UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

CALAMOS ASSET MANAGEMENT, INC.

Delaware (State or Other Jurisdiction of Incorporation or Organization)		32-0122554 (I.R.S. Employer Identification No.)
2020 Calamos Court, Naperville, Illinois (Address of Principal Executive Offices)		60563 (Zip Code)

(630) 245-7200
(Registrant’s telephone number, including area code)

1111 E. Warrenville Road, Naperville, Illinois, 60563
(Former name, former address, and former fiscal year, if changed since last report)

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. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

At August 1, 2005, the company had 23,000,000 shares of Class A common stock and 100 shares of Class B common stock outstanding.

 

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CALAMOS ASSET MANAGEMENT, INC.

		June 30,				December 31,
		2005				2004
		(unaudited)
ASSETS:
Current assets
Cash and cash equivalents		$	143,198			$	149,768
Receivables:
Affiliates and affiliated funds			21,057				21,222
Customers			7,356				6,012
Investment securities, trading and available for sale			178,442				147,521
Prepaid expenses			2,144				1,917
Deferred tax asset, net			7,431				6,892
Other			3,452				4,046
Total current assets			363,080				337,378
Non-current assets
Deferred tax asset, net			107,065				111,186
Deferred sales commissions			62,253				61,417
Property and equipment, net of accumulated depreciation ($4,981 at 6/30/05 and $3,588 at 12/31/04)			35,075				4,902
Other non-current assets			1,751				1,569
Total non-current assets			206,144				179,074
Total assets			569,224				516,452
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Accounts payable:
Brokers			14,942				12,514
Affiliates			59				813
Accrued compensation and benefits			10,083				9,985
Accrued expenses and other current liabilities			6,974				17,767
Total current liabilities			32,058				41,079
Long-term liabilities
Long-term debt			150,000				150,000
Other long-term liabilities			6,347				263
Total long-term liabilities			156,347				150,263
Total liabilities			188,405				191,342
Minority interest in partnership investments			36,350				31,322
Minority interest in Calamos Holdings LLC			173,934				135,294
Stockholders’ equity:
Class A Common Stock, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 23,000,000 shares			230				230
Class B Common Stock, $0.01 par value. Authorized 1,000 shares; issued and outstanding 100 shares			0				0
Additional paid-in capital			154,638				154,156
Retained earnings			14,108				2,364
Accumulated other comprehensive income			1,559				1,744
Total stockholders’ equity			170,535				158,494
Total liabilities, minority interest and stockholders’ equity		$	569,224			$	516,452

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2005 and 2004
(in thousands, except per share data)

		Three Months Ended June 30,								Six Months Ended June 30,
		2005				2004				2005				2004
						(Predecessor)								(Predecessor)
		(Unaudited)				(Unaudited)				(Unaudited)
Revenues:
Investment management fees		$	67,430			$	51,451			$	133,270			$	92,703
Distribution and underwriting fees			30,764				23,754				61,389				45,802
Other			878				650				1,734				1,010
Total revenues			99,072				75,855				196,393				139,515
Expenses:
Employee compensation and benefits			14,860				17,367				29,781				28,145
Distribution and underwriting expense			18,693				11,413				36,364				21,703
Amortization of deferred sales commissions			8,028				7,446				15,904				14,079
Marketing and sales promotion			3,068				2,892				6,536				11,997
General and administrative			5,676				3,436				10,072				6,187
Total expenses			50,325				42,554				98,657				82,111
Operating income			48,747				33,301				97,736				57,404
Other income (expenses):
Interest expense			(2,036	)			(1,601	)			(4,069	)			(1,893	)
Investment and other income			7,118				2,237				4,165				2,516
Total other income (expense), net			5,082				636				96				623
Income before minority interest and income taxes			53,829				33,937				97,832				58,027
Minority interest in partnership investments			3,178				—				1,028				—
Income before minority interest in Calamos
Holdings LLC and income taxes			50,651				33,937				96,804				58,027
Minority interest in Calamos Holdings LLC			38,980				—				74,515				—
Income before income taxes			11,671				33,937				22,289				58,027
Income taxes			4,669				519				8,916				877
Net income		$	7,002			$	33,418			$	13,373			$	57,150
Earnings per share
Basic		$	0.30			$	0.35			$	0.58			$	0.59
Diluted		$	0.30			$	0.35			$	0.58			$	0.59
Weighted average shares outstanding
Basic			23,000,100				96,800,000				23,000,100				96,800,000
Diluted			100,557,047				96,800,000				100,577,064				96,800,000

