asset
Management, Inc., Mesirow Financial Holdings, Inc.,
Skyline Asset Management, L.P., certain managers of
Mesirow Asset Management, Inc. and the Management
Corporations identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
2.6 Amendment, made by and among Mesirow Financial
Holdings, Inc. and the Registrant, to Partnership Interest
Purchase Agreement by and among the Registrant, Mesirow
Asset Management, Inc., Mesirow Financial Holdings, Inc.,
Skyline Asset Management, L.P., certain managers of
Mesirow Asset Management, Inc. and the Management
Corporations identified therein, effective as of
August 30, 1995 (2)
</TABLE>
56
<PAGE>
<TABLE>
<C> <S>
2.7 Agreement and Plan of Reorganization dated January 15, 1998
by and among the Registrant, Constitution Merger
Sub, Inc., Essex Investment Management Company, Inc. and
certain of the stockholders of Essex Investment Management
Company, Inc. (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request)(3)
2.8 Amendment to Agreement and Plan of Reorganization dated
March 19, 1998 by and among the Registrant, Constitution
Merger Sub, Inc., Essex Investment Management
Company, Inc. and certain of the stockholders of Essex
Investment Management Company, Inc. (excluding schedules
and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (3)
2.9 Stock Purchase Agreement dated November 9, 1998 by and among
the Registrant, Edward C. Rorer & Co., Inc. and the
stockholders of Edward C. Rorer & Co., Inc. (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request) (4)
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Amended and Restated By-laws (2)
3.3 Certificate of Designations, Preferences and Rights of a
Series of Stock (5)
4.1 Specimen certificate for shares of Common Stock of the
Registrant (2)
4.2 Credit Agreement dated as of December 22, 1997 by and among
Chase Manhattan Bank, Nations Bank N.A. and the other
lenders identified therein and the Registrant (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request) (3)
4.3 Stock Purchase Agreement dated November 7, 1995 by and among
the Registrant, TA Associates, NationsBank, The Hartford,
and the additional parties listed on the signature pages
thereto (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request) (2)
4.4 Preferred Stock and Warrant Purchase Agreement dated
August 15, 1997 between the Registrant and Chase Equity
Associates (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request) (2)
4.5 Amendment No. 1 to Preferred Stock and Warrant Purchase
Agreement dated as of October 9, 1997 between the
Registrant and Chase Equity Associates (2)
4.6 Securities Purchase Agreement dated August 15, 1997 between
the Registrant and Chase Equity Associates (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon
request) (2)
4.7 Securities Purchase Agreement Amendment No. 1 dated as of
October 9, 1997 between the Registrant and Chase Equity
Associates (2)
10.1 Amended and Restated Stockholders' Agreement dated
October 9, 1997 by and among the Registrant and TA
Associates, NationsBank, The Hartford, Chase Capital and
the additional parties listed on the signature pages
thereto (2)
10.2 Tweedy, Browne Company LLC Limited Liability Company
Agreement dated October 9, 1997 by and among the
Registrant and the other members identified therein
(excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (2)
</TABLE>
57
<PAGE>
<TABLE>
<C> <S>
10.3 GeoCapital, LLC Amended and Restated Limited Liability
Company Agreement dated September 30, 1997 by and among
the Registrant and the members identified therein
(excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (2)
10.4 First Quadrant, L.P. Amended and Restated Limited
Partnership Agreement dated March 28, 1996 by and among
the Registrant and the partners identified therein
(excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (2)
10.5 Amendment to First Quadrant, L.P. Amended and Restated
Limited Partnership Agreement by and among the Registrant
and the partners identified therein, effective as of
October 1, 1996 (2)
10.6 Second Amendment to First Quadrant, L.P. Amended and
Restated Limited Partnership Agreement by and among the
Registrant and the partners identified therein, effective
as of December 31, 1996 (2)
10.7 First Quadrant U.K., L.P. Limited Partnership Agreement
dated March 28, 1996 by and among the Registrant and the
partners identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
10.8 Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement dated August 31, 1995 by and among
the Registrant and the partners identified therein
(excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (2)
10.9 Amendment to Skyline Asset Management, L.P. Amended and
Restated Limited Partnership Agreement by and among the
Registrant and the partners identified therein, effective
as of August 1, 1996 (2)
10.10 Second Amendment to Skyline Asset Management, L.P. Amended
and Restated Limited Partnership Agreement by and among
the Registrant and the partners identified therein,
effective as of December 31, 1996 (2)
10.11 Affiliated Managers Group, Inc. 1997 Stock Option and
Incentive Plan (2)
10.13 Affiliated Managers Group. Inc. 1995 Incentive Stock Plan
(2)
10.14 Form of Tweedy, Browne Employment Agreement (2)
10.15 Essex Investment Management Company, LLC Amended and
Restated Limited Liability Company Agreement dated
March 20, 1998 by and among the Registrant and the members
identified therein (excluding schedules and exhibits,
which the Registrant agrees to furnish supplementally to
the Commission upon request) (3)
10.16 Form of Essex Employment Agreement (3)
10.17 Rorer Asset Management, LLC Amended and Restated Limited
Liability Company Agreement dated January 6, 1999 by and
among the Registrant and the members identified therein
(excluded schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon
request) (6)
10.18 Form of Rorer Employment Agreement (6)
10.19 Affiliated Managers Group, Inc. Amended and Restated 1997
Stock Option and Incentive Plan (7)
</TABLE>
58
<PAGE>
<TABLE>
<C> <S>
10.20 Affiliated Managers Group, Inc. Defined Contribution Plan
(1)
21.1 Schedule of Subsidiaries (1)
23.2 Consent of PricewaterhouseCoopers LLP (1)
24.1 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Filed herewith
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 333-34679), filed August 29, 1997 as amended
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the three months ended September 30, 1998
(5) Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 333-71561), filed February 1, 1999, as amended
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
January 21, 1999
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the three months ended June 30, 1999
(b) Reports on 8-K
The following Current Report on Form 8-K was filed by the Company during the
quarter ended December 31, 1999:
1. Current Report on Form 8-K dated November 4, 1999, containing the press
release reporting the authorization of a share repurchase program by the
Company.
