e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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: |
September 30, 2007
- 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
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32-0122554 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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2020 Calamos Court, Naperville, Illinois
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60563 |
(Address of Principal Executive Offices)
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(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):
Large accelerated filer o Accelerated filer þ 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 October 31, 2007, the company had 21,324,082 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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September 30, |
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December 31, |
|
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|
2007 |
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|
2006 |
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|
|
(unaudited) |
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|
|
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|
ASSETS: |
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|
|
|
|
|
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|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
479,906 |
|
|
$ |
328,841 |
|
Receivables: |
|
|
|
|
|
|
|
|
Affiliates and affiliated funds |
|
|
25,919 |
|
|
|
26,569 |
|
Customers |
|
|
10,997 |
|
|
|
10,218 |
|
Investment securities |
|
|
370,615 |
|
|
|
143,112 |
|
Partnership securities |
|
|
144,563 |
|
|
|
86,409 |
|
Prepaid expenses |
|
|
2,605 |
|
|
|
2,383 |
|
Deferred tax assets, net |
|
|
7,103 |
|
|
|
7,375 |
|
Other assets |
|
|
687 |
|
|
|
67 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,042,395 |
|
|
|
604,974 |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Deferred tax assets, net |
|
|
84,160 |
|
|
|
91,865 |
|
Deferred sales commissions |
|
|
36,469 |
|
|
|
49,891 |
|
Property and equipment, net of accumulated depreciation ($19,553
at 9/30/07 and $13,233 at 12/31/06) |
|
|
45,395 |
|
|
|
43,615 |
|
Other non-current assets |
|
|
3,035 |
|
|
|
1,443 |
|
|
|
|
|
|
|
|
Total non-current assets |
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|
169,059 |
|
|
|
186,814 |
|
|
|
|
|
|
|
|
Total assets |
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|
1,211,454 |
|
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|
791,788 |
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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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Accounts payable: |
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Brokers |
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|
18,766 |
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|
|
20,969 |
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Affiliates and affiliated funds |
|
|
398 |
|
|
|
264 |
|
Accrued compensation and benefits |
|
|
18,288 |
|
|
|
22,722 |
|
Accrued expenses and other current liabilities |
|
|
22,285 |
|
|
|
6,890 |
|
|
|
|
|
|
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Total current liabilities |
|
|
59,737 |
|
|
|
50,845 |
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Long-term liabilities |
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Long-term debt |
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525,000 |
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150,000 |
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Other long-term liabilities |
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|
8,597 |
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|
|
8,003 |
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|
|
|
|
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Total long-term liabilities |
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533,597 |
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|
158,003 |
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|
|
|
|
|
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Total liabilities |
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|
593,334 |
|
|
|
208,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Minority interest in partnership investments |
|
|
53,614 |
|
|
|
48,850 |
|
Minority interest in Calamos Holdings LLC |
|
|
350,641 |
|
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|
319,513 |
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Stockholders equity: |
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Class A Common Stock, $0.01 par value. Authorized 600,000,000 shares;
23,324,082 shares issued and 21,324,082 shares outstanding at
9/30/07; 23,161,898 shares issued and outstanding at 12/31/06 |
|
|
233 |
|
|
|
232 |
|
Class B Common Stock, $0.01 par value. Authorized 1,000 shares; issued
and outstanding 100 shares |
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|
0 |
|
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|
0 |
|
Additional paid-in capital |
|
|
190,233 |
|
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|
157,724 |
|
Retained earnings |
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|
63,184 |
|
|
|
52,261 |
|
Accumulated other comprehensive income |
|
|
8,270 |
|
|
|
4,360 |
|
Treasury stock, at cost; 2,000,000 shares |
|
|
(48,055 |
) |
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|
|
|
|
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|
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Total stockholders equity |
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|
213,865 |
|
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|
214,577 |
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Total liabilities, minority interest and stockholders equity |
|
$ |
1,211,454 |
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|
$ |
791,788 |
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|
See accompanying notes to consolidated financial statements.
-2-
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2007 and 2006
(in thousands, except share data)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2007 |
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|
2006 |
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|
2007 |
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2006 |
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Revenues: |
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|
|
|
|
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Investment management fees |
|
$ |
82,209 |
|
|
$ |
80,718 |
|
|
$ |
238,997 |
|
|
$ |
246,525 |
|
Distribution and underwriting fees |
|
|
35,252 |
|
|
|
36,840 |
|
|
|
106,993 |
|
|
|
113,977 |
|
Other |
|
|
1,023 |
|
|
|
989 |
|
|
|
2,961 |
|
|
|
3,016 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues |
|
|
118,484 |
|
|
|
118,547 |
|
|
|
348,951 |
|
|
|
363,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Employee compensation and benefits |
|
|
22,912 |
|
|
|
17,203 |
|
|
|
66,190 |
|
|
|
54,496 |
|
Distribution and underwriting expense |
|
|
26,246 |
|
|
|
24,509 |
|
|
|
76,469 |
|
|
|
75,338 |
|
Amortization of deferred sales commissions |
|
|
6,064 |
|
|
|
8,645 |
|
|
|
21,220 |
|
|
|
24,508 |
|
Marketing and sales promotion |
|
|
3,861 |
|
|
|
3,602 |
|
|
|
37,074 |
|
|
|
11,312 |
|
General and administrative |
|
|
9,962 |
|
|
|
7,950 |
|
|
|
27,472 |
|
|
|
22,654 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total operating expenses |
|
|
69,045 |
|
|
|
61,909 |
|
|
|
228,425 |
|
|
|
188,308 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating income |
|
|
49,439 |
|
|
|
56,638 |
|
|
|
120,526 |
|
|
|
175,210 |
|
|
|
|
|
|
|
|
|
|
|
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Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income (expense) |
|
|
(1,356 |
) |
|
|
1,638 |
|
|
|
2,133 |
|
|
|
2,820 |
|
Investment and other income (loss) |
|
|
6,729 |
|
|
|
(3,336 |
) |
|
|
14,499 |
|
|
|
668 |
|
Minority interest in partnership investments |
|
|
(2,066 |
) |
|
|
2,502 |
|
|
|
(4,335 |
) |
|
|
1,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
3,307 |
|
|
|
804 |
|
|
|
12,297 |
|
|
|
4,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest in Calamos
Holdings LLC and income taxes |
|
|
52,746 |
|
|
|
57,442 |
|
|
|
132,823 |
|
|
|
180,109 |
|
Minority interest in Calamos Holdings LLC |
|
|
40,863 |
|
|
|
44,032 |
|
|
|
101,938 |
|
|
|
138,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11,883 |
|
|
|
13,410 |
|
|
|
30,885 |
|
|
|
41,968 |
|
Income taxes |
|
|
4,756 |
|
|
|
5,369 |
|
|
|
12,419 |
|
|
|
16,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,127 |
|
|
$ |
8,041 |
|
|
$ |
18,466 |
|
|
$ |
25,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
0.81 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
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Diluted |
|
$ |
0.32 |
|
|
$ |
0.34 |
|
|
$ |
0.79 |
|
|
$ |
1.07 |
|
|
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|
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|
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|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,851,112 |
|
|
|
23,161,998 |
