e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: |
June 30, 2006
- OR -
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. |
Commission File Number: 000-51003
CALAMOS ASSET MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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32-0122554
(I.R.S. Employer
Identification No.) |
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2020 Calamos Court, Naperville, Illinois
(Address of Principal Executive Offices)
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60563
(Zip Code) |
(630) 245-7200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
At August 1, 2006, the company had 23,161,898 shares of Class A common stock and 100 shares of
Class B common stock outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CALAMOS
ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
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June 30, |
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December 31, |
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2006 |
|
2005 |
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|
(unaudited) |
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|
ASSETS: |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
254,661 |
|
|
$ |
210,469 |
|
Receivables: |
|
|
|
|
|
|
|
|
Affiliates and affiliated funds |
|
|
25,486 |
|
|
|
24,670 |
|
Customers |
|
|
10,717 |
|
|
|
9,806 |
|
Investment securities |
|
|
131,065 |
|
|
|
128,265 |
|
Investment in partnerships |
|
|
89,089 |
|
|
|
79,956 |
|
Prepaid expenses |
|
|
2,715 |
|
|
|
2,342 |
|
Deferred tax asset, net |
|
|
7,808 |
|
|
|
7,846 |
|
Other |
|
|
95 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
521,636 |
|
|
|
463,549 |
|
|
|
|
|
|
|
|
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|
Non-current assets |
|
|
|
|
|
|
|
|
Deferred tax asset, net |
|
|
96,533 |
|
|
|
101,280 |
|
Deferred sales commissions |
|
|
59,805 |
|
|
|
58,390 |
|
Property and equipment, net of accumulated depreciation ($9,637 at 6/30/06 and $6,357 at 12/31/05) |
|
|
43,078 |
|
|
|
40,547 |
|
Other non-current assets |
|
|
1,672 |
|
|
|
1,711 |
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|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
201,088 |
|
|
|
201,928 |
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|
|
|
|
|
|
|
|
|
Total assets |
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|
722,724 |
|
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|
665,477 |
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|
|
|
|
|
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS EQUITY: |
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Current liabilities |
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|
|
|
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Accounts payable: |
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Brokers |
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20,588 |
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|
|
18,485 |
|
Affiliates and affiliated funds |
|
|
231 |
|
|
|
93 |
|
Accrued compensation and benefits |
|
|
12,565 |
|
|
|
19,131 |
|
Accrued expenses and other current liabilities |
|
|
6,865 |
|
|
|
11,025 |
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|
|
|
|
|
|
|
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Total current liabilities |
|
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40,249 |
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48,734 |
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Long-term
liabilities |
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Long-term debt |
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150,000 |
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|
150,000 |
|
Other long-term liabilities |
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|
7,049 |
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6,726 |
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|
|
|
|
|
|
|
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Total long-term liabilities |
|
|
157,049 |
|
|
|
156,726 |
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|
|
|
|
|
|
|
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Total liabilities |
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197,298 |
|
|
|
205,460 |
|
|
|
|
|
|
|
|
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Minority interest in investment in partnerships |
|
|
50,545 |
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|
|
44,453 |
|
Minority interest in Calamos Holdings LLC |
|
|
274,710 |
|
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|
229,430 |
|
Stockholders equity: |
|
|
|
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|
|
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|
Class A Common Stock, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding
23,161,898 shares at 6/30/06 and 23,000,000 shares at 12/31/05 |
|
|
232 |
|
|
|
230 |
|
Class B Common Stock, $0.01 par value. Authorized 1,000 shares; issued
and outstanding 100 shares |
|
|
0 |
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|
0 |
|
Additional paid-in capital |
|
|
157,105 |
|
|
|
156,274 |
|
Retained earnings |
|
|
39,583 |
|
|
|
26,698 |
|
Accumulated other comprehensive income |
|
|
3,251 |
|
|
|
2,932 |
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|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
200,171 |
|
|
|
186,134 |
|
|
|
|
|
|
|
|
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Total liabilities, minority interest and stockholders equity |
|
$ |
722,724 |
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|
$ |
665,477 |
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|
See accompanying notes to consolidated financial statements.
