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CLMS > SEC Filings for CLMS > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for CALAMOS ASSET MANAGEMENT, INC. /DE/

Form 10-Q for CALAMOS ASSET MANAGEMENT, INC. /DE/


6-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
We are a firm of 361 full-time associates that primarily provides investment advisory services to institutions and individuals, managing and servicing $25.8 billion in assets under management as of June 30, 2014 and 2013. Assets under management do not include assets under advisement of $781 million and $837 million as of June 30, 2014 and 2013, respectively, for which the Company provides model portfolio design and oversight.
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 open-end funds; net inflows into and withdrawals from separate accounts that we manage; fluctuations in the financial markets around the world that result in appreciation or depreciation of assets under management; and the number and types of our 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 categorize the portfolios that we manage within four investment product types captured in our funds and separate accounts. The following table lists our assets under management by product as of June 30, 2014 and 2013.
                                    June 30,
(in millions)                   2014        2013
Funds
Open-end funds                $ 16,072    $ 15,151
Closed-end funds                 6,511       5,828
  Total funds                   22,583      20,979
Separate Accounts
Institutional accounts           2,195       3,823
Managed accounts                   977         995
  Total separate accounts        3,172       4,818
Total assets under management $ 25,755    $ 25,797

Our revenues are substantially comprised of investment management fees earned under contracts with funds and separate accounts that we manage or service. Our revenues are also comprised of distribution and underwriting fees, including asset-based distribution 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 and depreciation on investments; the level of net inflows and outflows, which represent the sum of new and existing client funding, withdrawals and terminations; and purchases and redemptions of open-end fund shares. The mix of assets under management among our investment products impacts our revenues as our fee schedules vary by product.
Our largest operating expenses are typically related to: employee compensation and benefits expenses, which include salaries, incentive compensation and related benefits costs; distribution expenses, which include open-end funds distribution cost (such as Rule 12b-1 payments) and amortization of deferred sales commissions; and marketing and sales promotion expenses, which include expenses necessary to market products offered by us. Operating expenses may fluctuate due to a number of factors including variations in staffing and compensation, changes in distribution expense as a result of fluctuations in open-end fund net sales and market appreciation or depreciation, and marketing-related expenses that include supplemental distribution payments. Operating Results
Second Quarter and Six Months Ended June 30, 2014 Compared with Second Quarter and Six Months Ended June 30, 2013
Assets Under Management
Assets under management were $25.8 billion as of June 30, 2014 and 2013, and consisted of 88% funds and 12% separate accounts as of June 30, 2014, and 81% funds and 19% separate accounts as of June 30, 2013.


