AFFILIATED MANAGERS GROUP, INC. 10-K

Item 8. Financial Statements and Supplementary Data Management’s Report on Internal Control Over Financial Reporting Management of Affiliated Managers Group, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting processes are designed by, or under the supervision of, the Company’s chief executive and chief financial officers and applied by the Company’s Board of Directors, management and other senior employees to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the U.S. The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S., and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. As of December 31, 2021, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2021 was effective. As of December 31, 2021, management excluded Parnassus Investments ("Parnassus") and Abacus Capital Group LLC (“Abacus”) from its assessment of internal control over financial reporting because it completed majority investments that were accounted for as business combinations in 2021. Parnassus and Abacus' total assets and total revenues collectively represent approximately 0.8% and 3.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. The Company’s internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in “Report of Independent Registered Public Accounting Firm,” which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. 38 Table of Contents Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) To the Board of Directors and Stockholders of Affiliated Managers Group, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Affiliated Managers Group, Inc. and its affiliates (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Parnassus Investments (“Parnassus”) and Abacus Capital Group, LLC (“Abacus”) from its assessment of internal control over financial reporting as of December 31, 2021 because the Company completed majority investments that were accounted for as business combinations during 2021. We have also excluded Parnassus and Abacus from our audit of internal control over financial reporting. Parnassus and Abacus’ total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 0.8% and 3.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 39 Table of Contents dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Acquisition of Parnassus - Acquired Client Relationships As described in Note 9 to the consolidated financial statements, the Company completed a majority investment in Parnassus on October 1, 2021. As disclosed by management, the Company determined the fair value of certain assets (including acquired client relationships, an intangible asset), liabilities, and equity interests when allocating the purchase price of Parnassus by using a discounted cash flow analysis that included projected growth rates of assets under management and discount rate assumptions. The fair value of the acquired client relationships in 2021 were $957.0 million, the majority of which were from the acquisition of Parnassus. The principal considerations for our determination that performing procedures relating to the acquisition of Parnassus - acquired client relationships is a critical audit matter are (i) the significant judgment by management when determining the fair value, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the projected growth rates of assets under management and the discount rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired client relationships and the development of significant assumptions related to the projected growth rates of assets under management and the discount rate. These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for determining the fair value of the acquired client relationships. Testing management’s process included evaluating the appropriateness of the discounted cash flow analysis, testing the completeness and accuracy of data used by management in the discounted cash flow analysis, and evaluating the reasonableness of significant assumptions related to the projected growth rates of assets under management and the discount rate. Evaluating the reasonableness of the projected growth rates of assets under management involved considering (i) the consistency with external market and industry data, (ii) the consistency with past performance of Parnassus, and (iii) whether the projected growth rates were consistent with evidence obtained in other areas of the audit. The reasonableness of the discount rate assumption was evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analysis and the discount rate assumption. Impairment Evaluation for Equity Method Investments in Affiliates As described in Notes 1 and 11 to the consolidated financial statements, the Company’s equity method investments in affiliates balance was $2,134.4 million as of December 31, 2021. Management periodically evaluates its equity method investments in affiliates for impairment by performing assessments to determine if fair value may have declined below related carrying value for a period that they consider to be other-than-temporary. In the fourth quarter of 2021, management concluded that due to declines in assets under management and reductions in projected growth that there was a $52.0 million impairment to reduce the carrying value of an affiliate to fair value. The fair value of the investment was determined using probability-weighted discounted cash flow analyses that require assumptions such as growth rates of assets under management and discount rates. 40 Table of Contents The principal considerations for our determination that performing procedures relating to the impairment evaluation for equity method investments in affiliates is a critical audit matter are (i) the significant judgment by management to evaluate the significant assumptions used in the discounted cash flow analyses to determine the fair value of the investment, which was used to determine the amount that fair value had declined below its related carrying value for a period considered to be other-than-temporary, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the growth rates of assets under management and discount rates used in the impairment evaluation, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment evaluation for equity method investments in affiliates, including controls over the discounted cash flow analyses and significant assumptions used to determine the fair value of equity method investments in affiliates. These procedures also included, among others, testing management’s process for determining the fair value of its equity method investments in affiliates, including evaluating the appropriateness of the discounted cash flow analyses, testing the completeness and accuracy of the underlying data used in the discounted cash flow analyses, and evaluating the reasonableness of the significant assumptions used by management in developing the fair value measurement related to the growth rates of assets under management and discount rates. Evaluating the reasonableness of the growth rates of assets under management involved considering (i) the consistency with external market and industry data, (ii) the consistency with past performance of the affiliate, and (iii) whether the growth rates were consistent with evidence obtained in other areas of the audit. The reasonableness of the discount rate assumption was evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rates used to determine whether the fair value of the equity method investment had declined below its carrying value for a period considered to be other-than-temporary. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 18, 2022 We have served as the Company’s auditor since 1993. 41 Table of Contents AFFILIATED MANAGERS GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share data) For the Years Ended December 31, 2019 2020 2021 Consolidated revenue $ 2,239.6 $ 2,027.5 $ 2,412.4 Consolidated expenses: Compensation and related expenses 943.0 883.7 1,047.1 Selling, general and administrative 376.8 321.4 347.1 Intangible amortization and impairments 144.5 140.5 35.7 Interest expense 76.2 92.3 111.4 Depreciation and other amortization 21.3 19.1 16.6 Other expenses (net) 57.0 52.8 73.5 Total consolidated expenses 1,618.8 1,509.8 1,631.4 Equity method income (loss) (net) ( 338.0 ) ( 43.4 ) 242.5 Investment and other income 25.2 34.1 117.6 Income before income taxes 308.0 508.4 1,141.1 Income tax expense 2.9 81.4 251.0 Net income 305.1 427.0 890.1 Net income (non-controlling interests) ( 289.4 ) ( 224.8 ) ( 324.4 ) Net income (controlling interest) $ 15.7 $ 202.2 $ 565.7 Average shares outstanding (basic) 50.5 46.5 41.5 Average shares outstanding (diluted) 50.6 46.7 44.8 Earnings per share (basic) $ 0.31 $ 4.34 $ 13.65 Earnings per share (diluted) $ 0.31 $ 4.33 $ 13.05 The accompanying notes are an integral part of the Consolidated Financial Statements. 42 Table of Contents AFFILIATED MANAGERS GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) For the Years Ended December 31, 2019 2020 2021 Net income $ 305.1 $ 427.0 $ 890.1 Other comprehensive income (loss), net of tax: Foreign currency translation gain 10.9 15.2 6.8 Change in net realized and unrealized gain (loss) on derivative financial instruments 1.7 ( 1.5 ) 0.4 Other comprehensive income, net of tax 12.6 13.7 7.2 Comprehensive income 317.7 440.7 897.3 Comprehensive income (non-controlling interests) ( 301.8 ) ( 228.0 ) ( 321.2 ) Comprehensive income (controlling interest) $ 15.9 $ 212.7 $ 576.1 The accompanying notes are an integral part of the Consolidated Financial Statements. 43 Table of Contents AFFILIATED MANAGERS GROUP, INC. CONSOLIDATED BALANCE SHEETS (in millions, except par value) December 31, 2020 2021 Assets Cash and cash equivalents $ 1,039.7 $ 908.5 Receivables 421.6 419.2 Investments in marketable securities 74.9 78.5 Goodwill 2,661.4 2,689.2 Acquired client relationships (net) 1,048.8 1,966.4 Equity method investments in Affiliates (net) 2,074.8 2,134.4 Fixed assets (net) 79.6 73.9 Other investments 257.2 375.2 Other assets 230.9 231.1 Total assets $ 7,888.9 $ 8,876.4 Liabilities and Equity Payable and accrued liabilities $ 712.4 $ 789.1 Debt 2,312.1 2,490.4 Deferred income tax liability (net) 423.4 503.2 Other liabilities 452.2 709.2 Total liabilities 3,900.1 4,491.9 Commitments and contingencies (Note 8) Redeemable non-controlling interests 671.5 673.9 Equity: Common stock ($ 0.01 par value, 153.0 shares authorized; 58.5 shares issued in 2020 and 2021) 0.6 0.6 Additional paid-in capital 728.9 651.6 Accumulated other comprehensive loss ( 98.3 ) ( 87.9 ) Retained earnings 4,005.5 4,569.5 4,636.7 5,133.8 Less: Treasury stock, at cost ( 14.5 shares in 2020 and 18.3 shares in 2021) ( 1,857.0 ) ( 2,347.4 ) Total stockholders' equity 2,779.7 2,786.4 Non-controlling interests 537.6 924.2 Total equity 3,317.3 3,710.6 Total liabilities and equity $ 7,888.9 $ 8,876.4 The accompanying notes are an integral part of the Consolidated Financial Statements. 44 Table of Contents AFFILIATED MANAGERS GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions) Total Stockholders’ Equity Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock at Cost Non- controlling Interests Total Equity December 31, 2018 $ 0.6 $ 835.6 $ ( 109.0 ) $ 3,876.8 $ ( 1,146.6 ) $ 677.5 $ 4,134.9 Impact of adoption of new accounting standard (ASU 2018-02) — — — ( 6.6 ) — — ( 6.6 ) Net income — — — 15.7 — 289.4 305.1 Other comprehensive income, net of tax — — 0.2 — — 12.4 12.6 Share-based compensation — 49.9 — — — — 49.9 Common stock issued under share-based incentive plans — ( 34.0 ) — — 28.6 — ( 5.4 ) Share repurchases — 2.5 — — ( 363.3 ) — ( 360.8 ) Dividends ($ 1.28 per share) — — — ( 66.1 ) — — ( 66.1 ) Issuance costs and other — 0.1 — — — — 0.1 Affiliate equity activity: Affiliate equity compensation — 9.6 — — — 30.9 40.5 Issuances — ( 3.7 ) — — — 14.9 11.2 Purchases — 13.2 — — — ( 10.3 ) 2.9 Changes in redemption value of Redeemable non-controlling interests — ( 166.0 ) — — — — ( 166.0 ) Transfers to Redeemable non-controlling interests — — — — — ( 105.0 ) ( 105.0 ) Capital contributions and other — — — — — ( 0.3 ) ( 0.3 ) Distributions to non-controlling interests — — — — — ( 347.9 ) ( 347.9 ) December 31, 2019 $ 0.6 $ 707.2 $ ( 108.8 ) $ 3,819.8 $ ( 1,481.3 ) $ 561.6 $ 3,499.1 Net income — — — 202.2 — 224.8 427.0 Other comprehensive income, net of tax — — 10.5 — — 3.2 13.7 Share-based compensation — 67.4 — — — — 67.4 Common stock issued under share-based incentive plans — ( 40.9 ) — — 34.4 — ( 6.5 ) Share repurchases — ( 19.9 ) — — ( 410.1 ) — ( 430.0 ) Dividends ($ 0.35 per share) — — — ( 16.5 ) — — ( 16.5 ) Affiliate equity activity: Affiliate equity compensation — 20.9 — — — 30.9 51.8 Issuances — ( 5.1 ) — — — 25.2 20.1 Purchases — 58.7 — — — ( 14.5 ) 44.2 Changes in redemption value of Redeemable non-controlling interests — ( 59.4 ) — — — — ( 59.4 ) Transfers to Redeemable non-controlling interests — — — — — 7.8 7.8 Capital contributions and other — — — — — 4.9 4.9 Distributions to non-controlling interests — — — — — ( 306.3 ) ( 306.3 ) December 31, 2020 $ 0.6 $ 728.9 $ ( 98.3 ) $ 4,005.5 $ ( 1,857.0 ) $ 537.6 $ 3,317.3 Net income — — — 565.7 — 324.4 890.1 45 Table of Contents Other comprehensive income (loss), net of tax — — 10.4 — — ( 3.2 ) 7.2 Share-based compensation — 63.4 — — — — 63.4 Common stock issued under share-based incentive plans — ( 53.5 ) — — 36.8 — ( 16.7 ) Repurchases of junior convertible securities — ( 7.1 ) — — — — ( 7.1 ) Share repurchases — 17.3 — — ( 527.2 ) — ( 509.9 ) Dividends ($ 0.04 per share) — — — ( 1.7 ) — — ( 1.7 ) Investments in Affiliates — — — — — 247.0 247.0 Affiliate equity activity: Affiliate equity compensation — 17.0 — — — 45.9 62.9 Issuances — ( 16.7 ) — — — 120.6 103.9 Purchases — 23.9 — — — ( 21.1 ) 2.8 Changes in redemption value of Redeemable non-controlling interests — ( 121.6 ) — — — — ( 121.6 ) Transfers to Redeemable non-controlling interests — — — — — ( 3.9 ) ( 3.9 ) Capital contributions and other — — — — — 11.2 11.2 Distributions to non-controlling interests — — — — — ( 334.3 ) ( 334.3 ) December 31, 2021 $ 0.6 $ 651.6 $ ( 87.9 ) $ 4,569.5 $ ( 2,347.4 ) $ 924.2 $ 3,710.6 The accompanying notes are an integral part of the Consolidated Financial Statements. 