|
|
|
22,668,669 |
|
|
|
23,161,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
99,320,380 |
|
|
|
100,757,758 |
|
|
|
100,093,296 |
|
|
|
100,778,115 |
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash dividends per share |
|
$ |
0.11 |
|
|
$ |
0.09 |
|
|
$ |
0.33 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-3-
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2007
(in thousands)
(unaudited)
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Stock |
|
|
Total |
|
Balance at December 31, 2006 |
|
$ |
232 |
|
|
$ |
157,724 |
|
|
$ |
52,261 |
|
|
$ |
4,360 |
|
|
$ |
|
|
|
$ |
214,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
18,466 |
|
|
|
|
|
|
|
|
|
|
|
18,466 |
|
Changes in unrealized gains on
available-for-sale
securities, net of
minority interest and income
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,505 |
|
|
|
|
|
|
|
4,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
(162,184 Class A common
shares) |
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of sale of Calamos
Holdings LLC membership units
(2,000,000 units) |
|
|
|
|
|
|
37,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,633 |
|
Repurchase of common stock
(2,000,000 Class A common
shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,055 |
) |
|
|
(48,055 |
) |
Cumulative impact of changes
in ownership of Calamos
Holdings LLC |
|
|
|
|
|
|
(6,305 |
) |
|
|
19 |
|
|
|
(595 |
) |
|
|
|
|
|
|
(6,881 |
) |
Compensation expense
recognized under stock
incentive plans, net of
minority interest |
|
|
|
|
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,182 |
|
Dividend equivalent accrued
under stock incentive plans,
net of minority interest |
|
|
|
|
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
(100 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
(7,462 |
) |
|
|
|
|
|
|
|
|
|
|
(7,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007 |
|
$ |
233 |
|
|
$ |
190,233 |
|
|
$ |
63,184 |
|
|
$ |
8,270 |
|
|
$ |
(48,055 |
) |
|
$ |
213,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
-4-
CALAMOS ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2007 and 2006
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Cash and cash equivalents at beginning of year |
|
$ |
328,841 |
|
|
$ |
210,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
|
18,466 |
|
|
|
25,147 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Minority interest in partnership investments |
|
|
4,335 |
|
|
|
(1,411 |
) |
Minority interest in Calamos Holdings LLC |
|
|
101,938 |
|
|
|
138,141 |
|
Amortization of deferred sales commissions |
|
|
21,220 |
|
|
|
24,508 |
|
Other depreciation and amortization |
|
|
6,708 |
|
|
|
5,337 |
|
Unrealized (appreciation) depreciation on CFS securities
and partnership securities |
|
|
(10,347 |
) |
|
|
2,145 |
|
Deferred taxes |
|
|
5,125 |
|
|
|
6,551 |
|
Stock-based compensation |
|
|
5,209 |
|
|
|
4,442 |
|
Employee taxes paid on vesting under stock incentive plans |
|
|
(1,853 |
) |
|
|
(2,255 |
) |
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
Accounts receivable: |
|
|
|
|
|
|
|
|
Affiliates and affiliated mutual funds |
|
|
593 |
|
|
|
(1,168 |
) |
Customers |
|
|
(779 |
) |
|
|
(585 |
) |
Deferred sales commissions |
|
|
(7,798 |
) |
|
|
(21,264 |
) |
Other assets |
|
|
(1,057 |
) |
|
|
256 |
|
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(2,069 |
) |
|
|
1,718 |
|
Accrued compensation and benefits and deferred compensation |
|
|
(4,434 |
) |
|
|
(1,992 |
) |
Other liabilities and accrued expenses |
|
|
16,153 |
|
|
|
(586 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
151,410 |
|
|
|
178,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Net additions to property and equipment |
|
|
(8,214 |
) |
|
|
(7,880 |
) |
Net purchases of investment securities |
|
|
(192,714 |
) |
|
|
(824 |
) |
Net changes in partnership securities |
|
|
(48,057 |
) |
|
|
(1,247 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(248,985 |
) |
|
|
(9,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from issuance of debt |
|
|
372,963 |
|
|
|
|
|
Deferred tax benefit on vesting under stock incentive plans |
|
|
(209 |
) |
|
|
(289 |
) |
Repurchase of common stock |
|
|
(48,055 |
) |
|
|
|
|
Cash distributions paid to minority shareholders |
|
|
(68,597 |
) |
|
|
(79,218 |
) |
Cash dividends paid to common shareholders |
|
|
(7,462 |
) |
|
|
(6,254 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
248,640 |
|
|
|
(85,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
151,065 |
|
|
|
83,272 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
479,906 |
|
|
$ |
293,741 |
|
|
|
|
|
|
|
|
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 September 30, 2007 and for the three and nine months
ended September 30, 2007 and 2006 have not been audited by the Companys independent registered
public accounting firm. In the opinion of management, these statements contain all adjustments,
including those of a normal recurring nature, necessary for fair presentation of the financial
condition and results of operations. The results for the interim periods ended September 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.
Calamos Family Partners, Inc.s (CFP) and John P. Calamos, Sr.s combined 78.3% and 76.9% interest
in Holdings at September 30, 2007 and 2006, respectively, is represented as minority interest in
the Companys financial statements. Income before minority interest in Calamos Holdings LLC and
income taxes, which was $52.7 million and $132.8 million for the three and nine months ended
September 30, 2007, respectively, included approximately $319,900 and $863,300 of investment income
earned during the same periods on cash and cash equivalents held solely by CAM. This portion of
CAMs investment income is not reduced by any minority interests.
During the first quarter of 2007, Calamos Market Neutral Opportunities Fund LP was established as a
private investment partnership that is primarily comprised of highly liquid marketable securities.
Calamos Partners LLC, a subsidiary of Holdings, is the general partner. As of September 30, 2007,
the Company had a net interest of $52.7 million (97.2%) in this partnership. Additionally, as of
September 30, 2007 and December 31, 2006, the Company had a net interest of $38.3 million (42.4%)
and $33.9 million (41.0%) in Calamos Equity Opportunities Fund LP, respectively.
Because substantially all the activities of these partnerships (collectively, the Partnerships) are
conducted on behalf of the Company and its related parties, the Company consolidates the financial
results of the Partnerships into its results. The assets and liabilities of the Partnerships are
presented as partnership securities in the consolidated statements of financial condition, and the
total income of the Partnerships is presented as investment and other income in the consolidated
statements of operations. The combined minority interests are presented as minority interest in
partnership investments in the respective financial statements. The Company records these
investments at fair value.
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.
-6-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Investment Securities
The following table provides a summary of investment securities owned as of September 30, 2007 and
December 31, 2006. Other investment securities consist primarily of common stock. As a registered
broker-dealer, Calamos Financial Services LLC is required to mark to market all investment
securities it owns (CFS Securities) and record all market fluctuations through current earnings. As
such, unrealized gains and losses on these securities are included in investment and other income
in the consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
(in thousands) |
|
Available-for-Sale |
|
|
CFS Securities |
|
|
Total Securities |
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
209,004 |
|
|
$ |
3,432 |
|
|
$ |
212,436 |
|
Balanced |
|
|
89,950 |
|
|
|
794 |
|
|
|
90,744 |
|
Fixed income |
|
|
62,046 |
|
|
|
|
|
|
|
62,046 |
|
High yield |
|
|
3,742 |
|
|
|
|
|
|
|
3,742 |
|
Other |
|
|
243 |
|
|
|
231 |
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
364,985 |
|
|
|
4,457 |
|
|
|
369,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investment securities |
|
|
973 |
|
|
|
200 |
|
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
365,958 |
|
|
$ |
4,657 |
|
|
$ |
370,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
(in thousands) |
|
Available-for-Sale |
|
|
CFS Securities |
|
|
Total Securities |
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
101,166 |
|
|
$ |
2,816 |
|
|
$ |
103,982 |
|
Balanced |
|
|
33,724 |
|
|
|
718 |
|
|
|
34,442 |
|
High yield |
|
|
3,457 |
|
|
|
|
|
|
|
3,457 |
|
Other |
|
|
28 |
|
|
|
216 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
138,375 |
|
|
|
3,750 |
|
|
|
142,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investment securities |
|
|
824 |
|
|
|
163 |
|
|
|
987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
139,199 |
|
|
$ |
3,913 |
|
|
$ |
143,112 |
|
|
|
|
|
|
|
|
|
|
|
Of the $369.4 million and $142.1 million investments in mutual funds at September 30, 2007 and
December 31, 2006, respectively, $338.2 million and $142.1 million was invested in affiliated
mutual funds.
