OM ASSET MANAGEMENT PLC, 10-Q filed on 8/10/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2017
Aug. 7, 2017
Document and Entity Information
 
 
Entity Registrant Name
OM Asset Management plc 
 
Entity Central Index Key
0001611702 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
109,720,358 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Assets
 
 
Investments (includes balances reported at fair value of $131.1 and $126.1)
$ 240.2 
$ 268.8 
Investments, at fair value
177.8 
161.6 
Total assets
1,279.2 
1,294.3 
Liabilities and equity
 
 
Total liabilities
1,148.8 
1,123.8 
Commitments and contingencies
   
   
Equity:
 
 
Total equity and redeemable non-controlling interests in consolidated Funds
130.4 
170.5 
Total liabilities and equity
1,279.2 
1,294.3 
Consolidated Entity Excluding Consolidated Funds
 
 
Assets
 
 
Cash and cash equivalents
83.3 
101.9 
Investment advisory fees receivable
187.5 
163.7 
Fixed assets, net
41.2 
39.8 
Investments (includes balances reported at fair value of $131.1 and $126.1)
193.5 
233.3 
Acquired intangibles, net
81.6 
84.9 
Goodwill
274.6 
272.7 
Other assets
29.0 
29.0 
Deferred tax assets
340.9 
332.7 
Liabilities and equity
 
 
Accounts payable and accrued expenses
41.5 
45.8 
Accrued incentive compensation
120.2 
132.3 
Other amounts due to related parties
106.7 
156.3 
Other compensation liabilities
370.7 
291.0 
Accrued income taxes
86.4 
90.2 
Third party borrowings
407.5 
392.3 
Other liabilities
9.3 
10.1 
Equity:
 
 
Ordinary shares (nominal value $0.001; 109,720,358 and 114,157,765 shares, respectively, issued)
0.1 
0.1 
Shareholders’ equity
142.1 
190.2 
Accumulated other comprehensive loss
(23.9)
(26.3)
Non-controlling interests
1.1 
1.0 
Consolidated Funds
 
 
Assets
 
 
Other assets
0.9 
0.4 
Cash and cash equivalents, restricted
0.4 
Investments, at fair value
46.7 
35.5 
Liabilities and equity
 
 
Total liabilities
6.5 
5.8 
Redeemable non-controlling interests in consolidated Funds
$ 11.0 
$ 5.5 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Investments, at fair value
$ 177.8 
$ 161.6 
Consolidated Entity Excluding Consolidated Funds
 
 
Asset fair value
$ 131.1 
$ 126.1 
Ordinary shares, nominal value (in dollars per share)
$ 0.001 
$ 0.001 
Ordinary shares, issued (in shares)
109,720,358 
114,157,765 
Condensed Consolidated Statements of Operations (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Revenue:
 
 
 
 
Total revenue
$ 218,800,000 
$ 156,500,000 
$ 415,000,000 
$ 306,100,000 
Operating expenses:
 
 
 
 
Total operating expenses
205,900,000 
112,500,000 
378,600,000 
221,100,000 
Operating income
12,900,000 
44,000,000 
36,400,000 
85,000,000 
Non-operating income and (expense):
 
 
 
 
Total non-operating income
1,700,000 
4,000,000 
6,200,000 
7,000,000 
Income from continuing operations before taxes
14,600,000 
48,000,000 
42,600,000 
92,000,000 
Income tax expense
1,000,000 
13,100,000 
6,600,000 
26,500,000 
Income from continuing operations
13,600,000 
34,900,000 
36,000,000 
65,500,000 
Gain (loss) on disposal of discontinued operations, net of tax
1,400,000 
(100,000)
1,600,000 
Net income
13,600,000 
36,300,000 
35,900,000 
67,100,000 
Net income attributable to controlling interests
12,900,000 
36,300,000 
34,300,000 
67,100,000 
Earnings per share (basic) attributable to controlling interest (in dollars per share)
$ 0.12 
$ 0.30 
$ 0.30 
$ 0.56 
Earnings per share (diluted) attributable to controlling interest (in dollars per share)
$ 0.11 
$ 0.30 
$ 0.30 
$ 0.56 
Continuing operations earnings per share (basic) attributable to controlling interest (in dollars per share)
$ 0.12 
$ 0.29 
$ 0.30 
$ 0.55 
Continuing operations earnings per share (diluted) attributable to controlling interest (in dollars per share)
$ 0.11 
$ 0.29 
$ 0.30 
$ 0.55 
Weighted average ordinary shares outstanding (in shares)
111,342,172 
119,397,224 
112,400,000 
119,711,021 
Weighted average diluted ordinary shares outstanding (in shares)
111,800,000 
119,582,231 
113,100,000 
119,815,065 
Consolidated Entity Excluding Consolidated Funds
 