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

						Additional								Accumulated
		Common				Paid-in				Retained				Comprehensive
		Stock				Capital				Earnings				Income				Total
Balance at December 31, 2004		$	230			$	154,156			$	2,364			$	1,744			$	158,494
Net income			—				—				13,373				—				13,373
Changes in unrealized gains on available-for-sale securities, net of minority interest and income taxes			—				—				—				(185	)			(185	)
Total comprehensive income																			13,188
Compensation expense recognized under stock incentive plans, net of minority interest			—				482				—				—				482
Dividend equivalent accrued under stock Incentive plans, net of minority interest			—				—				(19	)			—				(19	)
Dividends declared			—				—				(1,610	)			—				(1,610	)
Balance at June 30, 2005		$	230			$	154,638			$	14,108			$	1,559			$	170,535

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

		2005				2004
		(Unaudited)				(Predecessor)
Cash and cash equivalents at beginning of year		$	149,768			$	5,073
Cash flows from operating activities:
Net income			13,373				57,150
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in partnership investments			1,028				—
Minority interest in Calamos Holdings LLC			74,515				—
Amortization of deferred sales commissions			15,904				14,079
Other depreciation and amortization			1,536				685
Unrealized appreciation on trading securities			(1,645	)			(217	)
Unrealized depreciation on investment in partnership			94				67
Management fee received in partnership units			(77	)			(80	)
Stock-based compensation			2,093				—
Deferred taxes			3,704				—
Gain on disposal of property			—				(1,989	)
(Increase) decrease in assets:
Accounts receivable:
Customers			(1,344	)			(858	)
Affiliates and affiliated mutual funds			165				(8,531	)
Deferred sales commissions			(16,740	)			(23,434	)
Other assets			25				(1,508	)
Increase in liabilities:
Accounts payable			1,674				4,048
Accrued compensation and benefits and deferred compensation			98				5,958
Other liabilities and accrued expenses			2,208				6,620
Net cash provided by operating activities			96,611				51,990
Cash flows used in investing activities:
Net additions to property and equipment			(31,566	)			(8,371	)
Net purchases of securities and partnership investments			(26,610	)			(47,182	)
Net cash used in investing activities			(58,176	)			(55,553	)
Cash flows provided by (used in) financing activities:
Net payments on bank debt			—				(30,200	)
Net payments on mortgage payable			—				(152	)
Net borrowings on debt offering			—				148,003
Cash dividends paid to minority shareholders			(41,785	)			(22,467	)
Cash dividends paid to common shareholders			(3,220	)			—
Net cash provided by (used in) financing activities			(45,005	)			95,184
Net increase (decrease) in cash			(6,570	)			91,621
Cash and cash equivalents at end of period		$	143,198			$	96,694

See accompanying notes to consolidated financial statements.

CALAMOS ASSET MANAGEMENT, INC.

(1) Organization and Description of Business

Calamos Asset Management, Inc. (CAM), together with its subsidiaries (the Company), primarily provides investment advisory services to individual and institutional investors as well as investment advisory services to a family of open-end and closed-end funds. The Company completed an initial public offering (Offering) of its Class A common stock on November 2, 2004. Prior to the offering, on October 15, 2004 Calamos Family Partners, Inc. (formerly known as Calamos Holdings, Inc.) (CFP), contributed all of its assets and liabilities, including all equity interests in its wholly owned subsidiaries, to Calamos Holdings LLC (Holdings) in exchange for all 96,800,000 membership units of Holdings. On October 20, 2004, Holdings issued 200,000 new membership units for cash to John Calamos, Sr. On November 2, 2004, CAM applied the net proceeds of the Offering to acquire 3,000,000 newly issued membership units directly from Holdings and 20,000,000 membership units from CFP to become the sole manager of Holdings. As the sole manager, CAM operates and controls all of the business and affairs of Holdings and, as a result of this control, CAM consolidates the financial results of Holdings with its own financial results. CAM is now conducting the business previously conducted by CFP. Accordingly, reported results for the three and six months ended June 30, 2004 reflect the operations for CFP and its subsidiaries (Predecessor). Reported results for the three and six months ended June 30, 2005 reflect the operations for the Company. For more information regarding the Offering and the reorganization undertaken in connection therewith (the Reorganization), see CAM’s Registration Statement on Form S-1 (File No. 333-117847) (the Registration Statement) filed with the Securities and Exchange Commission (SEC).