46 Table of Contents AFFILIATED MANAGERS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) For the Years Ended December 31, 2019 2020 2021 Cash flow from (used in) operating activities: Net income $ 305.1 $ 427.0 $ 890.1 Adjustments to reconcile Net income to cash flow from (used in) operating activities: Intangible amortization and impairments 144.5 140.5 35.7 Depreciation and other amortization 21.3 19.1 16.6 Deferred income tax (benefit) expense ( 55.8 ) 26.8 91.2 Equity method loss (income) (net) 338.0 43.4 ( 242.5 ) Distributions of earnings received from equity method investments 252.4 236.8 337.5 Share-based compensation and Affiliate equity expense 90.4 119.2 126.7 Net realized and unrealized gains on investment securities ( 21.4 ) ( 19.5 ) ( 108.7 ) Other non-cash items 3.7 16.5 44.2 Changes in assets and liabilities: Purchases of securities by consolidated Affiliate sponsored investment products ( 42.3 ) ( 110.1 ) ( 109.6 ) Sales of securities by consolidated Affiliate sponsored investment products 16.5 99.6 58.0 (Increase) decrease in receivables ( 15.8 ) 1.1 31.7 (Increase) decrease in other assets ( 51.4 ) 73.1 23.8 (Decrease) increase in payables, accrued liabilities and other liabilities ( 56.1 ) ( 64.2 ) 64.5 Cash flow from operating activities 929.1 1,009.3 1,259.2 Cash flow from (used in) investing activities: Investments in Affiliates, net of cash acquired ( 162.3 ) ( 44.5 ) ( 562.6 ) Divestments of Affiliates and return of capital from equity method investments 117.7 — 4.4 Purchase of fixed assets ( 9.6 ) ( 8.5 ) ( 8.4 ) Purchase of investment securities ( 43.1 ) ( 47.7 ) ( 73.5 ) Sale of investment securities 72.9 47.0 56.4 Cash flow used in investing activities ( 24.4 ) ( 53.7 ) ( 583.7 ) Cash flow from (used in) financing activities: Borrowings of senior bank debt, senior notes, and junior subordinated notes 470.7 874.8 200.0 Repayments of senior bank debt and junior convertible securities ( 510.0 ) ( 350.0 ) ( 33.0 ) Repurchase of common stock (net) ( 356.1 ) ( 335.1 ) ( 595.3 ) Dividends paid on common stock ( 65.3 ) ( 16.8 ) ( 1.7 ) Distributions to non-controlling interests ( 347.9 ) ( 306.3 ) ( 334.3 ) Affiliate equity purchases ( 146.0 ) ( 315.1 ) ( 150.5 ) Affiliate equity issuances 10.5 20.2 117.7 Subscriptions to consolidated Affiliate sponsored investment products, net of redemptions 19.0 12.9 40.9 Other financing items ( 9.6 ) ( 40.0 ) ( 42.1 ) Cash flow used in financing activities ( 934.7 ) ( 455.4 ) ( 798.3 ) Effect of foreign currency exchange rate changes on cash and cash equivalents 8.7 2.1 ( 0.8 ) Net (decrease) increase in cash and cash equivalents ( 21.3 ) 502.3 ( 123.6 ) Cash and cash equivalents at beginning of period 565.5 539.6 1,039.7 Effect of deconsolidation of Affiliates and Affiliate sponsored investment products ( 4.6 ) ( 2.2 ) ( 7.6 ) Cash and cash equivalents at end of period $ 539.6 $ 1,039.7 $ 908.5 Supplemental disclosure of cash flow information: Interest paid $ 84.1 $ 88.3 $ 103.0 Income taxes paid (refunds received), net 102.7 ( 12.4 ) 87.1 Lease liabilities paid 35.4 39.1 38.8 Supplemental disclosure of non-cash investing and financing activities: Payables recorded for investments in Affiliates and contingent payment obligations — 109.2 287.8 Stock issued upon vesting of restricted stock units and exercise of stock options 32.7 35.6 82.6 Right-of-use assets obtained in exchange for new operating leases 189.7 24.4 26.3 Stock received for tax withholdings on share-based payments 6.4 6.7 19.9 Payables recorded for share repurchases 10.6 105.6 16.7 Payables recorded for Affiliate equity purchases 19.8 22.0 11.0 The accompanying notes are an integral part of the Consolidated Financial Statements. 47 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and Summary of Significant Accounting Policies (a) Organization and Nature of Operations Affiliated Managers Group, Inc. (the “Company”) is a leading partner to independent active investment management firms globally. AMG’s strategy is to generate long-term value by investing in a diverse array of high-quality partner-owned investment firms, referred to as “Affiliates.” The Company’s Affiliates provide a comprehensive and diverse range of return-oriented strategies designed to assist institutional, retail, and high net worth clients worldwide in achieving their investment objectives. The Company operates in one segment, global asset management. Each of the Company’s Affiliates operates through distinct legal entities, which affords the Company the flexibility to design a separate operating agreement for each Affiliate. Each operating agreement reflects the specific terms of the Company’s economic participation in the Affiliate, which, in each case, uses a “structured partnership interest.” For a majority of Affiliates, the Company uses structured partnership interests in which the Company contractually shares in the Affiliate’s revenue without regard to expenses. In this type of structured partnership interest, the Affiliate allocates a specified percentage of its revenue to the Company and Affiliate management, while using the remainder of its revenue for operating expenses and for additional distributions to Affiliate management. The Company and Affiliate management, therefore, participate in any increase or decrease in revenue and only Affiliate management participates in any increase or decrease in expenses. Under these structured partnership interests, the Company’s contractual share of revenue generally has priority over distributions to Affiliate management. For other Affiliates, the Company uses structured partnership interests in which the Company contractually shares in the Affiliate’s revenue less agreed-upon expenses. This type of partnership interest allows the Company to benefit from any increase in revenue or any decrease in the agreed-upon expenses, but also exposes the Company to any decrease in revenue or any increase in such expenses. The degree of the Company’s exposure to expenses from these structured partnership interests varies by Affiliate and includes Affiliates in which the Company fully shares in the expenses of the business. (b) Basis of Presentation and Use of Estimates The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All dollar amounts, except per share data in the text and tables herein, are stated in millions unless otherwise indicated. All intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. (c) Principles of Consolidation In evaluating whether an investment must be consolidated, the Company evaluates the risk, rewards, and significant terms of each of its Affiliates and other investments to determine if an investment is considered a voting rights entity (“VRE”) or a variable interest entity (“VIE”). An entity is a VRE when the total equity investment at risk is sufficient to enable the entity to finance its activities independently, and when the equity holders have the obligation to absorb losses, the right to receive residual returns, and the right to direct the activities of the entity that most significantly impact its economic performance. An entity is a VIE when it lacks one or more of the characteristics of a VRE, which, for the Company, are Affiliate investments structured as partnerships (or similar entities) where the Company is a limited partner and lacks substantive kick-out or substantive participation rights over the general partner. Assessing whether an entity is a VRE or VIE involves judgment. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a VRE or a VIE. The Company consolidates VREs when it has control over significant operating, financial, and investing decisions of the entity. When the Company lacks such control, but is deemed to have significant influence, the Company accounts for the VRE under the equity method. Investments with readily determinable fair values in which the Company does not have rights to exercise significant influence are recorded at fair value on the Consolidated Balance Sheets, with changes in fair value included in Investment and other income on the Consolidated Statements of Income. 48 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company consolidates VIEs when it is the primary beneficiary of the entity, which is defined as having the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Substantially all of the Company’s consolidated Affiliates considered VIEs are controlled because the Company holds a majority of the voting interests or it is the managing member or general partner. Furthermore, an Affiliate’s assets can be used for purposes other than the settlement of the respective Affiliate’s obligations. The Company applies the equity method of accounting to VIEs where the Company is not the primary beneficiary, but has the ability to exercise significant influence over operating and financial matters of the VIE. See Note 5. Investments in Affiliates Substantially all of the Company’s Affiliates are considered VIEs and are either consolidated or accounted for under the equity method. A limited number of the Company’s Affiliates are considered VREs and most of these are accounted for under the equity method. When an Affiliate is consolidated, the portion of the earnings attributable to Affiliate management’s and any co-investor’s equity ownership is included in Net income (non-controlling interests) in the Consolidated Statements of Income. Undistributed earnings attributable to Affiliate management’s and any co-investor’s equity ownership, along with their share of any tangible or intangible net assets, are presented within Non-controlling interests on the Consolidated Balance Sheets. Affiliate equity interests where the holder has certain rights to demand settlement are presented, at their current redemption values, as Redeemable non-controlling interests or Other liabilities on the Consolidated Balance Sheets. The Company periodically issues, sells, and purchases the equity of its consolidated Affiliates. Because these transactions take place between entities under common control, any gains or losses attributable to these transactions are required to be included in Additional paid-in capital on the Consolidated Balance Sheets, net of any related income tax effects in the period the transaction occurs. When an Affiliate is accounted for under the equity method, the Company’s share of an Affiliate’s earnings or losses, net of amortization and impairments, is included in Equity method income (loss) (net) in the Consolidated Statements of Income and the carrying value of the Affiliate is reported in Equity method investments in Affiliates (net) in the Consolidated Balance Sheets. Deferred taxes recorded on intangible assets upon acquisition of an Affiliate accounted for under the equity method are presented on a gross basis within Equity method investments in Affiliates (net) and Deferred income tax liability (net) in the Consolidated Balance Sheets. The Company’s share of income taxes incurred directly by Affiliates accounted for under the equity method is recorded in Income tax expense in the Consolidated Statements of Income. The Company periodically performs assessments to determine if fair value of an investment may have declined below its related carrying value for its Affiliates accounted for under the equity method for a period that the Company considers to be other-than-temporary. Where the Company believes that such declines may have occurred, the Company determines the amount of impairment using valuation methods, such as discounted cash flow analyses. Impairments are recorded as an expense in Equity method income (loss) (net) to reduce the carrying value of the Affiliate to its fair value. Affiliate Sponsored Investment Products The Company’s Affiliates sponsor various investment products where the Affiliate also acts as the investment adviser. These investment products are typically owned primarily by third-party investors; however, certain products are funded with general partner and seed capital investments from the Company and its Affiliates. Third-party investors in Affiliate sponsored investment products are generally entitled to substantially all of the economics of these products, except for the asset- and performance-based fees earned by the Company’s Affiliates or any gains or losses attributable to the Company’s or its Affiliates’ investments in these products. As a result, the Company generally does not consolidate these products. However, for certain products, the Company’s consolidated Affiliates, as the investment manager, have the power to direct the activities of the investment product and have an exposure to the economics of the VIE that is more than insignificant, though generally only for a short period while the product is established and has yet to attract significant other investors. When the products are consolidated, the Company retains the specialized investment company accounting principles of the underlying products, and all of the underlying investments are carried at fair value in Investments in marketable securities in the Consolidated Balance Sheets, with corresponding changes in the investments’ fair values included in Investment and other income. Purchases and sales of securities are presented within purchases and sales by consolidated Affiliate sponsored investment products in the Consolidated Statements of Cash Flows, respectively, and the third-party investors’ interests are recorded in Redeemable non-controlling interests. When the Company or its consolidated Affiliates no longer control these products, due to a reduction in ownership or other reasons, the products are deconsolidated with only the Company’s or its consolidated Affiliate’s investment in the product reported from the date of deconsolidation. 49 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (d) Cash and Cash Equivalents The Company considers all highly liquid investments, including money market mutual funds, with original maturities of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value due to the short-term maturity of these investments. Money market mutual funds with a floating net asset value (“NAV”) would not meet the definition of a cash equivalent if the fund has enacted liquidity fees or redemption gates. (e) Receivables The Company’s Affiliates earn asset- and performance-based fees, which are billed based on the terms of the related contracts. Billed but uncollected asset- and performance-based fees are presented within Receivables on the Consolidated Balance Sheets and are generally short-term in nature. Certain of the Company’s Affiliates in the UK act as intermediaries between clients and their sponsored investment products. Normal settlement periods on transactions initiated by these clients with the sponsored investment products result in unsettled fund share receivables and payables that are presented on a gross basis within Receivables, and Payables and accrued liabilities on the Consolidated Balance Sheets. The gross presentation of these receivables and offsetting payables reflects the legal relationship between the underlying investor, the Company’s Affiliates, and the sponsored investment products. (f) Investments in Marketable Securities Realized and unrealized gains or losses on investments in marketable securities are reported within Investment and other income. Realized gains and losses are recorded on the trade date on a specific identified basis, except for consolidated Affiliate sponsored investment products, which use an average cost basis. (g) Fair Value Measurements The Company determines the fair value of certain investment securities and other financial and non-financial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date, utilizing a hierarchy of three different valuation techniques: Level 1 - Unadjusted quoted market prices for identical instruments in active markets; Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs, or significant value drivers, are observable; and Level 3 - Prices that reflect the Company’s own assumptions concerning unobservable inputs to the valuation model. In these valuation models, the Company is required to make judgments about growth rates of assets under management, client attrition, asset- and performance-based fee rates, and expenses. These valuation models also require judgments about tax benefits, credit risk, interest rates, tax rates, discount rates, volatility, and discounts for lack of marketability. These inputs require significant management judgment and reflect the Company’s assumptions that the Company believes market participants would use in pricing the asset or liability. (h) Acquired Client Relationships and Goodwill Each Affiliate in which the Company makes an investment has identifiable assets arising from contractual or other legal rights with their clients (“acquired client relationships”). In determining the value of acquired client relationships, the Company analyzes the net present value of these Affiliates’ existing client relationships based on a number of factors, including: the Affiliate’s historical and potential future operating performance; the Affiliate’s historical and potential future rates of attrition of existing clients; the stability and longevity of existing client relationships; the Affiliate’s recent, as well as long-term, investment performance; the characteristics of the firm’s products and investment styles; the stability and depth of the Affiliate’s management team; and the Affiliate’s history and perceived franchise or brand value. The Company has determined that certain of its acquired client relationships meet the criteria to be considered indefinite-lived assets because the Company expects the contracts to be renewed annually and, therefore, the cash flows generated by these contracts to continue indefinitely. Accordingly, the Company does not amortize these intangible assets, but instead assesses these assets annually or more frequently whenever events or circumstances occur indicating that the recorded indefinite-lived acquired client relationship may be impaired. Each reporting period, the Company assesses whether events or circumstances have occurred that indicate that the indefinite life criteria are no longer met. 50 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company has determined that certain of its acquired client relationships meet the criteria to be considered definite-lived assets, including investment advisory contracts between its Affiliates and their underlying investors, and are amortized over their expected period of economic benefit. The expected period of economic benefit of definite-lived acquired client relationships is a judgment based on the historical and projected attrition rates of each Affiliate’s existing clients, and other factors that may influence the expected future economic benefit the Company will derive from these relationships. The expected lives of definite-lived acquired client relationships are analyzed annually or more frequently whenever events or circumstances have occurred that indicate the expected period of economic benefit may no longer be appropriate. The Company assesses for the possible impairment of indefinite- and definite-lived acquired client relationships annually or more frequently whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such indicators exist, the Company considers various qualitative and quantitative factors (including market multiples) to determine if the fair value of each asset is greater than its carrying value. If the carrying value is greater than the fair value, an expense would be recorded in Intangible amortization and impairments in the Consolidated Statements of Income to reduce the carrying value of the asset to fair value. Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not separately recognized. Goodwill is not amortized, but is instead reviewed for impairment. The Company performs an impairment assessment annually or more frequently whenever events or circumstances occur indicating that the carrying value of its single reporting unit is in excess of its fair value. In this assessment, the Company typically measures the fair value of its reporting unit using various qualitative and quantitative factors (including the Company’s market capitalization and market multiples for asset management businesses). If a potential impairment is more-likely-than-not, then the Company will perform a single step assessment with any excess of carrying value over fair value recorded as an expense in Intangible amortization and impairments. (i) Fixed Assets Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives. The estimated useful lives of office equipment and furniture and fixtures range from two years to ten years . Computer software developed or obtained for internal use is amortized over the estimated useful life of the software, generally two years to five years . Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease. Buildings are amortized over their expected useful lives, generally not to exceed 39 years. The costs of improvements that extend the life of a fixed asset are capitalized, while the cost of repairs and maintenance are expensed as incurred. Land and artwork are not depreciated; artwork is included in Other assets on the Consolidated Balance Sheets. (j) Leases Leases are classified as either operating leases or finance leases. The Company and its Affiliates currently lease office space and equipment primarily under operating lease arrangements. As these leases expire, it is expected that, in the normal course of business, they will be renewed or replaced. Whether a lease is classified as an operating lease or a finance lease, the Company and its Affiliates must record a right-of-use asset and a lease liability at the commencement date of the lease, other than for leases with an initial term of 12 months or less. As permitted under Accounting Standard Update (“ASU”) 2016-02 Leases (and related ASUs), the Company and its Affiliates elect not to record short-term leases with an initial lease term less than 12 months on the Company’s Consolidated Balance Sheets. Right-of-use assets and lease liabilities are reported in Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets. A lease liability is initially and subsequently reported at the present value of the outstanding lease payments determined by discounting those lease payments over the remaining lease term using the incremental borrowing rate of the legal entity entering into the lease as of the commencement date. A right-of-use asset is initially reported at the present value of the corresponding lease liability plus any prepaid lease payments and initial direct costs of entering into the lease, and reduced by any lease incentives. Subsequently, a right-of-use asset is reported at the present value of the lease liability adjusted for any prepaid or accrued lease payments, remaining balances of any lease incentives received, unamortized initial direct costs of entering into the lease and any impairments of the right-of-use asset. The Company and its Affiliates test for possible impairments of right-of-use assets annually or more frequently whenever events or changes in circumstances indicate that the carrying value of a right-of-use asset may exceed its fair value. If the carrying value of the right-of-use asset exceeds its fair value, then the carrying value of the right-of-use asset is reduced to its fair value and the expense is recorded in Other expenses (net) on the Consolidated Statements of Income. Subsequent to an impairment, the carrying value of the right-of-use asset is amortized on a straight-line basis over the remaining lease term. 51 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Lease liabilities and right-of-use assets based on variable lease payments that depend on an index or rate are initially measured using the index or rate at the commencement date with any subsequent changes in variable lease payments reported in Other expenses (net) as incurred. Most lease agreements for office space that are classified as operating leases contain renewal options, rent escalation clauses, or other lease incentives provided by the lessor. Lease expense is accrued to recognize lease escalation provisions and renewal options that are reasonably certain to be exercised, as well as lease incentives provided by the lessor, on a straight-line basis over the lease term and is reported in Other expenses (net). If a right-of-use asset is impaired, the lease expense is subsequently reported in Other expenses (net) as the straight-line amortization of the right-of-use asset and the accretion of the lease liability, thereby transitioning to a front-loaded expense recognition profile for the associated lease. The Company and its Affiliates combine lease and non-lease components for their office space leases and separate non-lease components for their equipment leases in calculating their lease liabilities. Sublease income is reported in Investment and other income. (k) Issuance Costs Issuance costs related to the Company’s senior bank debt are amortized over the remaining term of the senior unsecured multicurrency revolving credit facility (the “revolver”) and the senior unsecured term loan facility (the “term loan” and, together with the revolver, the “credit facilities”), which approximates the effective interest method. Issuance costs associated with the revolver are included in Other assets. Issuance costs associated with the term loan, and those associated with the Company’s senior notes, junior subordinated notes, and junior convertible securities, which are amortized over the expected term of the security, are included as a reduction of Debt in the Consolidated Balance Sheets. The expense resulting from the amortization of these issuance costs is reported in Interest expense in the Consolidated Statements of Income. (l) Derivative Financial Instruments The Company and its Affiliates may use derivative financial instruments to offset exposure to changes in interest rates, foreign currency exchange rates, and markets. The Company records derivatives in the Consolidated Balance Sheets at fair value. The Company assesses hedge effectiveness at derivative inception and on a quarterly basis. Changes in fair value of a hedging instrument that are excluded from the assessment of hedge effectiveness, also known as excluded components, are recorded in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense. For derivative financial instruments designated as cash flow hedges, the Company uses a qualitative method of assessing hedge effectiveness by comparing the notional amounts, timing of payments, currencies (for the forward foreign currency contracts), and interest rates (for the interest rate swap). The effective portion of the unrealized gain or loss is recorded in Other comprehensive income (loss) as a separate component of stockholders’ equity and reclassified to earnings with the hedged item. If the qualitative assessment indicates ineffectiveness, then the Company performs a quantitative assessment which is generally measured by comparing the present value of the cumulative change in the expected future cash flows of the hedged contract with the present value of the cumulative change in the expected future cash flows of the hedged item. Upon termination of these instruments or the repayment of the Company’s outstanding LIBOR-based borrowings, any gain or loss recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets will be reclassified into earnings. Changes in the fair values of cash flow hedges are reported in Change in net realized and unrealized gain (loss) on derivative financial instruments in the Consolidated Statements of Comprehensive Income. For net investment hedges, hedge effectiveness is measured using the spot rate method. The effective portion of the unrealized gain or loss is recorded in Other comprehensive income (loss) as a separate component of stockholders’ equity and reclassified to earnings with the hedged item. Changes in the fair values of the effective net investment hedges are reported in Foreign currency translation gain (loss) in the Consolidated Statements of Comprehensive Income. Upon the sale or liquidation of the underlying investment, any gain or loss remaining in Accumulated other comprehensive loss will be reclassified to earnings. If the Company’s or its Affiliates’ derivative financial instruments do not qualify as effective hedges, changes in the fair value of the derivatives are recorded as a gain or loss in Investment and other income. (m) Revenue Recognition Consolidated revenue primarily represents asset- and performance-based fees earned by the Company and its Affiliates for managing the assets of clients. Substantially all of the Company’s and its Affiliates’ contracts contain a single performance obligation, which is the provision of investment management services. Investment management, broker-dealer, and administrative services are performed and consumed simultaneously and, therefore, the Company recognizes these asset-based 52 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) fees ratably over time. Substantially all the Company’s asset-based fees for services are based on the value of client assets over time, which are typically determined using observable market data. Services may be invoiced in advance or in arrears and are payable upon receipt. Any asset-based fees collected in advance are deferred and recognized as the services are performed and consumed. Consolidated revenue recognized by the Company is adjusted for any expense reimbursement arrangements. The Company’s Affiliates may periodically either waive or reduce fees in order to attract or retain client assets or for other reasons. Fee waivers or reductions are presented as a reduction to Consolidated revenue. Performance-based fees, including carried interests, are recognized upon the satisfaction of performance obligations, the resolution of any constraints, which include exceeding performance benchmarks or hurdle rates that may extend over one or more reporting periods, and when it is improbable that there will be a significant reversal in the amount of revenue recognized. As a result, any performance-based fees or carried interest recognized in the current reporting period may relate to performance obligations satisfied in a previous reporting period. The Company and its Affiliates have contractual arrangements with third-parties to provide distribution-related services. Fees received and expenses incurred under these arrangements are primarily based on the value of client assets over time. Distribution-related fees are presented within Consolidated revenue gross of any related expenses when the Company and its Affiliates are the principal in their role as primary obligor under their distribution-related services arrangements. Distribution-related expenses are presented within Selling, general and administrative expenses in the Consolidated Statements of Income. The Company and its Affiliates may enter into contracts for which the costs to obtain or fulfill the contract are based upon a percentage of the value of a client’s future assets under management. The Company records these variable costs when incurred because they are subject to market volatility and are not estimable upon the inception of a contract with a client. Any expenses paid in advance are capitalized and amortized on a systematic basis, consistent with the transfer of services, which is the equivalent of recognizing the costs as incurred. (n) Contingent Payment Obligations The Company periodically enters into contingent payment obligations in connection with its investments in Affiliates. In these obligations, the Company agrees to pay additional consideration to the sellers to the extent that certain specified financial targets are achieved. For consolidated Affiliates, the Company estimates the fair value of these potential future obligations at the time the investment in an Affiliate is consummated and records a liability in Other liabilities. The Company then accretes the obligation to its expected payment amount over the period until the arrangement is measured. If the Company’s expected payment amount subsequently changes, the obligation is reduced or increased in the current period resulting in a gain or loss, respectively. Gains and losses resulting from changes to expected payments are included in Other expenses (net) and the accretion of these obligations to their expected payment amounts are included in Interest expense. For Affiliates accounted for under the equity method of accounting, the Company records a liability in Other liabilities when a payment becomes probable, with a corresponding increase to the carrying value of the Affiliate in Equity method investments in Affiliates (net). (o) Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the financial reporting bases of assets and liabilities and their respective tax bases, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recorded in Income tax expense in the period when the change is enacted. The Company regularly assesses the recoverability of its deferred income tax assets to determine whether these assets are more-likely-than-not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If the Company determines it would not be able to realize its deferred tax assets, it records a valuation allowance to reflect the deferred tax assets at their current value. The recording of adjustments to the valuation allowance will increase or decrease Income tax expense. The Company records unrecognized tax benefits based on whether it is more-likely-than-not that the uncertain tax positions will be sustained on the basis of the technical merits of the position. If it is determined that an uncertain tax position is more-likely-than-not to be sustained, the Company records the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority in Income tax expense. Interest and penalties related to unrecognized tax benefits are also recorded in Income tax expense. 