-2-
CALAMOS
ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2006 and 2005
(in thousands, except share data)
(unaudited)
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Investment management fees |
|
$ |
84,328 |
|
|
$ |
67,430 |
|
|
$ |
165,807 |
|
|
$ |
133,270 |
|
Distribution and underwriting fees |
|
|
38,997 |
|
|
|
30,764 |
|
|
|
77,137 |
|
|
|
61,389 |
|
Other |
|
|
1,028 |
|
|
|
878 |
|
|
|
2,027 |
|
|
|
1,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues |
|
|
124,353 |
|
|
|
99,072 |
|
|
|
244,971 |
|
|
|
196,393 |
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|
|
|
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|
|
|
|
|
|
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Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits |
|
|
18,287 |
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|
|
14,860 |
|
|
|
37,293 |
|
|
|
29,781 |
|
Distribution and underwriting expense |
|
|
25,864 |
|
|
|
18,693 |
|
|
|
50,829 |
|
|
|
36,364 |
|
Amortization of deferred sales commissions |
|
|
8,123 |
|
|
|
8,028 |
|
|
|
15,863 |
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|
|
15,904 |
|
Marketing and sales promotion |
|
|
4,493 |
|
|
|
3,068 |
|
|
|
7,601 |
|
|
|
6,536 |
|
General and administrative |
|
|
7,639 |
|
|
|
5,676 |
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|
|
14,813 |
|
|
|
10,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
64,406 |
|
|
|
50,325 |
|
|
|
126,399 |
|
|
|
98,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
59,947 |
|
|
|
48,747 |
|
|
|
118,572 |
|
|
|
97,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
|
820 |
|
|
|
(1,116 |
) |
|
|
1,182 |
|
|
|
(2,287 |
) |
Investment and other income |
|
|
(7,927 |
) |
|
|
6,198 |
|
|
|
4,004 |
|
|
|
2,383 |
|
Minority interest in partnership investments |
|
|
5,171 |
|
|
|
(3,178 |
) |
|
|
(1,091 |
) |
|
|
(1,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
(1,936 |
) |
|
|
1,904 |
|
|
|
4,095 |
|
|
|
(932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest in Calamos
Holdings LLC and income taxes |
|
|
58,011 |
|
|
|
50,651 |
|
|
|
122,667 |
|
|
|
96,804 |
|
Minority interest in Calamos Holdings LLC |
|
|
44,486 |
|
|
|
38,980 |
|
|
|
94,109 |
|
|
|
74,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
13,525 |
|
|
|
11,671 |
|
|
|
28,558 |
|
|
|
22,289 |
|
Income taxes |
|
|
5,424 |
|
|
|
4,669 |
|
|
|
11,452 |
|
|
|
8,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,101 |
|
|
$ |
7,002 |
|
|
$ |
17,106 |
|
|
$ |
13,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings per share |
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
Basic |
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
0.74 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
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|
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Diluted |
|
$ |
0.34 |
|
|
$ |
0.30 |
|
|
$ |
0.73 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Weighted average shares outstanding |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Basic |
|
|
23,161,998 |
|
|
|
23,000,100 |
|
|
|
23,161,998 |
|
|
|
23,000,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
100,845,107 |
|
|
|
100,557,047 |
|
|
|
100,823,214 |
|
|
|
100,577,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share |
|
$ |
0.09 |
|
|
$ |
0.07 |
|
|
$ |
0.18 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-3-
CALAMOS
ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Six Months Ended June 30, 2006
(in thousands, except share data)
(unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Additional |
|
|
|
|
|
Accumulated Other |
|
|
|
|
Common |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
|
|
Stock |
|
Capital |
|
Earnings |
|
Income |
|
Total |
Balance at December 31, 2005 |
|
$ |
230 |
|
|
$ |
156,274 |
|
|
$ |
26,698 |
|
|
$ |
2,932 |
|
|
$ |
186,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
17,106 |
|
|
|
|
|
|
|
17,106 |
|
Changes in unrealized gains on available-for-sale securities, net of minority interest and
income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under stock
incentive plans (161,898 Class A
common shares) |
|
|
2 |
|
|
|
113 |
|
|
|
|
|
|
|
14 |
|
|
|
129 |
|
Compensation expense recognized under
stock incentive plans, net of minority
interest |
|
|
|
|
|
|
718 |
|
|
|
|
|
|
|
|
|
|
|
718 |
|
Dividend equivalent accrued under stock
incentive plans, net of minority interest |
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
(52 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
(4,169 |
) |
|
|
|
|
|
|
(4,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
$ |
232 |
|
|
$ |
157,105 |
|
|
$ |
39,583 |
|
|
$ |
3,251 |
|
|
$ |
200,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-4-
CALAMOS
ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2006 and 2005
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Cash and cash equivalents at beginning of year |
|
$ |
210,469 |
|
|
$ |
149,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
|
17,106 |
|
|
|
13,373 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Minority interest in partnership investments |
|
|
1,091 |
|
|
|
1,028 |
|
Minority interest in Calamos Holdings LLC |
|
|
94,109 |
|
|
|
74,515 |
|
Amortization of deferred sales commissions |
|
|
15,863 |
|
|
|
15,904 |
|
Other depreciation and amortization |
|
|
3,424 |
|
|
|
1,536 |
|
Unrealized depreciation (appreciation) on investment securities |
|
|
56 |
|
|
|
(1,645 |
) |
Unrealized depreciation (appreciation) on partnership investments |
|
|
(2,021 |
) |
|
|
94 |
|
Management fee received in partnership units |
|
|
(70 |
) |
|
|
(77 |
) |
Deferred taxes |
|
|
4,556 |
|
|
|
3,704 |
|
Stock-based compensation |
|
|
3,107 |
|
|
|
2,093 |
|
Employee
taxes paid on vesting under stock incentive plans |
|
|
(2,255 |
) |
|
|
|
|
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
Accounts receivable: |
|
|
|
|
|
|
|
|
Affiliates and affiliated mutual funds |
|
|
(816 |
) |
|
|
165 |
|
Customers |
|
|
(911 |
) |
|
|
(1,344 |
) |
Deferred sales commissions |
|
|
(17,278 |
) |
|
|
(16,740 |
) |
Other assets |
|
|
(764 |
) |
|
|
25 |
|
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
2,241 |
|
|
|
1,674 |
|
Accrued compensation and benefits |
|
|
(6,566 |
) |
|
|
98 |
|
Other liabilities and accrued expenses |
|
|
(3,063 |
) |
|
|
2,208 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
107,809 |
|
|
|
96,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Net additions to property and equipment |
|
|
(5,812 |
) |
|
|
(31,566 |
) |
Net purchases of securities and partnership investments |
|
|
(2,770 |
) |
|
|
(26,610 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8,582 |
) |
|
|
(58,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities: |
|
|
|
|
|
|
|
|
Deferred tax benefit on vesting under stock incentive plans |
|
|
(289 |
) |
|
|
|
|
Cash distributions paid to minority shareholders |
|
|
(50,577 |
) |
|
|
(41,785 |
) |
Cash dividends paid to common shareholders |
|
|
(4,169 |
) |
|
|
(3,220 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(55,035 |
) |
|
|
(45,005 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
44,192 |
|
|
|
(6,570 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
254,661 |
|
|
$ |
143,198 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-5-
CALAMOS
ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Description of Business
Calamos Asset Management, Inc. (CAM), together with its subsidiaries (the Company), primarily
provides investment advisory services to individuals, to institutional investors and to a family of
open-end and closed-end funds. CAM operates and controls all of the business and affairs of
Calamos Holdings LLC (Holdings), and, as a result of this control, consolidates the financial
results of Holdings with its own financial results.