                                                Three Months Ended June 30,                           Six Months Ended June 30,
                                                                         Change                                               Change
(in millions)                           2014          2013         Amount      Percent       2014          2013         Amount      Percent
Open-end Funds
Beginning assets under management    $  16,009     $  16,825     $    (816 )     (5)%     $  16,128     $  17,829     $  (1,701 )    (10)%
Sales                                      947         1,112          (165 )     (15)         2,160         2,243           (83 )     (4)
Redemptions                             (1,328 )      (2,642 )       1,314       (50)        (2,744 )      (5,503 )       2,759       (50)
Market appreciation (depreciation)         444          (144 )         588        *             528           582           (54 )     (9)
  Ending assets under management        16,072        15,151           921        6          16,072        15,151           921        6
  Average assets under
management                              15,835        16,109          (274 )     (2)         15,925        16,793          (868 )     (5)
Closed-end Funds
Beginning assets under management        6,337         5,734           603        11          6,266         5,500           766        14
Sales                                       44           222          (178 )     (80)            52           308          (256 )     (83)
Market appreciation (depreciation)         130          (128 )         258        *             193            20           173        *
  Ending assets under management         6,511         5,828           683        12          6,511         5,828           683        12
  Average assets under
management                               6,329         5,824           505        9           6,310         5,752           558        10
Institutional Accounts
Beginning assets under management        2,757         4,646        (1,889 )     (41)         3,081         5,191        (2,110 )     (41)
Sales                                       64            97           (33 )     (34)           157           200           (43 )     (22)
Redemptions                               (704 )        (850 )         146       (17)        (1,156 )      (1,713 )         557       (33)
Market appreciation (depreciation)          78           (70 )         148        *             113           145           (32 )     (22)
  Ending assets under management         2,195         3,823        (1,628 )     (43)         2,195         3,823        (1,628 )     (43)
  Average assets under
management                               2,392         4,187        (1,795 )     (43)         2,621         4,541        (1,920 )     (42)
Managed Accounts
Beginning assets under management        1,044         1,120           (76 )     (7)          1,068         1,135           (67 )     (6)
Sales                                       22            16             6        38             41            65           (24 )     (37)
Redemptions                               (117 )        (151 )          34       (23)          (156 )        (263 )         107       (41)
Market appreciation                         28            10            18        *              24            58           (34 )     (59)
  Ending assets under management           977           995           (18 )     (2)            977           995           (18 )     (2)
  Average assets under
management                               1,010         1,072           (62 )     (6)          1,028         1,103           (75 )     (7)
Total Assets Under Management
Beginning assets under management       26,147        28,325        (2,178 )     (8)         26,543        29,655        (3,112 )     (10)
Sales                                    1,077         1,447          (370 )     (26)         2,410         2,816          (406 )     (14)
Redemptions                             (2,149 )      (3,643 )       1,494       (41)        (4,056 )      (7,479 )       3,423       (46)
Market appreciation (depreciation)         680          (332 )       1,012        *             858           805            53        7
  Ending assets under management     $  25,755     $  25,797     $     (42 )      -       $  25,755     $  25,797     $     (42 )      -
  Average assets under
management                           $  25,566     $  27,192     $  (1,626 )     (6)%     $  25,884     $  28,189     $  (2,305 )     (8)%


________________


* Not meaningful Fund inflows in the second quarter and first six months of 2014 were primarily due to sales in our alternative, global growth, U.S. growth, and convertible strategies(1), but were not sufficient to overcome the outflows sustained from redemptions in our U.S. growth, global growth, and alternative strategies. Net redemptions in our funds were $337 million in the second quarter of 2014, compared with net redemptions of $1.3 billion in the second quarter of 2013. Appreciation of $574 million in the second quarter of 2014 was $846 million greater than market depreciation of $272 million in the second quarter of 2013. Net redemptions of $532 million for the first six months of 2014 represent a favorable change of $2.4 billion from redemptions of $3.0 billion for the first six months of 2013. Market appreciation in all of our funds totaled $721 million in the first six months of 2014, and $602 million in the first six months of 2013. Separate accounts, which represent managed accounts for both institutions and individuals, combined net redemptions were $735 million in the second quarter of 2014, compared with $888 million in the second quarter of 2013. Institutional net redemptions of $640 million were driven primarily from global growth and U.S. growth strategies and were an improvement of $113 million over the net redemptions in the second quarter of 2013. Institutional account appreciation of $78 million in the second quarter of 2014


was $148 million better than depreciation of $70 million in the second quarter of 2013. Managed account net redemptions of $95 million improved from net redemptions of $135 million in the second quarter of 2013 and appreciation of $28 million in the second quarter of 2014 was $18 million greater than the second quarter of 2013.
Separate account net redemptions in the first six months of 2014 were $1.1 billion, compared with $1.7 billion in the first six months of 2013. Institutional net redemptions were $1.0 billion in the first six months of 2014, compared with $1.5 billion in the first six months of 2013. Institutional account appreciation was $113 million in the first six months of 2014, compared with $145 million in the first six months of 2013. In the first six months of 2014, managed account net redemptions were $115 million, an improvement of $83 million from $198 million in the first six months of 2013.
(1) Prior period assets by strategy have been reclassified.