-7-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes the proceeds from the sale of available-for-sale securities, realized
and unrealized gains (losses) on available-for-sale securities and unrealized gains (losses) on CFS
securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale |
|
$ |
|
|
|
$ |
18 |
|
|
$ |
|
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains |
|
|
17,971 |
|
|
|
2,245 |
|
|
|
34,053 |
|
|
|
4,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFS securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) |
|
|
378 |
|
|
|
(21 |
) |
|
|
736 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The cumulative net unrealized gains (losses) on available-for-sale securities consisted of the
following as of September 30, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
Total cumulative unrealized gains on available-for-sale securities
with net gains: |
|
|
|
|
|
|
|
|
Mutual Funds |
|
|
|
|
|
|
|
|
Equity |
|
$ |
49,731 |
|
|
$ |
22,529 |
|
Balanced |
|
|
11,503 |
|
|
|
6,024 |
|
Fixed income |
|
|
1,344 |
|
|
|
|
|
High yield |
|
|
21 |
|
|
|
91 |
|
Other |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
62,607 |
|
|
|
28,644 |
|
|
|
|
|
|
|
|
|
|
Other investment securities |
|
|
274 |
|
|
|
205 |
|
|
|
|
|
|
|
|
Total gains |
|
|
62,881 |
|
|
|
28,849 |
|
|
|
|
|
|
|
|
|
|
Total cumulative unrealized losses on available-for-sale securities
with net losses: |
|
|
|
|
|
|
|
|
Mutual Funds |
|
|
|
|
|
|
|
|
Balanced |
|
$ |
(8 |
) |
|
$ |
|
|
High yield |
|
|
(32 |
) |
|
|
(63 |
) |
Other |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
Total mutual funds |
|
|
(40 |
) |
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
Other investment securities |
|
|
(15 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
Total losses |
|
|
(55 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
|
Total cumulative net unrealized gains (losses) on available-for-sale securities |
|
$ |
62,826 |
|
|
$ |
28,773 |
|
|
|
|
|
|
|
|
The Company periodically evaluates its available-for-sale investments for other-than-temporary
declines in value. Other-than-temporary declines in value may exist when the fair value of an
investment security has been below the carrying value for an extended period of time. If an
other-than-temporary decline in value is determined to exist, the unrealized investment loss, net
of tax is realized as a charge to net income in the period in which the other-than-temporary
decline in value occurs, as well as the accompanying permanent adjustment to accumulated other
comprehensive income. At September 30, 2007, the Company believes all unrealized losses to be only
temporary and due to temporary market conditions.
-8-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Partnership Securities
Presented below are the underlying assets and liabilities of the Partnerships that the Company
reports on a net basis as partnership securities in its consolidated statements of financial
condition.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
Calamos Equity Opportunities Fund LP: |
|
|
|
|
|
|
|
|
Securities owned |
|
$ |
119,548 |
|
|
$ |
110,956 |
|
Securities sold but not yet purchased |
|
|
(25,550 |
) |
|
|
(24,104 |
) |
Accrued expenses and other current liabilities |
|
|
(6,541 |
) |
|
|
(4,190 |
) |
Other current assets |
|
|
2,909 |
|
|
|
71 |
|
|
|
|
|
|
|
|
Calamos Equity Opportunities Fund LP securities, net |
|
|
90,366 |
|
|
|
82,733 |
|
|
|
|
|
|
|
|
|
|
Calamos Market Neutral Opportunities Fund LP: |
|
|
|
|
|
|
|
|
Securities owned |
|
|
84,188 |
|
|
|
|
|
Securities sold but not yet purchased |
|
|
(23,884 |
) |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
(6,943 |
) |
|
|
|
|
Other current assets |
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
Calamos Market Neutral Opportunities Fund LP securities, net |
|
|
54,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Calamos Multi-Strategy, L.P. |
|
|
|
|
|
|
3,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership securities |
|
$ |
144,563 |
|
|
$ |
86,409 |
|
|
|
|
|
|
|
|
During the first quarter of 2007, the Company liquidated its investment in Calamos Multi-Strategy,
L.P.
(5) Earnings Per Share
The following table reflects the calculation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands, except per share data) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Earnings per share basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common shareholders |
|
$ |
7,127 |
|
|
$ |
8,041 |
|
|
$ |
18,466 |
|
|
$ |
25,147 |
|
Weighted average shares outstanding |
|
|
21,851 |
|
|
|
23,162 |
|
|
|
22,669 |
|
|
|
23,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
0.81 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest in Calamos
Holdings LLC and income taxes |
|
$ |
52,746 |
|
|
$ |
57,442 |
|
|
$ |
132,823 |
|
|
$ |
180,109 |
|
Less: Impact of income taxes |
|
|
21,109 |
|
|
|
23,000 |
|
|
|
53,408 |
|
|
|
72,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common shareholders |
|
$ |
31,637 |
|
|
$ |
34,442 |
|
|
$ |
79,415 |
|
|
$ |
107,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
21,851 |
|
|
|
23,162 |
|
|
|
22,669 |
|
|
|
23,162 |
|
Conversion of membership units for common
stock |
|
|
77,000 |
|
|
|
77,000 |
|
|
|
77,000 |
|
|
|
77,000 |
|
Dilutive impact of restricted stock units |
|
|
397 |
|
|
|
519 |
|
|
|
357 |
|
|
|
506 |
|
Dilutive impact of stock options |
|
|
72 |
|
|
|
77 |
|
|
|
67 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
99,320 |
|
|
|
100,758 |
|
|
|
100,093 |
|
|
|
100,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
$ |
0.32 |
|
|
$ |
0.34 |
|
|
$ |
0.79 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Diluted shares outstanding for the three and nine months ended September 30, 2007 and 2006 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
40.2% was applied to income before minority interest in Calamos Holdings LLC and income taxes in
calculating diluted earnings available to common shareholders for the three and nine months ended
September 30, 2007. An effective tax rate of 40.0% and 40.1% was applied to income before minority
interest in Calamos Holdings LLC and income taxes in calculating diluted earnings available to
common shareholders for the three and nine months ended September 30, 2006, 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, not yet recognized is included as a component of
the assumed proceeds upon exercise. 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 months ended September 30, 2007, stock
options for 1,282,721 shares were excluded from the computation of diluted earnings per share, as
they were anti-dilutive. No RSUs were anti-dilutive during the three months ended September 30,
2007. For the nine months ended September 30, 2007, stock options for 1,282,721 shares and RSUs for
331,140 shares were excluded from the computation of diluted earnings per share, as they were
anti-dilutive. For the three and nine months ended September 30, 2006, stock options for 672,290
shares and RSUs for 127,663 shares were excluded from the computation of diluted earnings per
share, as they were anti-dilutive.
(6) Incentive Compensation Plan
Certain employees of the Company participate in an incentive compensation plan, which includes
stock options and RSUs. The Company may use treasury shares, issue new shares or purchase shares of
CAMs Class A common stock as part of its share repurchase program upon the exercise of stock
options and upon conversion of RSUs. The Companys Annual Report on Form 10-K for the year ended
December 31, 2006 provides details of this plan and its provisions.
For the nine months ended September 30, 2007, the Company granted 769,407 stock options and 256,469
RSUs. There were forfeitures of 290,920 stock options and 267,056 RSUs during the nine months ended
September 30, 2007. The weighted average fair value of stock options at the date of grant for the
nine months ended September 30, 2007 was $10.70, which was estimated on the date of grant using the
Black-Scholes option-pricing model. The assumptions used were a dividend yield of 1.67%, expected
volatility of 35%, a risk-free interest rate of 4.7% and an expected life of 7.5 years.
During the first quarter of 2007, 231,249 RSUs were exercised, and after 69,065 units were withheld
for taxes, 162,184 RSUs were converted, on a one-for-one basis, for shares of CAMs Class A common
stock. The total intrinsic value and the fair value of the converted shares was $4.4 million. The
total tax benefit realized in connection with the exercise of the RSUs during the three months
ended March 31, 2007 was $588,000, as the Company receives tax benefits based upon the portion of
Holdings income that it recognizes.
Expense recorded in connection with the RSUs and stock options was $5.2 million during the nine
months ended September 30, 2007 of which $1.2 million, net of minority interest, was credited as
additional paid-in capital. Expense recorded in connection with the RSUs and stock options was $4.4
million during the nine months ended September 30, 2006 of which $1.0 million, net of minority
interest, was credited as additional paid-in capital. The amount of deferred tax asset created was
$473,000 and $411,000 during the nine months ended September 30, 2007 and 2006, respectively, as
the Company receives tax benefits based upon the portion of Holdings income that it recognizes. At
September 30, 2007, approximately $23.0 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 4.3 years.