(2) Basis of Presentation
The consolidated financial statements as of June 30, 2006 and for the three and six months ended
June 30, 2006 and 2005 have not been audited by the Companys 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 years 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.
Calamos Family Partners, Inc.s (CFP) and John P. Calamos, Sr.s combined 76.9% and 77% interest in
Holdings at June 30, 2006 and 2005, respectively, is represented as minority interest in the
Companys financial statements. Income before minority interest in Calamos Holdings LLC and income
taxes, which was $58.0 million and $122.7 million for the three and six months ended June 30, 2006,
respectively, included approximately $144,000 and $250,700 of investment income earned on cash and
cash equivalents held solely by CAM during the same periods. This portion of CAMs investment
income is not reduced by any minority interests; therefore, the resulting minority interest is less
than 76.9% for the three and six months ended June 30, 2006.
(3) 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, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Earnings per share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common shareholders |
|
$ |
8,101 |
|
|
$ |
7,002 |
|
|
$ |
17,106 |
|
|
$ |
13,373 |
|
Weighted average shares outstanding |
|
|
23,162 |
|
|
|
23,000 |
|
|
|
23,162 |
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
0.74 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-6-
CALAMOS
ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
(in thousands, except per share data) |
|
June 30, |
|
June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest in Calamos Holdings LLC and
income taxes |
|
$ |
58,011 |
|
|
$ |
50,651 |
|
|
$ |
122,667 |
|
|
$ |
96,804 |
|
Less: Impact of income taxes |
|
|
23,262 |
|
|
|
20,260 |
|
|
|
49,189 |
|
|
|
38,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common shareholders |
|
$ |
34,749 |
|
|
$ |
30,391 |
|
|
$ |
73,478 |
|
|
$ |
58,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
23,162 |
|
|
|
23,000 |
|
|
|
23,162 |
|
|
|
23,000 |
|
Conversion of membership units for common stock |
|
|
77,000 |
|
|
|
77,000 |
|
|
|
77,000 |
|
|
|
77,000 |
|
Dilutive impact of restricted stock units |
|
|
539 |
|
|
|
547 |
|
|
|
514 |
|
|
|
546 |
|
Dilutive impact of stock options |
|
|
144 |
|
|
|
10 |
|
|
|
147 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and potential dilutive shares outstanding |
|
|
100,845 |
|
|
|
100,557 |
|
|
|
100,823 |
|
|
|
100,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
$ |
0.34 |
|
|
$ |
0.30 |
|
|
$ |
0.73 |
|
|
$ |
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding for the three and six months ended June 30, 2006 and 2005 are
calculated (a) assuming CFP and John P. Calamos, Sr. exchanged all of their membership units in
Holdings for shares of the Companys Class A common stock on a one-for-one basis and (b) including
the effect of outstanding restricted stock unit and stock option awards. An effective tax rate of
40.1% and 40.0% was applied to income before minority interest in Calamos Holdings LLC and income
taxes in calculating diluted earnings available to common shareholders for the periods ended June
30, 2006 and 2005, respectively.
The Company uses the treasury stock method to reflect the dilutive effect of unvested restricted
stock units (RSUs) and unexercised stock options on diluted earnings per share. Under the treasury
stock method, if the average market price of common stock increases above the options 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 Boards (FASB) Statement of Financial Accounting Standard (SFAS) No.
123(R), Share-Based Payment (SFAS 123(R)), 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. For the three and six months ended June 30, 2006,
stock options for 663,328 shares were excluded from the computation of diluted earnings per share,
as these shares were anti-dilutive. No RSUs were anti-dilutive during the three and six months
ended June 30, 2006. For the three and six months ended June 30, 2005, stock options for 293,500
shares and RSUs for 97,000 shares were excluded from the computation of diluted earnings per share,
as these shares were anti-dilutive.
-7-
CALAMOS
ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Incentive Compensation Plan
Certain employees of the Company participate in an incentive compensation plan, which includes
stock options and RSUs. The Company intends to issue new shares of CAMs Class A common stock upon
the exercise of stock options or upon conversion of RSUs. The Annual Report on Form 10-K for the
year ended December 31, 2005 provides details of this plan and its provisions.
On January 1, 2006, the Company adopted SFAS 123(R), Share-Based Payment, which requires public
registrants to recognize the cost of stock-based compensation in their financial statements based
on the grant-date fair value of the award. The Company adopted the fair value recognition
provisions of SFAS 123 effective January 1, 2004 and elected to recognize compensation expense
based upon the grant-date fair value. The provisions of SFAS 123(R) are similar, but not
identical, to the fair value recognition that the Company has used since the beginning of 2004.
The effects of this change do not have a material impact on the Companys financial statements.
A summary of stock option activity for the six months ended June 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Number of Shares |
|
Average Exercise Price |
Outstanding at beginning of period |
|
|
1,009,967 |
|
|
$ |
21.35 |
|
Granted |
|
|
387,780 |
|
|
|
35.43 |
|
Forfeited |
|
|
(62,101 |
) |
|
|
24.83 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,335,646 |
|
|
|
25.27 |
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, the Company had 1,335,646 stock options outstanding with a weighted average
remaining contractual life of 9.0 years and an aggregate intrinsic value of $5.0 million. No stock
options granted under this plan have become exercisable as of June 30, 2006.