59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders
Affiliated Managers Group, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 25, 2000 of Affiliated Managers Group, Inc. (which report
and consolidated financial statements are included in this Annual Report on
Form 10-K) also included an audit of the financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 25, 2000
60
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income Tax Valuation Allowance
Year Ending December 31,
1999.................................................. $1,404 $ -- $(231) $1,173
1998.................................................. 1,989 -- (585) 1,404
1997.................................................. 477 1,512 -- 1,989
</TABLE>
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
AFFILIATED MANAGERS GROUP, INC.
(Registrant)
Date: March 30, 2000 By /s/ WILLIAM J. NUTT
------------------------------------------
William J. Nutt
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
/s/ WILLIAM J. NUTT Chief Executive Officer March 30, 2000
- ----------------------------------------------------- and Chairman of the
(William J. Nutt) Board of Directors
(Principal Executive Officer)
<C> <S> <C>
Senior Vice President, Chief
Financial Officer and
/s/ DARRELL W. CRATE Treasurer
------------------------------------------- (Principal Financial and March 30, 2000
(Darrell W. Crate) Principal Accounting
Officer)
/s/ RICHARD E. FLOOR
------------------------------------------- Director March 30, 2000
(Richard E. Floor)
/s/ STEPHEN J. LOCKWOOD
------------------------------------------- Director March 30, 2000
(Stephen J. Lockwood)
/s/ P. ANDREWS MCLANE
------------------------------------------- Director March 30, 2000
(P. Andrews McLane)
/s/ HAROLD J. MEYERMAN
------------------------------------------- Director March 30, 2000
(Harold J. Meyerman)
/s/ JOHN M.B. O'CONNOR
------------------------------------------- Director March 30, 2000
(John M.B. O'Connor)
/s/ RITA M. RODRIGUEZ
------------------------------------------- Director March 30, 2000
(Rita M. Rodriguez)
/s/ W.W. WALKER, JR.
------------------------------------------- Director March 30, 2000
(W.W. Walker, Jr.)
/s/ WILLIAM F. WELD
------------------------------------------- Director March 30, 2000
(William F. Weld)
</TABLE>
62
<PAGE>
THE AFFILIATED MANAGERS GROUP, INC.
DEFINED CONTRIBUTION PLAN
PREAMBLE
This Plan shall be known as The Affiliated Managers Group, Inc. Defined
Contribution Plan (the "Plan"). The object of the Plan is to provide certain
select management employees of the Affiliated Managers Group, Inc. ("AMG")
with an ownership interest in AMG and certain investments managed by AMG's
affiliates and subsidiaries and to align the interests of those employees
with those of AMG's shareholders.
The Plan is not intended to be qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended, and is not subject to the Employee
Retirement Income Security Act of 1974, as amended.
ARTICLE I
DEFINITIONS
Section I.1 "Account" means one or more of a Participant's AMG Stock
Account, a Participant's Affiliate Investments Account or the Unallocated
Account, as the context requires.
Section I.2 "Administrative Committee" means the committee of the Board
appointed by the Board to administer the Plan.
Section I.3 "Affiliate Investment" means an equity investment by the Trust
in investment products managed or advised by an affiliate or subsidiary of AMG.
Section I.4 "Affiliate Investments Account" means the separate account
established in the name of each Participant under Section 4.1 to hold cash (and
Affiliate Investments purchased with such cash) that has been allocated to such
Participant and any distribution received with respect to such cash or Affiliate
Investments.
Section I.5 "AMG Stock Account" means the separate account established in
the name of each Participant under Section 4.1 to hold cash, shares of Stock and
any distributions received with respect to such Stock.
Section I.6 "Beneficiary" means the person or persons (including a trust or
estate) who are entitled to receive any benefit payable hereunder by reason of
the death of a Participant, as designated pursuant to Section 9.1.
Section I.7 "Board" means the Board of Directors of AMG.
<PAGE>
Section I.8 "Cause" means any of the following: (a) the Participant's
conviction, whether following trial or by plea of guilty or nolo contendere (or
similar plea), in a criminal proceeding (i) on a misdemeanor charge involving
fraud, false statements or misleading omissions, wrongful taking, embezzlement,
bribery, forgery, counterfeiting or extortion, or (ii) on a felony charge or
(iii) on an equivalent charge to those in clauses (i) and (ii) in jurisdictions
which do not use those designations; (b) the Participant's willful or grossly
negligent failure to perform duties owed to AMG; (c) the Participant's willful
violation of any securities or commodities laws, any rules or regulations issued
pursuant to such laws, or the rules and regulations of any securities or
commodities exchange or association of which AMG or any of its subsidiaries or
affiliates is a member; or (d) the Participant's willful violation of any Firm
policy concerning hedging or confidential or proprietary information, or
material violation of any other Firm policy as in effect from time to time. The
determination as to whether "Cause" has occurred shall be made by the
Administrative Committee. In the event the Administrative Committee believes
that a Participant has engaged in of any of Causes (b) through (d) above, the
Administrative Committee shall give written notice to such Participant of such
Cause with sufficient particularity to permit the Participant to cure such Cause
within 30 days following such written notice. The Administrative Committee shall
also have the authority to waive the consequences under the Plan of the
existence or occurrence of any of the events, acts or omissions constituting
"Cause".