Financial Overview
                              Three Months Ended June 30,                         Six Months Ended June 30,
                                                      Change                                             Change
                       2014         2013        Amount      Percent       2014         2013        Amount      Percent
(in thousands,
except margin)
Operating income    $ 16,634     $ 18,404     $ (1,770 )      (10 )%   $ 30,710     $ 40,519     $ (9,809 )      (24 )%
Operating margin        26.4 %       27.6 %       (1.2 )%      (4 )%       24.2 %       29.4 %       (5.2 )%     (18 )%
Net income
attributable to
Calamos Asset
Management, Inc.    $  3,228     $  1,841     $  1,387         75  %   $  5,367     $  5,075     $    292          6  %

Operating income for the second quarter of 2014 of $16.6 million decreased by $1.8 million, or 10%, from the second quarter of 2013. Operating margin for the second quarter of 2014 decreased to 26.4% from 27.6% from the second quarter of 2013. Operating income for the first six months of 2014 decreased by 24% to $30.7 million from $40.5 million for the same period a year ago. Operating margin was 24.2% for the first six months of 2014, a decline from 29.4% for the first six months of 2013. The decrease in both operating income and operating margin is attributable to the decrease in investment management fees. In order to grow assets under management, we engage in distribution and underwriting activities, principally with respect to our family of open-end funds. When analyzing our business, we consider the result of these distribution activities on a net revenue basis as they are typically a result of a single open-end fund share purchase. Generally accepted accounting principles in the United States of America ("GAAP") requires that we present these activities on a gross revenue basis, thus resulting in a reduction to our overall operating margin, as the margin on distribution activities is lower than the margins on the remainder of our business. While we do not adjust our margin for these activities on a net revenue basis, we believe the margin table below is useful for understanding the impact of distribution activities on our margin. The following table summarizes the net distribution fee margin for the second quarter and six months ended June 30, 2014 and 2013:

                                      Three Months Ended          Six Months Ended
                                            June 30,                   June 30,
                                       2014          2013         2014         2013
(in thousands)
Distribution and underwriting fees $   12,642     $ 13,378     $ 25,631     $ 27,706
Distribution expenses                 (12,307 )    (13,241 )    (24,958 )    (27,172 )
Net distribution fees              $      335     $    137     $    673     $    534
Net distribution fee margin                 3 %          1 %          3 %          2 %

Net distribution fee margin varies by share class because each share class has different distribution and underwriting activities, which are described in our 2013 Annual Report on Form 10-K. Distribution fee revenues and the majority of distribution expenses vary with average open-end fund assets, while deferred sales commissions included in distribution expenses are typically amortized on a straight-line basis with adjustments made upon redemption of existing assets.


Revenues
Total revenues decreased by $3.7 million, or 6%, to $63.0 million for the second
quarter of 2014 from $66.7 million for the second quarter of 2013. Total
revenues decreased by $10.7 million, or 8%, to $126.9 million for the first six
months of 2014, from $137.6 million for the first six months of 2013. The
decrease was primarily due to lower investment management fees.
                                             Three Months Ended June 30,                               Six Months Ended June 30,
                                                                      Change                                                   Change
(in thousands)                     2014          2013         Amount        Percent         2014          2013         Amount        Percent
Investment management
fees                            $  49,697     $  52,655     $  (2,958 )        (6 )%     $  99,975     $ 108,597     $  (8,622 )        (8 )%
Distribution and underwriting
fees                               12,642        13,378          (736 )        (6 )%        25,631        27,706        (2,075 )        (7 )%
Other                                 666           657             9           1  %         1,329         1,340           (11 )        (1 )%
Total
revenues                        $  63,005     $  66,690     $  (3,685 )        (6 )%     $ 126,935     $ 137,643     $ (10,708 )        (8 )%