 
 
 
Revenue:
 
 
 
 
Management fees
206,700,000 
157,100,000 
402,400,000 
306,700,000 
Performance fees
11,200,000 
(800,000)
11,400,000 
(800,000)
Other revenue
400,000 
200,000 
500,000 
200,000 
Operating expenses:
 
 
 
 
Compensation and benefits
173,400,000 
87,500,000 
316,200,000 
172,100,000 
General and administrative expense
27,700,000 
22,700,000 
53,300,000 
44,500,000 
Amortization of acquired intangibles
1,700,000 
100,000 
3,300,000 
100,000 
Depreciation and amortization
2,800,000 
2,200,000 
5,300,000 
4,400,000 
Non-operating income and (expense):
 
 
 
 
Investment income
5,000,000 
4,500,000 
11,100,000 
8,000,000 
Interest income
300,000 
400,000 
Interest expense
(5,900,000)
(500,000)
(11,800,000)
(1,000,000)
Gain (loss) on disposal of discontinued operations, net of tax
 
 
(100,000)
1,600,000 
Consolidated Funds
 
 
 
 
Revenue:
 
 
 
 
Total revenue
500,000 
700,000 
Operating expenses:
 
 
 
 
Total operating expenses
300,000 
500,000 
Non-operating income and (expense):
 
 
 
 
Net consolidated Funds’ investment gains
2,300,000 
6,500,000 
Net income attributable to non-controlling interests in consolidated Funds
$ 700,000 
$ 0 
$ 1,600,000 
$ 0 
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Net income
$ 13.6 
$ 36.3 
$ 35.9 
$ 67.1 
Other comprehensive income (loss):
 
 
 
 
Valuation and amortization related to derivative securities, net of tax
0.5 
(8.7)
0.7 
(19.7)
Foreign currency translation adjustment
0.9 
(1.3)
1.7 
(1.1)
Total other comprehensive income (loss)
1.4 
(10.0)
2.4 
(20.8)
Total comprehensive income attributable to controlling interests
14.3 
26.3 
36.7 
46.3 
Consolidated Funds
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Comprehensive income attributable to non-controlling interests in consolidated Funds
$ 0.7 
$ 0 
$ 1.6 
$ 0 
Condensed Consolidated Statements of Changes in Shareholders' Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
Consolidated Entity Excluding Consolidated Funds
Consolidated Funds
Ordinary shares
Consolidated Entity Excluding Consolidated Funds
Shareholders’ equity (deficit)
Consolidated Entity Excluding Consolidated Funds
Accumulated other comprehensive income (loss)
Consolidated Entity Excluding Consolidated Funds
Total shareholders’ equity (deficit)
Consolidated Entity Excluding Consolidated Funds
Non- controlling interests
Consolidated Entity Excluding Consolidated Funds
Beginning balance at Dec. 31, 2015
 
 
$ 0 
 
 
 
 
 
Beginning balance at Dec. 31, 2015
165.9 
 
 
0.1 
168.6 
(2.8)
165.9 
Beginning balance (in shares) at Dec. 31, 2015
 
 
 
120,500,000 
 
 
 
 
Beginning balance at Dec. 31, 2015
165.9 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
Issuance of ordinary shares (in shares)
 
 
 
600,000 
 
 
 
 
Repurchase of ordinary shares (in shares)
 
 
 
(900,000)
 
 
 
 
Repurchase of ordinary shares
(12.2)
(12.2)
 
 
(12.2)
 
 
 
Equity-based compensation
6.2 
 
 
 
6.2 
 
6.2 
 
Foreign currency translation adjustment
(1.1)
 
 
 
 
(1.1)
(1.1)
 
Valuation and amortization related to derivative securities, net of tax
(19.7)
 
 
 
 
(19.7)
(19.7)
 
Dividends to shareholders
(6.7)
 
 
 
(6.7)
 
(6.7)
 
Dividends to related parties
(12.7)
 
 
 
(12.7)
 
(12.7)
 