(2) Basis of Presentation

The consolidated financial statements as of June 30, 2005, for the three and six months ended June 30, 2005 and for the three months ended June 30, 2004 have not been audited by the Company’s independent registered public accounting firm. In the opinion of management, such information contains all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations. The results for the interim periods ended June 30 are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts for the prior year have been reclassified to conform to the current year’s presentation.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from these estimates.

CFP’s and John P. Calamos, Sr.’s combined 77% interest in Holdings is represented as minority interest in the Company’s financial statements. Income before minority interest in Calamos Holdings LLC and income taxes, which was $50.7 million and $96.8 million for the three and six months ended June 30, 2005, respectively, included approximately $27,900 and $32,000 of investment income earned on cash and cash equivalents held solely by CAM during the same periods. This investment income is not reduced by any minority interests; therefore, the resulting minority interest is less than 77% for the three and six months ended June 30, 2005.

(3) Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2005 includes $7.1 million in an escrow account to fund the completion of leasehold improvements for the new office facility at 2020 Calamos Court in Naperville, Illinois. The Company expects the leasehold improvements to be completed and the escrow to be utilized during the remainder of 2005.

CALAMOS ASSET MANAGEMENT, INC.

(4) Property and Equipment

Property and equipment at June 30, 2005 includes leasehold improvements of $16 million and equipment of $14 million related to the company’s new leased headquarters. These assets were not in use as of June 30, 2005 and, as a result, were not depreciated during the three or six month periods ended June 30, 2005.

(5) Earnings Per Share

The following table reflects the calculation of basic and diluted earnings per share:

		Three Months Ended								Six Months Ended
(in thousands, except per share data)		June 30,								June 30, 2005
		2005				2004				2005				2004
Earnings per share — basic
Earnings available to common shareholders		$	7,002			$	33,418			$	13,373			$	57,150
Weighted average shares outstanding			23,000				96,800				23,000				96,800
Earnings per share — basic		$	0.30			$	0.35			$	0.58			$	0.59
Earnings per share — diluted
Income before minority interest in Calamos Holdings LLC and income taxes		$	50,651			$	33,937			$	96,804			$	58,027
Less: Impact of income taxes			20,260				519				38,722				877
Earnings available to common shareholders		$	30,391			$	33,418			$	58,082			$	57,150
Weighted average shares outstanding			23,000				96,800				23,000				96,800
Conversion of membership units for common stock			77,000				—				77,000				—
Dilutive impact of RSUs			547				—				546				—
Dilutive impact of stock options			10				—				31				—
Weighted average shares and potential dilutive shares outstanding			100,557				96,800				100,577				96,800
Earnings per share — diluted		$	0.30			$	0.35			$	0.58			$	0.59

Diluted shares outstanding for the three and six months ended June 30, 2005 are calculated (a) assuming Calamos Family Partners, Inc. and John P. Calamos, Sr. exchanged all of their membership units in Calamos Holdings LLC for shares of the Company’s Class A common stock on a one-for-one basis and (b) including the effect of outstanding restricted stock unit and stock option awards. In calculating diluted earnings available to common shareholders for the three and six months ended June 30, 2005, an effective tax rate of 40.0% was applied to income before minority interest in Calamos Holdings LLC and income taxes of $50.7 million and $96.8 million, respectively, resulting in earnings available to common shareholders of $30.4 million and $58.1 million. The impact of income taxes for the three and six months ended June 30, 2004 reflects the income taxes of Calamos Family Partners, which operated as an S corporation and was not subject to U.S. federal and certain state income taxes, but was subject to Illinois replacement taxes.

CALAMOS ASSET MANAGEMENT, INC.

