Pzena Investment Management, Inc. (NYSE: PZN) reported fourth quarter 2007 net income, generated through the company's 9.5% economic interest in the results of its operating company, of $0.7 million, or $0.12 per diluted share. Net income and earnings per diluted share for the full year 2007 were the same as for the fourth quarter, as these both represent results for the period subsequent to the company's initial public offering.
On a pro forma basis, the company reported fourth quarter 2007 net income of $1.1 million, or $0.18 per diluted share, compared with $1.2 million, or $0.20 per diluted share, for the fourth quarter of 2006, and $1.4 million, or $0.23 per diluted share, for the third quarter of 2007. For the year ended December 31, 2007, pro forma net income and earnings per diluted share were $4.9 million and $0.81, respectively, compared with $3.7 million and $0.60, respectively, for 2006.
The pro forma adjustments give effect to: (i) the company's initial public offering on October 30, 2007; (ii) the full year effect of the three-year $60 million term loan agreement completed by Pzena's operating company on July 23, 2007; (iii) the amendment of Pzena's operating company's operating agreement on March 31, 2007 to remove all mandatory unit redemption provisions; and (iv) the acceleration of all outstanding unvested operating company units and options as of March 31, 2007. All such adjustments have been recorded as if they had occurred at the beginning of each period presented. All pro forma earnings per share figures have been presented assuming that all stock and stock equivalents have been outstanding as of the beginning of each period presented. Management believes that these adjustments, and the non-GAAP measures derived from them, provide information to better analyze the company's operations between periods and over time. Investors should consider non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. A reconciliation of the non-GAAP measures disclosed in this press release with the most comparable GAAP measures are included in the financial tables attached to this press release.
Flows and Assets Under Management
Assets Under Management |  |  |  |  |  | |||||
($ billions) | ||||||||||
Three Months Ended | Year Ended | |||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||
2007 | 2007 | 2006 | 2007 | 2006 | ||||||
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Separately-Managed Accounts | ||||||||||
Beginning of Period Assets | $16.0 | $16.5 | $13.4 | $14.5 | $10.4 | |||||
Net Flows | (0.1) | 0.7 | 0.2 | 1.5 | 2.1 | |||||
Appreciation | (1.9) | (1.2) | 0.9 | (2.0) | 2.0 | |||||
End of Period Assets | $14.0 | $16.0 | $14.5 | $14.0 | $14.5 | |||||
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Sub-Advised Accounts | ||||||||||
Beginning of Period Assets | $12.9 | $14.1 | $11.5 | $12.8 | $6.4 | |||||
Net Flows | (1.7) | (0.3) | 0.7 | (1.6) | 4.7 | |||||
Appreciation | (1.6) | (0.9) | 0.6 | (1.6) | 1.7 | |||||
End of Period Assets | $9.6 | $12.9 | $12.8 | $9.6 | $12.8 | |||||
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Total | ||||||||||
Beginning of Period Assets | $28.9 | $30.6 | $24.9 | $27.3 | $16.8 | |||||
Net Flows | (1.8) | 0.4 | 0.9 | (0.1) | 6.8 | |||||
Appreciation | (3.5) | (2.1) | 1.5 | (3.6) | 3.7 | |||||
End of Period Assets | $23.6 | $28.9 | $27.3 | $23.6 | $27.3 | |||||
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At December 31, 2007, the company managed $23.6 billion in total assets, a decrease of 18.3% from $28.9 billion at September 30, 2007, and a decrease of 13.6% from $27.3 billion at December 31, 2006. During the fourth quarter of 2007, assets under management declined due to $3.5 billion in market depreciation and $1.8 billion in net outflows. The net outflows were nearly all in the sub-advised funds. The decrease year-over-year in assets under management was due almost entirely to $3.6 billion in market depreciation.
At December 31, 2007, the company managed $14.0 billion in separate accounts and $9.6 billion in sub-advised funds, for a total of $23.6 billion in assets. During the fourth quarter of 2007, assets in separately-managed accounts decreased $2.0 billion, or 12.5%, from $16.0 billion at September 30, 2007, due to $1.9 billion in market depreciation and $0.1 billion in net outflows. During the same period, sub-advised assets declined $3.3 billion, or 25.6%, from $12.9 billion, due to $1.7 billion in net outflows and $1.6 billion in market depreciation.
