SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------------------
Date of Report (Date of earliest event reported): March 20, 1998
AFFILIATED MANAGERS GROUP, INC.
(Exact name of Registrant as specified in charter)
Delaware 001-13459 043218510
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
Two International Place, 23rd Floor, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
(617) 747-3300
(Registrant's telephone number, including area code)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a) Financial Statements of Business Acquired
Essex Investment Management, Inc.
Report of Independent Accountants
Balance Sheets as of November 30, 1997, 1996 and 1995
Statements of Operations for the years ended November 30, 1997,
1996 and 1995
Statements of Stockholders' Equity for the years ended November 30,
1997, 1996 and 1995
Statements of Cash Flows for the years ended November 30, 1997,
1996 and 1995
Notes to Financial Statements
b) Pro Forma Financial Information
Introduction to Unaudited Pro Forma Consolidated Financial
Statements
Unaudited Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1997
Unaudited Pro Forma Consolidated Statements of Operations for the
three months ended March 31, 1998
Notes to Unaudited Pro Forma Consolidated Statements of Operations
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Essex Investment Management Company, Inc.:
We have audited the accompanying balance sheets of Essex Investment Management
Company, Inc. as of November 30, 1997, 1996 and 1995, and the related statements
of operations, stockholders' equity, and cash flows for the years then ended.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Essex Investment Management
Company, Inc. as of November 30, 1997, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Boston, Massachusetts
April 24, 1998
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
BALANCE SHEETS
AS OF NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
ASSETS 1997 1996 1995
---- ---- ----
Current assets:
Cash and cash equivalents $ 4,658 $ 3,864 $ 5,042
Accounts receivable 2,741 1,894 466
Unbilled management fees 8,889 7,465 20,884
Prepaid expenses and other current assets 1,428 787 173
------- ------- -------
Total current assets 17,716 14,010 26,565
------- ------- -------
Investments in limited partnerships and
other investments 7,786 6,575 3,592
Fixed assets, net 1,115 1,146 1,358
Other receivables 4,448 4,085 1,006
Other assets 537 336 264
------- ------- -------
Total assets $31,602 $26,152 $32,785
------- ------- -------
------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 282 $ 116 $ 538
Amounts due former stockholders 668 1,110 689
Dividend payable 284 350 169
Accrued salaries 19,679 13,922 19,929
Accrued state income taxes 14 14 9
Deferred state income taxes 140 140 140
------- ------- -------
Total current liabilities 21,067 15,652 21,474
------- ------- -------
Commitments (Note 9)
Stockholders' equity:
Common stock, $1 par value - authorized,
250,000 shares; issued and outstanding,
31,550 shares in 1997, 1996 and 1995 32 32 32
Common stock, nonvoting Class A, $1 par
value - authorized, 25,000 shares; issued
and outstanding, 14,950 shares in 1997,
14,400 shares in 1996 and 16,800 shares
in 1995 15 14 17
Additional paid-in capital 3,847 3,721 4,061
Retained earnings 6,641 6,932 7,283
------- ------- -------
10,535 10,699 11,393
Less stock subscriptions receivable -- (199) (82)
------- ------- -------
Total stockholders' equity 10,535 10,500 11,311
------- ------- -------
Total liabilities and stockholders'
equity $31,602 $26,152 $32,785
------- ------- -------
------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
Revenue:
Asset-based management fees $31,716 $27,808 $19,581
Performance-based management fees 4,699 3,836 17,718
Special allocation earned from limited
partnerships 2,302 1,577 377
Other 360 582 450
------- ------- -------
Total revenue 39,077 33,803 38,126
------- ------- -------
Expenses:
Salaries and benefits 36,104 29,891 36,048
Occupancy 2,030 1,820 1,833
Travel and entertainment 958 973 652
Professional fees 667 295 381
Investment and other purchased services 343 264 251
Other 285 397 162
Interest 97 136 12
------- ------- -------
Total expenses 40,484 33,776 39,339
------- ------- -------
Income (loss) before equity in earnings of