-10-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) Income Taxes
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109. At
September 30, 2007, the Company had no unrecognized tax benefits and it does not anticipate any
unrecognized tax benefits arising in the next 12 months that would result in a material change to
its financial position. As such, the Company recognized no liability for unrecognized tax benefits
in connection with the adoption of FIN 48. A reconciliation is not provided, as the beginning and
ending amounts of unrecognized benefits are zero with no interim additions, reductions or
settlements.
While the Company does not have any accrued interest or penalties related to uncertain tax
positions at September 30, 2007, any future interest or penalties will be recognized in income tax
expense when determined.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The
Company is no longer subject to U.S. federal, state and local examinations by tax authorities for
years before 2004. The Internal Revenue Service (IRS) commenced its examination of the Companys
U.S. income tax return for 2004 in the first quarter of 2007. Although the examination is not
complete, the IRS has proposed adjustments that would increase
Holdings taxable income by $1.3
million, approximately 23% of which will be attributable to CAM.
(8) Common Stock Repurchase
In
October 2006, the Board of Directors authorized the Company to
repurchase up to 2 million shares
of Class A common stock. During the second and third quarter of 2007, the Company repurchased
787,800 shares and 1,212,200 shares, respectively, at an aggregated cost of $18.8 million and $29.2
million. In order to maintain a one-for-one relationship between the
Holdings membership units owned by CAM and CAMs outstanding
Class A common stock, CAM sells membership units to Holdings equal to
the number of shares of Class A common stock that it repurchases. The
net impact of these transactions is presented in the consolidated
statements of changes in stockholders equity. At September 30, 2007, no shares remain available for repurchase under this program.
In
October 2007, the Board of Directors authorized the Company to
repurchase up to an additional 2 million
shares of Class A common stock. No shares have been repurchased under this program as of November 7,
2007.
(9) Minority Interest in Calamos Holdings LLC
Minority interest in Calamos Holdings LLC represents CFPs and John P. Calamos, Sr.s combined
ownership interest of 78.3% in Holdings at September 30, 2007, and is derived by multiplying the
historical equity of Holdings by their aggregate ownership percentage for the periods presented.
Issuances and repurchases of CAMs common stock result in changes to CAMs ownership percentage and
to the minority interests ownership percentage of Holdings. The Companys corresponding changes to
stockholders equity are reflected in the statements of changes in stockholders equity. Income,
which is reflected in retained earnings, is allocated to minority interests based on the average
ownership interest during the period in which the income is earned.
A rollforward of minority interest for the nine months ended September 30, 2007 is presented below:
|
|
|
|
|
(in thousands) |
|
|
|
|
Minority interest at December 31, 2006 |
|
$ |
319,513 |
|
Income allocated to minority interests |
|
|
101,938 |
|
Changes in unrealized gains on available-for-sale securities |
|
|
26,486 |
|
Impact of sale of Calamos Holdings LLC membership units |
|
|
(37,633 |
) |
Cumulative impact of changes in ownership of Calamos
Holdings LLC units |
|
|
5,237 |
|
Compensation expense recognized under stock incentive plans |
|
|
4,027 |
|
Dividend equivalent accrued under stock incentive plans |
|
|
(330 |
) |
Tax distributions |
|
|
(43,187 |
) |
Equity
distributions |
|
|
(25,410 |
) |
|
|
|
|
Minority interest at September 30, 2007 |
|
$ |
350,641 |
|
|
|
|
|
-11-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below represents CAMs unconsolidated statement of financial condition as of September
30, 2007 and December 31, 2006. Upon consolidation, CAMs investment in subsidiaries is eliminated
in its entirety. The remaining net assets after giving effect to this elimination, as well as the
interest earned from the cash and cash equivalents, are not subject to any reduction for minority
interest.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Cash and cash equivalents |
|
$ |
25,260 |
|
|
$ |
18,796 |
|
Current deferred tax assets, net |
|
|
7,103 |
|
|
|
7,375 |
|
Other current assets |
|
|
236 |
|
|
|
432 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
32,599 |
|
|
|
26,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net |
|
|
84,159 |
|
|
|
91,865 |
|
Investment in subsidiaries |
|
|
409,070 |
|
|
|
435,208 |
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
493,229 |
|
|
|
527,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
525,828 |
|
|
|
553,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
525,828 |
|
|
|
553,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
525,828 |
|
|
$ |
553,676 |
|
|
|
|
|
|
|
|
(10) Long-term Debt
In July 2007, Holdings completed a private debt offering of $375 million aggregate principal senior
unsecured notes, with three series consisting of $197 million of 6.33% notes due July 15, 2014, $85
million of 6.52% notes due July 15, 2017 and $93 million of 6.67% notes due July 15, 2019. The
aggregate average interest rate on the notes is 6.46% for the first seven years and 6.49% over the
life of the notes. Under the note purchase agreement governing the terms of these notes, Holdings
must maintain certain consolidated net worth, leverage and interest coverage ratios. The note
purchase agreement also contains other covenants that, among other things, restrict the ability of
Holdings subsidiaries to incur debt and restrict the ability of Holdings or its subsidiaries to
create liens and to merge or consolidate, or sell or convey all or substantially all of Holdings
assets.
Debt offering costs of $2.0 million incurred in connection with the $375 million debt offering will
be amortized on a weighted average straight line basis and recognized as interest expense over the
term of the debt and are included in other assets in the consolidated statements of financial
condition.
The fair value of long-term debt, which has a carrying value of $525 million, was approximately
$545 million at September 30, 2007. Fair value estimates are calculated using discounted cash flows
based on the Companys incremental borrowing rates for the debt and market prices for similar bonds
at the measurement date. All methods of assessing fair value result in an estimate of value that
may never be realized.
-12-
CALAMOS ASSET MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value and requires additional disclosure regarding fair
value measurements. SFAS 157 is effective for the Company beginning January 1, 2008. The Company is
currently evaluating the impact, if any, that the adoption of SFAS 157 will have on its financial
statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115, which permits the option
to measure certain financial instruments and other items at fair value. SFAS 159 is effective for
the Company beginning January 1, 2008. The Company is currently analyzing the option of adopting
SFAS 159 and the impact, if any, that it would have on its financial statements.
-13-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
We provide investment advisory services to institutions and individuals, managing $46.7 billion in
client assets at September 30, 2007. 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 mutual funds and separate accounts 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.
We market our investment strategies to our clients through a variety of products designed to suit
their investment needs. We currently offer five types of mutual fund and separate account
investment products. The following table details our assets under management at September 30, 2007
and 2006.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(in millions) |
|
2007 |
|
|
2006 |
|
Mutual Funds |
|
|
|
|
|
|
|
|
Open-end funds |
|
$ |
28,000 |
|
|
$ |
27,338 |
|
Closed-end funds |
|
|
7,677 |
|
|
|
6,240 |
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
35,677 |
|
|
|
33,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts |
|
|
|
|
|
|
|
|
Institutional accounts |
|
|
4,896 |
|
|
|
5,303 |
|
Managed accounts |
|
|
6,028 |
|
|
|
5,835 |
|
Alternative investments |
|
|
145 |
|
|
|
93 |
|
|
|
|
|
|
|
|
Total separate accounts |
|
|
11,069 |
|
|
|
11,231 |
|
|
|
|
|
|
|
|
Total assets under management |
|
$ |
46,746 |
|
|
$ |
44,809 |
|
|
|
|
|
|
|
|
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 typically related to the distribution of mutual funds, including
Rule 12b-1 payments and the amortization of deferred sales commissions for open-end mutual funds,
as well as to employee compensation and benefits expense, which includes salaries, incentive
compensation and related benefits costs. 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.