For the year ended December 31, 2007, assets in separately-managed accounts decreased $0.5 billion, or 3.4%, from $14.5 billion at December 31, 2006, due to $2.0 billion in market depreciation, offset by net inflows of $1.5 billion. During the same period, sub-advised assets decreased $3.2 billion, or 25.0%, from $12.8 billion, due to $1.6 billion in net outflows and $1.6 billion in market depreciation.
Commenting on the quarterly and full year results, Chief Executive Officer Richard Pzena said, "In a very difficult environment for value investors, our performance suffered during the fourth quarter. The Russell 1000 Value Index was negative for the year, and our Large Cap Value Service - what we would call a deep value portfolio - fell by 12.3%. That underperformance led to asset outflows, predominantly among our sub-advised relationships. But minimal attrition among our institutional clients is a reflection of their understanding of our rigorous research and discipline. In fact, we have launched a new financials-only service specifically to capitalize on the extraordinary opportunity our research tells us can be found in the financial sector.
Financial Discussion
Revenue |  |  |  |  |  | |||||
($ millions) | ||||||||||
Three Months Ended | Year Ended | |||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||
2007 | 2007 | 2006 | 2007 | 2006 | ||||||
 | ||||||||||
Separately-Managed Accounts | $24.2 | $26.6 | $23.1 | $99.8 | $80.8 | |||||
Sub-Advised Accounts | 10.6 | 13.6 | 10.8 | 47.3 | 34.3 | |||||
Total | $34.8 | $40.2 | $33.9 | $147.1 | $115.1 | |||||
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Revenues were $34.8 million for the fourth quarter of 2007, an increase of 2.7% from $33.9 million for the fourth quarter of 2006, and a decrease of 13.4% from $40.2 million for the third quarter of 2007. For the year ended December 31, 2007, revenues were $147.1 million, an increase of 27.8% from $115.1 million the prior year.
Average assets under management for the fourth quarter of 2007 were $26.4 billion, an increase of 1.1% from $26.1 billion for the fourth quarter of 2006, and a decrease of 10.2% from $29.4 billion for the third quarter of 2007. For the full year 2007, average assets under management were $28.3 billion, an increase of 28.1% from $22.1 billion for the full year 2006.
Weighted average fees increased to 53.0 basis points in the fourth quarter of 2007, from an average of 51.5 basis points during the first three quarters of the year, mainly due to the shift in asset mix to separately-managed accounts, as well as an increase in separately-managed account fees to an average of 64.9 basis points during the fourth quarter from an average of 64.3 basis points during the first three quarters of the year.
Total operating expenses declined by 94.5% in the fourth quarter of 2007 compared to the fourth quarter of 2006, reflecting the accounting implications of the amendment of the company's operating agreement on March 31, 2007 to remove the mandatory redemption provisions of its membership units. For the same reasons, total operating expenses for the full year 2007 declined by 54.6% compared to the full year 2006. Compared to the third quarter of 2007, fourth quarter 2007 operating expenses increased approximately 18.5%, primarily as a result of increased professional fees associated with the company's initial public offering.
On a pro forma basis, total operating expenses in the fourth quarter of 2007 increased 1.5% compared with the fourth quarter of 2006, and increased 2.6% compared with the third quarter of 2007. Pro forma total operating expenses increased by 6.2% in 2007 compared with 2006, due to growth in employee headcount and expenses associated with the initial public offering.
Management anticipates 2008 total operating expenses to be slightly higher than those of 2007, due to additional costs of operating as a public company (e.g., accounting and legal requirements, Sarbanes-Oxley compliance, etc.), and the full year effect of the personnel added during 2007. As of December 31, 2007, employee headcount was 79, up from 65 at December 31, 2006. This change arose as a result of staffing increases in nearly all of the company's functional areas, commensurate with its growth.