The Company uses the treasury stock method to reflect the dilutive effect of unvested restricted stock units (RSU) and unexercised stock options in diluted earnings per share. Under the treasury stock method, if the average market price of common stock increases above the option’s exercise price, the proceeds that would be assumed to be realized from the exercise of the option would be assumed to be used to acquire outstanding shares of common stock. However, pursuant to the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123), the awards may be anti-dilutive even when the market price of the underlying stock exceeds the related exercise price. This result is possible because compensation cost attributed to future services and not yet recognized is included as a component of the assumed proceeds upon exercise. As such, the dilutive effect of such options and RSUs would result in the addition of a net number of shares to the weighted-average number of shares used in the calculation of diluted earnings per share. Stock options for 293,500 shares and RSUs for 97,000 shares were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2005 as they were anti-dilutive. There were no stock options or dilutive securities outstanding for the three and six months ended June 30, 2004.

(6) Recently Issued Accounting Pronouncements

Effective January 1, 2004, we adopted the fair value recognition provisions of SFAS 123. In December 2004, the FASB revised SFAS 123 (SFAS 123(R)), requiring public registrants to recognize the cost resulting from all stock-based compensation transactions in their financial statements. In April 2005, the Securities and Exchange Commission deferred the compliance date of SFAS 123(R) until 2006 for calendar-year companies. We intend to adopt SFAS 123(R) in the first quarter of 2006 and do not believe that the implementation will have a material effect on our financial statements.

In June 2005, the FASB’s Emerging Issues Task Force (EITF) ratified Issue No. 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF No. 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership. The presumption of control is overcome if the limited partners have either substantive kick-out rights or substantive participating rights, as defined. This guidance is applicable for limited partnerships or similar entities that are not variable interest entities under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities. We have evaluated the provisions of EITF No. 04-05 and have determined that the implementation of this guidance will not have a material effect on our financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We provide investment advisory services through our subsidiaries to institutions and individuals, managing $39.5 billion in client assets at June 30, 2005. Our operating results fluctuate primarily due to changes in the total value and composition of our assets under management. The value and composition of our assets under management are, and will continue to be, influenced by a variety of factors including purchases and redemptions of shares of the open-end funds that we manage and other investment products, fluctuations in the financial markets around the world that result in appreciation or depreciation of assets under management and our introduction of new investment strategies and products.

The value and composition of our assets under management and our ability to continue to attract clients depends on a variety of factors including the education of our target clients about our investment philosophy, the delivery of best-in-class service, the relative investment performance of our investment products as compared to competing offerings and market indices, the competitive conditions in the mutual fund, asset management and broader financial services sectors, investor sentiment and confidence, and our decision to close strategies when deemed to be in the best interests of our clients.

We market our investment strategies to our target clients through a variety of products designed to suit their individual investment needs. We currently offer six types of mutual fund and separate account investment products. The following table details our assets under management at June 30, 2005 and 2004.

		June 30,
(In millions)		2005				2004
Mutual Funds
Open-end funds		$	22,432			$	16,528
Closed-end funds			5,901				5,762
Total mutual funds			28,333				22,290
Separate Accounts
Institutional accounts			3,678				2,998
Managed accounts			6,844				6,577
Private client accounts			578				381
Alternative investments			79				16
Total separate accounts			11,179				9,972
Total assets under management		$	39,512			$	32,262

Our revenues are substantially comprised of investment management fees earned under contracts with the mutual funds and separate accounts that we manage. Our revenues are also comprised of distribution and underwriting fees, including asset-based distributions and/or service fees received pursuant to Rule 12b-1 plans. Investment management fees and distribution and underwriting fees may fluctuate based on a number of factors, including the total value and composition of our assets under management, market appreciation or depreciation and the level of net purchases and redemptions, which represents the sum of new client investments, additional funding from existing clients, withdrawals of assets from and termination of client accounts and purchases and redemptions of mutual fund shares. The distribution of assets under management among our investment products also has an impact on our revenues, as some products carry different fees than others.

Our largest operating expenses are employee compensation and benefits expense, which includes salaries, incentive compensation and related benefits costs, and expenses related to the distribution of mutual funds, including Rule 12b-1 payments and amortization of deferred sales commissions for open-end mutual funds.

Operating expenses may fluctuate due to a number of factors, including variations in staffing and compensation, changes in distribution expense as a result of fluctuations in mutual fund sales and market appreciation or depreciation, and depreciation and amortization relating to capital expenditures incurred to maintain and enhance our administrative and operating services infrastructure.