Investment management fees decreased by 6% in the second quarter of 2014 compared with the second quarter of 2013, which was primarily due to a $1.6 billion, or 6%, decrease in average assets under management for the same periods. Investment management fees from open-end funds decreased by 4% to $30.0 million for the second quarter of 2014, from $31.2 million for the second quarter of 2013, driven by a 2% decrease in average open-end fund assets. Investment management fees from our closed-end funds increased by 9% to $14.4 million for the second quarter of 2014, from $13.3 million for the second quarter of 2013, due to a 9% increase in average closed-end fund assets. Investment management fees from our separately managed accounts decreased by 38% to $4.7 million for the second quarter of 2014, from $7.5 million for the second quarter of 2013, due to a 35% decrease in average separately managed accounts assets under management. Investment management fees that we earned as a percentage of average assets under management for the second quarter of 2014 and 2013 were 0.77%. Investment management fees from assets under advisement for which we provide model portfolio design and oversight were $589,000 for the second quarter of 2014, compared with $669,000 for the second quarter of 2013. Investment management fees that we earned as a percentage of assets under advisement for the second quarter of 2014 and 2013 were 0.30%.
Investment management fees decreased by 8% in the first six months of 2014, compared with the first six months of 2013, which was primarily due to a $2.3 billion, or 8%, decrease in average assets under management for the same periods. Investment management fees from open-end funds decreased by 7% to $60.2 million for the first six months of 2014, from $64.9 million for the first six months of 2013, driven by a 5% decrease in average open-end fund assets. Investment management fees from our closed-end funds increased by 10% to $28.6 million for the first six months of 2014, from $26.0 million for the first six months of 2013, due to a 10% increase in average closed-end fund assets. Investment management fees from our separately managed accounts decreased by 39% to $10.0 million for the first six months of 2014, from $16.3 million for the first six months of 2013, due to a 35% decrease in average separately managed accounts assets under management. Investment management fees that we earned as a percentage of average assets under management for the first six months of 2014 and 2013 were 0.77%. Investment management fees from assets under advisement for which we provide model portfolio design and oversight were $1.2 million for the first six months of 2014, compared with $1.4 million for the first six months of 2013. Investment management fees that we earned as a percentage of assets under advisement for the first six months of 2014 and 2013 were 0.30%.
Distribution and underwriting fees decreased by 6%, or $736,000 to $12.6 million for the second quarter of 2014, primarily due to a decrease of 2% in average open-end fund assets across most share classes. Distribution and underwriting fees decreased by 7%, or $2.1 million to $25.6 million for the first six months of 2014, compared with the first six months of 2013, primarily due to a decrease of 5% in average open-end fund assets across most share classes. The decrease in average open-end fund assets when compared with the prior year is largely due to net redemptions in our U.S. growth and global growth strategies. Operating Expenses
Operating expenses decreased by $1.9 million and $899,000 for the second quarter and first six months of 2014, respectively, from the second quarter and first six months of 2013. For the second quarter of 2014, decreases in employee compensation and benefits expenses, distribution expenses, and general and administrative expenses were partially offset by an increase in marketing and sales promotion expenses. For the first six months of 2014, decreases in distribution expenses and employee compensation and benefits expenses were partially offset by increases in marketing and sales promotion expenses and general and administrative expenses.


                                                        Three Months Ended June 30,                            Six Months Ended June 30,
                                                                               Change                                                 Change
(in thousands)                                 2014         2013        Amount       Percent         2014         2013        Amount        Percent
Employee compensation and benefits          $ 19,730     $ 21,380     $ (1,650 )        (8 )%     $ 43,726     $ 43,945     $    (219 )         -  %
Distribution
expenses                                      12,307       13,241         (934 )        (7 )%       24,958       27,172        (2,214 )        (8 )%
Marketing and sales
promotion                                      4,666        3,939          727          18  %        8,371        7,328         1,043          14  %
General and
administrative                                 9,668        9,726          (58 )        (1 )%       19,170       18,679           491           3  %
Total operating

expenses $ 46,371 $ 48,286 $ (1,915 ) (4 )% $ 96,225 $ 97,124 $ (899 ) (1 )%

Employee compensation and benefits expenses decreased by $1.7 million and $219,000 for the second quarter and first six months of 2014, respectively, when compared with the second quarter and first six months of 2013. The decrease in the second quarter of 2014 is primarily due to decreases in equity and incentive compensation expenses, partially offset by an increase in base salaries and related benefits. The decrease in the first six months of 2014 is primarily due to a decrease in equity compensation expenses, partially offset by an increase in base salaries and related benefits. The decrease in equity compensation expenses in the second quarter and first six months of 2014 is primarily a result of the reversal of inception-to-date expense on terminated associates. Salary expenses increased in the second quarter and first six months of 2014 primarily due to increases in the number of associates we employ on our investment team.