Section I.9 "Change in Control" means the consummation of a merger,
consolidation, statutory share exchange or similar form of corporate transaction
involving AMG (a "Reorganization") or sale or other disposition of all or
substantially all of AMG's assets to an entity that is not an affiliate of AMG
(a "Sale"), that in each case requires the approval of AMG's stockholders under
the law of AMG's jurisdiction of organization, whether for such Reorganization
or Sale (or the issuance of securities of AMG in such Reorganization or Sale),
unless, immediately following such Reorganization or Sale, at least a majority
of the members of the board of directors (or similar officials in the case of an
entity other than a corporation) of the parent entity (or, if there is no parent
entity, the surviving entity) following the consummation of the Reorganization
or Sale were, at the time of the Board's approval of the execution of the
initial agreement providing for such Reorganization or Sale, individuals (the
"Incumbent Directors") who either (1) were members of the Board on the Effective
Date or (2) became directors subsequent to the Effective Date and whose election
or nomination for election was approved by a vote of at least two-thirds of the
Incumbent Directors then on the Board (either by a specific vote or by approval
of AMG's proxy statement in which such persons are named as a nominee for
director); but provided further that any such individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of members of the Board or other actual or
threatened solicitation of proxies or consents by or on behalf of a person other
than the Board, including by reason of agreement intended to avoid or settle any
such actual or threatened contest or solicitation, shall not be considered an
Incumbent Director.
Section I.10 "Code" means the Internal Revenue Code of 1986, as amended,
from time to time.
<PAGE>
Section I.11 "Disability" means a disability as defined in any long-term
disability plan of AMG or, in the absence of such plan, the inability of the
Participant to perform the functions of his or her position with AMG for a
period of 150 consecutive business days or 200 business days in a period of 365
consecutive days as determined by a physician selected by the Administrative
Committee in its reasonable business judgment.
Section I.12 "Effective Date" means December 31, 1999.
Section I.13 "Employment" means a Participant's performance of services for
AMG, as determined by the Administrative Committee. The terms "employ" and
"employed" shall have their correlative meanings.
Section I.14 "Fair Market Value" means, with respect to Plan Assets on any
day, for any security listed on nationally recognized securities exchange, the
closing asked price on the most recent day on which such security was traded or,
if not so listed, the fair market value as determined in accordance with a
valuation methodology approved by the Administrative Committee.
Section I.15 "Initial Contribution" means the initial shares of Stock or
cash contributed to the Plan and Trust.
Section I.16 "Investment Committee" means the committee appointed by the
Administrative Committee with the power to direct the Trustee as to investment
of Plan Assets other than the AMG Stock Accounts. The Investment Committee
currently is composed of Sean M. Healey, Darrell W. Crate and Nathaniel Dalton.
Section I.17 "Participant" means an employee of AMG who is designated as a
Participant by the Administrative Committee pursuant to Article II.
Section I.18 "Participant's Accounts" means a Participant's AMG Stock
Account and Affiliate Investment Account
Section I.19 "Plan" means The Affiliated Managers Group, Inc. Executive
Retention Plan, as described herein and as hereafter amended from time to time.
Section I.20 "Plan Assets" means cash, Stock or other assets contributed to
the Trust by AMG and any other assets or instruments into which such
contributions are converted pursuant to the Trust, without regard to whether
such Plan Assets are held in the Unallocated Account, an AMG Stock Account or an
Affiliate Investments Account.
Section I.21 "Plan Year" means any calendar year or part thereof beginning
on the Effective Date.
<PAGE>
Section I.22 "Stock" means shares of AMG's common stock, par value $0.01
per share.
Section I.23 "Trust" means the legal entity created by the Trust Agreement.
Section I.24 "Trust Agreement" means the agreement, dated as of the
Effective Date, by and between AMG and the Trustee, including any amendments
thereto, setting forth the rights and obligations of the parties thereto in
respect of the contributions to and distributions from the Trust, and the
establishment and administration of the Accounts pursuant to the Plan.
Section I.25 "Trustee" means any corporation, individual or individuals who
shall accept the appointment as trustee to execute the duties of the trustee
pursuant to the Trust Agreement.
Section I.26 "Unallocated Account" means a separate account established
under Section 4.1 to hold Plan Assets arising from AMG's contributions,
forfeitures or distributions in respect of such Plan Assets pending the
allocation and reallocation of such Plan Assets to the AMG Stock Accounts or
Affiliate Investment Accounts of Participants.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Each employee designated by the Administrative Committee shall become a
Participant in the Plan on the date he or she is so designated. A Participant
shall remain a Participant until the date he or she receives a distribution of
the entire vested portion of his or her Participant's Accounts or, if earlier,
the date such Participant's interest in his or her Participant's Accounts is
forfeited in accordance with Article V.
ARTICLE III
CONTRIBUTIONS
On December 31. 1999, AMG shall establish the Trust and irrevocably
contribute the Initial Contribution to the Trust. AMG may contribute additional
shares of Stock or cash to the Trust from time to time at its sole discretion.