limited partnerships and provision for income taxes (1,407) 27 (1,213)
------- ------- -------
Equity in earnings of limited partnerships 1,408 130 1,284
------- ------- -------
Income before provision for income taxes 1 157 71
Provision for income taxes -- 5 50
------- ------- -------
Net income $ 1 $ 152 $ 21
------- ------- -------
------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
COMMON STOCK
-------------------- ADDITIONAL STOCK
NONVOTING PAID-IN RETAINED SUBSCRIPTIONS
VOTING CLASS A CAPITAL EARNINGS RECEIVABLE TOTAL
-------- ----------- ------------ ----------- --------------- -----------
Balance, December 1, 1994 $ 32 $ 15 $ 3,680 $ 7,434 $ (49) $ 11,112
Sale of nonvoting Class A common stock 2 381 (124) 259
Buyback of nonvoting Class A common stock (3) (3)
Promissory notes paid 91 91
Dividends (169) (169)
Net income 21 21
-------- ----------- ------------ ---------- ------------- -----------
Balance, November 30, 1995 32 17 4,061 7,283 (82) 11,311
Sale of nonvoting Class A common stock 1 405 (242) 164
Buyback of nonvoting Class A common stock (4) (745) (153) (902)
Promissory notes paid 125 125
Dividends (350) (350)
Net income 152 152
-------- ----------- ------------ ---------- ------------- -----------
Balance, November 30, 1996 32 14 3,721 6,932 (199) 10,500
Sale of nonvoting Class A common stock 1 208 (207) 2
Buyback of nonvoting Class A common stock -- (82) (8) (90)
Promissory notes paid 406 406
Dividends (284) (284)
Net income 1 1
-------- ----------- ------------ ---------- ------------- -----------
Balance, November 30, 1997 $ 32 $ 15 $ 3,847 $ 6,641 -- $ 10,535
-------- ----------- ------------ ---------- ------------- -----------
-------- ----------- ------------ ---------- ------------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1 $ 152 $ 21
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 398 361 333
Common stock issued as compensation 2 45 43
Special allocation and equity in
earnings of limited partnerships (3,710) (1,707) (1,662)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (847) (1,428) 2,208
(Increase) decrease in unbilled
management fees (1,423) 13,419 (17,703)
(Increase) decrease in prepaid expenses
and other current assets (641) (614) 107
(Increase) in other receivables (363) (3,079) (1,006)
(Increase) decrease in other assets (201) (71) (72)
Increase (decrease) in accounts payable
and accrued salaries 5,923 (6,429) 18,230
(Decrease) increase in amounts due
former stockholders (443) 421 (132)
Increase in accrued state income tax -- 5 --
------- ------- -------
Net cash (used in) provided by
operating activities (1,034) 1,075 367
------- ------- -------
Cash flows from investing activities:
Capital expenditures (367) (149) (138)
Withdrawals from limited partnership
interests (1,829) (1,295) (935)
Purchase of limited partnership interests 4,328 18 2,004
------- ------- -------
Net cash provided by (used in)
investing activities 2,132 (1,426) 931
------- ------- -------
Cash flows from financing activities:
Repurchase of common stock (90) (902) (3)
Proceeds from sale of stock -- 119 216
Proceeds from stock subscriptions
receivable 406 125 91
Dividends paid (350) (169) (1,108)
------- ------- -------
Net cash used in financing
activities (34) (827) (804)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 794 (1,178) 494
Cash and cash equivalents, beginning of
year 3,864 5,042 4,548
------- ------- -------
Cash and cash equivalents, end of year $ 4,658 $ 3,864 $ 5,042
------- ------- -------
------- ------- -------
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes -- $ 50 $ 110
------- ------- -------
------- ------- -------
Supplemental disclosure of noncash investing and
financing activities:
Noncash financed sale of common stock $ 207 $ 242 $ 124
------- ------- -------
------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Essex Investment Management Company, Inc. (the "Company") is a
Subchapter S Corporation incorporated under the laws of The Commonwealth
of Massachusetts on December 3, 1976. The Company performs investment
advisory services for individuals and fiduciaries. Asset-based
management fees are earned based upon periodic market values of the
various portfolios managed by the Company. Clients are billed at the end
of each calendar quarter for the three previous months.