Operating margin was 59.9% for the fourth quarter of 2007, compared with a negative 643.1% for the fourth quarter of 2006, and 70.7% for the third quarter of 2007. For the full year 2007, operating margin was 3.0%, compared with a negative 172.8% for 2006.
Pro forma operating margin was 65.3% for the fourth quarter of 2007, compared with 64.9% for the fourth quarter of 2006, and 70.7% for the third quarter of 2007. For the full year 2007, the pro forma operating margin increased to 68.8% from 62.5% for 2006.
Other income decreased by $5.3 million for the fourth quarter of 2007 compared with the fourth quarter of 2006 and decreased $0.9 million from the third quarter of 2007. This was primarily the result of the performance of company investments, as well as the effect of the $60 million term loan entered into on July 23, 2007. The full year decline of $8.3 million for 2007 compared to 2006 was attributable to the same factors.
On a pro forma basis, other income declined $4.3 million for the fourth quarter of 2007 compared with the fourth quarter of 2006, and decreased $0.6 million from the third quarter of 2007. In both comparative periods, the decrease was primarily the result of the performance of company investments. The full year decline of $6.6 million for 2007 compared to 2006 was attributable to the same factors.
Capital and Liquidity
Today, the company amended its Credit Agreement with its bank to, among other things, modify the covenants and reduce the size of the revolving credit facility. A complete description of the amendment has been filed in an 8-K dated February 11, 2008.
Fourth Quarter 2007 Earnings Call Information
Pzena Investment Management will host a conference call to discuss the company's financial results on Tuesday, February 12, at 10:00 a.m. EST. The call will be open to the public.
Webcast Instructions: To gain access to the webcast, which will be "listen-only, go to www.mshow.com to register. The show number is 340929. Select the streaming audio option when you join the conference call. (Please note that your computer must be equipped with speakers and the appropriate software to use this option.)
Teleconference Instructions: To gain access to the conference call via telephone, U.S. and Canada callers should dial (877) 820-5027; international callers should dial (706) 679-9396. The conference code is 30723032.
Replay: The conference call will be available for replay at the above access points through February 19, 2008.
About Pzena Investment Management
Pzena Investment Management, LLC, the operating company of Pzena Investment Management, Inc., is a premier value-oriented investment management company with a record of investment excellence and exceptional client service. Founded in late 1995, Pzena Investment Management has built a diverse, global client base. PZN stock began trading on the New York Stock Exchange on October 25, 2007. More company and stock information is posted on the company's website, www.pzena.com.
Forward Looking Statements
From time to time, information or statements provided by us, including those within this news release, may contain certain forward-looking statements relating to future events, future financial performance, strategies, expectations, competitive environment and regulations. Forward-looking statements are based on information available at the time those statements are made and/or management's 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. Such risks and uncertainties include, but are not limited to: loss of revenues due to contract terminations and redemptions, our ownership structure, catastrophic or unpredictable events, unavailability of third-party retail distribution channels, damage to our reputation, our interpretation of and positioning relative to the market, fluctuations in the financial markets and the competitive conditions in the mutual fund, asset management and broader financial services sectors. For a discussion concerning some of these and other risks, uncertainties and other important factors that could affect future results, see "Forward-Looking Statements" and, where applicable, "Risk Factors" in the company's Prospectus dated October 24, 2007 and quarterly reports filed with the U.S. Securities and Exchange Commission.