Operating Results

Second Quarter and Six Months Ended June 30, 2005 Compared to Second Quarter and Six Months Ended June 30, 2004

Assets Under Management

Assets under management increased by $7.2 billion, or 22%, to $39.5 billion at June 30, 2005 from $32.3 billion at June 30, 2004. At June 30, 2005, our assets under management consisted of 72% mutual funds and 28% separate accounts, as compared to 69% mutual funds and 31% separate accounts at June 30, 2004.

($ in millions)		Three Months Ended June 30,																Six Months Ended June 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Mutual Funds
Beginning assets under management		$	27,366			$	19,320			$	8,046				42	%		$	26,951			$	14,650			$	12,301				84	%
Net purchases			582				2,842				(2,260	)			80				2,133				6,851				(4,718	)			69
Market appreciation (depreciation)			385				128				257				201				(751	)			789				(1,540	)			195
Ending assets under management			28,333				22,290				6,043				27				28,333				22,290				6,043				27
Average assets under management			27,443				20,535				6,908				34				27,265				18,364				8,901				48
Separate Accounts
Beginning assets under management			10,880				9,653				1,227				13				11,024				9,189				1,835				20
Net purchases			27				200				(173	)			87				430				310				120				39
Market appreciation (depreciation)			272				119				153				129				(275	)			473				(748	)			158
Ending assets under management			11,179				9,972				1,207				12				11,179				9,972				1,207				12
Average assets under management			10,854				9,667				1,187				12				10,871				9,539				1,332				14
Total Assets Under Management
Beginning assets under management			38,246				28,973				9,273				32				37,975				23,839				14,136				59
Net purchases			609				3,042				(2,433	)			80				2,563				7,161				(4,598	)			64
Market appreciation (depreciation)			657				247				410				166				(1,026	)			1,262				(2,288	)			181
Ending assets under management			39,512				32,262				7,250				22				39,512				32,262				7,250				22
Average assets under management		$	38,297			$	30,202			$	8,095				27	%		$	38,136			$	27,903			$	10,233				37	%

Mutual fund net purchases were $582 million in the second quarter and $2.1 billion in the first six months of 2005, compared to $2.8 billion and $6.9 billion for the prior year periods. The decreases in mutual fund net purchases for the three and six months ended June 30, 2005 were primarily attributable to a large closed-end fund offering during the six months ended June 2004 that did not recur as well as lower open-end fund net purchases. Because closed-end funds do not continually offer new shares to investors, net purchases of closed-end funds are entirely dependent on our ability to consummate closed-end fund offerings. Market demand for closed-end fund offerings is difficult to predict. We intend to monitor the market and pursue opportunities as they present themselves and when doing so would be consistent with our business strategy. Open-end fund net purchases were $582 million in the second quarter and $2.1 billion in the first six months of 2005, compared to $1.6 billion and $3.6 billion for the prior periods largely driven by increasing redemptions, which typically increase as assets under management grow, and by lower gross purchases which is consistent with industry trends. Separate account net purchases decreased to $27 million from $200 million for the three months ended June 30, 2005 compared to the prior year period, largely driven by managed account outflows in our convertible strategies, which remain closed to new investors. Separate account net purchases increased to $431 million for the six months ended June 30, 2005 from $310 million in the prior year period principally due to strong first quarter 2005 net purchases in our equity strategies.

Revenues

Total revenues for the second quarter of 2005 were $99.1 million, up $23.2 million or 31% over the comparable period of the prior year. For the six-month period ended June 30, 2005, total revenues were $196.4 million, representing a 41% increase compared to last year’s six-month period. These increases were primarily due to higher investment management fees and distribution and underwriting fees.