Performance-based management fees are generally earned based upon a
percentage of the increase in value of the various portfolios due solely
to the appreciation in value of securities plus interest, dividends or
other income for the year and are billed annually. Unbilled
performance-based and asset-based management fees are accrued at the end
of each reporting period.
INVESTMENTS
The Company's investments in Limited Partnerships are accounted for under
the equity method (Note 3).
FIXED ASSETS
Fixed assets are carried at cost; depreciation and amortization are
computed over the estimated useful lives of the assets (five to ten
years) using the straight-line method.
INCOME TAXES
The Company follows the liability method in accounting for income taxes.
The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax bases of assets and
liabilities and their carrying amount for financial statement purposes;
such differences are referred to as temporary differences. The current
or deferred tax consequences are measured by applying the provisions of
enacted tax laws to determine the amount of taxes payable currently or
in future years.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
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 of assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
CONTINUED
6
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's assets and liabilities which constitute
financial instruments as defined in Statement of Financial Accounting
Standards No. 107 approximate their recorded value.
2. FIXED ASSETS:
Fixed assets consist of the following:
1997 1996 1995
---- ---- ----
Office furniture and equipment $ 2,186 $ 1,819 $ 1,670
Leasehold improvements 495 495 495
Intangible 211 211 211
------- ------- -------
2,892 2,525 2,376
Accumulated depreciation (1,777) (1,379) (1,018)
------- ------- -------
$ 1,115 $ 1,146 $ 1,358
------- ------- -------
------- ------- -------
Depreciation and amortization expense for the years ended November 30,
1997, 1996 and 1995 was $399, $361 and $333, respectively.
3. INVESTMENTS IN LIMITED PARTNERSHIPS AND OTHER INVESTMENTS:
The Company's interest in limited partnerships and other investments
consist of:
1997 1996 1995
---- ---- ----
Essex Special Growth Opportunity
Fund Limited Partnership $ 2,490 $ 1,928 $ 1,884
Essex High Technology Fund 2,311 2,077 145
Essex Flexport Fund Limited Partnership 1,503 885 76
Essex Performance Fund Limited Partnership 629 1,229 1,320
Essex Safe Harbor Hedge Fund
Limited Partnership 422 245 --
Corn Hill Series Limited Partnership 230 129 50
Spruce Investment Partners Limited Partnership 186
Essex Short Fund Limited Partnership -- 50 67
Other investments 15 32 32
MSX Life Sciences Partners Limited Partnership -- -- 18
------- ------- -------
Total $ 7,786 $ 6,575 $ 3,592
------- ------- -------
------- ------- -------
CONTINUED
7
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
4. INCOME TAXES:
The provision for income taxes for 1997, 1996 and 1995 was $0, $5 and
$50, respectively, and consisted of current taxes resulting from
differences in reporting for financial statements purposes and tax
purposes.
The Company has Subchapter S Corporation status and is therefore exempt
from federal income tax payments. Taxable federal income is passed
through to the stockholders of the Company who are taxed based on their
pro rata shares of the Company's income. Accordingly, no provision for
federal income taxes is recorded.
The Company is liable for Massachusetts income taxes at a rate of 4.5%
for 1997, 1996 and 1995. The stockholders of the Company will also be
taxed on their pro rata shares of the Company's income.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
liabilities as of November 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
---- ---- ----
Deferred tax liabilities $ 1,060 $ (970) $(1,100)
Deferred tax assets 920 830 960
-------- -------- -------
Net deferred tax liabilities $ (140) $ (140) $ (140)
-------- -------- -------
-------- -------- -------
The temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes primarily relate to accounts receivable, unbilled
management and performance fees, and accrued salaries and bonuses.
5. STOCKHOLDERS' EQUITY:
A shareholders' agreement provides for the sale and redemption of the
Company's stock at its discretion, at prices and payment terms as defined
therein. The shareholders' agreement provides that the Company will
redeem the outstanding shares of any shareholder in the event of death or
termination of the shareholder's employment.
During 1997, the Company issued 900 shares of nonvoting Class A common
stock for consideration of $207 in promissory notes. The difference
between the sale price and the fair value of the issued stock, as
determined by the formula price defined in the shareholders' agreement,
was recorded as compensation. This expense aggregated $2.