The weighted average fair value of stock options at the date of grant for the six months ended June
30, 2006 and 2005 was $14.33 and $11.25, respectively. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Dividend yield |
|
|
1.02 |
% |
|
|
0.97 |
% |
Expected volatility |
|
|
33 |
% |
|
|
33 |
% |
Risk-free interest rate |
|
|
4.6 |
% |
|
|
3.9 |
% |
Expected life |
|
7.5 years |
|
7.5 years |
-8-
CALAMOS
ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of RSU activity for the six months ended June 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Fair |
|
|
Number |
|
Value of RSUs |
|
|
of Shares |
|
Granted |
Outstanding at beginning of period |
|
|
1,414,862 |
|
|
$ |
18.79 |
|
Granted |
|
|
129,260 |
|
|
|
35.43 |
|
Forfeited |
|
|
(20,968 |
) |
|
|
24.74 |
|
Exercised |
|
|
(233,599 |
) |
|
|
18.00 |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,289,555 |
|
|
|
20.50 |
|
|
|
|
|
|
|
|
|
|
At June 30, 2006, the Company had 1,289,555 RSUs outstanding with a weighted average remaining
contractual life of 4.1 years and an aggregate intrinsic value of $37.4 million. The weighted
average fair value of RSUs at the date of grant for the six months ended June 30, 2006 and 2005 was
$35.43 and $28.76, respectively. The aggregate intrinsic value and the fair value of RSUs
exercised and vested during the six months ended June 30, 2006 was $7.3 million.
In
connection with the 233,599 shares exercised during the first quarter
of 2006, 161,898 RSUs were converted, on a one-for-one basis, into shares of CAMs Class A
common stock, while the remaining 71,701 RSUs were withheld to meet
employee withholding tax obligations of $2.3 million. The total intrinsic value and the fair value of the converted shares was $5.1
million. This conversion changed CAMs ownership in Holdings to 23.1%. RSUs are granted with no
strike price and, therefore, the Company receives no proceeds when the RSUs are exercised. Because
RSUs are typically settled with newly issued shares, there is no cash used by the Company to settle
awards. The total tax benefit realized by CAM in connection with the exercise of the RSUs during
the six months ended June 30, 2006 was $676,000. No RSUs were exercised and vested during the six
months ended June 30, 2005.
Expense recorded in connection with the RSUs and stock options was $3.1 million during the six
months ended June 30, 2006 of which $718,000, net of minority interest, was credited as additional
paid-in capital. Expense recorded in connection with the RSUs and stock options was $2.1 million
during the six months ended June 30, 2005 of which $482,000, net of minority interest, was credited
as additional paid-in capital. The amount of deferred tax asset created was $287,000 and $193,000
during the six months ended June 30, 2006 and 2005, respectively. At June 30, 2006, approximately
$21.7 million of total unrecognized compensation expense related to nonvested stock option and RSU
awards is expected to be recognized over a weighted-average period of 4.5 years.
(5) Recently Issued Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109, which seeks to reduce diversity in
practice that is associated with certain aspects of measurement and recognition when accounting for
income taxes. FIN 48 clarifies the accounting and disclosure for uncertainty in tax positions.
FIN 48 is effective for the Company beginning January 1, 2007. We are currently evaluating the
impact, if any, that the adoption of FIN 48 will have on our financial statements.
-9-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
We provide investment advisory services to institutions and individuals, managing $45.8 billion in
client assets at June 30, 2006. 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 and other investment products that we
manage, 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 depend on a variety of factors including the education of our 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 open or close products and strategies when deemed to
be in the best interests of our clients.
We market our investment strategies to our clients through a variety of products designed to suit
their 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, 2006 and
2005.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, |
|
|
2006 |
|
2005 |
Mutual Funds |
|
|
|
|
|
|
|
|
Open-end funds |
|
$ |
27,707 |
|
|
$ |
22,432 |
|
Closed-end funds |
|
|
6,130 |
|
|
|
5,901 |
|
|
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
33,837 |
|
|
|
28,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts |
|
|
|
|
|
|
|
|
Institutional accounts |
|
|
4,366 |
|
|
|
3,678 |
|
Managed accounts |
|
|
6,739 |
|
|
|
6,844 |
|
Private client accounts |
|
|
773 |
|
|
|
578 |
|
Alternative investments |
|
|
97 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
Total separate accounts |
|
|
11,975 |
|
|
|
11,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under management |
|
$ |
45,812 |
|
|
$ |
39,512 |
|
|
|
|
|
|
|
|
|
|
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 represent 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 mix 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 related to the distribution of mutual funds, including Rule
12b-1 payments; employee compensation and benefits expense, which includes salaries, incentive
compensation and related benefits costs; and amortization of deferred sales commissions for
open-end mutual funds. Operating expenses may fluctuate due to a number of factors, including
changes in distribution expense as a result of fluctuations in mutual fund sales and market
appreciation or depreciation, variations in staffing and compensation, marketing-related expenses
that include supplemental distribution payments, and depreciation and amortization relating to
capital expenditures incurred to maintain and enhance our administrative and operating services
infrastructure.