-14-
Operating Results
Third Quarter and Nine Months Ended September 30, 2007 Compared to Third Quarter and Nine Months
Ended September 30, 2006
Assets Under Management
Assets under management increased by $1.9 billion, or 4%, to $46.7 billion at September 30, 2007
from $44.8 billion at September 30, 2006. At September 30, 2007, our assets under management
consisted of 76% mutual funds and 24% separate accounts, as compared to 75% mutual funds and 25%
separate accounts at September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Change |
|
($ in millions) |
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
Mutual Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
$ |
33,286 |
|
|
$ |
34,217 |
|
|
$ |
(931 |
) |
|
|
3 |
% |
|
$ |
33,704 |
|
|
$ |
32,244 |
|
|
$ |
1,460 |
|
|
|
5 |
% |
Net purchases (redemptions) |
|
|
511 |
|
|
|
(649 |
) |
|
|
1,160 |
|
|
|
* |
|
|
|
(2,206 |
) |
|
|
1,399 |
|
|
|
(3,605 |
) |
|
|
* |
|
Market appreciation (depreciation) |
|
|
1,880 |
|
|
|
10 |
|
|
|
1,870 |
|
|
|
* |
|
|
|
4,179 |
|
|
|
(65 |
) |
|
|
4,244 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
35,677 |
|
|
|
33,578 |
|
|
|
2,099 |
|
|
|
6 |
|
|
|
35,677 |
|
|
|
33,578 |
|
|
|
2,099 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
|
33,572 |
|
|
|
33,150 |
|
|
|
422 |
|
|
|
1 |
|
|
|
33,402 |
|
|
|
34,114 |
|
|
|
(712 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
|
10,525 |
|
|
|
11,595 |
|
|
|
(1,070 |
) |
|
|
9 |
|
|
|
11,021 |
|
|
|
11,561 |
|
|
|
(540 |
) |
|
|
5 |
|
Net redemptions |
|
|
(137 |
) |
|
|
(382 |
) |
|
|
245 |
|
|
|
* |
|
|
|
(1,356 |
) |
|
|
(454 |
) |
|
|
(902 |
) |
|
|
* |
|
Market appreciation |
|
|
681 |
|
|
|
18 |
|
|
|
663 |
|
|
|
* |
|
|
|
1,404 |
|
|
|
124 |
|
|
|
1,280 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
11,069 |
|
|
|
11,231 |
|
|
|
(162 |
) |
|
|
1 |
|
|
|
11,069 |
|
|
|
11,231 |
|
|
|
(162 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
|
10,639 |
|
|
|
11,267 |
|
|
|
(628 |
) |
|
|
6 |
|
|
|
10,690 |
|
|
|
11,725 |
|
|
|
(1,035 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Under Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under management |
|
|
43,811 |
|
|
|
45,812 |
|
|
|
(2,001 |
) |
|
|
4 |
|
|
|
44,725 |
|
|
|
43,805 |
|
|
|
920 |
|
|
|
2 |
|
Net purchases (redemptions) |
|
|
374 |
|
|
|
(1,031 |
) |
|
|
1,405 |
|
|
|
* |
|
|
|
(3,562 |
) |
|
|
945 |
|
|
|
(4,507 |
) |
|
|
* |
|
Market appreciation |
|
|
2,561 |
|
|
|
28 |
|
|
|
2,533 |
|
|
|
* |
|
|
|
5,583 |
|
|
|
59 |
|
|
|
5,524 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending assets under management |
|
|
46,746 |
|
|
|
44,809 |
|
|
|
1,937 |
|
|
|
4 |
|
|
|
46,746 |
|
|
|
44,809 |
|
|
|
1,937 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets under management |
|
$ |
44,211 |
|
|
$ |
44,417 |
|
|
$ |
(206 |
) |
|
|
0 |
% |
|
$ |
44,092 |
|
|
$ |
45,839 |
|
|
$ |
(1,747 |
) |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds had net purchases of $511 million during the third quarter of 2007, an increase of
$1.2 billion from $649 million of net redemptions in the prior-year quarter. The increase over the
prior years quarter is primarily due to the decrease of $480 million in net redemptions of our
Growth Fund, the $350 million raised with the issuance of preferred shares for the Calamos Global
Dynamic Income Fund (CHW), which was initially launched in June 2007, and our investment of nearly
$350 million into the Calamos Government Money Market Fund.
Mutual funds had net redemptions of $2.2 billion during the nine months ended September 30, 2007, a
decrease of $3.6 billion from $1.4 billion of net purchases in the same period of the prior year.
The year-to-date decrease was primarily due to lower purchases and higher redemptions of our Growth
Fund and our Growth and Income Fund, each of which comprise a significant percentage of our total
assets under management. We believe that the decreases in net flows are attributable to the
short-term underperformance of our Growth Fund and our Growth and Income Fund during 2006. The net
redemptions during the nine months ended September 30, 2007 were positively impacted by the CHW
initial public offering and preferred share issuance that raised nearly $1.2 billion during the
second and third quarter of 2007.
During the third quarter of 2007, we experienced an increase in gross sales and a decrease in
redemptions within our open-end funds in aggregate over both the third quarter of 2006, and
sequentially, over the second quarter of 2007. Furthermore, we continued to experience net
purchases in a number of our mutual funds, primarily our Market Neutral Income Fund, Global Growth
and Income Fund and International Growth Fund.
Separate accounts had net redemptions of $137 million and $1.4 billion during the third quarter and
year-to-date periods ended September 30, 2007, respectively, primarily due to separate account
outflows in our equity and convertible strategies. The decreases in net flows were principally due
to outflows in our growth strategy, driven by short-term underperformance during 2006. Our
convertible strategies remain closed to new investors.
-15-
Results of Operations
Overview
Results of operations for the nine months ended September 30, 2007 were significantly impacted by
two one-time marketing and sales promotion expenses, incurred in the second quarter of 2007, that
management believes will benefit our long-term financial performance. First, we incurred a one-time
expense of $19.5 million, or 12 cents per diluted share, by terminating our remaining two
additional compensation agreements that required us to make recurring payments of approximately
$2.6 million annually based on the assets of Calamos Convertible Opportunities and Income Fund and
Calamos Strategic Total Return Fund. When evaluating whether or not to terminate the future
payments made under distribution agreements, we compared the net present value of the future cash
flows for on-going payments to the negotiated one-time payments. We expect that the termination of
the agreements during the second quarter of 2007 will result in the reduction of future marketing
and sales promotion expenses of approximately $650,000 per quarter, or $2.6 million annually,
beginning in the period ended September 30, 2007. We expect the annual impact on net income will be
approximately 1.5 cents per diluted share.
Second, we incurred a $6.9 million, or 4 cents per diluted share, one-time structuring fee related
to CHW. Our decision to introduce a new closed-end fund is generally a function of the
receptiveness of the capital markets, our investment strategies and capabilities, and the financial
viability of a proposed product. If a new closed-end fund is introduced, we will negotiate with
each underwriter the fees and services prior to the public offering. If any non-traditional fees
are negotiated, the payments may: not extend to each underwriter that participates in the offering,
vary among the underwriters receiving such a fee, and differ in form. Structuring fees are upfront
non-traditional fees paid by us in excess of sales loads or underwriters commissions. When
structuring fees are paid, we recognize a marketing and sales promotion expense at the time of the
offering.
Management considers results adjusted for these one-time expenses, as presented below, to provide a
better indication of the companys operations. These adjusted items are considered non-GAAP
financial measures as defined by Regulation S-K of the Securities and Exchange Commission. In
evaluating operating performance, management considers operating expense, operating income and net
income, each calculated in accordance with accounting principles generally accepted in the United
States (GAAP), and each item on an as-adjusted basis, which constitute non-GAAP financial measures.