CONTINUED
8
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
During 1996, the Company issued 1,700 shares of nonvoting Class A common
stock for consideration of $361. The consideration consisted of $119 in
cash and promissory notes of $242. The difference between the sale price
and the fair value of the issued stock, as determined by the formula
price defined in the shareholders' agreement was recorded as
compensation. This expense aggregated $45.
During 1995, the Company issued 1,700 shares of nonvoting Class A common
stock for consideration of $340. The consideration consisted of $216 in
cash and promissory notes of $124. The difference between the sale price
and the fair value of the issued stock, as determined by the formula
price defined in the shareholders' agreement was recorded as
compensation. This expense aggregated $43.
6. DIVIDENDS:
On November 30, 1997, the Board of Directors (the "Board") approved the
payment of a dividend of $284 for shareholders of record as of November
30, 1997. The dividend was paid on January 12, 1998.
On November 30, 1996, the Board of Directors approved the payment of a
dividend of $350 for shareholders of record as of November 30, 1996. The
dividend was paid on January 15, 1997.
On November 30, 1995, the Board of Directors approved the payment of a
dividend of $169 for shareholders of record as of November 30, 1995. The
dividend was paid on January 15, 1996.
7. PENSION AND PROFIT-SHARING PLANS:
The Company has a qualified, trusteed profit-sharing plan and defined
contribution pension plan for substantially all employees. The Company's
annual contributions to the plans as determined by the Board of Directors
are discretionary, but may not exceed amounts deductible for federal
income tax purposes. Individual participation in the contributions to the
plans is based upon the employee's proportionate share of annual
compensation. For the years ended November 30, 1997, 1996 and 1995, the
Company's contributions to the plans aggregated approximately $894, $817
and $802, respectively.
CONTINUED
9
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
8. RELATED PARTY TRANSACTIONS:
The Company has investment management agreements with certain Limited
Partnerships in which it has a general partnership interest (Note 3).
Certain limited partners of such partnerships are also officers of the
Company. Under the investment management agreements, the Company receives
an asset-based fee and a performance-based fee for providing investment
advice and other services. Beginning in 1997, the performance-based fee
was replaced with an annual special allocation for all Limited
Partnerships subject to performance-based fees. For certain Limited
Partnerships a special allocation was received prior to 1997. The annual
asset-based fees are based on the net asset values of the partnerships,
ranging from 1% to 1.5% and are generally billed quarterly. Prior to
January 1, 1997, the performance fees were billed annually, were
generally based on either the net change in net assets resulting from
operations (as defined) or net realized and unrealized capital gains and
losses, and ranged from 15% to 20% of such amounts. The annual special
allocation is equal to 15% of the net profits (as defined) of certain of
the Limited Partnerships and is allocated from the limited partners'
capital accounts to the general partner's capital account.
The Company earned performance-based management fees of $395 and $4,348
for 1996 and 1995, respectively and asset-based management fees of
$1,621, $1,894 and $1,281 for 1997, 1996 and 1995, respectively, from
such Limited Partnerships. Unbilled performance-based and asset-based
management fees amounted to $266, $357 and $4,610 at November 30, 1997,
1996 and 1995, respectively.
The Company also has an investment management agreement with the New
Discovery Fund Limited (the "Fund"), of which certain directors of its
general partner are also officers of the Company. The annual management
fee for providing investment advice and other services is .25 of 1% of
the net asset value of the Fund as of the last day of each calendar
quarter. The annual performance fee is equal to 15% of the net realized
and unrealized capital gains and losses for the year. The Company earned
performance fees of $1,147, $652 and $231, and management fees of $747,
$350 and $191 in 1997, 1996 and 1995, respectively. Unbilled
performance-based and asset-based management fees amounted to $1,213,
$756 and $274 at November 30, 1997, 1996 and 1995, respectively.
In addition, the Company provides investment management services to the
New England Foundation, the trustees of which are also officers of the
Company. The Company earned $78, $81 and $72 for these services for 1997,
1996 and 1995, respectively. Unbilled asset-based management fees
amounted to $13, $13 and $18 at November 30, 1997, 1996 and 1995,
respectively, and are included in unbilled performance-based and
asset-based management fees.