<PAGE>
ARTICLE IV
ALLOCATION OF CONTRIBUTIONS
Section IV.1 ESTABLISHMENT OF ACCOUNTS. There shall be established an AMG
Stock Account and an Affiliate Investment Account in the name of each
Participant and a separate account (the Unallocated Account) to which any
forfeitures occurring hereunder may be credited pending allocation to
Participants. The Accounts shall also hold any distributions with respect to the
Plan Assets held therein until such distributions are payable pursuant to the
Plan.
Section IV.2 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The Administrative
Committee shall in its sole discretion designate the total of any contributions
and forfeitures allocable to each Participant's Accounts each Plan Year. In the
absence of a designation by the Administrative Committee as to any Plan Year,
the allocation formula of the previous Plan Year shall be used as of the end of
such Plan Year, adjusted as follows: any allocation from such previous Plan Year
for Plan Participants whose accounts were forfeited pursuant to Section 5.5 or
who are no longer employees of AMG shall be allocated among the remaining
Participants such that the ratio of allocations relating to the previous Plan
Year among such remaining Participants is preserved. The allocation shall be
split evenly between the eligible Participant's AMG Stock Account and Affiliate
Investment Account unless the Administrative Committee shall decide otherwise
prior to any such allocation. Notwithstanding the foregoing, the allocation of
the Initial Contribution is set forth in Schedule A attached hereto.
Section IV.3 INVESTMENT. The AMG Stock Account shall be invested solely in
shares of AMG Stock that shall be contributed by AMG or that the Trustee shall
purchase from AMG with any cash contribution made by AMG. The Affiliate
Investments Account shall be invested by the Trustee in such Affiliate
Investments as directed by the Investment Committee from cash contributions made
by AMG.
Section IV.4 VOTING OF STOCK; TENDER OR EXCHANGE OFFERS. With respect to
the Plan Assets allocated to Participant's Accounts, each Participant shall be
entitled to instruct the Trustee, on a confidential basis (a) as to the manner
in which the Trustee's rights will be exercised with respect to any matter which
involves the voting or other similar rights attached to such Plan Assets, and
(b) in the event of a tender or exchange offer for all or substantially all of
the Stock of AMG, whether such Stock shall be tendered or exchanged by the
Trustee. Without limiting the foregoing, the Trust Agreement shall provide that
the Trustee shall have no discretion and shall be required to vote, tender or
exchange Plan Assets held by the Trust as follows: (i) Plan Assets allocated to
Participant's Accounts shall be voted, tendered or exchanged, as applicable, in
accordance with any instructions received from such Participant or such
Participant's authorized representative pursuant to a duly executed power of
attorney or similar instrument, (ii) Plan Assets held in Participant's Accounts
with respect to which the Trustee does not receive instructions shall not be
voted, tendered or exchanged, as applicable, and (iii) Plan Assets held in the
Unallocated Account shall be voted, tendered or exchanged, as applicable, in the
same proportion as the applicable Plan Assets allocated to Participant's
<PAGE>
Accounts with respect to which instructions are received by the Trustee are
voted, tendered or exchanged.
ARTICLE V
VESTING
Section V.1 VESTING IN THE INITIAL CONTRIBUTION.
(a) VESTING IN THE AMG STOCK ACCOUNT. A Participant's interest in his or
her AMG Stock Account attributable to the Initial Contribution shall vest and be
distributable as follows:
<TABLE>
<CAPTION>
VESTING DATE ADDITIONAL VESTING CUMULATIVE VESTING
PERCENTAGE IN THE PERCENTAGE IN THE
AMG STOCK ACCOUNT AMG STOCK ACCOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
December 31, 2001 25% 25%
December 31, 2002 25% 50%
December 31, 2003 25% 75%
December 31, 2004 25% 100%
--------------------------------------------------------------------------------
</TABLE>
Subject to the determination of the Administrative Committee, vesting of Stock
in the AMG Stock Account shall be subject to rounding to avoid the vesting of
fractional shares of Stock.
(b) VESTING IN THE AFFILIATE INVESTMENT ACCOUNT. A Participant's interest
in his or her Affiliate Investment Account attributable to the Initial
Contribution shall vest as follows:
<TABLE>
<CAPTION>
VESTING DATE ADDITIONAL VESTING CUMULATIVE VESTING
IN THE AFFILIATE IN THE AFFILIATE
INVESTMENT ACCOUNT INVESTMENT ACCOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
December 31, 2003 50% 50%
December 31, 2004 50% 100%
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
Section V.2 VESTING IN CONTRIBUTIONS FOLLOWING THE INITIAL CONTRIBUTION.
The Administrative Committee, in its sole discretion, shall determine the
vesting schedule for the contributions and forfeitures attributable to each Plan
Year prior to any allocation to Participant's Accounts.
Section V.3 VESTING OF FORFEITURES. Forfeitures allocated among
Participants pursuant to Section 5.5 shall vest according to Sections 5.1 and
5.2 above as appropriate, unless otherwise decided by the Administrative
Committee.
Section V.4 SPECIAL RULE. Notwithstanding any other provision of this Plan,
provided that a Participant's Accounts have not previously been forfeited, such
Participant shall be 100% vested in his or her Participant's Accounts upon (i)
the death or Disability of such Participant, (ii) such Participant's termination
of Employment by AMG without Cause, (iii) the termination of the Plan or (iv) a
Change in Control.
Section V.5 FORFEITURE. Unless the Administrative Committee determines
otherwise, and except under the circumstances specified in Section 5.4, SPECIAL
RULE, unvested Plan Assets in any Participant's Accounts shall be immediately
forfeited and such unvested Plan Assets shall not be distributable to such
Participant upon the termination of Employment of the Participant.