($ in thousands)		Three Months Ended June 30,																Six Months Ended June 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Investment management fees		$	67,430			$	51,451			$	15,979				31	%		$	133,270			$	92,703			$	40,567				44	%
Distribution and underwriting fees			30,764				23,754				7,010				30				61,389				45,802				15,587				34
Other			878				650				228				35				1,734				1,010				724				72
Total revenues		$	99,072			$	75,855			$	23,217				31	%		$	196,393			$	139,515			$	56,878				41	%

Compared to the same periods in the prior year, investment management fees increased 31% and 44% in the second quarter and first six months of 2005, respectively, primarily due to increases in average assets under management of $8.1 billion and $10.2 billion for the second quarter and first six months of 2005. The overall growth in investment management fees was due primarily to an increase in mutual fund investment management fees, which increased to $53.5 million and $105.6 million for the three and six month periods ended June 30, 2005 from $40.1 million and $70.1 million for the prior year periods. Open-end fund investment management fees increased to $41.2 million and $81.0 million for the second quarter and six months ended June 30, 2005, respectively, from $29.3 million and $55.3 million for the same periods of the prior year, primarily due to increases in open-end fund average assets under management of $6.2 billion and $6.9 billion for the second quarter and six months ended June 30, 2005 compared to the prior year. Closed-end fund investment management fees increased to $12.3 million and $24.7 million for the three and six month periods ended June 30, 2005, respectively, from $10.8 million and $14.8 million in the prior year, as a result of increases in closed-end fund average assets under management of $0.7 billion and $2.0 billion for the second quarter and first half of 2005 when compared to the prior year. Investment management fees as a percentage of average assets under management were 0.70% for the three and six months ended June 30, 2005 compared to 0.68% and 0.66% for the three and six month periods in the prior year.

Distribution and underwriting fees increased to $30.8 million and $61.4 million for the three and six months ended June 30, 2005, respectively, from $23.8 million and $45.8 million in the same periods of the prior year, primarily due to increases in open-end fund average assets under management of $6.2 billion and $6.9 billion for the second quarter and six months ended June 30, 2005 compared to the same periods a year ago.

Operating Expenses

Operating expenses increased to $50.3 million and $98.7 million for the second quarter and six months ended June 30, 2005, respectively, from $42.6 million and $82.1 million for the comparable periods in the prior year. The increases were mostly due to higher distribution expenses.

($ in thousands)		Three Months Ended June 30,																Six Months Ended June 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
Employee compensation and benefits		$	14,860			$	17,367			$	(2,507	)			14	%		$	29,781			$	28,145			$	1,636				6	%
Distribution expense			18,693				11,413				7,280				64				36,364				21,703				14,661				68
Amortization of deferred sales commissions			8,028				7,446				582				8				15,904				14,079				1,825				13
Marketing and sales promotion			3,068				2,892				176				6				6,536				11,997				(5,461	)			46
General and administrative			5,676				3,436				2,240				65				10,072				6,187				3,885				63
Total operating expenses		$	50,325			$	42,554			$	7,771				18	%		$	98,657			$	82,111			$	16,546				20	%

Employee compensation and benefits expense decreased by $2.5 million for the three months ended June 30, 2005 when compared to the three months ended June 30, 2004, as increases in these expenses due to greater staff levels were more than offset by the effects of changes made to executive compensation as a result of becoming a public company. When comparing the six months ended June 30, 2005 to the same period in 2004, employee compensation and benefits expense increased by $1.6 million as the increase due to greater staff levels was only partially offset by the adjustments made to executive compensation.

We expect the level of overall employee compensation and benefits expense will increase in future periods due to changes in staffing levels to support our growth and expansion of our alternative investments business. Current compensation expense levels are also expected to increase due to merit increases for our existing staff but may vary due to compensation based on company performance.

Distribution expense increased by $7.3 million and $14.7 million in the second quarter and first half of 2005, respectively, primarily due to the growth in the Class C share assets older than one year, which accounted for $4.1 million and $8.1 million of the change, and due to the growth of average open-end fund assets under management, which accounted for $3.2 million and $6.6 million of the change. Class C share assets do not generate distribution expense in the first year following their sale because we retain the Rule 12b-1 fees during that first year to offset the upfront commissions that we pay, but they do generate a distribution expense in subsequent years as we pay the Rule 12b-1 fees to the selling firms. Although the Rule 12b-1 fee rates that we paid to broker-dealers and other intermediaries in the three and six months ended June 30, 2005 did not change from the rates paid in the prior year, we expect distribution expense to increase to the extent our mutual fund assets under management continue to grow.

Marketing and sales promotion expense decreased to $6.5 million for the six months ended June 30, 2005 from $12.0 million for the prior year. The decrease of $5.5 million was mainly attributable to a $6.0 million one-time fee paid to underwriters of a closed-end fund offering that we incurred during the first six months of 2004. As open-end mutual funds that we manage have grown in size and recognition, a limited number of our third-party selling agents began requesting supplemental compensation payments and, subsequently, certain of those agents have requested increases in the amounts of such payments. We expect these trends to continue. However, as a percentage of revenues, supplemental compensation payments have decreased over time.