53 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company has elected to treat taxes due on U.S. inclusions in taxable income related to Global Intangible Low Taxed Income (“GILTI”) as a current period expense when incurred (the “period cost method”). (p) Foreign Currency Translation Assets and liabilities denominated in a functional currency other than the U.S. dollar are translated into U.S. dollars using exchange rates in effect as of the balance sheet date. Revenue and expenses denominated in a functional currency other than the U.S. dollar are translated into U.S. dollars using average exchange rates for the relevant period. Because of the long-term nature of the Company’s investments in its Affiliates, net translation exchange gains and losses resulting from foreign currency translation are recorded in Accumulated other comprehensive loss as a separate component of stockholders’ equity on the Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in Investment and other income. (q) Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and derivative financial instruments. The Company and its Affiliates maintain cash and cash equivalents, investments, and, at times, certain derivative financial instruments with various high credit-quality financial institutions. These financial institutions are typically located in countries in which the Company and its Affiliates operate. For the Company and certain of its Affiliates, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits. (r) Earnings Per Share The calculation of Earnings per share (basic) is based on the weighted average number of shares of the Company’s common stock outstanding during the period. Earnings per share (diluted) is similar to Earnings per share (basic), but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company’s common stock. The Company had junior convertible securities outstanding during the periods presented and is required to apply the if-converted method to these securities in its calculation of Earnings per share (diluted). Under the if-converted method, shares that are issuable upon conversion are deemed outstanding, regardless of whether the securities are contractually convertible into the Company’s common stock at that time. For this calculation, the interest expense (net of tax) attributable to these dilutive securities is added back to Net income (controlling interest), reflecting the assumption that the securities have been converted. Issuable shares for these securities and related interest expense are excluded from the calculation if an assumed conversion would be anti-dilutive to diluted earnings per share. The Company had share-based compensation awards outstanding during the periods presented with vesting provisions subject to certain performance conditions. These awards are excluded from the calculation of Earnings per share (diluted) if the performance condition has not been met as of the end of the reporting period. (s) Share-Based Compensation Plans The Company recognizes expenses for all share-based compensation arrangements based on the number of awards expected to vest. The expense for awards without performance conditions is recognized on a straight-line basis over the requisite service period, including grants that are subject to graded vesting. The Company recognizes expenses for all other arrangements on a straight-line basis for each separately vesting portion of the award. Tax windfalls or shortfalls are recorded in Income tax expense and have been classified as operating activities in the Consolidated Statements of Cash Flows. Taxes paid by the Company when it withholds shares to satisfy tax withholding obligations are classified as a financing activity in the Consolidated Statements of Cash Flows. (t) Recent Accounting Developments Effective January 1, 2021, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes. The adoption of this standard did not have a significant impact on the Company’s Consolidated Financial Statements. In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments and also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share calculation. The standard is effective for interim and annual periods beginning after December 15, 2021 for the Company and its consolidated Affiliates, and is effective for interim and annual periods beginning after December 15, 2023 for the Company’s Affiliates accounted for under the equity method. The Company’s adoption of ASU 2020-06 will 54 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) result in the Company accounting for its convertible debt instrument as a single liability measured at amortized cost and will modify how certain equity instruments that may be settled in cash or shares, at the Company’s option, impact the calculation of Earnings per share (diluted). The Company plans to adopt the standard using a modified retrospective method. The adoption of this standard will result in increases in Debt and beginning Retained Earnings of $ 101.5 million and $ 4.5 million, respectively, and decreases in Additional paid-in-capital and Deferred income tax liability (net) of $ 80.6 million and $ 25.4 million, respectively. The potential dilution to the calculation of Earnings per share (diluted) could be material and depends upon a number of factors, such as current share price, number of convertible shares, and conversion price. If the standard had been adopted on January 1, 2021, Earnings per share (diluted) would have been $ 13.04 for the year ended December 31, 2021. 2. Investments in Marketable Securities The following is a summary of the cost, gross unrealized gains, gross unrealized losses, and fair value of Investments in marketable securities: December 31, 2020 2021 Cost $ 69.4 $ 73.2 Unrealized gains 5.5 8.1 Unrealized losses ( 0.0 ) ( 2.8 ) Fair value $ 74.9 $ 78.5 As of December 31, 2020 and 2021, Investments in marketable securities include consolidated Affiliate sponsored investment products with fair values of $ 52.3 million and $ 42.9 million, respectively. 3. Other Investments Other investments consist of investments in funds advised by the Company’s Affiliates that are carried at NAV as a practical expedient and other investments without readily determinable fair values. Any gain or loss related to these investments is recorded in Investment and other income. Investments Measured at NAV as a Practical Expedient The Company’s Affiliates sponsor funds in which the Company and its consolidated Affiliates may make general partner and seed capital investments. These funds operate in partnership form and apply the specialized fair value accounting for investment companies. The Company accounts for its interests in these funds using the equity method of accounting and is required to retain the specialized accounting of the investment companies. Because the funds’ investments do not have readily determinable fair values, the Company uses the NAV of these investments as a practical expedient for their fair values. The following table summarizes the fair values of these investments and any related unfunded commitments: December 31, 2020 December 31, 2021 Category of Investment Fair Value Unfunded Commitments Fair Value Unfunded Commitments Private equity funds (1) $ 235.4 $ 122.2 $ 310.2 $ 156.3 Investments in other strategies (2) 8.0 — 14.6 — Total (3) $ 243.4 $ 122.2 $ 324.8 $ 156.3 __________________________ (1) The Company accounts for the majority of its interests in private equity funds one quarter in arrears (adjusted for current period calls and distributions). These funds primarily invest in a broad range of third-party funds and direct investments. Distributions will be received as the underlying assets are liquidated over the life of the funds, which is generally up to 15 years. (2) These are multi-disciplinary funds that invest across various asset classes and strategies, including equity, credit, and real estate. Investments are generally redeemable on a daily, monthly, or quarterly basis. (3) Fair value attributable to the controlling interest was $ 164.4 million and $ 224.4 million as of December 31, 2020 and 2021, respectively. 55 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments Without Readily Determinable Fair Values The Company made an investment in a private corporation where it does not exercise significant influence. Because this investment does not have a readily determinable fair value, the Company has elected to measure this investment at its cost minus impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments in the private corporation. The following table summarizes the cost, cumulative unrealized gains, and carrying amount of investments without readily determinable fair values: December 31, 2020 2021 Cost $ 8.5 $ 8.5 Cumulative unrealized gains 5.3 41.9 Carrying amount $ 13.8 $ 50.4 During the year ended December 31, 2021, the Company recorded unrealized gains of $ 36.6 million based on observable price changes in the underlying investment. The following table presents the changes in Other investments: For the Years Ended December 31, 2020 2021 Measured at NAV as a Practical Expedient Without Readily Determinable Fair Values Total Measured at NAV as a Practical Expedient Without Readily Determinable Fair Values Total Balance, beginning of period $ 211.8 $ — $ 211.8 $ 243.4 $ 13.8 $ 257.2 Net realized and unrealized gains (1) 18.0 5.3 23.3 79.5 36.6 116.1 Purchases and commitments 36.3 8.5 44.8 60.3 — 60.3 Sales and distributions ( 22.7 ) — ( 22.7 ) ( 58.4 ) — ( 58.4 ) Balance, end of period $ 243.4 $ 13.8 $ 257.2 $ 324.8 $ 50.4 $ 375.2 __________________________ (1) Recognized in Investment and other income. 4. Fair Value Measurements The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis: 56 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements December 31, 2020 Level 1 Level 2 Level 3 Financial Assets Investments in marketable securities $ 74.9 $ 25.7 $ 49.2 $ — Derivative financial instruments (1) 3.5 — 3.5 — Financial Liabilities (2) Affiliate equity purchase obligations $ 22.0 $ — $ — $ 22.0 Derivative financial instruments 4.2 — 4.2 — Fair Value Measurements December 31, 2021 Level 1 Level 2 Level 3 Financial Assets Investments in marketable securities $ 78.5 $ 64.5 $ 14.0 $ — Derivative financial instruments (1) 0.9 — 0.9 — Financial Liabilities (2) Contingent payment obligations $ 40.3 $ — $ — $ 40.3 Affiliate equity purchase obligations 12.6 — — 12.6 Derivative financial instruments ( 0.8 ) — ( 0.8 ) — __________________________ (1) Amounts are presented within Other assets. (2) Amounts are presented within Other liabilities. Level 3 Financial Liabilities The following table presents the changes in level 3 liabilities: For the Years Ended December 31, 2020 2021 Contingent Payment Obligations Affiliate Equity Purchase Obligations Contingent Payment Obligations Affiliate Equity Purchase Obligations Balance, beginning of period $ — $ 19.8 $ — $ 22.0 Net realized and unrealized (gains) losses (1) — ( 4.3 ) 16.6 ( 1.4 ) Purchases and issuances (2) — 310.6 23.7 112.7 Settlements and reductions — ( 304.1 ) — ( 120.7 ) Balance, end of period $ — $ 22.0 $ 40.3 $ 12.6 Net change in unrealized (gains) losses relating to instruments still held at the reporting date $ — $ — $ — $ — __________________________ (1) Gains and losses resulting from changes to expected payments are included in Other expenses (net) and the accretion of these obligations is included in Interest expense. (2) Affiliate equity purchase obligation activity includes transfers from Redeemable non-controlling interests. The following table presents certain quantitative information about the significant unobservable inputs used in valuing the Company’s recurring level 3 fair value measurements: 57 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Quantitative Information About Level 3 Fair Value Measurements December 31, 2020 December 31, 2021 Valuation Techniques Unobservable Input Fair Value Range Weighted Average (1) Fair Value Range Weighted Average (1) Contingent payment obligations Monte Carlo simulation Volatility $ — — — $ 40.3 13 % - 25 % 13 % Discount rates — — 1 % - 2 % 2 % Affiliate equity purchase obligations Discounted cash flow Growth rates (2) $ 22.0 ( 5 )% - 8 % 3 % $ 12.6 ( 13 )% - 7 % 2 % Discount rates 14 % - 16 % 15 % 15 % - 18 % 15 % __________________________ (1) Calculated by comparing the relative fair value of an obligation to its respective total. (2) Represents growth rates of asset- and performance-based fees. Contingent payment obligations represent the present value of the expected future settlement amounts related to the Company’s investments in its consolidated Affiliates. Affiliate equity purchase obligations include agreements to repurchase Affiliate equity. As of December 31, 2021, there were no changes to growth or discount rates that had a significant impact to Affiliate equity purchase obligations recorded in prior periods. Other Financial Assets and Liabilities Not Carried at Fair Value The Company has other financial assets and liabilities that are not required to be carried at fair value, but are required to be disclosed at fair value. The carrying amount of Cash and cash equivalents, Receivables, and Payables and accrued liabilities approximates fair value because of the short-term nature of these instruments. The carrying value of notes receivable, which is reported in Other assets, approximates fair value because interest rates and other terms are at market rates. The carrying value of the credit facilities approximates fair value because the credit facilities have variable interest based on selected short-term rates. The following table summarizes the Company’s other financial liabilities not carried at fair value: December 31, 2020 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Fair Value Hierarchy Senior notes $ 1,097.3 $ 1,206.6 $ 1,098.0 $ 1,165.6 Level 2 Junior subordinated notes 565.7 623.1 765.8 809.1 Level 2 Junior convertible securities 318.4 427.6 299.5 461.4 Level 2 5. Investments in Affiliates and Affiliate Sponsored Investment Products Investments in Affiliates The Company’s Affiliates are consolidated or accounted for under the equity method, depending upon the underlying structure of and relationship with each Affiliate. Substantially all of the Company’s consolidated Affiliates are considered VIEs. The unconsolidated assets, net of liabilities and non-controlling interests of Affiliates accounted for under the equity method considered VIEs, and the Company’s carrying value and maximum exposure to loss, were as follows: December 31, 2020 December 31, 2021 Unconsolidated VIE Net Assets Carrying Value and Maximum Exposure to Loss Unconsolidated VIE Net Assets Carrying Value and Maximum Exposure to Loss Affiliates accounted for under the equity method $ 1,384.2 $ 1,962.1 $ 1,864.7 $ 2,023.0 58 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2020 and 2021, the carrying value and maximum exposure to loss for all of the Company’s Affiliates accounted for under the equity method was $ 2,074.8 million and $ 2,134.4 million, respectively, including Affiliates accounted for under the equity method considered VREs of $ 112.7 million and $ 111.4 million, respectively. Affiliate Sponsored Investment Products The Company’s carrying value, and maximum exposure to loss from unconsolidated Affiliate sponsored investment