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Contact: Wayne Palladino, (212) 583-0179 or palladino@pzena.com |
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PZENA INVESTMENT MANAGEMENT, INC. | |||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | |||||||||||
 |  |  |  |  | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | |||||||||||
(in thousands) | |||||||||||
 | |||||||||||
As of | |||||||||||
December 31, | December 31, | ||||||||||
 | 2007 |  |  | 2006 |  | ||||||
(unaudited) | |||||||||||
ASSETS | |||||||||||
Cash and Cash Equivalents | $ | 26,547 | $ | 30,920 | |||||||
Advisory Fees Receivable | 26,061 | 25,216 | |||||||||
Investments in Marketable Securities | 27,465 | 23,247 | |||||||||
Other Assets | 5,474 | 6,750 | |||||||||
Investments in Affiliates | - | 3,613 | |||||||||
Deferred Tax Assets |  | 68,387 |  |  | - |  | |||||
TOTAL ASSETS | $ | 153,934 |  | $ | 89,746 |  | |||||
 | |||||||||||
LIABILITIES AND EQUITY | |||||||||||
Liabilities: | |||||||||||
Accounts Payable and Accrued Expenses | $ | 8,696 | $ | 4,082 | |||||||
Securities Sold Short | 1,028 | 876 | |||||||||
Compensatory Units Subject | - | 263,980 | |||||||||
Long Term Debt | 60,000 | - | |||||||||
Liability to Selling Shareholders | 58,391 | - | |||||||||
Other Liabilities |  | 11,385 |  |  | 3,822 |  | |||||
Subtotal | 139,500 | 272,760 | |||||||||
Capital Units Subject |  | - |  |  | 533,553 |  | |||||
TOTAL LIABILITIES | 139,500 | 806,313 | |||||||||
 | |||||||||||
Commitments and Contingencies | - | - | |||||||||
Minority and Non-Controlling Interests | 16,355 | 13,399 | |||||||||
Excess of Liabilities over Assets | - | (729,966 | ) | ||||||||
 | |||||||||||
TOTAL EQUITY |  | (1,921 | ) |  | - |  | |||||
TOTAL LIABILITIES AND EQUITY | $ | 153,934 |  | $ | 89,746 |  | |||||
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PZENA INVESTMENT MANAGEMENT, INC. | ||||||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | ||||||||||||||||||
 |  |  |  |  |  | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
(in thousands, except share and per-share amounts) | ||||||||||||||||||
 | ||||||||||||||||||
For the Quarter Ended | For the Year Ended | |||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
REVENUE | $ | 34,794 |  | $ | 33,889 |  | $ | 147,149 |  | $ | 115,087 |  | ||||||
 | ||||||||||||||||||
EXPENSES | ||||||||||||||||||
Compensation and Benefits Expense | 8,488 | 248,764 | 129,701 | 305,632 | ||||||||||||||
General and Administrative Expenses |  | 5,451 |  |  | 3,089 |  |  | 13,038 |  |  | 8,380 |  | ||||||
TOTAL OPERATING EXPENSES |  | 13,939 |  |  | 251,853 |  |  | 142,739 |  |  | 314,012 |  | ||||||
Operating Income/(Loss) |  | 20,855 |  |  | (217,964 | ) |  | 4,410 |  |  | (198,925 | ) | ||||||
 | ||||||||||||||||||
Total Other Income/(Expense) | (2,476 | ) | 2,822 | (2,136 | ) | 6,114 | ||||||||||||
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Income/(Loss) Before Income Taxes and | ||||||||||||||||||
Minority and Non-Controlling Interests | 18,379 | (215,142 | ) | 2,274 | (192,811 | ) | ||||||||||||
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Provision for Income Taxes | 1,734 | 869 | 5,610 | 3,941 | ||||||||||||||
Minority and Non-Controlling Interests |  | 15,912 |  |  | 674 |  |  | (20,644 | ) |  | 1,997 |  | ||||||
Income/(Loss) Before Interest on | ||||||||||||||||||
Mandatorily Redeemable Units | 733 | (216,685 | ) | 17,308 | (198,749 | ) | ||||||||||||
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Interest on Mandatorily Redeemable Units | - | 469,957 | 16,575 | 516,708 | ||||||||||||||
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Net Income/(Loss) | $ | 733 |  | $ | (686,642 | ) | $ | 733 |  | $ | (715,457 | ) | ||||||