Net income
67.1 
 
 
 
67.1 
 
67.1 
 
Increase (Decrease) in total equity and redeemable non-controlling interest in consolidated Funds
 
 
 
 
 
 
 
 
Issuance of ordinary shares
 
 
 
 
 
 
 
Repurchase of ordinary shares
(12.2)
 
 
 
 
 
 
 
Equity-based compensation
6.2 
 
 
 
 
 
 
 
Foreign currency translation adjustment
(1.1)
 
 
 
 
 
 
 
Amortization related to derivative securities, net of tax
(19.7)
 
 
 
 
 
 
 
Dividends to shareholders
(6.7)
 
 
 
 
 
 
 
Dividends to related parties
(12.7)
 
 
 
 
 
 
 
Net income
67.1 
 
 
 
 
 
 
 
Ending balance at Jun. 30, 2016
 
 
 
 
 
 
 
Ending balance at Jun. 30, 2016
186.8 
 
 
0.1 
210.3 
(23.6)
186.8 
Ending balance (in shares) at Jun. 30, 2016
 
 
 
120,200,000 
 
 
 
 
Ending balance at Jun. 30, 2016
186.8 
 
 
 
 
 
 
 
Beginning balance at Dec. 31, 2016
 
 
5.5 
 
 
 
 
 
Beginning balance at Dec. 31, 2016
165.0 
 
 
0.1 
190.2 
(26.3)
164.0 
1.0 
Beginning balance (in shares) at Dec. 31, 2016
 
 
 
114,100,000 
 
 
 
 
Beginning balance at Dec. 31, 2016
170.5 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
Issuance of ordinary shares (in shares)
 
 
 
600,000 
 
 
 
 
Repurchase of ordinary shares (in shares)
 
 
 
(5,000,000)
 
 
 
 
Repurchase of ordinary shares
(73.1)
 
 
 
(73.1)
 
(73.1)
 
Capital contributions (redemptions)
(0.5)
 
 
 
(0.5)
 
(0.5)
 
Equity-based compensation
10.4 
 
 
 
10.4 
 
10.4 
 
Foreign currency translation adjustment
1.7 
 
 
 
 
1.7 
1.7 
 
Valuation and amortization related to derivative securities, net of tax
0.7 
 
 
 
 
0.7 
0.7 
 
Business acquisition
0.1 
 
 
 
 
 
 
0.1 
Dividends to shareholders
(12.3)
 
 
 
(12.3)
 
(12.3)
 
Dividends to related parties
(6.9)
 
 
 
(6.9)
 
(6.9)
 
Net income
34.3 
 
 
 
34.3 
 
34.3 
 
Increase (Decrease) in redeemable non-controlling interest in consolidated Funds
 
 
 
 
 
 
 
 
Capital contributions (redemptions)
 
 
3.9 
 
 
 
 
 
Net income
 
 
1.6 
 
 
 
 
 
Increase (Decrease) in total equity and redeemable non-controlling interest in consolidated Funds
 
 
 
 
 
 
 
 
Issuance of ordinary shares
 
 
 
 
 
 
 
Repurchase of ordinary shares
(73.1)
 
 
 
 
 
 
 
Capital contributions (redemptions)
(3.4)
 
 
 
 
 
 
 
Equity-based compensation
10.4 
 
 
 
 
 
 
 
Foreign currency translation adjustment
1.7 
 
 
 
 
 
 
 
Amortization related to derivative securities, net of tax
0.7 
 
 
 
 
 
 
 
Dividends to shareholders
(12.3)
 
 
 
 
 
 
 
Dividends to related parties
(6.9)
 
 
 
 
 
 
 
Net income
35.9 
 
 
 
 
 
 
 
Ending balance at Jun. 30, 2017
 
 
11.0 
 
 
 
 
 
Ending balance at Jun. 30, 2017
119.4 
 
 
0.1 
142.1 
(23.9)
118.3 
1.1 
Ending balance (in shares) at Jun. 30, 2017
 
 
 
109,700,000 
 
 
 
 
Ending balance at Jun. 30, 2017
$ 130.4 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash flows from operating activities:
 
 
Net income
$ 35.9 
$ 67.1 
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:
 
 
(Gain) loss on disposal of discontinued operations, excluding consolidated Funds
0.1 
(1.6)
Changes in operating assets and liabilities (excluding discontinued operations):
 