Items presented on an as-adjusted basis exclude the impact of terminating the two closed-end fund
additional compensation agreements and the CHW closed-end fund structuring fees during the second
quarter of 2007. As these items are not expected to recur, management believes that excluding these
items better enables it to evaluate the companys operating performance relative to the prior
periods. Management considers these non-GAAP financial measures when evaluating the performance of
the company and believes the presentation of these amounts provides the reader with information
necessary to analyze the companys operations for the periods compared. Reconciliations of these
measurements to their most directly comparable GAAP financial measures for the nine months ended
September 30, 2007 and 2006 are provided in the table below and should be carefully evaluated by
the reader:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
($ in thousands) |
|
2007 |
|
2006 |
|
|
|
Operating expenses |
|
$ |
228,425 |
|
|
$ |
188,308 |
|
Termination of closed-end fund compensation agreements |
|
|
19,500 |
|
|
|
|
|
Closed-end fund structuring fees |
|
|
6,904 |
|
|
|
|
|
|
|
|
Operating expenses, as adjusted |
|
$ |
202,021 |
|
|
$ |
188,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
120,526 |
|
|
$ |
175,210 |
|
Termination of closed-end fund compensation agreements |
|
|
19,500 |
|
|
|
|
|
Closed-end fund structuring fees |
|
|
6,904 |
|
|
|
|
|
|
|
|
Operating income, as adjusted |
|
$ |
146,930 |
|
|
$ |
175,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18,466 |
|
|
$ |
25,147 |
|
Termination of closed-end fund compensation agreements |
|
|
2,634 |
|
|
|
|
|
Closed-end fund structuring fees |
|
|
933 |
|
|
|
|
|
|
|
|
Net income,
as adjusted |
|
$ |
22,033 |
|
|
$ |
25,147 |
|
|
|
|
-16-
Operating Income
Operating income was $49.4 million and $120.5 million for the three and nine months ended
September 30, 2007, respectively, compared to $56.6 million and $175.2 million for the prior-year
periods.
Operating income, as adjusted for the one-time marketing and sales promotion expenses was $146.9
million for the nine months ended September 30, 2007, compared to $175.2 million for the
year-earlier period.
Revenues
Total revenues were $118.5 million for the three months ended September 30, 2007 and 2006. For the
nine months ended September 30, 2007, total revenues decreased by $14.6 million, or 4%, to $349.0
million from $363.5 million for the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Change |
|
($ in thousands) |
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
Investment management fees |
|
$ |
82,209 |
|
|
$ |
80,718 |
|
|
$ |
1,491 |
|
|
|
2 |
% |
|
$ |
238,997 |
|
|
$ |
246,525 |
|
|
$ |
(7,528 |
) |
|
|
3 |
% |
Distribution and
underwriting fees |
|
|
35,252 |
|
|
|
36,840 |
|
|
|
(1,588 |
) |
|
|
4 |
|
|
|
106,993 |
|
|
|
113,977 |
|
|
|
(6,984 |
) |
|
|
6 |
|
Other |
|
|
1,023 |
|
|
|
989 |
|
|
|
34 |
|
|
|
3 |
|
|
|
2,961 |
|
|
|
3,016 |
|
|
|
(55 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
118,484 |
|
|
$ |
118,547 |
|
|
$ |
(63 |
) |
|
|
0 |
% |
|
$ |
348,951 |
|
|
$ |
363,518 |
|
|
$ |
(14,567 |
) |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees increased $1.5 million, or 2%, for the three months ended September 30,
2007 when compared to the same period of 2006. Closed-end fund investment management fees increased
$2.9 million to $16.0 million as a result of a $1.0 billion increase in closed-end fund average
assets under management mainly attributable to the launch of the Calamos Global Dynamic Income Fund
(CHW) in June 2007 and the subsequent issuance of preferred shares for CHW during the third quarter
of 2007. This increase was partially offset by a decrease in investment management fees from our
open-end funds, which decreased $0.9 million to $51.0 million as a result of a $602 million
decrease in open-end fund average assets under management and our separately managed accounts,
which decreased $0.4 million to $15.2 million as a result of a $628 million decrease in separate
account average assets under management.
Investment management fees decreased $7.5 million, or 3% for the nine months ended September 30,
2007 when compared to the same period of 2006. Open-end fund investment management fees decreased
$8.4 million to $151.2 million as a result of a $1.3 billion decrease in open-end fund average
assets under management. Investment management fees from separately managed accounts decreased $3.5
million to $44.6 million as a result of a $1.0 billion decrease in separately managed account
average assets under management. These decreases were partially offset by investment management
fees from our closed-end funds, which increased $4.4 million to $43.3 million as a result of a $579
million increase in closed-end fund average assets under management mainly attributable to the
assets raised in connection with our launch of CHW.
Investment management fees as a percentage of average assets under management were 0.74% and 0.72%
for the three and nine months ended September 30, 2007, respectively, compared to 0.72% for the
three and nine months ended September 30, 2006 primarily due to higher management fees earned on
CHW, to the expiration of a portion of closed-end fund fee waivers that began in July 2007 and to
the impact of significant market appreciation in the latter half of September on our institutional
accounts. Over the next five years, we expect our closed-end fund investment management fee revenue
to continue to increase as the fee waivers on our Convertible Opportunities and Income Fund and our
Convertible and High Income Fund expire.
Distribution and underwriting fees decreased $1.6 million and $7.0 million for the three and nine
months ended September 30, 2007, respectively, compared to the third quarter and first nine months
of 2006, due to a $602 million and $1.3 billion decrease in open-end fund average assets under
management when compared to the year-earlier periods and to a decrease in underwriter commissions
that resulted from lower Class A share sales.
-17-
Operating Expenses
Operating expenses increased to $69.0 million and $228.4 million for the three and nine months
ended September 30, 2007, respectively, from $61.9 million and $188.3 million for the same periods
in the prior year. While both periods were impacted by higher employee compensation and benefits
and general and administrative expenses, the increase in the year-to-date expense was largely due
to two significant one-time marketing and sales promotion charges incurred in the second quarter of
2007.
Operating expenses, as adjusted for one-time marketing and sales promotion expenses increased to
$202.0 million for the first nine months of 2007, respectively, from $188.3 million for the
prior-year period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Change |
|
($ in thousands) |
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
|
2007 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
Employee compensation and benefits |
|
$ |
22,912 |
|
|
$ |
17,203 |
|
|
$ |
5,709 |
|
|
|
33 |
% |
|
$ |
66,190 |
|
|
$ |
54,496 |
|
|
$ |
11,694 |
|
|
|
21 |
% |
Distribution and underwriting
expense |
|
|
26,246 |
|
|
|
24,509 |
|
|
|
1,737 |
|
|
|
7 |
|
|
|
76,469 |
|
|
|
75,338 |
|
|
|
1,131 |
|
|
|
2 |
|
Amortization of deferred sales
commissions |
|
|
6,064 |
|
|
|
8,645 |
|
|
|
(2,581 |
) |
|
|
30 |
|
|
|
21,220 |
|
|
|
24,508 |
|
|
|
(3,288 |
) |
|
|
13 |
|
Marketing and sales promotion |
|
|
3,861 |
|
|
|
3,602 |
|
|
|
259 |
|
|
|
7 |
|
|
|
37,074 |
|
|
|
11,312 |
|
|
|
25,762 |
|
|
|
228 |
|
General and administrative |
|
|
9,962 |
|
|
|
7,950 |
|
|
|
2,012 |
|
|
|
25 |
|
|
|
27,472 |
|
|
|
22,654 |
|
|
|
4,818 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
69,045 |
|
|
$ |
61,909 |
|
|
$ |
7,136 |
|
|
|
12 |
% |
|
$ |
228,425 |
|
|
$ |
188,308 |
|
|
$ |
40,117 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits expense increased by $5.7 million and $11.7 million for the
three and nine months ended September 30, 2007, respectively, when compared to the prior-year
periods. This increase largely reflects the impact of staff additions to support the following
initiatives: expand our wealth management and institutional sales; diversify our product offering
by adding complementary fixed income and cash management strategies; and strengthen our information
technology infrastructure. In addition, employee compensation and benefits expense increased by
$0.8 million for the three and nine months ended September 30, 2007 due to the transition payments
for two executive officers.