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Basic Earnings per Share | $ | 0.12 | $ | 0.12 | ||||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | 6,111,118 | ||||||||||||||||
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Diluted Earnings per Share | $ | 0.12 | $ | 0.12 | ||||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | 6,118,868 | ||||||||||||||||
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PZENA INVESTMENT MANAGEMENT, INC. | ||||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | ||||||||||||||||
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands, except share and per-share amounts) | ||||||||||||||||
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Pro Forma | Pro Forma | |||||||||||||||
For the Quarter Ended | For the Year Ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
REVENUE | $ | 34,794 |  | $ | 33,889 | $ | 147,149 |  | $ | 115,087 | ||||||
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EXPENSES | ||||||||||||||||
Compensation and Benefits Expense | 7,686 | 8,810 | 33,925 | 34,830 | ||||||||||||
General and Administrative Expenses |  | 4,388 |  |  | 3,089 |  | 11,975 |  |  | 8,380 | ||||||
TOTAL OPERATING EXPENSES |  | 12,074 |  |  | 11,899 |  | 45,900 |  |  | 43,210 | ||||||
Operating Income/(Loss) |  | 22,720 |  |  | 21,990 |  | 101,249 |  |  | 71,877 | ||||||
 | ||||||||||||||||
Total Other Income / (Expense) | (2,476 | ) | 1,855 | (4,309 | ) | 2,250 | ||||||||||
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Income/(Loss) Before Income Taxes and | ||||||||||||||||
Minority and Non-Controlling Interests | 20,244 | 23,845 | 96,940 | 74,127 | ||||||||||||
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Provision for Income Taxes | 2,026 | 1,764 | 9,029 | 6,625 | ||||||||||||
Minority and Non-Controlling Interests |  | 17,111 |  |  | 20,882 |  | 82,976 |  |  | 63,848 | ||||||
Income/(Loss) Before Interest on | ||||||||||||||||
Mandatorily Redeemable Units | 1,107 | 1,199 | 4,935 | 3,654 | ||||||||||||
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Interest on Mandatorily Redeemable Units | - | - | - | - | ||||||||||||
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Net Income/(Loss) | $ | 1,107 |  | $ | 1,199 | $ | 4,935 |  | $ | 3,654 | ||||||
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Basic Earnings per Share | $ | 0.18 | $ | 0.20 | $ | 0.81 | $ | 0.60 | ||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | 6,111,118 | 6,111,118 | 6,111,118 | ||||||||||||
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Diluted Earnings per Share | $ | 0.18 | $ | 0.20 | $ | 0.81 | $ | 0.60 | ||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | 6,118,868 | 6,118,868 | 6,118,868 | ||||||||||||
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PZENA INVESTMENT MANAGEMENT, INC. | |||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | |||||||||||||||
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(in thousands, except share and per-share amounts) | |||||||||||||||
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Pro Forma | |||||||||||||||
Quarter Ended | Quarter Ended | ||||||||||||||
December 31, | Pro Forma | December 31, | |||||||||||||
2007 | Adjustments | 2007 | |||||||||||||
REVENUE | $ | 34,794 |  | $ | - |  | $ | 34,794 |  | ||||||
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EXPENSES | |||||||||||||||
Compensation and Benefits Expense | 8,488 | (802 | ) | D | 7,686 | ||||||||||
General and Administrative Expenses |  | 5,451 |  |  | (1,063 | ) | A |  | 4,388 |  | |||||
TOTAL OPERATING EXPENSES |  | 13,939 |  |  | (1,865 | ) |  | 12,074 |  | ||||||
Operating Income/(Loss) |  | 20,855 |  |  | 1,865 |  |  | 22,720 |  | ||||||
 | |||||||||||||||
Total Other Income/(Expense) | (2,476 | ) | - | (2,476 | ) | ||||||||||
 | |||||||||||||||