 
Net cash flows from operating activities of continuing operations
60.1 
33.8 
Net cash flows from operating activities of discontinued operations
0.7 
Total net cash flows from operating activities
60.1 
34.5 
Cash flows from investing activities:
 
 
Net cash flows from investing activities of continuing operations
44.3 
(12.9)
Net cash flows from investing activities of discontinued operations
Total net cash flows from investing activities
44.3 
(12.9)
Cash flows from financing activities:
 
 
Net cash flows from financing activities of continuing operations
(123.4)
(92.4)
Net cash flows from financing activities of discontinued operations
Total net cash flows from financing activities
(123.4)
(92.4)
Net increase (decrease) in cash and cash equivalents
(19.0)
(70.8)
Cash and cash equivalents at beginning of period
102.3 
135.9 
Cash and cash equivalents at end of period (including cash at consolidated Funds classified as restricted)
83.3 
65.1 
Supplemental disclosure of cash flow information:
 
 
Interest paid (excluding consolidated Funds)
13.2 
1.2 
Income taxes paid
20.1 
7.6 
Consolidated Entity Excluding Consolidated Funds
 
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:
 
 
(Gain) loss on disposal of discontinued operations, excluding consolidated Funds
0.1 
(1.6)
Amortization of acquired intangibles
3.3 
0.1 
Depreciation and amortization
5.3 
4.4 
Amortization of debt-related costs
1.5 
Amortization and revaluation of non-cash compensation awards
86.4 
12.4 
Net earnings from Affiliates accounted for using the equity method
(5.5)
(6.9)
Distributions received from equity method Affiliates
1.0 
1.5 
Deferred income taxes
(8.9)
14.0 
(Gains) losses on other investments
(16.1)
(1.7)
Changes in operating assets and liabilities (excluding discontinued operations):
 
 
(Increase) decrease in investment advisory fees receivable and other amounts due from related parties
(23.9)
9.7 
(Increase) decrease in other receivables, prepayments, deposits and other assets
1.9 
(0.6)
Increase (decrease) in accrued incentive compensation, other amounts due to related parties and other liabilities
(10.6)
(55.9)
Increase (decrease) in accounts payable, accrued expenses and accrued income taxes
(8.1)
(8.7)
Net cash flows from operating activities of continuing operations
60.7 
33.8 
Cash flows from investing activities:
 
 
Purchase of fixed assets
(6.7)
(5.7)
Business acquisitions, net of cash acquired
(1.9)
Purchase of investment securities
(8.2)
(15.0)
Sale of investment securities
64.8 
7.8 
Cash flows from financing activities:
 
 
Proceeds from third party borrowings
15.0 
58.0 
Repayment of third party borrowings
(98.0)
Payment to OM plc for deferred tax arrangement
(45.5)
(17.5)
Payment to OM plc for co-investment redemptions
(4.1)
(3.5)
Dividends paid to shareholders
(12.3)
(6.5)
Dividends paid to related parties
(6.9)
(12.7)
Repurchases of ordinary shares
(73.4)
(12.2)
Consolidated Funds
 
 
Cash flows from operating activities:
 
 
Less: Net income attributable to non-controlling interests in consolidated Funds
(1.6)
Adjustments to reconcile net income to net cash provided by (used in) operating activities from continuing operations:
 
 
(Gains) losses on other investments
(1.4)
Changes in operating assets and liabilities (excluding discontinued operations):
 
 
(Increase) decrease in receivables other assets
(0.6)
Increase (decrease) in accounts payable and other liabilities
(0.2)
Net cash flows from operating activities of continuing operations
(0.6)
Cash flows from investing activities:
 
 
Purchase of investment securities
(30.8)
Redemption of investments
27.1 
Cash flows from financing activities:
 