-10-
Operating Results
Second Quarter and Six Months Ended June 30, 2006 Compared to Second Quarter and Six Months Ended
June 30, 2005
Assets Under Management
Assets under management increased by $6.3 billion, or 16%, to $45.8 billion at June 30, 2006 from
$39.5 billion at June 30, 2005. At June 30, 2006, our assets under management consisted of 74%
mutual funds and 26% separate accounts, as compared to 72% mutual funds and 28% separate accounts
at June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
2006 |
|
|
2005 |
|
|
Amount |
|
|
Percent |
|
|
2006 |
|
|
2005 |
|
|
Amount |
|
|
Percent |
|
Mutual Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
$ |
35,014 |
|
|
$ |
27,366 |
|
|
$ |
7,648 |
|
|
|
28 |
% |
|
$ |
31,898 |
|
|
$ |
26,951 |
|
|
$ |
4,947 |
|
|
|
18 |
% |
Net purchases |
|
|
647 |
|
|
|
582 |
|
|
|
65 |
|
|
|
11 |
|
|
|
2,015 |
|
|
|
2,133 |
|
|
|
(118 |
) |
|
|
6 |
|
Market appreciation (depreciation) |
|
|
(1,824 |
) |
|
|
385 |
|
|
|
(2,209 |
) |
|
|
574 |
|
|
|
(76 |
) |
|
|
(751 |
) |
|
|
675 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
33,837 |
|
|
|
28,333 |
|
|
|
5,504 |
|
|
|
19 |
|
|
|
33,837 |
|
|
|
28,333 |
|
|
|
5,504 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
|
34,566 |
|
|
|
27,443 |
|
|
|
7,123 |
|
|
|
26 |
|
|
|
34,230 |
|
|
|
27,265 |
|
|
|
6,965 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
|
12,587 |
|
|
|
10,880 |
|
|
|
1,707 |
|
|
|
16 |
|
|
|
11,907 |
|
|
|
11,024 |
|
|
|
883 |
|
|
|
8 |
|
Net purchases (redemptions) |
|
|
(111 |
) |
|
|
27 |
|
|
|
(138 |
) |
|
|
511 |
|
|
|
(39 |
) |
|
|
430 |
|
|
|
(469 |
) |
|
|
109 |
|
Market appreciation (depreciation) |
|
|
(501 |
) |
|
|
272 |
|
|
|
(773 |
) |
|
|
284 |
|
|
|
107 |
|
|
|
(275 |
) |
|
|
382 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
11,975 |
|
|
|
11,179 |
|
|
|
796 |
|
|
|
7 |
|
|
|
11,975 |
|
|
|
11,179 |
|
|
|
796 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
|
12,367 |
|
|
|
10,854 |
|
|
|
1,513 |
|
|
|
14 |
|
|
|
12,341 |
|
|
|
10,871 |
|
|
|
1,470 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Under Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
|
47,601 |
|
|
|
38,246 |
|
|
|
9,355 |
|
|
|
24 |
|
|
|
43,805 |
|
|
|
37,975 |
|
|
|
5,830 |
|
|
|
15 |
|
Net purchases |
|
|
536 |
|
|
|
609 |
|
|
|
(73 |
) |
|
|
12 |
|
|
|
1,976 |
|
|
|
2,563 |
|
|
|
(587 |
) |
|
|
23 |
|
Market appreciation (depreciation) |
|
|
(2,325 |
) |
|
|
657 |
|
|
|
(2,982 |
) |
|
|
454 |
|
|
|
31 |
|
|
|
(1,026 |
) |
|
|
1,057 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
45,812 |
|
|
|
39,512 |
|
|
|
6,300 |
|
|
|
16 |
|
|
|
45,812 |
|
|
|
39,512 |
|
|
|
6,300 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
$ |
46,933 |
|
|
$ |
38,297 |
|
|
$ |
8,636 |
|
|
|
23 |
% |
|
$ |
46,571 |
|
|
$ |
38,136 |
|
|
$ |
8,435 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund net purchases were $647 million for the second quarter and $2.0 billion for the
six months ended June 30, 2006, compared to $582 million and $2.1 billion for the prior-year
periods. The decrease in mutual fund net purchases for the six months ended June 30, 2006 was due
to higher open-end fund redemptions which increased with the growth in assets under management.
The decrease was partially offset by the completion of a secondary public offering of the Calamos
Convertible and High Income Fund during the second quarter of 2006. During the second
quarter and six months ended June 30, 2006, net inflows were led by the Growth Fund, Growth and
Income Fund, and Market Neutral Income Fund, which had $570 million and $1.8 billion of aggregate
net inflows during these periods, respectively.
Separate accounts had net redemptions of $111 million in the second quarter and of $39 million for
the six months ended June 30, 2006, compared to net purchases of $27 million and $430 million for
the prior year-periods. During the six months ended June 30, 2006, separate account outflows in
our convertible and balanced strategies, which remain closed to new
investors, were largely offset by inflows in our equity strategies,
primarily through our international sub-advised relationships.