Distribution expenses decreased by $934,000 and $2.2 million for the second quarter and first six months of 2014, respectively, when compared with the second quarter and first six months of 2013. The decreases were primarily due to a reduction in average assets for open-end funds of 2% and 5% for the second quarter and first six months of 2014, respectively.
Marketing and sales promotion expenses increased by $727,000 and $1.0 million for the second quarter and first six months of 2014, respectively, when compared with the second quarter and first six months of 2013, largely the result of a fee rate increase for distribution intermediaries.
General and administrative expenses decreased by $58,000 and increased by $491,000 for the second quarter and first six months of 2014, respectively, when compared with the second quarter and first six months of 2013. Many offsetting factors gave rise to the net decrease in expenses during the second quarter of 2014. The increase for the first six months of 2014 was primarily due to higher travel and entertainment and occupancy-related expenses partially offset by a reduction in recruiting expense.
Non-Operating Activities, Net of Redeemable Non-controlling Interest in Partnership Investments
Non-operating income, net of redeemable non-controlling interest in partnership investments increased by $4.5 million and $3.5 million for the second quarter and first six months of 2014, respectively, when compared with the second quarter and first six months of 2013. The increase in the second quarter of 2014 was driven by an increase in investment income of $8.7 million when compared with the second quarter of 2013. The increase in the first six months of 2014 was due to an increase in investment income of $7.3 million when compared with the first six months of 2013. The increase in investment income was mainly due to an increase in realized gains generated from tax harvesting activities and an other-than-temporary impairment charge of $4.4 million recorded in the second quarter of 2013 on certain available-for-sale securities with unrealized losses held in the investment portfolio.
The following table summarizes our non-operating activities, net of redeemable non-controlling interest in partnership investments for the second quarter and six months ended June 30, 2014 and 2013:


                                        Three Months Ended June 30,               Six Months Ended June 30,
(in thousands)                        2014           2013        Change        2014          2013        Change
Interest income                   $      50       $     73     $    (23 )   $      89     $    160     $    (71 )
Interest expense                     (1,510 )       (1,505 )         (5 )      (3,014 )     (3,011 )         (3 )
Net interest expense                 (1,460 )       (1,432 )        (28 )      (2,925 )     (2,851 )        (74 )
Investment income                     9,912          1,201        8,711        10,769        3,485        7,284
Dividend income                         347            841         (494 )       1,010        1,733         (723 )
Miscellaneous other income              205             81          124           268          124          144
Investment and other income          10,464          2,123        8,341        12,047        5,342        6,705
Non-operating income, GAAP basis      9,004            691        8,313         9,122        2,491        6,631
Net (income) loss attributable to
redeemable non-controlling
interest in partnership
investments                          (3,181 )          583       (3,764 )      (3,244 )       (125 )     (3,119 )
Non-operating income, net of
redeemable non-controlling
interest in partnership
investments, non-GAAP basis (1)
                                  $   5,823       $  1,274     $  4,549     $   5,878     $  2,366     $  3,512

(1) Non-operating income, net of redeemable non-controlling interest in partnership investments is a non-GAAP financial measure. Management believes this measure provides comparability of this information among reporting periods and is an effective measure for reviewing the Company's non-operating contribution to its results.

The following table provides a summary of the returns that we generated from our corporate investment portfolio. This table combines the investment and dividend income as reported in our consolidated statement of operations with the change in fair value of our investment securities that are recorded in accumulated other comprehensive income, a component of equity, for the second quarter and six months ended June 30, 2014:

                                                       Three Months Ended                                             Six Months Ended
                                                          June 30, 2014                                                 June 30, 2014

                                                          Change in Accumulated                                         Change in Accumulated
                                      Non-Operating        Other Comprehensive                      Non-Operating        Other Comprehensive
(in thousands)                         Income, net               Income              Total           Income, net               Income              Total
Funds and common
stock                              $         5,120        $             3,342     $    8,462     $         5,701        $             5,044     $   10,745
Partnership investments                      4,792                          -          4,792               5,068                          -          5,068
. . .
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