In the event of such forfeiture, all unvested Plan Assets in any such
former Participant's Accounts shall be returned to the Unallocated Account,
added to any contributions for such Plan Year and allocated as of the end of the
Plan Year in accordance with the provisions of Section 4.2.
ARTICLE VI
DISTRIBUTIONS
Section VI.1 GENERAL. Except as provided below and in Section 9.10, all
vested Plan Assets credited to any Participant's Accounts shall be promptly
distributed to such Participant (or, if applicable, his or her Beneficiary) and
shall be subject to the provisions of Sections 9.8 and 9.9. The distribution of
shares of Stock shall be in whole shares only with any remainder being paid in
cash; all other distributions shall be in cash.
Section VI.2 EARNINGS. Any taxable income or capital gain in respect of
Plan Assets allocated to a Participant's Accounts on the record date for such
dividend or payment shall be distributed to such Participant as soon as
practicable following the end of the calendar quarter in which such dividend or
payment is received without regard to whether such Participant is vested in such
Plan Assets. No taxable income or capital gain in respect of Plan Assets shall
be allocated to the Unallocated Account. No interest shall be payable on any
dividends or other earnings allocated to a Participant's Accounts but not yet
distributed.
<PAGE>
ARTICLE VII
ADMINISTRATION OF PLAN
Section VII.1 PLAN ADMINISTRATOR. The Plan Administrator shall be the
Administrative Committee which shall have complete control over the
administration of the Plan and shall have the authority in its sole discretion
to (a) exercise all of the powers granted to it under this Plan, (b) construe,
interpret and implement the Plan, (c) prescribe, amend and rescind rules and
regulations relating to the Plan, including rules governing its own operations,
(d) make all determinations necessary or advisable in administering the Plan,
and (e) correct any defect, supply any omission and reconcile any inconsistency
in the Plan. Action by the Administrative Committee may be taken by the vote of
a majority of its members. Any action may be taken by a written instrument
signed by a majority of the members of the Administrative Committee and action
so taken shall be fully as effective as if it had been taken by a vote at a
meeting. The determinations of the Administrative Committee on all matters
relating to the Plan shall be final, binding and conclusive. The responsibility
of the Administrative Committee with respect to the management or control of the
assets of the Trust may be delegated or allocated to the Trustee and, for
investment direction to the Investment Committee.
Section VII.2 INDEMNIFICATION. No member of the Administrative Committee or
the Investment Committee or any employee of AMG shall be liable for any action
or determination made in good faith with respect to the Plan. Each such person
shall be indemnified and held harmless by AMG against and from any loss, cost,
liability, or expense that may be imposed upon or incurred by such person in
connection with or resulting from any action, suit or proceeding to which such
person may be a party or in which such person may be involved by reason of any
action taken or failure to act under the Plan and against and from any and all
amounts paid by such person, with AMG's approval, in settlement thereof, or paid
by such person in satisfaction of any judgment in any such action, suit or
proceeding against such person, provided that AMG shall have the right, at its
own expense, to assume and defend the same. The foregoing right of
indemnification shall not be available to a person to the extent that a final
judgment or other final adjudication binding upon such person establishes that
the acts or omissions of such person giving rise to the indemnification claim
resulted from such person's bad faith, fraud or willful criminal act or
omission. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
AMG's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or
any other power that AMG may have to indemnify such persons or hold them
harmless.
Section VII.3 COMMUNICATION BY ADMINISTRATIVE COMMITTEE OR INVESTMENT
COMMITTEE. Decisions and directions of the Administrative Committee or the
Investment Committee may
<PAGE>
be communicated to the other Committee, the Trustee, a Participant, a
Beneficiary, AMG or any other person who is to receive such decision or
direction by a document signed by any one or more members of the Administrative
Committee or Investment Committee (or persons other than members) so authorized,
and such decision or direction of the Administrative Committee or Investment
Committee may be relied upon by the recipient as being the decision of the
applicable Committee. The Administrative Committee or Investment Committee may
authorize one or more of its members, or a designee who is not a member, to sign
on behalf of the entire applicable Committee.
Section VII.4 INVESTMENT COMMITTEE. The Investment Committee shall be the
Investment Fiduciary, as described in the Trust Agreement, and shall direct the
Trustee in respect of specific investments in the Affiliate Investment Accounts
in order that the holdings in such Affiliate Investment Accounts readily may
satisfy any requirement for payment of cash (a) to Participants upon vesting of
such Affiliate Investment Accounts and (b) to AMG for satisfaction of any
applicable withholding taxes in respect of such Affiliate Investment Accounts.
ARTICLE VIII
AMENDMENT, TERMINATION, ETC.
The Board reserves the right at any time and from time to time to modify,
alter, amend, suspend, discontinue and terminate the Plan or the Trust
Agreement; provided that, no such modification, alteration, amendment,
suspension, discontinuance or termination shall materially adversely affect,
without the consent of the individual affected Participant, the rights of any
Participant under this Plan with respect to contributions previously made,
except that the Board reserves to itself alone the right to (a) accelerate the
vesting of Participants' Accounts and (b) make distributions to Participants
upon the termination of the Plan. Notwithstanding the foregoing, no
modification, alteration, amendment or termination of the Plan may be made which
would cause or permit any part of the assets of the Trust to be used for, or
diverted to, purposes other than for the exclusive benefit of Participants or
their Beneficiaries, or which would cause any part of the assets of the Trust to
revert to or become the property of AMG. Any modification, alteration or
amendment to the Plan shall be in writing signed by the Chief Executive Officer
of AMG or his designee.