products, is its or its consolidated Affiliates’ interests in the unconsolidated net assets of the respective products. The net assets of unconsolidated VIEs attributable to Affiliate sponsored investment products, and the Company’s carrying value and maximum exposure to loss, were as follows: December 31, 2020 December 31, 2021 Unconsolidated VIE Net Assets Carrying Value and Maximum Exposure to Loss Unconsolidated VIE Net Assets Carrying Value and Maximum Exposure to Loss Affiliate sponsored investment products $ 2,378.2 $ 0.9 $ 4,958.5 $ 15.7 6. Debt The following table summarizes the Company’s Debt: December 31, 2020 2021 Senior bank debt $ 349.8 $ 349.9 Senior notes 1,091.9 1,093.5 Junior subordinated notes 556.4 751.4 Junior convertible securities 314.0 295.6 Debt $ 2,312.1 $ 2,490.4 The Company’s senior notes, junior subordinated notes, and junior convertible securities are carried at amortized cost. Unamortized discounts and debt issuance costs are presented within the Consolidated Balance Sheets as an adjustment to the carrying value of the associated debt. Senior Bank Debt The Company has a $ 1.25 billion senior unsecured multicurrency revolving credit facility and a $ 350.0 million senior unsecured term loan facility. The Company amended and restated the revolver in October 2021, extending the maturity from January 18, 2024 to October 23, 2026, and amended the term loan in January 2021 and June 2021, and further amended and restated the term loan in October 2021, extending the maturity from January 18, 2023 to October 23, 2026. Through these amendments, the Company also reduced applicable rates for the revolver and the term loan, and provided for customary LIBOR succession provisions. Subject to certain conditions, the Company may increase the commitments under the revolver by up to an additional $ 500.0 million and may borrow up to an additional $ 75.0 million under the term loan. The Company pays interest on any outstanding obligations under the credit facilities at specified rates, currently based either on an applicable LIBOR or prime rate, plus a marginal rate determined based on its credit rating. As of December 31, 2021, the interest rate for the Company’s outstanding borrowings under the credit facilities was LIBOR plus 0.85 %. The credit facilities contain financial covenants with respect to leverage and interest coverage, as well as customary affirmative and negative covenants, including limitations on priority indebtedness, asset dispositions, and fundamental corporate changes, and certain customary events of default. As of December 31, 2020 and 2021, the Company had no outstanding borrowings under the revolver. As of December 31, 2020 and 2021, the Company had outstanding borrowings under the term loan of $ 350.0 million, and the weighted average interest rate on outstanding borrowings was 1.02 % and 0.95 %, respectively. The Company pays commitment fees on the unused portion of its revolver. For the years ended December 31, 2020 and 2021, these fees amounted to $ 1.5 million. Senior Notes 59 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2021, the Company had senior notes outstanding. The carrying value of the senior notes is accreted to the principal amount at maturity over the remaining life of the underlying instrument. The principal terms of the senior notes outstanding as of December 31, 2021 were as follows: 2024 Senior Notes 2025 Senior Notes 2030 Senior Notes Issue date February 2014 February 2015 June 2020 Maturity date February 2024 August 2025 June 2030 Par value (in millions) $ 400.0 $ 350.0 $ 350.0 Stated coupon 4.25 % 3.50 % 3.30 % Coupon frequency Semi-annually Semi-annually Semi-annually Potential call date Any time Any time Any time Call price As defined As defined As defined The senior notes may be redeemed, in whole or in part, at any time, in the case of the 2024 and 2025 senior notes, and at any time prior to March 15, 2030, in the case of the 2030 senior notes. In each case, the senior notes may be redeemed at a make-whole redemption price, plus accrued and unpaid interest. The make-whole redemption price, in each case, is equal to the greater of 100 % of the principal amount of the notes to be redeemed and the remaining principal and interest payments on the notes being redeemed (excluding accrued but unpaid interest to, but not including, the redemption date) discounted to their present value as of the redemption date at the applicable treasury rate plus 0.25 %, in the case of the 2024 and the 2025 senior notes, and to their present value as of the redemption date on a semi-annual basis at the applicable treasury rate plus 0.40 %, in the case of the 2030 senior notes. Junior Subordinated Notes As of December 31, 2021, the Company had junior subordinated notes outstanding. The carrying value of the junior subordinated notes is accreted to the principal amount at maturity over the remaining life of the underlying instrument. The principal terms of the junior subordinated notes outstanding as of December 31, 2021 were as follows: 2059 Junior Subordinated Notes 2060 Junior Subordinated Notes 2061 Junior Subordinated Notes Issue date March 2019 September 2020 July 2021 Maturity date March 2059 September 2060 September 2061 Par value (in millions) $ 300.0 $ 275.0 $ 200.0 Stated coupon 5.875 % 4.75 % 4.20 % Coupon frequency Quarterly Quarterly Quarterly Potential call date March 2024 September 2025 September 2026 Call price As defined As defined As defined Listing NYSE NYSE NYSE The junior subordinated notes may be redeemed at any time, in whole or in part, on or after March 30, 2024, in the case of the 2059 junior subordinated notes, on or after September 30, 2025, in the case of the 2060 junior subordinated notes, and on or after September 30, 2026, in the case of the 2061 junior subordinated notes. In each case, the junior subordinated notes may be redeemed at 100 % of the principal amount of the notes being redeemed, plus any accrued and unpaid interest thereon. Prior to the applicable redemption date, at the Company’s option, the applicable junior subordinated notes may also be redeemed, in whole but not in part, at 100 % of the principal amount, plus any accrued and unpaid interest, if certain changes in tax laws, regulations, or interpretations occur; or at 102 % of the principal amount, plus any accrued and unpaid interest, if a rating agency makes certain changes relating to the equity credit criteria for securities with features similar to the applicable notes. The Company may, at its option, and subject to certain conditions and restrictions, defer interest payments subject to the terms of the junior subordinated notes. 60 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2021, the effective interest rates of the 2024, the 2025, and the 2030 senior notes were 4.43 %, 3.67 %, and 3.39 %, respectively. As of December 31, 2021, the effective interest rates of the 2059, the 2060, and the 2061 junior subordinated notes were 5.90 %, 4.78 %, and 4.21 %, respectively. Junior Convertible Securities The following table summarizes the Company’s junior convertible trust preferred securities outstanding (the “junior convertible securities”). The carrying value and principal amount at maturity of the junior convertible securities were as follows: December 31, 2020 December 31, 2021 Carrying Value Principal Amount at Maturity Carrying Value Principal Amount at Maturity Junior convertible securities (1) $ 318.4 $ 430.8 $ 299.5 $ 401.0 __________________________ (1) The carrying value is accreted to the principal amount at maturity over a remaining life of 16 years. The junior convertible securities bear interest at a rate of 5.15 % per annum, payable quarterly in cash. Holders of the junior convertible securities have no rights to put these securities to the Company. Upon conversion, holders will receive cash or shares of the Company’s common stock, or a combination thereof, at the Company’s election. The Company may redeem the junior convertible securities, subject to its stock trading at or above certain specified levels over specified times periods, and may also repurchase junior subordinated notes in the open market or in privately negotiated transactions from time to time at management’s discretion. The junior convertible securities are considered contingent payment debt instruments under federal income tax regulations, which require the Company to deduct interest in an amount greater than its reported interest expense. The Company estimates that these deductions will generate annual deferred tax liabilities of approximately $ 9 million. During the year ended December 31, 2021, the Company paid $ 33.0 million to repurchase a portion of our junior convertible securities, resulting in reductions of $ 29.9 million and $ 7.1 million in Debt and Additional paid-in capital, respectively. As a result of these repurchases, the Company also reduced our Deferred income tax liability (net) by $ 7.0 million. 7. Derivative Financial Instruments In the first quarter of 2020, the Company terminated its pound sterling-denominated forward foreign currency contracts and its corresponding collar contracts, which were designated as net investment hedges, and upon settlement, the Company received net proceeds of $ 24.9 million. The net proceeds from the termination of the contracts are presented within sale of investment securities in the Consolidated Statements of Cash Flows. During the fourth quarter of 2021, the Company terminated its interest rate swap contract (the “interest rate swap”) with a large financial institution (the “swap counterparty”), and upon settlement paid $ 0.4 million. The interest rate swap was designated as a cash flow hedge and was used to exchange a portion of the Company’s LIBOR-based interest payments for fixed rate interest payments. Under the contract, the Company received payments based on one-month LIBOR and made payments based on an annual fixed rate of 0.5135 % on a notional amount of $ 250.0 million. The terms of the contract also required the Company and the swap counterparty to post cash collateral in certain circumstances throughout the duration of the contract. As of December 31, 2021, the Company held no cash collateral from the swap counterparty, and the swap counterparty held no cash collateral from the Company. Certain of the Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign exchange rate movements, which are designated as cash flow hedges. The following table summarizes the Company’s and its Affiliates’ derivative financial instruments measured at fair value on a recurring basis: December 31, 2020 December 31, 2021 Assets Liabilities Assets Liabilities Forward foreign currency contracts $ 3.5 $ ( 2.3 ) $ 0.9 $ ( 0.8 ) Interest rate swap — ( 1.9 ) — — Total $ 3.5 $ ( 4.2 ) $ 0.9 $ ( 0.8 ) 61 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company and certain of its consolidated Affiliates have entered into contracts that do not include set-off rights and are therefore presented on a gross basis in Other assets and Other liabilities; they were $ 3.5 million and $ 4.2 million, respectively, as of December 31, 2020, and $ 0.9 million and $ 0.8 million, respectively, as of December 31, 2021. The following table summarizes the effects of the derivative financial instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Income: For the Years Ended December 31, 2020 2021 Gain (Loss) Recorded in Other Comprehensive Income (loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings Gain Recorded in Earnings from Excluded Components (1) Gain (Loss) Recorded in Other Comprehensive Income (Loss) Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings Gain (loss) Recorded in Earnings from Excluded Components (1) Forward foreign currency contracts $ 65.4 $ 0.6 $ 2.8 $ ( 1.0 ) $ 1.0 $ — Put options ( 47.7 ) — — — — — Call options ( 1.3 ) — — — — — Interest rate swap ( 1.9 ) — — 1.9 ( 0.4 ) — Total $ 14.5 $ 0.6 $ 2.8 $ 0.9 $ 0.6 $ — __________________________ (1) The excluded components of the forward foreign currency contracts were recognized in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense. 8. Commitments and Contingencies From time to time, the Company and its Affiliates may be subject to claims, legal proceedings, and other contingencies in the ordinary course of their business activities. Any such matters are subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner unfavorable to the Company or its Affiliates. The Company and its Affiliates establish accruals, as necessary, for matters for which the outcome is probable and the amount of the liability can be reasonably estimated. The Company has committed to co-invest in certain Affiliate sponsored investment products. As of December 31, 2021, these unfunded commitments were $ 156.3 million and may be called in future periods. As of December 31, 2021, the Company was contingently liable to make payments of $ 185.0 million related to the achievement of specified financial targets by certain of its Affiliates accounted for under the equity method, of which, $ 37.5 million may become payable in 2022 and $ 147.5 million may become payable from 2023 through 2029. As of December 31, 2021, the Company expected to make payments of approximately $ 13 million. In the event certain financial targets are not met at one of the Company’s Affiliates, the Company may receive payments of up to $ 12.5 million and also has the option to reduce its ownership interest and receive an incremental payment of $ 25.0 million. Affiliate equity interests provide holders at consolidated Affiliates with a conditional right to put their interests to the Company over time. See Note 19. In connection with one of the Company’s investments in an Affiliate accounted for under the equity method, a minority owner had the right to elect to sell a portion of its ownership interest in the Affiliate to the Company annually. As of December 31, 2021, the minority owner maintained a 14 % ownership interest in the Affiliate. The minority owner sold its interest on January 14, 2022. See Note 11. As of December 31, 2021, the Company was contingently liable to make payments in connection with its investments in consolidated Affiliates. See Note 9. The Company and certain of its consolidated Affiliates operate under regulatory authorities that require the maintenance of minimum financial or capital requirements. The Company’s management is not aware of any significant violations of such requirements. 