Distribution and underwriting expense increased $1.7 million and $1.1 million for the three and
nine months ended September 30, 2007 when compared to the prior-year periods. These expenses
increased by $1.9 million and $3.6 million for the three and nine months ended September 30, 2007,
respectively, due to the growth in the Class C share assets older than one year. These increases
were partially offset by decreases of $0.2 million and $2.2 million for the three and nine months
ended September 30, 2007, respectively, due to decreases in average open-end fund assets under
management. Although the Rule 12b-1 fee rates we paid to broker-dealers and other intermediaries in
the three and nine months ended September 30, 2007 did not change from the rates paid in the prior
year, we expect distribution expense to vary with the change in open-end mutual funds assets under
management and with the age of the Class C share assets.
Amortization of deferred sales commissions decreased $2.6 million and $3.3 million for the three
and nine months ended September 30, 2007 when compared to the prior-year periods, due primarily to
a decrease in Class C share sales in both periods. The year-to-date decrease was partially offset
by an increase in the amortization of deferred sales commissions on Class B shares due to an
increase in redemptions.
Marketing and sales promotion expense increased by $0.3 million and $25.8 million for the three and
nine months ended September 30, 2007, respectively. The third quarter increase was mostly due to
higher costs incurred on our corporate branding initiative and was partially offset by a $0.6
million benefit that resulted from terminating the remaining two closed-end fund agreements in the
second quarter. The year-to-date period increase of $25.8 million was due to two one-time expenses
totaling $26.4 million that we believe will continue to have a positive impact on our future
results. During the second quarter of 2007, we incurred a one-time expense of $19.5 million by
terminating our remaining two agreements that required annual payments based on the assets of two
closed-end funds and a one-time $6.9 million structuring fee in connection with the CHW initial
public offering. The year-to-date increase resulting from these one-time expenses was partially
offset by a $0.6 million reduction in expense that resulted from terminating the remaining two
closed-end fund agreements.
General and administrative expense increased by $2.0 million and $4.8 million for the three and
nine months ended September 30, 2007, respectively, of which $1.0 million and $1.9 million,
respectively, was attributable to occupancy, depreciation and business services related to
supporting additional staff and to costs related to our new trade order management and portfolio
accounting systems to support our new fixed income strategies. Further, increases of $1.2 million
and $2.0 million for the same periods, respectively, were attributable to professional services,
including our decision to outsource certain facility-related functions, which were historically
reflected in employee compensation and benefits expense. Finally, travel and entertainment
-18-
expenses increased $0.7 million for the nine months ended September 30, 2007 principally related to
increased sales efforts of CHW.
Other Income (Expense), Net
Other income, net was $3.3 million and $12.3 million for the three and nine months ended September
30, 2007, respectively, compared to $0.8 million and $4.9 million for the three and nine months
ended September 30, 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
($ in thousands) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Net interest income (expense) |
|
$ |
(1,356 |
) |
|
$ |
1,638 |
|
|
$ |
(2,994 |
) |
|
$ |
2,133 |
|
|
$ |
2,820 |
|
|
$ |
(687 |
) |
Investment and other income (loss) |
|
|
6,729 |
|
|
|
(3,336 |
) |
|
|
10,065 |
|
|
|
14,499 |
|
|
|
668 |
|
|
|
13,831 |
|
Minority interest in partnership
investments |
|
|
(2,066 |
) |
|
|
2,502 |
|
|
|
(4,568 |
) |
|
|
(4,335 |
) |
|
|
1,411 |
|
|
|
(5,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net |
|
$ |
3,307 |
|
|
$ |
804 |
|
|
$ |
2,503 |
|
|
$ |
12,297 |
|
|
$ |
4,899 |
|
|
$ |
7,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) includes interest expense on our long-term debt and interest income
on our short-term investment portfolio as presented below. Interest income increased $2.3 million
and $4.6 million for the three and nine months ended September 30, 2007, respectively, when
compared to the prior-year periods, as a result of higher cash and cash equivalents balances.
Interest expense increased $5.3 million for the three and nine months ended September 30, 2007 due
to interest expense resulting from a private debt offering of $375 million aggregate principal
senior unsecured notes in July 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
($ in thousands) |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Interest income |
|
$ |
5,975 |
|
|
$ |
3,674 |
|
|
$ |
2,301 |
|
|
$ |
13,537 |
|
|
$ |
8,929 |
|
|
$ |
4,608 |
|
Interest expense |
|
|
(7,331 |
) |
|
|
(2,036 |
) |
|
|
(5,295 |
) |
|
|
(11,404 |
) |
|
|
(6,109 |
) |
|
|
(5,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
$ |
(1,356 |
) |
|
$ |
1,638 |
|
|
$ |
(2,994 |
) |
|
$ |
2,133 |
|
|
$ |
2,820 |
|
|
$ |
(687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income (loss) is primarily comprised of changes in the market value of the
consolidated partnership securities that we own, realized gains and losses on our
available-for-sale investment securities, unrealized gains and losses on securities that are owned
by Calamos Financial Services LLC (CFS Securities) and dividend income earned on our investment
securities. Minority interest in partnership investments represents the corresponding minority
interests portion of the changes in market value from our consolidated partnership securities.
Investment and other income (loss) of $6.7 million for the three months ended September 30, 2007
was primarily comprised of investment income of $5.7 million mainly due to net unrealized
appreciation in the market value of the consolidated partnership securities that we own and to
dividend income of $0.9 million. Investment and other income (loss) of $3.3 million for the three
months ended September 30, 2006 was primarily comprised of investment losses of $3.7 million
resulting from net unrealized depreciation in the market value of the consolidated partnership
securities.
Investment and other income of $14.5 million for the nine months ended September 30, 2007 was
primarily comprised of investment income of $12.2 million resulting from appreciation in the market
value of the consolidated partnership securities and dividend income of $1.5 million. Investment
and other income of $0.7 million for the nine months ended September 30, 2006 was primarily the
result of an offset between net unrealized appreciation on our CFS Securities and net unrealized
depreciation on consolidated partnership securities.
Further, the unrealized gains and losses on a significant portion of our investment securities are
not recorded to net income; rather, these unrealized gains and losses are recognized as changes to
accumulated other comprehensive income, a component of stockholders equity. These unrealized gains
and losses are only recognized in our consolidated statements of operations when they are realized,
which occurs upon the sale of the securities and upon the receipt of capital gains distributions,
which typically occur during the fourth quarter of the calendar year. We expect to realize capital
gain distributions in the fourth quarter of 2007 in excess of $15 million based on our increasing
investment portfolio and its strong performance. For the three and nine months ended September 30,
2007, net unrealized gains generated by our investment securities were $18.0 million and $34.1
million, respectively, of which $2.3 million and $4.5 million, net of minority interest and taxes,
respectively, were recognized as increases to accumulated other comprehensive income. For the three
and nine months ended September 30, 2006, net unrealized gains generated by our investment
securities were $2.2 million and $4.4 million, respectively, of which $0.3 million and $0.6
million, net of minority interest and taxes, respectively, were recognized as increases to
accumulated other comprehensive income.
-19-
Income Taxes
Income taxes as a percentage of income before income taxes was 40.0% and 40.2% for the three and
nine months ended September 30, 2007, respectively, compared to 40.0% and 40.1% for the three and
nine months ended September 30, 2006, respectively.
Net Income
Net income was $7.1 million and $18.5 million for the three and nine months ended September 30,
2007, respectively, compared to $8.0 million and $25.1 million for the prior-year periods.
Net income, as adjusted for the one-time marketing and sales promotion expenses, was $22.0
million for the first nine months of 2007, respectively, compared to $25.1 million for the
year-earlier period.
Liquidity and Capital Resources
Our current financial condition remains highly liquid. Our corporate investment portfolio, which is
comprised of cash and cash equivalents, investment securities and partnership securities, makes up
the majority of our assets. We anticipate utilizing our cash and cash equivalent balances to
develop and invest in our products as opportunities arise, to invest in property and equipment for
our facility, to support our operations and to acquire shares under our share repurchase program.
Investment securities are principally comprised of company-sponsored mutual funds. In addition, the
underlying partnership securities 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. We believe these resources will be sufficient over the
foreseeable future to meet our requirements with respect to the foregoing activities and to support
future growth.