Income/(Loss) Before Income Taxes and | |||||||||||||||
Minority and Non-Controlling Interests | 18,379 | 1,865 | 20,244 | ||||||||||||
 | |||||||||||||||
Provision for Income Taxes | 1,734 | 292 | B | 2,026 | |||||||||||
Minority and Non-Controlling Interests |  | 15,912 |  |  | 1,199 |  | C |  | 17,111 |  | |||||
Income/(Loss) Before Interest on | |||||||||||||||
Mandatorily Redeemable Units | 733 | 374 | 1,107 | ||||||||||||
 | |||||||||||||||
Interest on Mandatorily Redeemable Units | - | - | - | ||||||||||||
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Net Income/(Loss) | $ | 733 |  | $ | 374 |  | $ | 1,107 |  | ||||||
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Basic Earnings per Share | $ | 0.18 | |||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | ||||||||||||||
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Diluted Earnings per Share | $ | 0.18 | |||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | ||||||||||||||
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PZENA INVESTMENT MANAGEMENT, INC. | |||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | |||||||||||||||
 |  |  |  |  | |||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(in thousands, except share and per-share amounts) | |||||||||||||||
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Pro Forma | |||||||||||||||
Quarter Ended | Quarter Ended | ||||||||||||||
September 30, | Pro Forma | September 30, | |||||||||||||
2007 | Adjustments | 2007 | |||||||||||||
REVENUE | $ | 40,217 |  | $ | - |  | $ | 40,217 |  | ||||||
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EXPENSES | |||||||||||||||
Compensation and Benefits Expense | 8,807 | - | 8,807 | ||||||||||||
General and Administrative Expenses |  | 2,958 |  |  | - |  |  | 2,958 |  | ||||||
TOTAL OPERATING EXPENSES |  | 11,765 |  |  | - |  |  | 11,765 |  | ||||||
Operating Income/(Loss) |  | 28,452 |  |  | - |  |  | 28,452 |  | ||||||
 | |||||||||||||||
Total Other Income/(Expense) | (1,621 | ) | (243 | ) | E | (1,864 | ) | ||||||||
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Income/(Loss) Before Income Taxes and | |||||||||||||||
Minority and Non-Controlling Interests | 26,831 | (243 | ) | 26,588 | |||||||||||
 | |||||||||||||||
Provision for Income Taxes | 1,269 | 1,078 | 2,347 | ||||||||||||
Minority and Non-Controlling Interests |  | (711 | ) |  | 23,555 |  |  | 22,844 |  | ||||||
Income/(Loss) Before Interest on | |||||||||||||||
Mandatorily Redeemable Units | 26,273 | (24,876 | ) | 1,397 | |||||||||||
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Interest on Mandatorily Redeemable Units | - | - | - | ||||||||||||
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Net Income/(Loss) | $ | 26,273 |  | $ | (24,876 | ) | $ | 1,397 |  | ||||||
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Basic Earnings per Share | $ | 0.23 | |||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | ||||||||||||||
 | |||||||||||||||
Diluted Earnings per Share | $ | 0.23 | |||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | ||||||||||||||
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PZENA INVESTMENT MANAGEMENT, INC. | ||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | ||||||||||||||
 |  |  |  |  | ||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
(in thousands, except share and per-share amounts) | ||||||||||||||
 | ||||||||||||||
Pro Forma | ||||||||||||||
Quarter Ended | Quarter Ended | |||||||||||||
December 31, | Pro Forma | December 31, | ||||||||||||
2006 | Adjustments | 2006 | ||||||||||||
REVENUE | $ | 33,889 |  | $ | - |  | $ | 33,889 | ||||||
 | ||||||||||||||
EXPENSES | ||||||||||||||
Compensation and Benefits Expense | 248,764 | (239,954 | ) | D | 8,810 | |||||||||
General and Administrative Expenses |  | 3,089 |  |  | - |  |  | 3,089 | ||||||