CONTINUED
10
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
9. COMMITMENTS:
The Company leases office space and equipment under noncancelable lease
arrangements which expire in December 2002. Future minimum lease
payments, by year, at November 30, 1997 approximate the following
amounts:
FISCAL YEAR ENDING
1998 $ 739
1999 966
2000 927
2001 910
2002 910
Thereafter 76
-------
$ 4,528
-------
-------
Rental expense under all operating leases amounted to approximately $673,
$627, and $627 for the years ended November 30, 1997, 1996 and 1995,
respectively.
10. SUBSEQUENT EVENT:
On January 15, 1998, Affiliated Managers Group, Inc. ("AMG"), its
wholly-owned subsidiary, Constitution Merger Sub, Inc. ("Merger Sub"),
and the Company, entered into a definitive agreement whereby the Company
merged with and into Merger Sub after which the Company contributed all
of its assets and liabilities to Essex Investment Management Company,
LLC, of which the Company is the manager member. On March 20, 1998, this
transaction was completed.
11
b) Introduction to Unaudited Pro Forma Consolidated Statements of Operations
The following tables set forth the unaudited pro forma consolidated
statements of operations of Affiliated Managers Group, Inc. (the "Company")
for the year ended December 31, 1997 and the three months ended March 31,
1998, after giving effect to (i) investments made during 1997 (the "Prior
Investments"); (ii) the recent investment in Essex Investment Management
Company, LLC (the "Essex Investment") described in the Form 8-K filed
April 3, 1998; (iii) a 50-for-1 stock split of the Company's Common Stock
effected in the form of a stock dividend, the exercise of all warrants to
purchase shares of the Company's convertible preferred stock (the
"Convertible Preferred Stock") and the conversion of all outstanding shares
of the Convertible Preferred Stock into Common Stock upon consummation of the
Offering and the issuance of 78,700 shares of Common Stock to shareholders of
an Affiliate (the "Recapitalization"); (iv) the Company's initial public
offering (the "Offering"), completed November 21, 1997; and the application
of net proceeds therefrom; and (v) the replacement of the Company's credit
facility completed in December 1997.
The unaudited pro forma consolidated statements of operations assume
each of the above transactions occurred on January 1, 1997. No pro forma
balance sheet has been filed because the Essex Investment is included in the
Company's March 31, 1998 balance sheet filed in the Company's Form 10-Q filed
May 15, 1998.
The accompanying unaudited pro forma consolidated financial statements
should be read in conjunction with the consolidated financial statements of
the Company included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and also the Company's Form 10-Q for the three months
ended March 31, 1998. The unaudited pro forma consolidated financial
statements have been prepared by the Company based, in part, on the audited
financial statements of Essex under the Securities Exchange Act of 1934,
which financial statements are not intended to be indicative of the results
that would have occurred if the transactions had occurred on the dates
indicated or which may be realized in the future.
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Adjustments for
Prior Investments
and Financing Essex Pro Forma as
Historical Transactions (A) Essex Adjustments Adjusted for Essex
-------------- ------------------ ----------- -------------- --------------------
Revenues $95,287 $51,872 $39,077 $383 (B) $186,619
Operating expenses:
Compensation and related expenses 41,619 12,532 36,104 (20,868) (C) 69,387
Amortization of intangible assets 6,643 8,253 -- 3,163 (D) 18,059
Depreciation and other amortization 1,915 1,058 399 -- 3,372
Selling, general and administrative 18,912 4,944 3,599 -- 27,455
Other operating expenses 3,637 470 285 -- 4,392
-------------- ------------------ ----------- -------------- --------------------
72,726 27,257 40,387 (17,705) 122,665
-------------- ------------------ ----------- -------------- --------------------
Operating income 22,561 24,615 (1,310) 18,088 63,954
Non-operating (income) and expenses:
Investment and other income (1,174) (17) (1,408) -- (2,599)
Interest expense 8,479 3,007 97 4,471 (E) 16,054
-------------- ------------------ ----------- -------------- --------------------
7,305 2,990 (1,311) 4,471 13,455
-------------- ------------------ ----------- -------------- --------------------