ARTICLE IX
MISCELLANEOUS
Section IX.1 DESIGNATION OF BENEFICIARIES. A Participant may designate, in
accordance with procedures established by the Administrative Committee, a
Beneficiary or
<PAGE>
Beneficiaries to receive all or part of the amounts payable hereunder in the
event of such Participant's death. A designation of a Beneficiary may be
replaced by a new designation or may be revoked by a Participant at any time in
accordance with procedures established by the Administrative Committee. In the
event of a Participant's death, the amounts payable hereunder with respect to
which a designation of Beneficiary has been made shall be paid in accordance
with the Plan to such designated Beneficiary or Beneficiaries. Any amounts
payable upon death and not subject to such designation shall be distributed to
the Participant's estate. If there is any question as to the legal right of any
Beneficiary to receive payment of amounts hereunder, the amounts in question may
be paid to the Participant's estate, in which event AMG shall have no further
liability to anyone with respect to such amounts. A Beneficiary shall have no
rights under the Plan other than the right, subject to the immediately preceding
sentence, to receive such amounts, if any, as may be payable under this Section
9.1.
Section IX.2 NONASSIGNABILITY. No rights granted to any Participant or any
Beneficiary under the Plan (including any interest in the Accounts) may be sold,
exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of
(including through the use of any cash-settled instrument) (each such action
being hereinafter referred to as an "assignment"), whether voluntarily or
involuntarily, other than by will or by the laws of descent and distribution.
Any assignment in violation of the provisions of this Section 9.2 shall be void.
All the terms of this Plan shall be binding upon such permitted successors and
assigns.
Section IX.3 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in the Plan shall
confer upon any Participant the right to continue in the employ of AMG or affect
any right which AMG may have to terminate such Employment.
Section IX.4 LIMIT ON LIABILITY. No person shall have any right or interest
in the Plan or the Trust other than as provided herein. The Trust assets shall
under no circumstances be available to the creditors of AMG. All distributions
under the Plan shall be paid or provided solely from the Trust assets, and AMG
shall have no responsibility or liability to any Participant or Beneficiary
relating to any assets (including Stock) contributed to the Trust. Any final
distribution to any Participant or Beneficiary in accordance with the provisions
of the Plan shall be in full satisfaction of all claims against the Trust, the
Trustee, the Administrative Committee, the Investment Committee, the Board, AMG
and its employees with respect to the Plan or Trust.
Section IX.5 ARBITRATION. Any dispute, controversy or claim between AMG and
any Participant arising out of or relating to or concerning the provisions of
the Plan or the Trust shall be finally settled by arbitration in Boston,
Massachusetts before the American Arbitration Association (the "AAA") in
accordance with the commercial arbitration rules of the AAA. Prior to
arbitration, all claims maintained by any Participant must first be submitted to
the Administrative Committee in accordance with claim procedures determined by
the Administrative Committee in its sole discretion. This Section is subject to
the provisions of Section 9.6.
<PAGE>
Section IX.6 CHOICE OF FORUM.
(a) AMG AND EACH PARTICIPANT, AS A CONDITION TO SUCH PARTICIPANT'S
PARTICIPATION IN THE PLAN, HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE CITY OF BOSTON,
MASSACHUSETTS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
OR CONCERNING THE PLAN THAT IS NOT OTHERWISE ARBITRATED OR RESOLVED ACCORDING TO
THE PROVISIONS OF SECTION 9.5. This includes any suit, action or proceeding to
compel arbitration or to enforce an arbitration award. AMG and each Participant,
as a condition to such Participant's participation in the Plan, acknowledge that
the forum designated by this Section 9.6(a) has a reasonable relation to the
Plan, and to the relationship between such Participant and AMG. Notwithstanding
the foregoing, nothing herein shall preclude AMG from bringing any action or
proceeding in any other court for the purpose of enforcing the provisions of
Sections 9.5 and 9.6.
(b) The agreement by AMG and each Participant as to forum is
independent of the law that may be applied in the action, and AMG and each
Participant, as a condition to such Participant's participation in the Plan, (i)
agree to such forum even if the forum may under applicable law choose to apply
non-forum law, (ii) hereby waive, to the fullest extent permitted by applicable
law, any objection which AMG or such Participant now or hereafter may have to
personal jurisdiction or to the laying of venue of any such suit, action or
proceeding in any court referred to in Section 9.6(a), (iii) undertake not to
commence any action arising out of or relating to or concerning the Plan in any
forum other than the forum described in this Section 9.6 and (iv) agree that, to
the fullest extent permitted by applicable law, a final and non-appealable
judgment in any such suit, action or proceeding in any such court shall be
conclusive and binding upon AMG and each Participant.
(c) Each Participant, as a condition to such Participant's
participation in the Plan, hereby irrevocably appoints the General Counsel of
AMG as such Participant's agent for service of process in connection with any
action or proceeding arising out of or relating to or concerning the Plan which
is not arbitrated pursuant to the provisions of Section 9.5, who shall promptly
advise such Participant of any such service of process.
(d) Each Participant hereby agrees, as a condition to such
Participant's participation in the Plan, to keep confidential the existence of,
and any information concerning, a dispute described in Section 9.5 or 9.6,
except that a Participant may disclose information concerning such dispute to
the arbitrator or court that is considering such dispute or to such
Participant's legal counsel (provided that such counsel agrees not to disclose
any such information other than as necessary to the prosecution or defense of
the dispute).