-11-
Revenues
Total revenues increased by $25.3 million, or 26%, to $124.4 million for the three months ended
June 30, 2006 from $99.1 million for the prior year. For the six months ended June 30, 2006, total
revenues increased by $48.6 million, or 25%, to $245.0 million from the prior years six-month
period. These increases were primarily due to higher investment management fees and distribution
and underwriting fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
Change |
|
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
Investment management fees |
|
$ |
84,328 |
|
|
$ |
67,430 |
|
|
$ |
16,898 |
|
|
|
25 |
% |
|
$ |
165,807 |
|
|
$ |
133,270 |
|
|
$ |
32,537 |
|
|
|
24 |
% |
Distribution and underwriting fees |
|
|
38,997 |
|
|
|
30,764 |
|
|
|
8,233 |
|
|
|
27 |
|
|
|
77,137 |
|
|
|
61,389 |
|
|
|
15,748 |
|
|
|
26 |
|
Other |
|
|
1,028 |
|
|
|
878 |
|
|
|
150 |
|
|
|
17 |
|
|
|
2,027 |
|
|
|
1,734 |
|
|
|
293 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
124,353 |
|
|
$ |
99,072 |
|
|
$ |
25,281 |
|
|
|
26 |
% |
|
$ |
244,971 |
|
|
$ |
196,393 |
|
|
$ |
48,578 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees increased for the three and six months ended June 30, 2006
primarily due to increases in average assets under management of $8.6 billion and $8.4 billion for
the second quarter and first six months of 2006, respectively. The overall growth in investment
management fees was due primarily to an increase in mutual fund investment management fees, which
increased to $67.0 million and $132.0 million for the three and six months ended June 30, 2006 from
$53.5 million and $105.6 million for the prior-year periods. Open-end fund investment management
fees increased to $54.0 million and $106.2 million for the second quarter and six months ended June
30, 2006, respectively, from $41.2 million and $81.0 million for the same periods of the prior year
primarily due to increases in open-end fund average assets under management of $6.8 billion and
$6.7 billion for the second quarter and six months ended June 30, 2006 compared to the prior year.
Closed-end fund investment management fees increased to $13.0 million and $25.8 million for the
three and six months ended June 30, 2006, respectively, from $12.3 million and $24.7 million in the
prior year as a result of increases in closed-end fund average assets under management of $0.3
billion and $0.2 billion for the second quarter and first half of 2006 when compared to the
prior-year periods. Investment management fees as a percentage of average assets under management
were 0.72% for the three and six months ended June 30, 2006 compared to 0.70% for the prior-year
periods, representing the increase in assets in our equity strategies which generally carry higher
fees.
Distribution and underwriting fees increased by $8.2 million and $15.7 million for the three and
six months ended June 30, 2006, respectively, from the same periods of the prior year, primarily
due to increases in open-end fund average assets under management of $6.8 billion and $6.7 billion
for the three and six months ended June 30, 2006 compared to the prior-year periods.
Operating Expenses
Operating expenses increased to $64.4 million and $126.4 million for the second quarter and six
months ended June 30, 2006, respectively, from $50.3 million and $98.7 million for the same periods
in the prior year. These increases were primarily due to higher distribution and underwriting,
employee compensation and benefits, and general and administrative expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
Change |
|
|
2006 |
|
2005 |
|
Amount |
|
Percent |
|
2006 |
|
2005 |
|
Amount |
|
Percent |
Employee compensation and benefits |
|
$ |
18,287 |
|
|
$ |
14,860 |
|
|
$ |
3,427 |
|
|
|
23 |
% |
|
$ |
37,293 |
|
|
$ |
29,781 |
|
|
$ |
7,512 |
|
|
|
25 |
% |
Distribution and underwriting expense |
|
|
25,864 |
|
|
|
18,693 |
|
|
|
7,171 |
|
|
|
38 |
|
|
|
50,829 |
|
|
|
36,364 |
|
|
|
14,465 |
|
|
|
40 |
|
Amortization of deferred sales
commissions |
|
|
8,123 |
|
|
|
8,028 |
|
|
|
95 |
|
|
|
1 |
|
|
|
15,863 |
|
|
|
15,904 |
|
|
|
(41 |
) |
|
|
|
|
Marketing and sales promotion |
|
|
4,493 |
|
|
|
3,068 |
|
|
|
1,425 |
|
|
|
46 |
|
|
|
7,601 |
|
|
|
6,536 |
|
|
|
1,065 |
|
|
|
16 |
|
General and administrative |
|
|
7,639 |
|
|
|
5,676 |
|
|
|
1,963 |
|
|
|
35 |
|
|
|
14,813 |
|
|
|
10,072 |
|
|
|
4,741 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
64,406 |
|
|
$ |
50,325 |
|
|
$ |
14,081 |
|
|
|
28 |
% |
|
$ |
126,399 |
|
|
$ |
98,657 |
|
|
$ |
27,742 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits expense increased by $3.4 million and $7.5 million for the
three and six months ended June 30, 2006, respectively, when compared to the prior-year periods
largely due to higher salary and benefits expense as we continued to expand our staffing levels to
build our institutional sales efforts, to internalize mutual fund client services and to expand our
staff in order to support our public company requirements.
Distribution and underwriting expense increased by $7.2 million and $14.5 million in the second
quarter and first half of 2006, respectively, primarily due to increases of $4.3 million and $8.7
million resulting from the growth in the Class C share assets older than one year and to increases
of $2.8 million and $5.7 million resulting from the growth of average open-end fund assets under
management. Class C share assets do not generate distribution expense in the first year following
their sale because we
-12-
retain the Rule 12b-1 fees during that first year to offset the upfront commissions that we pay.
However, Class C share assets 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 we paid to broker-dealers
and other intermediaries in the three and six months ended June 30, 2006 did not change from the
rates paid in the prior year, we expect distribution expense to increase to the extent our open-end
mutual fund assets under management continue to grow.
Marketing and sales promotion expense increased by $1.4 million and $1.1 million for the three and
six months ended June 30, 2006, respectively, when compared to the prior-year periods, due to an
increase in supplemental compensation payments and partially offset by cost savings recognized
through efficiencies in our fulfillment process. The increase in supplemental payments is largely
attributable to the increase in average mutual fund assets under management. We expect that
marketing and sales promotion expense will fluctuate with changes in the number of customers and
with changes in mutual fund assets under management.