Income before minority interest
and income taxes 15,256 21,625 1 13,617 50,499
Minority interest (12,249) (8,978) -- (6,800) (C) (28,027)
-------------- ------------------ ----------- -------------- --------------------
Income before income taxes 3,007 12,647 1 6,817 22,472
Income taxes 1,364 5,211 -- 2,863 (F) 9,438
-------------- ------------------ ----------- -------------- --------------------
Net income $1,643 $7,436 $1 $3,954 $13,034
-------------- ------------------ ----------- -------------- --------------------
-------------- ------------------ ----------- -------------- --------------------
Net income per share -- basic $0.72 $0.67
Net income per share -- diluted $0.20 $0.67
Average shares outstanding -- basic 2,270,684 19,323,309 (G)
Average shares outstanding -- diluted 8,235,529 19,518,855 (G)
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma as
Historical Essex Adjustments Adjusted for Essex
-------------- ----------- -------------- --------------------
Revenues $45,723 $8,097 $-- $53,820
Operating expenses:
Compensation and related expenses 16,615 6,169 (4,229) (C) 18,555
Amortization of intangible assets 3,829 -- 680 (D) 4,509
Depreciation and other amortization 513 97 610
Selling, general and administrative 6,783 1,194 7,977
Other operating expenses 1,290 701 1,991
-------------- ----------- -------------- --------------------
29,030 8,161 (3,549) 33,642
-------------- ----------- -------------- --------------------
Operating income 16,693 (64) 3,549 20,178
Non-operating (income) and expenses:
Investment and other income (311) (102) (413)
Interest expense 3,074 38 865 (E) 3,977
-------------- ----------- -------------- --------------------
2,763 (64) 865 3,564
-------------- ----------- -------------- --------------------
Income before minority interest
and income taxes 13,930 -- 2,684 16,614
Minority interest (6,493) -- (1,407) (C) (7,900)
-------------- ----------- -------------- --------------------
Income before income taxes 7,437 -- 1,277 8,714
Income taxes 2,975 -- 685 (F) 3,660
-------------- ----------- -------------- --------------------
Net income $4,462 $-- $592 $5,054
-------------- ----------- -------------- --------------------
-------------- ----------- -------------- --------------------
Net income per share -- basic $0.25 $0.26
Net income per share -- diluted $0.25 $0.26
Average shares outstanding -- basic 17,594,555 19,363,934 (G)
Average shares outstanding -- diluted 18,176,428 19,693,911 (G)
Notes to Unaudited Pro Forma Consolidated Statements of Operations
(A) Reflects the combined historical results of the Prior Investments
beginning January 1, 1997 and ending on the respective dates of
investment and pro forma adjustments primarily relating to
(i) adjustments to expenses to give effect to the contractually
agreed upon cash flow distribution obligations of the Prior
Investments; $2.8 million; (ii) increases in minority interest
expense to give effect to accrued cash flow distributions as
determined under the organizational documents of the Prior
Investments; $8.9 million; (iii) amortization of intangible assets
arising in connection with the investments; $8.2 million;
(iv) interest expense related to debt incurred to finance the Prior
Investments, net of repayments that have occurred through March 31,
1998; $3.0 million and; (v) the tax effects of the above;
$5.2 million.
(B) Reflects adjusting Essex's reported revenues based on a November 30
fiscal year to a calendar year.
(C) Reflects the reduction in compensation expense to give effect to
contractually agreed upon cash flow distribution obligations of
Essex and increases in minority interest expense to give effect to
accrued cash flow distributions as determined under the
organizational documents of the Essex Investment.
(D) Reflects increased amortization expense for intangible assets
recorded in the Essex Investment.
(E) Reflects increased interest expense on the funds borrowed for the
Essex Investment.
(F) Reflects income tax expense at a statutory rate of 42% on the net
earnings of Essex as adjusted for Notes (B) through (E).
(G) Includes shares of the Company's Series C Non-Voting stock issued
in connection with the investment in Essex and also the shares of
the Company's Common Stock issued in the Initial Public Offering.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AFFILIATED MANAGERS GROUP, INC.
By: /s/ Darrell W. Crate
-----------------------------
Name: Darrell W. Crate
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
DATE: June 3, 1998