TOTAL OPERATING EXPENSES |  | 251,853 |  |  | (239,954 | ) |  | 11,899 | ||||||
Operating Income/(Loss) |  | (217,964 | ) |  | 239,954 |  |  | 21,990 | ||||||
 | ||||||||||||||
Total Other Income/(Expense) | 2,822 | (967 | ) | E | 1,855 | |||||||||
 | ||||||||||||||
Income/(Loss) Before Income Taxes and | ||||||||||||||
Minority and Non-Controlling Interests | (215,142 | ) | 238,987 | 23,845 | ||||||||||
 | ||||||||||||||
Provision for Income Taxes | 869 | 895 | B | 1,764 | ||||||||||
Minority and Non-Controlling Interests |  | 674 |  |  | 20,208 |  | C |  | 20,882 | |||||
Income/(Loss) Before Interest on | ||||||||||||||
Mandatorily Redeemable Units | (216,685 | ) | 217,884 | 1,199 | ||||||||||
 | ||||||||||||||
Interest on Mandatorily Redeemable Units | 469,957 | (469,957 | ) | F | - | |||||||||
 | ||||||||||||||
Net Income/(Loss) | $ | (686,642 | ) | $ | 687,841 |  | $ | 1,199 | ||||||
 | ||||||||||||||
Basic Earnings per Share | $ | 0.20 | ||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | |||||||||||||
 | ||||||||||||||
Diluted Earnings per Share | $ | 0.20 | ||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | |||||||||||||
 |
 | |||||||||||||||
PZENA INVESTMENT MANAGEMENT, INC. | |||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | |||||||||||||||
 |  |  |  |  | |||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(in thousands, except share and per-share amounts) | |||||||||||||||
 | |||||||||||||||
Pro Forma | |||||||||||||||
Year Ended | Year Ended | ||||||||||||||
December 31, | Pro Forma | December 31, | |||||||||||||
2007 | Adjustments | 2007 | |||||||||||||
REVENUE | $ | 147,149 |  | $ | - |  | $ | 147,149 |  | ||||||
 | |||||||||||||||
EXPENSES | |||||||||||||||
Compensation and Benefits Expense | 129,701 | (95,776 | ) | D | 33,925 | ||||||||||
General and Administrative Expenses |  | 13,038 |  |  | (1,063 | ) | A |  | 11,975 |  | |||||
TOTAL OPERATING EXPENSES |  | 142,739 |  |  | (96,839 | ) |  | 45,900 |  | ||||||
Operating Income/(Loss) |  | 4,410 |  |  | 96,839 |  |  | 101,249 |  | ||||||
 | |||||||||||||||
Total Other Income/(Expense) | (2,136 | ) | (2,173 | ) | E | (4,309 | ) | ||||||||
 | |||||||||||||||
Income/(Loss) Before Income Taxes and | |||||||||||||||
Minority and Non-Controlling Interests | 2,274 | 94,666 | 96,940 | ||||||||||||
 | |||||||||||||||
Provision for Income Taxes | 5,610 | 3,419 | B | 9,029 | |||||||||||
Minority and Non-Controlling Interests |  | (20,644 | ) |  | 103,620 |  | C |  | 82,976 |  | |||||
Income/(Loss) Before Interest on | |||||||||||||||
Mandatorily Redeemable Units | 17,308 | (12,373 | ) | 4,935 | |||||||||||
 | |||||||||||||||
Interest on Mandatorily Redeemable Units | 16,575 | (16,575 | ) | F | - | ||||||||||
 | |||||||||||||||
Net Income/(Loss) | $ | 733 |  | $ | 4,202 |  | $ | 4,935 |  | ||||||
 | |||||||||||||||
Basic Earnings per Share | $ | 0.81 | |||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | ||||||||||||||
 | |||||||||||||||
Diluted Earnings per Share | $ | 0.81 | |||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | ||||||||||||||
 |
 | ||||||||||||||
PZENA INVESTMENT MANAGEMENT, INC. | ||||||||||||||
(Prior to October 30, 2007 - Pzena Investment Management, LLC) | ||||||||||||||
 |  |  |  |  | ||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
(in thousands, except share and per-share amounts) | ||||||||||||||
 | ||||||||||||||
Pro Forma | ||||||||||||||
Year Ended | Year Ended | |||||||||||||
December 31, | Pro Forma | December 31, | ||||||||||||
2006 | Adjustments | 2006 | ||||||||||||
REVENUE | $ | 115,087 |  | $ | - |  | $ | 115,087 | ||||||
 | ||||||||||||||
EXPENSES | ||||||||||||||
Compensation and Benefits Expense | 305,632 | (270,802 | ) | D | 34,830 | |||||||||