General and administrative expense increased by $2.2 million and $3.9 million in the second quarter and six months ended June 30, 2005, respectively. We began making lease payments on our new headquarters in April 2005 in addition to the lease payments made on our two other office facilities, which increased occupancy costs by $1.4 million and $1.6 million for the quarter and six months ended June 30, 2005 of which approximately $1.0 million was due to the new facility with the remainder primarily due to the continued expansion of staffing levels. We moved into our new headquarters in July 2005 and expect the duplication of certain expenses to continue through the third quarter as we wind down operations in our two other facilities. Additionally, for the three and six month periods ended June 30, 2005, professional services expense increased $0.6 million and $1.5 million and depreciation expense increased $0.2 million and $0.8 million, respectively. The increases in professional services expense were primarily due to incremental costs incurred as a publicly traded company, including Sarbanes-Oxley compliance costs and higher fees related to legal compliance, audit services and tax preparation. The increases in depreciation expense were primarily due to the shortening of depreciable lives of leasehold improvements in our previous headquarters caused by the move into our new headquarters in July 2005.

Income Taxes

Income taxes as a percentage of income before income taxes was 40.0% for the second quarter and first half of 2005 compared to 1.5% for the prior year periods. For the three and six months ended June 30, 2004, Calamos Family Partners, Inc. (CFP) elected to be taxed as an S corporation under the Internal Revenue Code. Therefore, the income and expenses of CFP were included in the income tax returns of its stockholders. CFP was subject to Illinois replacement tax and certain other state taxes.

Net Income

The following shows our condensed consolidated pro forma statements of income for the three and six months ended June 30, 2005 and 2004. Management believes that pro forma results provide a more meaningful basis for period-to-period comparisons of the company’s results for the three and six months ended June 30, 2005 and 2004. The following pro forma results for the three and six months ended June 30, 2004 give effect to (1) the Real Estate Distribution, whereby Calamos Family Partners, Inc. (formerly known as Calamos Holdings Inc.), distributed its interest in all of its owned real estate assets to its stockholders, who contributed those assets to a new limited liability company; (2) the Formation Transaction, whereby on October 15, 2004, Calamos Family Partners, Inc. contributed all of its assets and liabilities, including, among other things, all equity interests in its wholly owned subsidiaries, to Calamos Holdings LLC in exchange for 96,800,000 of the membership units of Calamos Holdings LLC; and (3) the consummation of our IPO and use of the net proceeds to acquire membership units in Calamos Holdings LLC. In addition, pro forma diluted earnings per share reflect the effect of exchanging all membership interests in Calamos Holdings LLC not held by the company for Class A shares of the company. The pro forma results give effect to these items as if they had occurred at the beginning of the periods presented. The most significant pro forma adjustments relate to the minority interest of Calamos Family Partners, Inc. and to income taxes, as Calamos Family Partners, Inc. historically operated as an S corporation.

On November 2, 2004, the Company became the sole manager of Calamos Holdings LLC and is now conducting the business previously conducted by Calamos Family Partners, Inc. Accordingly, the results for the three and six months ended June 30, 2004 reflect the operations for Calamos Family Partners, Inc. and its subsidiaries. Results for the three and six months ended June 30, 2005 reflect the operations for Calamos Asset Management, Inc.