General and administrative expense increased by $2.0 million and $4.7 million in the second quarter
and first half of 2006, respectively, compared to prior-year periods primarily due to increases of
$1.2 million and $1.9 million in depreciation expense and $0.3 million and $1.5 million in
occupancy-related costs for those periods. The increases in depreciation expense and occupancy
costs were primarily due to occupying our new headquarters. The increase in depreciation expense
was due to the depreciation of new assets placed in service in our new headquarters. We expect
that our depreciation expense for the remainder of 2006 will continue to be higher than the
comparable periods of 2005.
Other Income (Expense), Net
Other income (expense), net was a net expense of $1.9 million for the three months ended June 30,
2006 as compared to a net income of $1.9 million for the three months ended June 30, 2005. Other
income (expense), net was a net income of $4.1 million for the six months ended June 30, 2006 as
compared to a net expense of $0.9 million for the prior-year period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2006 |
|
2005 |
|
Change |
|
2006 |
|
2005 |
|
Change |
Net interest income (expense) |
|
$ |
820 |
|
|
$ |
(1,116 |
) |
|
$ |
1,936 |
|
|
$ |
1,182 |
|
|
$ |
(2,287 |
) |
|
$ |
3,469 |
|
Investment and other income |
|
|
(7,927 |
) |
|
|
6,198 |
|
|
|
(14,125 |
) |
|
|
4,004 |
|
|
|
2,383 |
|
|
|
1,621 |
|
Minority interest in partnership
investments |
|
|
5,171 |
|
|
|
(3,178 |
) |
|
|
8,349 |
|
|
|
(1,091 |
) |
|
|
(1,028 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
$ |
(1,936 |
) |
|
$ |
1,904 |
|
|
$ |
(3,840 |
) |
|
$ |
4,095 |
|
|
$ |
(932 |
) |
|
$ |
5,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in net interest income (expense) of $1.9 million and $3.5 million for the quarter
and year-to-date periods were solely due to increases in interest income on cash and cash
equivalents. Interest expense was $2.0 million and $4.1 million for the three and six months ended
June 30, 2006 and 2005.
Investment and other income, which is principally comprised of market depreciation of $8.7 million
and market appreciation of $2.8 million for the three and six months ended June 30, 2006,
respectively, changed when compared to the same prior-year periods primarily due to market
fluctuations. The changes in minority interest in partnership investments represent the
corresponding minority interest portion of the market appreciation and depreciation from our
consolidated partnerships.
Income Taxes
Income taxes as a percentage of income before income taxes was 40.1% for the three and six months
ended June 30, 2006 compared to 40.0% for the prior year periods.
Liquidity and Capital Resources
Our current financial condition is highly liquid, with the majority of our assets in our corporate
investment portfolio, which is comprised of cash and cash equivalents, investment securities and
investments in partnerships. We anticipate utilizing our cash and
cash equivalents balances to make investments in our products as
opportunities arise, to invest in property and equipment for our
facility and to support our operations. Investment securities are principally comprised of company-sponsored
mutual funds and investments in partnerships are typically comprised of highly liquid
exchange-traded securities. Our working capital requirements historically have been met through
cash generated by our operations and long-term debt.
-13-
The following tables summarize key statements of financial condition data relating to our liquidity
and capital resources.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
June 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Statements of financial condition data: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
254,661 |
|
|
$ |
210,469 |
|
Receivables |
|
|
36,203 |
|
|
|
34,476 |
|
Investment securities |
|
|
131,065 |
|
|
|
128,265 |
|
Investment in partnerships |
|
|
89,089 |
|
|
|
79,956 |
|
Deferred tax asset |
|
|
104,341 |
|
|
|
109,126 |
|
Deferred sales commissions |
|
|
59,805 |
|
|
|
58,390 |
|
Long-term debt |
|
|
150,000 |
|
|
|
150,000 |
|
Cash flows for the six months ended June 30, 2006 and 2005 are summarized below:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
June 30, |
|
|
2006 |
|
2005 |
Cash flow data: |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
107,809 |
|
|
$ |
96,611 |
|
Net cash used in investing activities |
|
|
(8,582 |
) |
|
|
(58,176 |
) |
Net cash used in financing activities |
|
|
(55,035 |
) |
|
|
(45,005 |
) |
Net cash provided by operating activities was $107.8 million for the six months ended June 30,
2006 and was primarily comprised of income before minority interest and income taxes of $122.7
million and net changes in working capital.
The payment of deferred sales commissions by us to financial intermediaries who sell Class B and C
shares of our open-end funds is a significant use of our operating cash flows. Use of cash for
deferred sales commissions was $17.3 million for the six months ended June 30,
2006. We expect that the payment of deferred sales commissions will vary in proportion to
future sales of Class B and C shares of open-end funds and that these commissions will continue to
be funded by cash flows from operations.
Net cash used in investing activities was $8.6 million for the six months
ended June 30, 2006 and was primarily comprised of our $5.8 million investment in property and
equipment as we continue our initial build-out of our new office facility. We expect to make
investments in property and equipment as needed to support future staff additions.
Net cash used by financing activities was $55.0 million for the six months ended June 30, 2006 and
was primarily comprised of distributions to minority shareholders of $50.6 million, including
distributions for their tax liabilities of $36.7 million, as well as dividends paid to common
shareholders of $4.2 million.
We expect our cash and liquidity requirements will be met with the cash on hand and through cash
generated by operations. We intend to satisfy our capital requirements over the next 12 months
through these sources of liquidity.
Recently Issued Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109, which seeks to reduce diversity in
practice that is associated with certain aspects of measurement and recognition when accounting for
income taxes. FIN 48 clarifies the accounting and disclosure for uncertainty in tax positions.