(e) Each Participant recognizes and agrees that prior to being
selected by the
<PAGE>
Administrative Committee to participate in the Plan such Participant has no
right to any benefits hereunder. Accordingly, in consideration of a
Participant's selection to participate in the Plan, each Participant expressly
waives any right to contest the amount of any contribution to the Plan, the
terms of the Plan, any determination, action or omission hereunder by the
Administrative Committee, AMG or the Board, or any amendment to the Plan (other
than an amendment to which such Participant's consent is expressly required by
Article VIII).
Section IX.7 GOVERNING LAW. ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
Section IX.8 TAXES AND WITHHOLDING.
(a) Upon a Participant's vesting in all or any portion of his or her
Participant's Accounts, or in connection with any distribution or other event
that gives rise to a federal or other governmental tax withholding obligation
relating to the Plan (including, without limitation, FICA and Medicare tax), the
Trustee shall satisfy such withholding obligation as provided herein. If the
event giving rise to the withholding obligation involves a transfer of shares of
Stock, then the Trustee shall remit to AMG shares of Stock having a Fair Market
Value equal to the amount of tax to be withheld, or, at the discretion of the
Participant, the Participant may pay such withholding obligation directly to AMG
in cash. If the event giving rise to the withholding obligation involves the
Affiliate Investments Account or distribution of income or capital gains of the
Trust, then the Trustee shall take such actions as shall permit it to remit cash
to AMG. For this purpose, Fair Market Value shall be determined as of the date
on which the amount of tax to be withheld is determined (and any fractional
share amount may be settled in cash).
(b) The Trustee may transfer to AMG any amounts (cash or shares of
Stock or other securities) withheld or received from the Participant pursuant to
Section 9.8(a). Any deduction of cash, shares of Stock or other securities from
the Participant's Accounts by the Trustee pursuant to this Section 9.8 shall be
treated as a distribution from the Trust to such Participant and an election by
the Participant to have such shares of Stock or other securities applied to
satisfy the withholding obligation.
(c) No Participant may make an election pursuant to section 83(b) of
the Code with respect to his or her interest in the Trust, any shares of Stock
or any other property held by the Trust.
Section IX.9 CONSENTS AND LEGENDS. The vesting and distribution to a
Participant of any shares of Stock or other securities may be conditioned on the
receipt, to the full satisfaction of the Administrative Committee, of (a) any
and all listings, registrations or qualifications in respect thereof upon any
securities exchange or under any federal, state or
<PAGE>
local law, or law, rule or regulation of a jurisdiction outside the United
States, (b) any and all written agreements and representations by the
Participant with respect to the disposition of shares of Stock or other
securities, or with respect to any other matter, which the Administrative
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, (c)
any and all other consents, clearances and approvals in respect of a plan action
by any governmental or other regulatory body or any stock exchange or
self-regulatory agency that the Administrative Committee may determine to be
necessary or advisable and (d) any and all consents or authorizations required
to comply with, or required to be obtained under, applicable local law or
otherwise required by the Administrative Committee. Nothing herein shall require
AMG to list, register or qualify the shares of Stock or other securities on any
securities exchange. AMG may affix to any stock certificate (or other document
or evidence of ownership) representing shares of Stock or other securities
distributed under the Plan any legend that the Administrative Committee
determines in its sole discretion to be necessary or advisable (including to
reflect any restrictions to which a Participant may be subject under a separate
agreement with AMG). AMG may advise the transfer agent to place a stop order
against any legended shares of Stock or other Securities.
Section IX.10 FORFEITURE AND REPAYMENT AFTER ERRONEOUS VESTING. If,
following any date on which a Participant becomes vested in all or any portion
of his or her Participant's Accounts (the "Erroneously Vested Portion"), the
Administrative Committee determines that all terms and conditions of the Plan
were not satisfied on the relevant vesting date, such Participant or former
Participant shall cease to be vested in, and shall forfeit, such Erroneously
Vested Portion, and the Trust shall be entitled to receive, and such Participant
or former Participant shall be obligated to pay the Trust immediately upon
demand therefor the Fair Market Value of any shares of Stock or interest in
Affiliate Investments (determined as of the date of vesting) and the amount of
any cash delivered in respect of any distribution of the Erroneously Vested
Portion, without reduction for any shares of Stock or other securities or cash,
applied to satisfy withholding tax or other obligations in respect of such
erroneous vesting event.
Section IX.11 SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions
of this Plan is finally held to be invalid, illegal or unenforceable (whether in
whole or in part), such provision shall be deemed modified to the extent, but
only to the extent, of such invalidity, illegality or unenforceability and the
remaining provisions shall not be affected thereby; provided, that if any of the
provisions of this Plan is finally held to be invalid, illegal, or unenforceable
because it exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be modified to
the minimum extent necessary to modify such scope in order to make such
provision enforceable hereunder. The Plan contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, promises, covenants, arrangements, communications, representations
and warranties between them, whether written or oral with respect to the subject
matter hereof.
<PAGE>
Section IX.12 EXPENSES. All expenses incurred by the Administrative
Committee and the Trustee in connection with administering this Plan and the
Trust shall be paid by AMG. All taxes imposed on the Trust related to income
credited to or attributable to Trust assets shall be paid from such assets and
charged against the Participant's Account to which the income is allocated as
though it were payable directly to the Participant.
Section IX.13 SUCCESSORS AND ASSIGNS. The terms of this Plan shall be
binding upon and inure to the benefit of AMG and its successors.
Section IX.14 PLAN HEADINGS. The headings in this Plan are for the
purpose of convenience only and are not intended to define or limit the
construction of the provisions hereof.