(in thousands, except share data)		Three Months Ended June 30,
										Pro Forma				2004 as
		2005				2004				Adjustments				Adjusted
Revenues:
Investment management fees		$	67,430			$	51,451			$	—			$	51,451
Distribution and underwriting fees			30,764				23,754				—				23,754
Other			878				650				(78	)(1)			572
Total revenues			99,072				75,855				(78	)			75,777
Expenses:
Employee compensation and benefits			14,860				17,367				(57	) (1)			17,310
Distribution and underwriting expense			18,693				11,413				—				11,413
Amortization of deferred sales commissions			8,028				7,446				—				7,446
Marketing and sales promotion			3,068				2,892				—				2,892
General and administrative			5,676				3,436				55	(1)			3,491
Total expenses			50,325				42,554				(2	)			42,552
Operating income			48,747				33,301				(76	)			33,225
Total other income (expense), net			1,904	(2)			636				(1,880	)(1)			(1,244	)
Income before minority interest in Calamos Holdings LLC and income taxes			50,651				33,937				(1,956	)			31,981
Minority interest			38,980				—				24,625	(3)			24,625
Income before income taxes			11,671				33,937				(26,581	)			7,356
Income taxes			4,669				519				2,415	(4)			2,934
Net income		$	7,002			$	33,418			$	(28,996	)		$	4,422
Earnings per share, basic		$	0.30			$	0.35							$	0.19
Weighted average shares outstanding, basic			23,000,100				96,800,000	(5)							23,000,100	(6)
Calculation of earnings per share, diluted, assuming exchange of membership units:
Income before minority interest in Calamos Holdings LLC and income taxes			50,651												31,981
Impact of income taxes			20,260												12,757	(7)
Earnings available to common shareholders			30,391												19,224
Earnings per share, diluted		$	0.30			$	0.35							$	0.19
Weighted average shares outstanding, diluted (8)			100,557,047				96,800,000								100,000,100

(in thousands, except share data)		Six Months Ended June 30,
										Pro Forma				2004 as
		2005				2004				Adjustments				Adjusted
Revenues:
Investment management fees		$	133,270			$	92,703			$	—			$	92,703
Distribution and underwriting fees			61,389				45,802				—				45,802
Other			1,734				1,010				(157	)(1)			853
Total revenues			196,393				139,515				(157	)			139,358
Expenses:
Employee compensation and benefits			29,781				28,145				(123	)(1)			28,022
Distribution and underwriting expense			36,364				21,703				—				21,703
Amortization of deferred sales commissions			15,904				14,079				—				14,079
Marketing and sales promotion			6,536				11,997				—				11,997
General and administrative			10,072				6,187				115	(1)			6,302
Total expenses			98,657				82,111				(8	)			82,103
Operating income			97,736				57,404				(149	)			57,255
Total other income (expense), net			(932)	(2)			623				(1,808	)(1)			(1,185	)
Income before minority interest in Calamos Holdings LLC and income taxes			96,804				58,027				(1,957	)			56,070
Minority interest			74,515				—				43,174	(3)			43,174
Income before income taxes			22,289				58,027				(45,131	)			12,896
Income taxes			8,916				877				4,267	(4)			5,144
Net income		$	13,373			$	57,150			$	(49,398	)		$	7,752
Earnings per share, basic		$	0.58			$	0.59							$	0.34
Weighted average shares outstanding, basic			23,000,100				96,800,000	(5)							23,000,100	(6)
Calculation of earnings per share, diluted, assuming exchange of membership units:
Income before minority interest in Calamos Holdings LLC and income taxes			96,804												56,070
Impact of income taxes			38,722												22,366	(7)
Earnings available to common shareholders			58,082												33,704
Earnings per share, diluted		$	0.58			$	0.59							$	0.34
Weighted average shares outstanding, diluted (8)			100,577,064				96,800,000								100,000,100

Notes to Pro Forma Adjustments

Net income totaled $7.0 million and $13.4 million for the three and six months ended June 30, 2005 compared to pro forma net income of $4.4 million and $7.8 million for the prior year, representing increases of 58% and 73%, respectively.

($ in thousands)		Three Months Ended June 30,																Six Months Ended June 30,
										Change																Change
		2005				2004				Amount				Percent				2005				2004				Amount				Percent
						(Pro Forma)																(Pro Forma)
Total revenues		$	99,072			$	75,777			$	23,295				31	%		$	196,393			$	139,358			$	57,035				41	%
Total operating expenses			50,325				42,552				7,773				18				98,657				82,103				16,554				20
Operating income			48,747				33,225				15,522				47				97,736				57,255				40,481				71
Other income (expense), net			1,904				(1,244	)			3,148				*				(932	)			(1,185	)			253				21
Minority interest			38,980				24,625				14,355				58				74,515				43,174				31,341				73
Income taxes			4,669				2,934				1,735				59				8,916				5,144				3,772				73
Net income		$	7,002			$	4,422			$	2,580				58	%		$	13,373			$	7,752			$	5,621				73	%