9. Business Combinations 62 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On October 1, 2021, the Company, along with a co-investor, completed a majority investment in Parnassus Investments (“Parnassus”), a leading independent ESG-dedicated fund manager. The Company’s provisional purchase price allocation was measured using a discounted cash flow analysis that included a projected growth rate of 2.9 % for assets under management, discount rate of 17.5 % for asset-based fees, a market participant tax rate of 25 %, and discounts for lack of marketability of 20 % for non-controlling interests. The associated provisional amounts may be revised upon completion of the final valuation. At this time, the Company does not expect material changes. The consideration paid (less net tangible assets acquired) will be deductible for U.S. tax purposes over a 15-year life. In addition, on December 29, 2021, the Company completed a majority investment in Abacus Capital Group LLC (“Abacus”), a high-quality real estate investment firm focused on the U.S. multi-family sector. The Company’s provisional purchase price allocation was measured using a discounted cash flow analysis that included a projected growth rate of 8.2 % for assets under management, discount rates of 13.7 % and 30 % for asset- and performance-based fees, respectively, a market participant tax rate of 25 %, and discounts for lack of marketability of 30 % for non-controlling interests. The associated provisional amounts may be revised upon completion of the final valuation. At this time, the Company does not expect material changes. The consideration paid (less net tangible assets acquired) will be deductible for U.S. tax purposes over a 15-year life. The purchase price allocation for these investments is as follows: Total Consideration paid (1) $ 462.6 Deferred payment obligations (2) 261.1 Contingent payment obligations (3) 23.7 Retained equity interests 247.0 Enterprise value $ 994.4 Acquired client relationships $ 957.0 Trade name 5.0 Lease contract ( 0.8 ) Tangible assets, net 2.7 Goodwill 30.5 $ 994.4 __________________________ (1) The Company funded $ 363.0 million. (2) The Company’s portion of the deferred payment obligations is $ 211.6 million. (3) The Company’s portion of the contingent payment obligations is $ 18.1 million. The excess of the enterprise value over the separately identifiable net assets acquired was recorded as goodwill and allocated to our reporting unit. Acquisition-related costs incurred in connection with these investments were $ 9.2 million for the year ended December 31, 2021. These costs were primarily related to professional fees and recorded in Selling, general and administrative expenses. Unaudited pro forma financial results are set forth in the table below, assuming these investments occurred on January 1, 2020 and the Company’s structured partnership interests had been in effect for the entire period. These results include adjustments to intangible amortization, acquisition-related costs, accretion expense related to deferred and contingent payments, and interest expense related to assumed borrowings to complete the purchases. These results do not include the impact of gains or losses resulting from changes to expected payments related to the contingent payment obligations that did not occur, or the benefits that may be expected to result from these investments. These results are not necessarily indicative of the financial results had the investment been consummated at the beginning of the periods presented, nor are they necessarily indicative of the financial results expected in future periods. 63 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended December 31, 2020 (Unaudited) 2021 (Unaudited) Revenue $ 2,236.5 $ 2,642.6 Net income (controlling interest) 226.6 610.3 The Company’s new investments in Parnassus and Abacus contributed $ 85.8 million and $ 16.2 million to the Company’s Revenue and Net income (controlling interest), respectively, during 2021. In connection with these investments, as of December 31, 2021, the Company was obligated to make deferred payments and was contingently liable to make payments as follows: Earliest Payable Controlling Interest Co-Investor Total 2022 2023 2024 2025 Deferred payment obligations $ 215.2 $ 49.8 $ 265.0 $ 200.0 $ 21.7 $ 43.3 $ — Contingent payment obligations (1) 30.6 9.7 40.3 — — 38.9 1.4 __________________________ (1) Fair value as of December 31, 2021. The Company is contingently liable to make maximum contingent payments of up to $ 110.0 million ($ 24.9 million attributable to the co-investor), of which $ 100.0 million and $ 10.0 million may become payable in 2024 and 2025, respectively. Parnassus and Abacus are limited liability companies with structured interests that define how the Company will participate in Affiliate earnings, based upon a fixed percentage of revenue. The limited liability company agreements do not define a fixed percentage for the Company’s ownership of the equity of the Affiliates. These percentages would be subject to a separate future negotiation if the Affiliates were to be sold or liquidated. 10. Goodwill and Acquired Client Relationships The following tables present the changes in the Company’s consolidated Affiliates’ Goodwill and components of Acquired client relationships (net): Goodwill 2020 2021 Balance, beginning of period $ 2,651.7 $ 2,661.4 New investments — 30.5 Foreign currency translation 11.6 ( 1.1 ) Other ( 1.9 ) ( 1.6 ) Balance, end of period $ 2,661.4 $ 2,689.2 As of September 30, 2021, the Company completed its annual impairment assessment on goodwill and no impairment was indicated. 64 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Acquired Client Relationships (Net) Definite-lived Indefinite-lived Total Gross Book Value Accumulated Amortization Net Book Value Net Book Value Net Book Value Balance, as of December 31, 2019 $ 1,248.8 $ ( 1,039.0 ) $ 209.8 $ 972.2 $ 1,182.0 Intangible amortization and impairments — ( 69.8 ) ( 69.8 ) ( 70.7 ) ( 140.5 ) Foreign currency translation 3.5 ( 3.7 ) ( 0.2 ) 7.5 7.3 Transfers (1) ( 85.7 ) 85.7 — — — Balance, as of December 31, 2020 $ 1,166.6 $ ( 1,026.8 ) $ 139.8 $ 909.0 $ 1,048.8 New investments 232.0 — 232.0 725.0 957.0 Intangible amortization and impairments — ( 35.7 ) ( 35.7 ) — ( 35.7 ) Foreign currency translation 0.6 ( 0.6 ) — ( 3.7 ) ( 3.7 ) Transfers (1) ( 35.0 ) 35.0 — — — Balance, as of December 31, 2021 $ 1,364.2 $ ( 1,028.1 ) $ 336.1 $ 1,630.3 $ 1,966.4 __________________________ (1) Transfers include acquired client relationships at Affiliates that were deconsolidated during the period. Definite-lived acquired client relationships at the Company’s consolidated Affiliates are amortized over their expected period of economic benefit. The Company recorded amortization expense in Intangible amortization and impairments for these relationships of $ 93.4 million, $ 55.3 million, and $ 35.7 million for the years ended December 31, 2019, 2020, and 2021, respectively. Based on relationships existing as of December 31, 2021, the Company estimates that its consolidated amortization expense will be approximately $ 50 million in each of 2022 and 2023, approximately $ 35 million in 2024, and approximately $ 30 million in each of 2025 and 2026. As of December 31, 2021, no impairments of definite-lived acquired client relationships were indicated. In the second quarter of 2020, the Company agreed with a consolidated Affiliate to strategically reposition their business and to sell its equity interest in the Affiliate. The Company recorded an expense in Intangible amortization and impairments of $ 32.8 million attributable to the controlling interest ($ 60.3 million in aggregate) to reduce the carrying value of the Affiliate’s acquired client relationships to zero as of June 30, 2020. In the third quarter of 2020, the Company sold its interest in the Affiliate and the Company recorded no significant gain or loss on the transaction. In the third quarter of 2020, the Company completed an impairment assessment of the indefinite-lived acquired client relationships at one of its Affiliates, and determined that the fair value of the asset had declined below its carrying value. Accordingly, the Company recorded an expense in Intangible amortization and impairments of $ 12.5 million attributable to the controlling interest ($ 14.0 million in aggregate) to reduce the carrying value of the asset to fair value. The decline in the fair value was a result of a projected decline in assets under management that decreased the forecasted revenue associated with the asset. The fair value of the asset was determined using a discounted cash flow analysis, a level 3 fair value measurement that included a projected growth rate of ( 14 )% for assets under management, a discount rate of 15 % for asset-based fees, and a market participant tax rate of 25 %. In addition, in the third quarter of 2020, the Company recorded an expense in Intangible amortization and impairments of $ 7.4 million attributable to the controlling interest ($ 10.9 million in aggregate) to reduce the carrying value of an indefinite-lived acquired client relationship to zero due to the closure of one of its Affiliate’s retail investment products. As of December 31, 2021, no impairments of indefinite-lived acquired client relationships were indicated. If financial markets become depressed for a prolonged period as a result of the novel coronavirus global pandemic (“COVID-19”) or other factors, the fair values of these assets could drop below their carrying values resulting in future impairments. 11. Equity Method Investments in Affiliates In the first and second quarters of 2021, the Company completed minority investments in Boston Common Asset Management LLC (“Boston Common”), a pioneer in global sustainable and impact investing, and OCP Asia Limited (“OCP Asia”), a leading alternative manager in private markets, providing customized secured lending solutions across the Asia-Pacific region, respectively. The majority of the consideration paid for both Boston Common and OCP Asia is deductible for U.S. tax purposes over a 15-year life. The Company’s purchase price allocation for each investment was measured using 65 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) discounted cash flow analyses that included assumptions of expected market performance, net client cash flows, and discount rates. The financial results of certain Affiliates accounted for under the equity method are recognized in the Consolidated Financial Statements one quarter in arrears. Equity method investments in Affiliates (net) consisted of the following: December 31, 2020 2021 Goodwill $ 1,251.6 $ 1,264.4 Definite-lived acquired client relationships (net) 479.5 470.1 Indefinite-lived acquired client relationships (net) 173.1 174.4 Undistributed earnings and tangible capital 170.6 225.5 Equity method investments in Affiliates (net) $ 2,074.8 $ 2,134.4 The following table presents the change in Equity method investments in Affiliates (net): Equity Method Investments in Affiliates (Net) 2020 2021 Balance, beginning of period $ 2,195.6 $ 2,074.8 Investments in Affiliates 128.7 147.3 Earnings 288.6 417.5 Intangible amortization and impairments ( 332.0 ) ( 175.0 ) Distributions of earnings ( 236.8 ) ( 337.5 ) Return of capital — ( 4.4 ) Foreign currency translation 5.1 12.5 Other 25.6 ( 0.8 ) Balance, end of period $ 2,074.8 $ 2,134.4 Definite-lived acquired client relationships at the Company’s Affiliates accounted for under the equity method are amortized over their expected period of economic benefit. The Company recorded amortization expense for these relationships of $ 142.4 million, $ 147.0 million, and $ 123.0 million for the years ended December 31, 2019, 2020, and 2021, respectively. Based on relationships existing as of December 31, 2021, the Company estimates the amortization expense attributable to its Affiliates will be approximately $ 80 million in 2022 and 2023, and approximately $ 50 million in each of 2024, 2025, and 2026. In the first and fourth quarters of 2020, the Company recorded expenses of $ 140.0 million and $ 45.0 million, respectively, to reduce the carrying value of an Affiliate to fair value. The decline in the fair values was a result of declines in assets under management and reductions in projected growth, which decreased the forecasted revenues associated with the investment. The fair values of the investment were determined using probability-weighted discounted cash flow analyses, level 3 fair value measurements that included projected compounded growth in assets under management over the first five years of ( 2 )% and ( 5 )% for the first and fourth quarters of 2020, respectively, discount rates of 11 % for asset-based fees, discount rates of 20 % for performance-based fees, and market participant tax rates of 25 %. Based on the discounted cash flow analyses, the Company concluded that the fair value of its investment had declined below its carrying value at each of the respective measurement dates and that the decline was other-than-temporary. In the fourth quarter of 2021, the Company recorded a $ 52.0 million expense to reduce the carrying value of an Affiliate to fair value. The decline in the fair value was a result of a decline in assets under management and a reduction in projected growth, which decreased the forecasted revenue associated with the investment. The fair value of the investment was determined using a probability-weighted discounted cash flow analysis, a level 3 fair value measurement that included a projected compounded growth in assets under management over the first five years of 0.3 %, discount rates of 11 % and 20 % for asset- and performance-based fees, respectively, and a market participant tax rate of 25 %. Based on the discounted cash flow 66 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) analysis, the Company concluded that the fair value of its investment had declined below its carrying value and that the decline was other-than-temporary. For the year ended December 31, 2021, the Company completed its annual assessme nt of its investments in Affiliates accounted for under the equity method and no other impairments were indicated. If financial markets become depressed for a prolonged period as a result of COVID-19 or other factors, or the financial performance of an Affiliate worsens as a result of net client cash outflows or performance, regardless of the performance of financial markets, the fair values of these assets could drop below their carrying values for periods considered other-than-temporary, resulting in future impairments. The Company had liabilities for deferred and contingent payment obligations related to certain of its investments in Affiliates accounted for under the equity method. As of December 31, 2021, the Company was obligated to make deferred payments of up to $ 50.8 million, all of which is payable in 2022. As of December 31, 2021, the Company has recorded liabilities of $ 43.0 million related to the achievement of specified financial targets, which are expected to settle in 2022. Liabilities for deferred and contingent payments are included in Other liabilities. The Company had 18 and 21 Affiliates accounted for under the equity method as of December 31, 2020 and 2021, respectively. The majority of these Affiliates are partnerships with structured interests that define how the Company will participate in Affiliate earnings, typically based upon a fixed percentage of revenue reduced by, in some cases, certain agreed-upon expenses. The partnership agreements do not define a fixed percentage for the Company’s ownership of the equity of the Affiliate. These percentages would be subject to a separate future negotiation if an Affiliate were to be sold or liquidated. The following table presents summarized financial information for Affiliates accounted for under the equity method: For the Years Ended December 31, 2019 2020 2021 Revenue (1) $ 2,760.9 $ 2,659.7 $ 3,228.1 Net income (1) 1,061.3 1,061.8 1,656.6 December 31, 2020 2021 Assets $ 2,958.9 $ 3,607.7 Liabilities and Non-controlling interests 1,245.5 1,422.7 __________________________ (1) Revenue and net income include asset- and performance-based fees, the impact of consolidated sponsored investment products and investments in new Affiliates for the full-year, regardless of the date of the Company’s investment. On January 14, 2022, the Company completed an additional investment in Systematica Investments (“Systematica”), an innovative technology-driven systematic manager. Following the close of the transaction, the investment continues to be accounted for under the equity method of accounting and Systematica partners continue to hold a majority of the equity of the business and direct its day-to-day operations. 