Section IX.15 CONSTRUCTION. In the construction of this Plan, the
singular shall include the plural, and vice-versa, in all cases where such
meanings would be appropriate.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan
effective as of December 31, 1999 by AMG, it has caused the same to be signed by
its duly authorized officer this 31st day of December, 1999.
AFFILIATED MANAGERS GROUP, INC.
By: /s/ SEAN M. HEALEY
---------------------------
Name: Sean M. Healey
Title: President and Chief Operating Officer
<PAGE>
SCHEDULE A
THE AFFILIATED MANAGERS GROUP, INC.
DEFINED CONTRIBUTION PLAN
ALLOCATION OF INITIAL CONTRIBUTION
<TABLE>
<CAPTION>
PARTICIPANT AMG STOCK ACCOUNT AFFILIATE INVESTMENTS ACCOUNT
- ---------------------------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
William J. Nutt $750,000 $750,000
- ---------------------------------- --------------------------------------- ----------------------------------------
Sean M. Healey $500,000 $500,000
- ---------------------------------- --------------------------------------- ----------------------------------------
Darrell W. Crate $375,000 $375,000
- ---------------------------------- --------------------------------------- ----------------------------------------
Nathaniel Dalton $375,000 $375,000
- ---------------------------------- --------------------------------------- ----------------------------------------
Seth W. Brennan $300,000 $300,000
- ---------------------------------- --------------------------------------- ----------------------------------------
Levon Chertavian, Jr. $200,000 $200,000
- ---------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
(in alphabetical order)
WHOLLY OWNED SUBSIDIARIES OF THE REGISTRANT
AMG/Midwest Holdings, Inc., a Delaware corporation
AMG/SouthwestGP Holdings, Inc. a Delaware corporation
AMG/TBC Holdings, Inc., a Delaware corporation
AMG Service Corp., a Delaware corporation
AMG Finance Trust, a Massachusetts business trust (through AMG Service Corp.)
The Burridge Group Inc., an Illinois corporation
Edward C. Rorer & Co., Inc., a Delaware corporation
FCMC Holdings, Inc., a Delaware corporation
First Quadrant Corp., a New Jersey corporation (through First Quadrant
Holdings, Inc.)
First Quadrant Holdings, Inc., a Delaware corporation
GeoCapital Corporation, a Delaware corporation
J M H Management Corporation, a Delaware corporation
Suite 3000 Holdings, Inc., a Delaware corporation
TMF Corp., a Delaware corporation
ENTITIES IN WHICH THE REGISTRANT HAS A MAJORITY INTEREST (DIRECT AND INDIRECT)
Davis Hamilton Jackson & Associates, L.P., a Delaware limited partnership
(through AMG/SouthwestGP Holdings, Inc. and AMG/TBC Holdings, Inc.)
Essex Investment Management Company, LLC, a Delaware limited liability company
First Quadrant, L.P., a Delaware limited partnership (through First Quadrant
Corp.)
First Quadrant U.K., L.P., a Delaware limited partnership (through First
Quadrant Corp.)
First Quadrant Limited, a U.K. corporation (through First Quadrant U.K., L.P.)
Frontier Capital Management Company, LLC, a Delaware limited liability
company (through FCMC Holdings, Inc.)
GeoCapital, LLC, a Delaware limited liability company (through GeoCapital
Corporation)
Gofen and Glossberg, L.L.C., a Delaware limited liability company
J.M. Hartwell Limited Partnership, a Delaware limited partnership
(through J M H Management Corporation)
<PAGE>
LIST OF SUBSIDIARIES (continued)
(in alphabetical order)
The Managers Funds LLC, a Delaware limited liability company (through TMF
Corp.)
Renaissance Investment Management, a Delaware partnership
Rorer Asset Management, LLC, a Delaware limited liability company (through
Edward C. Rorer & Co., Inc.)
Skyline Asset Management, L.P., a Delaware limited partnership
Systematic Financial Management, L.P., a Delaware limited partnership
The Burridge Group LLC, a Delaware limited liability company (through The
Burridge Group Inc.)
Tweedy, Browne Company LLC, a Delaware limited liability company (through
AMG/TBC Holdings, Inc.)
ENTITIES IN WHICH THE REGISTRANT HAS A MINORITY INTEREST
Paradigm Asset Management Company, L.L.C., a Delaware limited liability
company
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Affiliated Managers Group, Inc. on Form S-3 (File No. 333-71561) and
Form S-8 (File No. 333-72967 and File No. 333-84485) of our reports dated
January 25, 2000, on our audits of the consolidated financial statements and
financial statement schedule of Affiliated Managers Group, Inc. as of
December 31, 1998 and 1999, and for the years ended December 31, 1997, 1998, and
1999, which reports are included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 53,879
<SECURITIES> 0
<RECEIVABLES> 239,383
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 299,967
<PP&E> 12,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 909,073
<CURRENT-LIABILITIES> 170,299
<BONDS> 174,500
0
0
<COMMON> 406,118
<OTHER-SE> 71,868
<TOTAL-LIABILITY-AND-EQUITY> 909,073
<SALES> 0
<TOTAL-REVENUES> 518,726
<CGS> 0
<TOTAL-COSTS> 306,067
<OTHER-EXPENSES> 86,225<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,764
<INCOME-PRETAX> 128,907
<INCOME-TAX> 56,719
<INCOME-CONTINUING> 72,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,188
<EPS-BASIC> 3.25
<EPS-DILUTED> 3.18
<FN>
<F1>minority interest
</FN>
</TABLE>