FIN 48 is effective for the Company beginning January 1, 2007. We are currently evaluating the
impact, if any, that the adoption of FIN 48 will have on our financial statements.
Critical Accounting Policies
Our significant accounting policies are described in note 3 of the Notes to the Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year ended December 31,
2005. A discussion of critical accounting policies is included in Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on
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Form 10-K for the year ended December 31, 2005. There were no significant changes in our critical
accounting policies during the six months ended June 30, 2006.
Forward-Looking Information
From time to time, information or statements provided by us or on our behalf, including those
within this Quarterly Report on Form 10-Q, may contain certain forward-looking statements relating
to future events, future financial performance, strategies, expectations, competitive environment,
and regulations. These forward-looking statements include, without limitation, statements
regarding proposed new products; results of operations or liquidity; projections, predictions,
expectations, estimates or forecasts of our business, financial and operating results and future
economic performance; and managements goals and objectives and other similar expressions
concerning matters that are not historical facts.
Words such as may, will, should, could, would, predicts, potential, continue,
expects, anticipates, future, intends, plans, believes, estimates, and similar
expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and
will not necessarily be accurate indications of the times at, or by, which such performance or
results will be achieved. Forward-looking statements are based on information available at the
time those statements are made and/or managements good faith belief as of that time with respect
to future events, and are subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in or suggested by the forward-looking
statements. Important factors that could cause such differences include, but are not limited to:
adverse changes in applicable laws or regulations; downward fee pressures and increased industry
competition; risks inherent to the investment management business; the loss of revenues due to
contract terminations and redemptions; our ownership structure; general declines in the prices of
securities; catastrophic or unpredictable events; the loss of key executives; the unavailability of
third-party retail distribution channels; increased costs of distribution; failure to recruit and
retain qualified personnel; a loss of assets, and thus revenues, if our largest funds perform
poorly; damage to our reputation; and our holding company structure. Further, the value and
composition of our assets under management are, and will continue to be, influenced by a variety of
factors including, among other things: purchases and redemptions of shares of the open-end funds
and other investment products; fluctuations in the financial markets around the world that result
in appreciation or depreciation of assets under management; our introduction of new investment
strategies and products; our ability to educate our clients about our investment philosophy and
provide them with best-in-class service; the relative investment performance of our investment
products as compared to competing offerings and market indices; competitive conditions in the
mutual fund, asset management and broader financial services sectors; investor sentiment and
confidence; and our decision to open or close products and strategies when deemed to be in the best
interests of our clients. Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2005 discusses some of these and other important factors in detail under the caption Risk
Factors.
Forward-looking statements speak only as of the date the statements are made. Readers should not
place undue reliance on any forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in assumptions or changes in other
factors affecting forward-looking information, except to the extent required by applicable
securities laws.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
An analysis of our market risk was included in our Annual Report on Form 10-K for the year ended
December 31, 2005. There were no material changes to the Companys market risk during the six
months ended June 30, 2006.
Item 4. Controls and Procedures
Our management, including our principal executive and principal financial officers, has evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934) as of June 30, 2006, and has concluded that such disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms.
There were no changes in the companys internal control over financial reporting that occurred
during our second quarter that have materially affected, or are reasonably likely to materially
affect, the companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may be subject to various legal proceedings from time to time.
Currently, there are no material legal proceedings pending against us.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on June 1, 2006, John P. Calamos, Sr., Nick P. Calamos, G.
Bradford Bulkley, Richard W. Gilbert and Arthur L. Knight were elected as directors of the Company
with terms expiring at the annual meeting of stockholders in 2007. The results of the votes were
as follows:
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Class A Shares |
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Class B Shares |
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Class A Shares |
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Class B Shares |
Election of: |
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"For" |
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"For" |
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"Withheld" |
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"Withheld" |
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John P. Calamos, Sr. |
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n/a |
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768,001,000 |
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n/a |
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0 |
Nick P. Calamos |
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n/a |
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768,001,000 |
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n/a |
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0 |
G. Bradford Bulkley |
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20,520,395 |
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768,001,000 |
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792,132 |
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0 |
Richard W. Gilbert |
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18,375,930 |
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768,001,000 |
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2,936,597 |
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0 |
Arthur L. Knight |
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20,440,216 |
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768,001,000 |
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872,311 |
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0 |
Stockholders at the meeting also ratified KPMG LLP as the Companys independent registered
public accounting firm for the Companys fiscal year ending December 31, 2006 by a combined Class A
and Class B stockholder vote of 789,178,731 shares for, 119,872 shares against and 14,924
abstaining.
Item 6. Exhibits
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3(i) |
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Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the |
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Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2004). |
3(ii) |
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Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Current |
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Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2005). |
4.1 |
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Stockholders' Agreement among John P. Calamos, Sr., Nick P. Calamos and John P. Calamos, Jr., certain trusts controlled |
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by them, Calamos Family Partners, Inc. and the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's |
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Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 3, 2004). |
4.2 |
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Registration Rights Agreement between Calamos Family Partners, Inc., John P. Calamos, Sr. and the Registrant |
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(incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q filed with the Securities and |
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Exchange Commission on December 3, 2004). |
10 |
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Amendment Number 2 to the Second Amended and Restated Limited Liability Company Agreement of Calamos Holdings LLC. |
31.1 |
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Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
31.2 |
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Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
32.1 |
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements 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.
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CALAMOS ASSET MANAGEMENT, INC. |
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(Registrant)
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Date: August 4, 2006 |
By: |
/s/ Patrick H. Dudasik
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Patrick H. Dudasik
Executive Vice President, Chief Financial
Officer
and Treasurer |
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