12. Lease Commitments The Company and its Affiliates currently lease office space and equipment under various operating leasing arrangements. The following table presents total lease costs (net) for 2019, 2020, and 2021: For the Years Ended December 31, 2019 2020 2021 Operating lease costs $ 41.7 $ 37.6 $ 33.8 Short-term lease costs 2.1 0.8 0.8 Variable lease costs 0.1 0.0 0.0 Sublease income ( 4.4 ) ( 5.0 ) ( 7.9 ) Total lease costs (net) $ 39.5 $ 33.4 $ 26.7 67 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2020 and 2021, the Company’s and its Affiliates’ weighted average operating lease term was seven years , and the weighted average operating lease discount rate was 4 % and 3 %, respectively. As of December 31, 2021, the maturities of lease liabilities were as follows: Year Operating Leases 2022 38.9 2023 36.3 2024 32.0 2025 27.5 2026 17.8 Thereafter 58.8 Total undiscounted lease liabilities (1) $ 211.3 __________________________ (1) Total undiscounted lease liabilities were $ 35.0 million greater than the operating leases recorded in Other liabilities primarily due to present value discounting. Both amounts exclude leases with initial terms of 12 months or less and leases that have not yet commenced. 13. Fixed Assets Fixed assets (net) consisted of the following: December 31, 2020 2021 Buildings and leasehold improvements $ 116.5 $ 113.4 Software 55.3 56.1 Equipment 44.3 30.6 Furniture and fixtures 21.0 18.9 Land, improvements and other 18.0 20.2 Fixed assets, at cost 255.1 239.2 Accumulated depreciation and amortization ( 175.5 ) ( 165.3 ) Fixed assets (net) $ 79.6 $ 73.9 14. Payables and Accrued Liabilities Payables and accrued liabilities consisted of the following: December 31, 2020 2021 Accrued compensation $ 400.0 $ 545.5 Other 312.4 243.6 Payables and accrued liabilities $ 712.4 $ 789.1 15. Related Party Transactions A prior owner of one of the Company’s consolidated Affiliates retains interests in certain of the Affiliate’s private equity partnerships and, as a result, is a related party of the Company. The prior owner’s interests are presented within Other liabilities and were $ 35.4 million and $ 28.5 million as of December 31, 2020 and 2021, respectively. The Company may invest from time to time in funds or products advised by its Affiliates. The Company’s executive officers and directors may invest from time to time in funds advised or products offered by its Affiliates, or receive other investment services provided by its Affiliates, on substantially the same terms as other investors. In addition, the Company and 68 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) its Affiliates earn asset- and performance-based fees and incur distribution and other expenses for services provided to Affiliate sponsored investment products. Affiliate management owners and the Company’s officers may serve as trustees or directors of certain investment vehicles from which the Company or an Affiliate earns fees. The Company has related party transactions in association with its deferred and contingent payment obligations, and Affiliate equity transactions, as more fully described in Notes 8, 9, 11, 18, and 19. 16. Stockholders’ Equity Common Stock The Company is authorized to issue up to 150.0 million shares of voting common stock and 3.0 million shares of class B non-voting common stock. The Company’s Board of Directors authorized share repurchase programs in January 2021 and October 2019 to repurchase up to 5.0 million and 6.0 million shares of its common stock, respectively, and these authorizations have no expiry. Purchases may be made from time to time, at management’s discretion, in the open market or in privately negotiated transactions, including through the use of trading plans, as well as pursuant to accelerated share repurchase programs or other share repurchase strategies that may include derivative financial instruments. As of December 31, 2021, the Company had repurchased all of the shares of the October 2019 authorized amount, and there were a total of 3.4 million shares available for repurchase under the Company’s January 2021 share repurchase program. The following is a summary of the Company’s share repurchase activity: Year Shares Repurchased Average Price 2019 4.1 $ 88.73 2020 5.0 86.35 2021 3.5 146.54 Between January 1, 2022 and February 16, 2022, the Company repurchased 0.8 million shares of its common stock in the open market for approximately $ 110 million. Equity Distribution Program The Company has equity distribution and forward equity agreements with several major securities firms under which it may, from time to time, issue and sell shares of its common stock (immediately or on a forward basis) having an aggregate sales price of up to $ 500.0 million (the “equity distribution program”). As of December 31, 2021, no sales had occurred under the equity distribution program. Preferred Stock The Company is authorized to issue up to 5.0 million shares of preferred stock. Any such preferred stock issued by the Company may rank prior to common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights, and may be convertible into shares of common stock. Financial Instruments The Company’s junior convertible securities contain an embedded right for holders to receive shares of the Company’s common stock under certain conditions. These arrangements, as well as the equity distribution program, meet the definition of equity and are not required to be accounted for separately as derivative financial instruments. 17. Share-Based Compensation Share-Based Incentive Plans The Company has established various plans under which it is authorized to grant restricted stock, restricted stock units, stock options, and stock appreciation rights. The Company may also grant cash awards that can be notionally invested in one or more specified measurement funds, including the Company’s common stock. Awards granted under the Company’s share-based incentive plans typically participate in any dividends declared, but such amounts are deferred until delivery of the shares 69 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) and are forfeitable if the requisite service is not satisfied. Dividends may accrue in cash or may be reinvested in the Company’s common stock. Share-Based Compensation The following table presents share-based compensation expense: Year Share-Based Compensation Expense Tax Benefit 2019 $ 49.9 $ 8.2 2020 67.4 10.3 2021 63.4 8.0 The excess tax deficiency recognized from share-based incentive plans was $ 3.2 million, $ 3.9 million, and $ 0.2 million, for the years ended December 31, 2019, 2020, and 2021, respectively. As of December 31, 2020, the Company had unrecognized share-based compensation expense of $ 86.2 million. As of December 31, 2021, the Company had unrecognized share-based compensation of $ 70.9 million, which will be recognized over a weighted average period of approximately two years (assuming no forfeitures). Restricted Stock The following table summarizes transactions in the Company’s restricted stock units: Restricted Stock Units Weighted Average Grant Date Value Unvested units—December 31, 2020 1.2 $ 99.46 Units granted 0.2 142.72 Units vested ( 0.3 ) 133.00 Units forfeited ( 0.1 ) 105.44 Performance condition changes 0.1 102.67 Unvested units—December 31, 2021 1.1 95.03 The Company granted restricted stock units with fair values of $ 59.7 million, $ 31.8 million, and $ 32.3 million for the years ended December 31, 2019, 2020, and 2021, respectively. These restricted stock units were valued based on the closing price of the Company’s common stock on the grant date and the number of shares expected to vest. Restricted stock units containing vesting conditions generally require service over a period of three years to four years and may also require the satisfaction of certain performance conditions. For awards with performance conditions, the number of restricted stock units expected to vest may change over time depending upon the performance level achieved. The total fair value of shares vested was $ 18.9 million, $ 24.1 million, and $ 51.7 million during the years ended December 31, 2019, 2020, and 2021, respectively. As of December 31, 2021, the Company had 3.2 million shares available for grant under its plans. Stock Options 70 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes transactions in the Company’s stock options: Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Unexercised options outstanding—December 31, 2020 2.9 $ 82.14 Options granted 0.0 150.68 Options exercised ( 0.3 ) 120.58 Options forfeited ( 0.0 ) 154.44 Performance condition changes 0.6 74.74 Unexercised options outstanding—December 31, 2021 3.2 77.39 4.6 Exercisable at December 31, 2021 0.1 137.88 1.5 The Company granted stock options with fair values of $ 34.2 million, $ 4.4 million, and $ 2.0 million for the years ended December 31, 2019, 2020, and 2021, respectively. Stock options generally vest over a period of three years to five years and expire seven years after the grant date. All stock options have been granted with exercise prices equal to the closing price of the Company’s common stock on the grant date. Substantially all of the Company’s outstanding stock options contain both service and performance conditions. For awards with performance conditions, the number of stock options expected to vest may change over time depending upon the performance level achieved. The Company generally uses treasury stock to settle stock option exercises. The total intrinsic value of stock options exercised during the years ended December 31, 2019, 2020, and 2021 was $ 0.2 million, $ 0.0 million , and $ 13.4 million, respectively. The cash received for stock options exercised was $ 0.9 million, zero , and $ 3.6 million during the years ended December 31, 2019, 2020, and 2021, respectively. As of December 31, 2021, the intrinsic value of exercisable stock options outstanding was $ 3.4 million, and 1.1 million options were available for grant under the Company’s option plans. The weighted average fair value of stock options was $ 18.36 , $ 18.33 , and $ 54.19 , per option, for the years ended December 31, 2019, 2020, and 2021, respectively. The Company uses the Black-Scholes option pricing model to determine the fair value of options. The weighted average grant date assumptions used to estimate the fair value of stock options granted were as follows: For the Years Ended December 31, 2019 2020 2021 Dividend yield 1.7 % 1.6 % 0.0 % Expected volatility (1) 29.4 % 30.5 % 37.1 % Risk-free interest rate (2) 1.5 % 0.9 % 1.0 % Expected life of stock options (in years) (3) 5.7 5.7 5.7 Forfeiture rate 0.0 % 0.0 % 0.0 % __________________________ (1) Expected volatility is based on historical and implied volatility. (2) Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. (3) Expected life of options (in years) is based on the Company’s historical and expected exercise behavior. 18. Redeemable Non-Controlling Interests Affiliate equity interests provide holders with an equity interest in one of the Company’s Affiliates, consistent with the structured partnership interests in place at the respective Affiliate. Affiliate equity holders generally have a conditional right to put their interests to the Company at certain intervals (between five years and 15 years from the date the equity interest is received by the Affiliate equity holder or on an annual basis following an Affiliate equity holder’s departure). Prior to becoming redeemable, the Company’s Affiliate equity is presented within Non-controlling interests. Upon becoming redeemable, these interests are reclassified to Redeemable non-controlling interests at their current redemption values. Changes in the current redemption value are recorded to Additional paid-in capital. When the Company has an unconditional obligation 71 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) to repurchase Affiliate equity interests, the interests are reclassified from Redeemable non-controlling interest to Other liabilities at current fair value. Changes in fair value are recorded to Other expenses (net). The following table presents the changes in Redeemable non-controlling interests: Redeemable Non-controlling Interests 2020 2021 Balance, beginning of period (1) $ 916.7 $ 671.5 Increase (decrease) attributable to consolidated Affiliate sponsored investment products 13.8 ( 10.4 ) Transfers to Other liabilities ( 310.6 ) ( 112.7 ) Transfers (to) from Non-controlling interests ( 7.8 ) 3.9 Changes in redemption value 59.4 121.6 Balance, end of period (1) $ 671.5 $ 673.9 __________________________ (1) As of December 31, 2020 and 2021, Redeemable non-controlling interests include consolidated Affiliate sponsored investment products primarily attributable to third-party investors of $ 35.4 million and $ 25.0 million, respectively. 19. Affiliate Equity Affiliate equity interests are allocated income in a manner that is consistent with the structured partnership interests in place at the respective Affiliate. The Company’s Affiliates generally pay quarterly distributions to Affiliate equity holders. Distributions paid to non-controlling interest Affiliate equity holders were $ 347.9 million, $ 306.3 million, and $ 334.3 million for the years ended December 31, 2019, 2020, and 2021, respectively. Affiliate equity interests provide the Company a conditional right to call (following an Affiliate equity holder’s departure) and Affiliate equity holders have a conditional right to put their interests at certain intervals (including on an annual basis following an Affiliate equity holder’s departure). For Affiliates accounted for under the equity method, the Company does not typically have such put and call arrangements. The purchase price of these conditional purchases are generally calculated based upon a multiple of cash flow distributions, which is intended to represent fair value. Affiliate equity holders are also permitted to sell their equity interests to other individuals or entities in certain cases, subject to the Company's approval or other restrictions. The Company, at its option, may pay for Affiliate equity purchases in cash, shares of its common stock, or other forms of consideration, and can consent to the transfer of these interests to other individuals or entities. The Company periodically purchases Affiliate equity from and issues Affiliate equity to the Company’s consolidated Affiliate partners and other parties. The amount of cash paid for purchases was $ 146.0 million, $ 315.1 million, and $ 150.5 million for the years ended December 31, 2019, 2020, and 2021, respectively. The total amount of cash received for issuances was $ 10.5 million, $ 20.2 million, and $ 117.7 million (including $ 99.6 million from a co-investor) for the years ended December 31, 2019, 2020, and 2021, respectively. Sales and purchases of Affiliate equity generally occur at fair value; however, the Company also grants Affiliate equity to its consolidated Affiliate partners and other parties as a form of compensation. If the equity is issued for consideration below the fair value of the equity, or purchased for consideration above the fair value of the equity, the difference is recorded as compensation expense in Compensation and related expenses in the Consolidated Statements of Income over the requisite service period. The following table presents Affiliate equity compensation expense: For the Years Ended December 31, 2019 2020 2021 Controlling interest $ 9.6 $ 20.9 $ 17.4 Non-controlling interests 30.9 30.9 45.9 Total $ 40.5 $ 51.8 $ 63.3 The following table presents unrecognized Affiliate equity compensation expense: 72 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Controlling Interest Remaining Life Non-controlling Interests Remaining Life 2019 $ 40.9 4 years $ 124.6 6 years 2020 35.9 4 years 109.7 5 years 2021 41.9 6 years 294.1 7 years The Company records amounts receivable from, and payable to, Affiliate equity holders in connection with the transfer of Affiliate equity interests that have not settled at the end of the period. The total receivable was $ 9.6 million and $ 9.0 million as of December 31, 2020 and 2021, respectively, and was included in Other assets. The total payable was $ 22.0 million and $ 12.6 million as of December 31, 2020 and 2021, respectively, and was included in Other liabilities. Effects of Changes in the Company’s Ownership in Affiliates The Company periodically