General and Administrative Expenses |  | 8,380 |  |  | - |  |  | 8,380 | ||||||
TOTAL OPERATING EXPENSES |  | 314,012 |  |  | (270,802 | ) |  | 43,210 | ||||||
Operating Income/(Loss) |  | (198,925 | ) |  | 270,802 |  |  | 71,877 | ||||||
 | ||||||||||||||
Total Other Income/(Expense) | 6,114 | (3,864 | ) | E | 2,250 | |||||||||
 | ||||||||||||||
Income/(Loss) Before Income Taxes and | ||||||||||||||
Minority and Non-Controlling Interests | (192,811 | ) | 266,938 | 74,127 | ||||||||||
 | ||||||||||||||
Provision for Income Taxes | 3,941 | 2,684 | B | 6,625 | ||||||||||
Minority and Non-Controlling Interests |  | 1,997 |  |  | 61,851 |  | C |  | 63,848 | |||||
Income/(Loss) Before Interest on | ||||||||||||||
Mandatorily Redeemable Units | (198,749 | ) | 202,403 | 3,654 | ||||||||||
 | ||||||||||||||
Interest on Mandatorily Redeemable Units | 516,708 | (516,708 | ) | F | - | |||||||||
 | ||||||||||||||
Net Income/(Loss) | $ | (715,457 | ) | $ | 719,111 |  | $ | 3,654 | ||||||
 | ||||||||||||||
Basic Earnings per Share | $ | 0.60 | ||||||||||||
Basic Weighted Average Shares Outstanding | 6,111,118 | |||||||||||||
 | ||||||||||||||
Diluted Earnings per Share | $ | 0.60 | ||||||||||||
Diluted Weighted Average Shares Outstanding | 6,118,868 | |||||||||||||
 |
NOTES TO THE PRO FORMA ADJUSTMENTS:
(A) |  | Represents an adjustment to remove one-time costs associated with the direct additional legal and accounting fees incurred by Pzena Investment Management, LLC as a result of the initial public offering of Pzena Investment Management, Inc. on October 30, 2007. |
 | ||
(B) | Reflects the pro forma impact of federal, state and local taxes on the income allocated from Pzena Investment Management, LLC. Historically, the operating company was subject solely to the New York City Unincorporated Business Tax (UBT). | |
 | ||
For periods prior to July 23, 2007, taxes have been adjusted to reflect the full-period UBT deductibility of the interest expense associated with the three-year, $60 million term loan agreement completed by the operating company on July 23, 2007. | ||
 | ||
(C) | Represents the non-controlling interest allocation of approximately 90.5% of the income of Pzena Investment Management, Inc. to Pzena Investment Management, LLC. | |
 | ||
(D) | Reflects an adjustment to remove unit-based compensation charges and one-time merit compensation associated with the initial public offering. Effective March 31, 2007, the obligation of the operating company to mandatorily redeem its membership units was eliminated. Also on this date, vesting on all outstanding unvested operating company units and options was accelerated. As a result of these changes, there will be no further unit-based compensation expense as of and from this date. | |
 | ||
(E) | Represents the full-period effect of interest expense and loan origination fees amortization associated with the three-year, $60 million term loan agreement completed by the operating company on July 23, 2007. | |
 | ||
(F) | Reflects an adjustment to remove unit-based interest expense. Effective March 31, 2007, the obligation of the operating company to mandatorily redeem its membership units was eliminated. Accordingly, there will be no unit-based interest expense as of and from this date. | |
 |
 |  | ||||||
Assets Under Management by Strategy | |||||||
($ billions) |  | ||||||
 | |||||||
December 31, | September 30, | December 31, | |||||
2007 | 2007 | 2006 | |||||
 | |||||||
Large Cap Value | $13.6 | $17.3 | $18.1 | ||||
Value Service | 5.0 | 5.8 | 5.7 | ||||
Global Value | 2.6 | 2.9 | 0.9 | ||||
Small Cap Value | 0.9 | 1.1 | 1.1 | ||||
Mid Cap Value | 0.4 | 0.6 | 0.6 | ||||
International Value | 0.5 | 0.6 | 0.4 | ||||
All Cap Value | 0.4 | 0.4 | 0.5 | ||||
Other | 0.2 | 0.2 | - | ||||
Total | $23.6 | $28.9 | $27.3 |