The following tables summarize key statements of financial condition data relating to our liquidity
and capital resources.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
(in thousands) |
|
2007 |
|
2006 |
Statements of financial condition data: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
479,906 |
|
|
$ |
328,841 |
|
Receivables |
|
|
36,916 |
|
|
|
36,787 |
|
Investment securities |
|
|
370,615 |
|
|
|
143,112 |
|
Partnership securities |
|
|
144,563 |
|
|
|
86,409 |
|
Deferred tax assets, net |
|
|
91,263 |
|
|
|
99,240 |
|
Deferred sales commissions |
|
|
36,469 |
|
|
|
49,891 |
|
Long-term debt |
|
|
525,000 |
|
|
|
150,000 |
|
Cash flows for the nine months ended September 30, 2007 and 2006 are shown below:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
(in thousands) |
|
2007 |
|
2006 |
Cash flow data: |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
151,410 |
|
|
$ |
178,984 |
|
Net cash used in investing activities |
|
|
(248,985 |
) |
|
|
(9,951 |
) |
Net cash provided by (used in) financing activities |
|
|
248,640 |
|
|
|
(85,761 |
) |
Net cash provided by operating activities was $151.4 million for the nine months ended September
30, 2007 and was primarily comprised of income before minority interest and income taxes of $132.8
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 was $7.8 million for the nine months ended September 30, 2007. 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 $249.0 million for the nine months ended September 30,
2007 and was primarily due to $192.7 million in net purchases of investment securities, principally
comprised of products managed by us. During the first nine months of 2007, we made investments of
$191 million into mutual funds, including $30 million into each of our new
-20-
open-end fund offerings, the Calamos Global Equity Fund and the Calamos Total Return Bond Fund. Net
changes in partnership securities during the nine months ended September 2007 of $48.1 million was
primarily the result of our investment into Calamos Market Neutral Fund LP of $50 million.
Net cash provided by financing activities was $248.6 million for the nine months ended September
30, 2007. During the third quarter of 2007, we received net proceeds of $373.0 million after debt
offering costs from our issuance of $375 million aggregate principal senior unsecured notes, which
were issued to develop and invest in our products, including new and existing mutual funds and
alternative products, and for general corporate purposes. This was partially offset by
distributions to minority shareholders of $68.6 million, including distributions for their tax
liabilities of $43.2 million, as well as dividends paid to common shareholders of $7.5 million.
Additionally, the Company repurchased 2,000,000 shares of its Class A common stock at an aggregated
cost of $48.1 million during 2007.
In July 2007, Calamos Holdings LLC (Holdings) completed a private debt offering of $375 million
aggregate principal amount of senior unsecured notes in three series, consisting of $197 million of
6.33% notes due July 15, 2014, $85 million of 6.52% notes due July 15, 2017 and $93 million of
6.67% notes due July 15, 2019. The aggregate average interest rate on the notes is 6.46% for the
first seven years and 6.49% over the life of the notes. Under the note purchase agreement governing
the terms of these notes, Holdings must maintain certain consolidated net worth, leverage and
interest coverage ratios. The note purchase agreement also contains other covenants that, among
other things, restrict the ability of Holdings subsidiaries to incur debt and restrict the ability
of Holdings or its subsidiaries to create liens and to merge or consolidate, or sell or convey all
or substantially all of Holdings assets. As of September 30, 2007 we were in compliance with all
covenants.
We expect our cash and liquidity requirements will be met with the cash on hand and through cash
generated by operations. Further, we have access to capital via debt and equity capital markets
that may assist in satisfying our capital requirements.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value and requires additional disclosure regarding fair
value measurements. SFAS 157 is effective for the Company beginning January 1, 2008. We are
currently evaluating the impact, if any, that the adoption of SFAS 157 will have on our financial
statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115, which permits the option
to measure certain financial instruments and other items at fair value. SFAS 159 is effective for
the Company beginning January 1, 2008. We are currently analyzing the option of adopting SFAS 159
and the impact, if any, that it would have on our financial statements.
-21-
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,
2006. 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 Form 10-K for the
year ended December 31, 2006. There were no significant changes in our critical accounting policies
during the nine months ended September 30, 2007.
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 and 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 and organizational 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 and timing of
payments related to distribution; failure to recruit and retain qualified personnel; a loss of
assets, and thus revenues; fluctuation in the level of our expenses; poor performance of our
largest funds; damage to our reputation; and the extent and timing of any share repurchases.
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, 2006 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.
-22-
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, 2006. While there were no material changes to the Companys market risk during the
nine months ended September 30, 2007, the amount of long-term debt and investment securities has
increased materially from year end.
In July 2007, we issued $375 million aggregate principal senior unsecured notes, with three series
consisting of $197 million of 6.33% notes due July 15, 2014, $85 million of 6.52% notes due July
15, 2017 and $93 million of 6.67% notes due July 15, 2019. As these notes have fixed interest
rates, we do not believe that they have any interest rate risk.
We are subject to market risk due to a decline in the prices of investment securities. We own
investment securities primarily comprised of mutual funds that we manage. At September 30, 2007,
the fair value of these investment securities was $370.6 million. Assuming a 10% increase or
decrease in the value of these investments, the fair value would increase or decrease by $37.1
million at September 30, 2007.
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 September 30, 2007, 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 third quarter of 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
-23-
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
On
October 19, 2006, the Board of Directors authorized the company
to repurchase up to 2.0 million
shares of Class A common stock. During the quarter, the Company repurchased the remaining shares
available under this program as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
of Shares that May |
|
|
|
(a) |
|
|
(b) |
|
|
Part of Publicly |
|
|
be Purchased |
|
|
|
Total Number of |
|
|
Average Price Paid |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
|
|
Shares Purchased |
|
|
Per Share |
|
|
Programs |
|
|
Programs |
|
July 1 July 31, 2007 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
1,212,200 |
|
August 1 August 31, 2007 |
|
|
1,212,200 |
|
|
|
24.10 |
|
|
|
1,212,200 |
|
|
|
|
|
September 1 September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,212,200 |
|
|
$ |
24.10 |
|
|
|
1,212,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
October 2007, the Board of Directors authorized the Company to repurchase up to 2 million shares
of Class A common stock. No shares have been repurchased under this program as of November 7, 2007.
-24-
Item 6. Exhibits
|
|
|
3(i)
|
|
Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrants Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 2,
2004). |
|
|
|
3(ii)
|
|
Amended and Restated By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 26, 2005). |
|
|
|
3(iii)
|
|
Amended and Restated By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 23, 2007). |
|
|
|
3(iv)
|
|
Amended and Restated By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 8, 2007). |
|
|
|
4.1
|
|
Stockholders Agreement among John P. Calamos, Sr., Nick P. Calamos and John
P. Calamos, Jr., certain trusts controlled by them, Calamos Family Partners,
Inc. and the Registrant (incorporated by reference to Exhibit 4.1 to the
Registrants Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on December 3, 2004). |
|
|
|
4.2
|
|
Registration Rights Agreement between Calamos Family Partners, Inc., John P.
Calamos, Sr. and the Registrant (incorporated by reference to Exhibit 4.2 to
the Registrants Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on December 3, 2004). |
|
|
|
4.3
|
|
Note Purchase Agreement, dated as of July 13, 2007, by and among Calamos
Holdings LLC and various institutional investors (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 18, 2007). |
|
|
|
10.1
|
|
Transition Agreement, dated as of August 7, 2007, by and among Calamos Asset
Management, Inc., Calamos Advisors LLC, Calamos Holdings LLC and Patrick H.
Dudasik. |
|
|
|
10.2
|
|
Transition Agreement, dated as of September 5, 2007, by and among Calamos
Asset Management, Inc., Calamos Advisors LLC, Calamos Holdings LLC and James
S. Hamman, Jr. |
|
|
|
31.1
|
|
Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
|
|
|
31.2
|
|
Certification pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
-25-
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.
|
|
|
|
|
|
CALAMOS ASSET MANAGEMENT, INC.
(Registrant)
|
|
Date: November 7, 2007 |
By: |
/s/ Patrick H. Dudasik
|
|
|
|
Patrick H. Dudasik |
|
|
|
Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer |
|
|
-26-