acquires interests from, and transfers interests to, Affiliate equity holders. Because these transactions do not result in a change of control, any gain or loss related to these transactions is recorded to Additional paid-in capital, which increases or decreases the controlling interest’s equity. No gain or loss related to these transactions is recognized in the Consolidated Statements of Income or the Consolidated Statements of Comprehensive Income. While the Company presents the current redemption value of Affiliate equity within Redeemable non-controlling interests, with changes in the current redemption value increasing or decreasing the controlling interest’s equity over time, the following table presents the cumulative effect that ownership changes had on the controlling interest’s equity related only to Affiliate equity transactions that settled during the applicable periods: For the Years Ended December 31, 2019 2020 2021 Net income (controlling interest) $ 15.7 $ 202.2 $ 565.7 (Decrease) increase in controlling interest paid-in capital from Affiliate equity issuances ( 3.1 ) 1.1 ( 17.5 ) Decrease in controlling interest paid-in capital from Affiliate equity purchases ( 50.8 ) ( 239.1 ) ( 63.2 ) Net income (loss) (controlling interest) including the net impact of Affiliate equity transactions $ ( 38.2 ) $ ( 35.8 ) $ 485.0 20. Benefit Plans The Company has a defined contribution plan that is a qualified employee profit-sharing plan, covering substantially all of its employees. Under this plan, the Company is able to make discretionary contributions for the benefit of its employees that are qualified plan participants, up to Internal Revenue Service (“IRS”) limits. The Company’s consolidated Affiliates generally have their own qualified defined contribution retirement plans covering their respective employees or, for several Affiliates, have their employees covered under the Company’s plan. In each case, the relevant Affiliate is able to make discretionary contributions for the benefit of its employees, as applicable, that are qualified plan participants, up to IRS limits. Consolidated expenses related to these plans were $ 19.4 million, $ 17.6 million, and $ 19.1 million for the years ended December 31, 2019, 2020, and 2021, respectively. The controlling interest’s portion of expenses related to these plans were $ 3.6 million, $ 3.0 million, and $ 3.0 million for the years ended December 31, 2019, 2020, and 2021, respectively. 21. Income Taxes The Company’s consolidated income tax provision includes taxes attributable to the controlling interest and, to a lesser extent, taxes attributable to the non-controlling interests. The following table presents the consolidated provision for income taxes: 73 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended December 31, 2019 2020 2021 Controlling interest: Current taxes $ 46.5 $ 44.6 $ 144.4 Intangible-related deferred taxes ( 51.3 ) ( 9.9 ) 52.5 Other deferred taxes ( 4.3 ) 34.8 32.7 Total controlling interest ( 9.1 ) 69.5 229.6 Non-controlling interests: Current taxes $ 12.2 $ 10.0 $ 15.4 Deferred taxes ( 0.2 ) 1.9 6.0 Total non-controlling interests 12.0 11.9 21.4 Income tax expense $ 2.9 $ 81.4 $ 251.0 Income before income taxes (controlling interest) $ 6.6 $ 271.7 $ 795.3 Effective tax rate (controlling interest) (1) ( 137.0 ) % 25.6 % 28.9 % __________________________ (1) Taxes attributable to the controlling interest divided by income before income taxes (controlling interest). The consolidated provision for income taxes consisted of the following: For the Years Ended December 31, 2019 2020 2021 Current: Federal $ ( 18.2 ) $ ( 9.6 ) $ 73.1 State ( 8.8 ) 17.0 19.6 Foreign 85.7 47.2 67.1 Total current 58.7 54.6 159.8 Deferred: Federal $ ( 23.9 ) $ 20.1 $ 55.9 State 3.4 5.4 13.0 Foreign ( 35.3 ) 1.3 22.3 Total deferred ( 55.8 ) 26.8 91.2 Income tax expense $ 2.9 $ 81.4 $ 251.0 For financial reporting purposes, Income before income taxes consisted of the following: For the Years Ended December 31, 2019 2020 2021 Domestic $ 152.2 $ 446.1 $ 698.2 International 155.8 62.2 442.8 Total $ 308.0 $ 508.3 $ 1,141.0 The following table reconciles the U.S. federal statutory tax rate to the Company’s effective tax rate: 74 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended December 31, 2019 2020 2021 Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.5 3.5 3.5 Foreign operations ( 471.2 ) ( 8.5 ) ( 1.7 ) Compensation plans 240.6 5.8 2.0 Changes in tax laws — 3.0 2.4 Change in valuation allowances ( 107.2 ) 6.9 1.1 Unrecognized tax benefits 420.4 ( 1.1 ) 0.1 Affiliate divestments ( 120.4 ) ( 6.2 ) — Changes in U.S. tax provision to return ( 195.7 ) 0.8 0.4 Other 72.0 0.4 0.1 Effective tax rate (controlling interest) ( 137.0 ) % 25.6 % 28.9 % Effect of income from non-controlling interests 137.9 ( 9.6 ) ( 6.9 ) Effective tax rate 0.9 % 16.0 % 22.0 % The Company’s effective tax rate (controlling interest) in 2019 is lower than the marginal tax rate, primarily due to lower Income before income taxes, as a result of increased Intangible amortization and impairments expense, and tax benefits related to an Affiliate divestment. The effective tax rate (controlling interest) in 2020 is not significantly different from the marginal tax rate. The effective tax rate (controlling interest) in 2021 is higher than the marginal tax rate, primarily due to non-deductible compensation expense and an increase in deferred tax expense resulting from the revaluation of certain deferred tax liabilities due to an increase in the UK tax rate enacted during 2021. Deferred income tax liability (net) reflects the expected future tax consequences of temporary differences between the financial reporting bases and tax bases of the Company’s assets and liabilities. The significant components of the Company’s Deferred income tax liability (net) are as follows: 75 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2020 2021 Deferred Tax Assets Deferred compensation $ 15.4 $ 12.5 State loss carryforwards 17.0 16.9 Foreign loss carryforwards 19.7 22.2 Tax benefit of uncertain tax positions 26.3 17.4 Lease liabilities 10.0 7.6 Foreign tax credits 8.2 8.7 Other — 1.3 Total deferred tax assets 96.6 86.6 Valuation allowance ( 35.6 ) ( 43.9 ) Deferred tax assets, net of valuation allowance $ 61.0 $ 42.7 Deferred Tax Liabilities Intangible asset amortization $ ( 235.6 ) $ ( 255.9 ) Non-deductible intangible amortization ( 116.6 ) ( 149.2 ) Junior convertible securities interest ( 99.3 ) ( 101.7 ) Right-of-use assets ( 7.3 ) ( 5.9 ) Deferred income ( 10.7 ) ( 27.3 ) Other ( 8.5 ) ( 4.0 ) Total deferred tax liabilities ( 478.0 ) ( 544.0 ) Deferred income tax liability (net) (1) $ ( 417.0 ) $ ( 501.3 ) __________________________ (1) As of December 31, 2020 and 2021, foreign loss carryforwards of $ 19.7 million (net of a $ 13.3 million valuation allowance) and $ 22.2 million (net of a $ 20.3 million valuation allowance), respectively, are presented within Other assets as they represent a net deferred tax asset in a foreign jurisdiction. As of December 31, 2021, the Company had available state net operating loss carryforwards of $ 242.4 million, a majority of which will expire over nine years to 12 years. As of December 31, 2021, the Company had foreign loss carryforwards of $ 83.9 million, of which $ 65.8 million will expire over ten years to 18 years and $ 18.1 million will carry forward indefinitely. As of December 31, 2021, the Company had foreign tax credit carryforwards of $ 8.7 million which will expire over seven years to ten years . The Company believed it was more-likely-than-not that the benefit from certain state and foreign loss carryforwards and foreign tax credit carryforwards would not be fully realized, and, as of December 31, 2021, had valuation allowances of $ 14.9 million, $ 20.3 million, and $ 8.7 million on the state and foreign loss carryforwards and the foreign tax credit carryforwards, respectively. For the years ended December 31, 2020 and 2021, the Company increased its valuation allowance $ 18.7 million and $ 8.3 million, respectively. The Company’s estimates and assumptions regarding the realization of its state and foreign loss carryforwards do not contemplate certain changes in ownership of the Company’s stock which could limit the utilization of these carryforwards. The Company does not provide for U.S. income taxes on the excess of the financial reporting bases over tax bases in the Company’s investments in foreign subsidiaries considered permanent in duration. Such amount would generally become taxable upon the repatriation of assets from, or a sale or liquidation of, the foreign subsidiaries. While a determination of the potential amount of unrecognized deferred U.S. income tax liability related to these amounts is not practicable because of the numerous assumptions associated with this hypothetical calculation, as of December 31, 2021, the estimated amount of such difference was $ 321.6 million. A reconciliation of the changes in unrecognized tax benefits is as follows: 76 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended December 31, 2019 2020 2021 Balance, beginning of period $ 33.1 $ 65.4 $ 63.5 Additions based on current year tax positions 39.8 1.1 0.8 Additions based on prior years’ tax positions 3.2 1.7 4.6 Reduction for prior years’ tax positions ( 3.5 ) ( 0.4 ) ( 5.6 ) Lapse of the statute of limitations ( 4.0 ) ( 7.6 ) ( 5.7 ) Settlements ( 0.4 ) — ( 5.5 ) Foreign currency translation ( 2.8 ) 3.3 0.3 Balance, end of period $ 65.4 $ 63.5 $ 52.4 Included in the balance of unrecognized tax benefits as of December 31, 2019, 2020, and 2021 were $ 65.4 million, $ 63.5 million, and $ 52.4 million, respectively, of tax benefits that, if recognized, would favorably affect the Company’s effective tax rate (controlling interest). As of December 31, 2021, certain of these benefits, if realized, would be offset by the utilization of indirect tax benefits, for which the Company has accrued deferred tax assets of $ 17.4 million. The Company records accrued interest and penalties, if any, related to unrecognized tax benefits in Income tax expense. For the years ended December 31, 2019, 2020, and 2021, interest and penalties related to unrecognized tax benefits were $ 8.4 million, $ 0.8 million, and $( 0.4 ) million, respectively. As of December 31, 2020 and 2021, the Company accrued interest and penalties related to unrecognized tax benefits of $ 11.4 million and $ 11.0 million, respectively. The Company is subject to U.S. federal, state and local, and foreign income tax in multiple jurisdictions and is periodically subject to tax examinations in these jurisdictions. The completion of examinations may result in the payment of additional taxes and/or the recognition of tax benefits. The Company is generally no longer subject to income tax examinations by U.S. federal, state and local, or foreign taxing authorities for periods prior to 2016. 22. Earnings Per Share The calculation of Earnings per share (basic) is based on the weighted average number of shares of the Company’s common stock outstanding during the period. Earnings per share (diluted) is similar to Earnings per share (basic), but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company’s common stock. The following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share available to common stockholders: For the Years Ended December 31, 2019 2020 2021 Numerator Net income (controlling interest) $ 15.7 $ 202.2 $ 565.7 Interest expense on junior convertible securities, net of taxes — — 18.5 Net income (controlling interest), as adjusted $ 15.7 $ 202.2 $ 584.2 Denominator Average shares outstanding (basic) 50.5 46.5 41.5 Effect of dilutive instruments: Stock options and restricted stock units 0.1 0.2 1.2 Junior convertible securities — — 2.1 Average shares outstanding (diluted) 50.6 46.7 44.8 Average shares outstanding (diluted) in the table above excludes stock options and restricted stock units that have not met certain performance conditions and items that have an anti-dilutive effect on Earnings per share (diluted). The following is a summary of items excluded from the denominator in the table above: 77 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the Years Ended December 31, 2019 2020 2021 Stock options and restricted stock units 2.6 2.9 0.2 Junior convertible securities 2.2 2.2 — The Company may settle portions of its Affiliate equity purchases in shares of its common stock. Because it is the Company’s intention to settle these potential purchases in cash, the calculation of Average shares outstanding (diluted) excludes any potential dilutive effect from possible share settlements of Affiliate equity purchases. 23. Comprehensive Income The following tables present the tax effects allocated to each component of Other comprehensive income (loss): For the Year Ended December 31, 2019 Pre-Tax Tax Benefit Net of Tax Foreign currency translation gain (loss) $ ( 11.4 ) $ 22.3 $ 10.9 Change in net realized and unrealized gain on derivative financial instruments 1.7 — 1.7 Other comprehensive income (loss) $ ( 9.7 ) $ 22.3 $ 12.6 For the Year Ended December 31, 2020 Pre-Tax Tax (Expense) Benefit Net of Tax Foreign currency translation gain (loss) $ 25.5 $ ( 10.3 ) $ 15.2 Change in net realized and unrealized gain (loss) on derivative financial instruments ( 1.9 ) 0.4 ( 1.5 ) Other comprehensive income (loss) $ 23.6 $ ( 9.9 ) $ 13.7 For the Year Ended December 31, 2021 Pre-Tax Tax Expense Net of Tax Foreign currency translation gain (loss) $ 10.3 $ ( 3.5 ) $ 6.8 Change in net realized and unrealized loss on derivative financial instruments 0.9 ( 0.5 ) 0.4 Other comprehensive income (loss) $ 11.2 $ ( 4.0 ) $ 7.2 The components of accumulated other comprehensive income (loss), net of taxes, were as follows: Foreign Currency Translation Adjustment Realized and Unrealized Gains (Losses) on Derivative Financial Instruments Total Balance, as of December 31, 2019 $ ( 177.1 ) $ 1.2 $ ( 175.9 ) Other comprehensive income (loss) before reclassifications 15.2 ( 0.9 ) 14.3 Amounts reclassified — ( 0.6 ) ( 0.6 ) Net other comprehensive income (loss) 15.2 ( 1.5 ) 13.7 Balance, as of December 31, 2020 $ ( 161.9 ) $ ( 0.3 ) $ ( 162.2 ) Other comprehensive income (loss) before reclassifications 6.8 ( 0.2 ) 6.6 Amounts reclassified — 0.6 0.6 Net other comprehensive income 6.8 0.4 7.2 Balance, as of December 31, 2021 $ ( 155.1 ) $ 0.1 $ ( 155.0 ) 24. Geographic Information The following table presents Consolidated revenue and Fixed assets (net) of the Company by geographic location. For Affiliates, this information is primarily based on the location of the Affiliates’ headquarters. For the Years Ended December 31, 2019 2020 2021 Consolidated revenue United States $ 1,642.2 $ 1,524.0 $ 1,838.7 United Kingdom 515.2 462.3 528.6 Other 82.2 41.2 45.1 Total $ 2,239.6 $ 2,027.5 $ 2,412.4 December 31, 2020 2021 Fixed assets (net) United States $ 64.2 $ 58.7 United Kingdom 14.6 14.6 Other 0.8 0.6 Total $ 79.6 $ 73.9 78 Table of Contents AFFILIATED MANAGERS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Schedule II Valuation and Qualifying Accounts (in millions) Balance Beginning of Period Additions Charged to Costs and Expenses Additions Charged to Other Accounts Deductions Balance End of Period Income Tax Valuation Allowance Year Ending December 31, 2021 $ 35.6 $ 8.3 $ — $ — $ 43.9 2020 16.9 18.4 0.3 — 35.6 2019 24.1 4.9 — 12.1 16.9 Other Allowances (1) Year Ending December 31, 2021 $ 4.8 $ — $ — $ — $ 4.8 2020 4.1 3.8 — 3.1 4.8 2019 5.0 1.0 — 1.9 4.1 __________________________ (1) Other allowances represented reserves on notes received in connection with transfers of our interests in certain Affiliates, as well as other receivable amounts, which we considered uncollectible. Deductions represented the reversal of such reserves upon collection of the amounts due. 79 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.