 
Redeemable non-controlling interest capital raised
$ 3.8 
$ 0 
Organization and Description of the Business
Organization and Description of the Business
OM Asset Management plc (“OMAM” or the “Company”), through its subsidiaries, is a global asset management business with interests in a diverse group of boutique investment management firms (the “Affiliates”) individually headquartered in the United States. The Company provides investment management services globally to predominantly institutional investors, in asset classes that include U.S. and global equities, fixed income, alternative assets, real estate, timber and secondary Funds. Fees for services are largely asset-based and, as a result, the Company’s revenue fluctuates based on the performance of financial markets and investors’ asset flows in and out of the Company’s products.
The Company’s Affiliates are organized as limited liability companies. The Company generally utilizes a profit-sharing model in structuring its compensation and ownership arrangements with Affiliates. The Affiliates’ variable compensation is generally based on each firm’s profitability. OMAM and Affiliate key employees share in profits after variable compensation according to their respective ownership interests. The profit-sharing model results in alignment of OMAM and Affiliate key employee economic interests, which is critical to the Company’s talent management strategy and long-term growth of the business. The Company operates in one reportable segment.
Until May 19, 2017, the Company was a majority-owned subsidiary of Old Mutual plc (“OM plc”), an international long-term savings, protection and investment group, listed on the London Stock Exchange. On October 15, 2014, the Company completed the initial public offering (the “Offering”) by OM plc of 22,000,000 ordinary shares of the Company pursuant to the Securities Act of 1933, as amended (“the Securities Act”).  Additionally, the underwriters in the Offering exercised a portion of their overallotment option and purchased an additional 2,231,375 shares of the Company from OM plc.  On June 22, 2015, the Company completed a secondary public offering by OM plc of 13,300,000 ordinary shares of the Company pursuant to the Securities Act.  Additionally, the underwriters in the secondary public offering exercised their full overallotment option and purchased an additional 1,995,000 shares of the Company from OM plc.  On March 11, 2016, OM plc announced the results of a strategic review, which included a plan to separate its underlying businesses, including OMAM. OM plc further announced on December 12, 2016 its intention to continue the reduction of its holdings in OMAM in an orderly manner which balances value, cost, time and risk. On December 16, 2016, the Company completed a secondary public offering by OM plc of 13,000,000 ordinary shares of the Company pursuant to the Securities Act, along with 6,000,000 ordinary shares purchased and retired by the Company.  Additionally, the underwriters in the secondary public offering exercised their full overallotment option and purchased an additional 1,950,000 shares of the Company from OM plc.  On May 19, 2017, the Company completed a secondary public offering by OM plc of 17,300,000 ordinary shares of the Company pursuant to the Securities Act, along with 5,000,000 ordinary shares purchased and retired by the Company. Additionally, the underwriters in the secondary public offering exercised their full overallotment option and purchased an additional 2,595,000 shares of the Company from OM plc. At June 30, 2017, OM plc owned 20.1% of the Company’s outstanding ordinary shares.
On March 25, 2017, OM plc announced that it had agreed to sell a 24.95% shareholding in the Company to HNA Capital US (“HNA”) in a two-step transaction (the “HNA Minority Sale”) for gross cash consideration of approximately $446 million, subject to certain closing conditions. The first tranche of the HNA Minority Sale for 11,414,676 ordinary shares closed on May 12, 2017. On May 24, 2017, OM plc appointed Dr. Guang Yang as an OM plc director. Following the completion of the second tranche of the HNA Minority Sale expected in the second half of 2017, OM plc's shareholding will reduce to 5.5% at which point HNA will have the right to appoint two directors to the Company’s board, including Dr. Yang, and OM plc will have no rights to appoint directors.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Significant Accounting Policies
The Company’s significant accounting policies are as follows:
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations and of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows of the Company. Within these Condensed Consolidated Financial Statements, entities that are part of OM plc’s consolidated results, but are not part of OMAM, as defined above, are referred to as “related parties.”
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Transactions between the Company and OM plc are included in the Condensed Consolidated Financial Statements, however material intercompany balances and transactions among the Company and its consolidated Affiliates are eliminated in consolidation.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 22, 2017. The Company’s significant accounting policies, which have been consistently applied, are summarized in those Financial Statements.
Consolidation
Affiliates
The Company evaluates each of its Affiliates and other operating entities to determine the appropriate method of accounting. Generally, majority-owned entities or otherwise controlled investments in which the Company holds a controlling financial interest as the principal shareholder, managing member, or general partner are consolidated.
Funds
In evaluating whether or not a legal entity must be consolidated, the Company determines if such entity is a variable interest entity (“VIE”) or a voting interest entity (“VOE”). A VOE is considered an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk 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 the entity’s economic performance. A VIE is an entity that lacks one or more of the characteristics of a VOE. Assessing whether an entity is a VIE or VOE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VIEs are consolidated if the Company or a consolidated Affiliate is the primary beneficiary of the investment. VOEs are typically consolidated if the Company holds the majority voting interest or otherwise controls the entity.
In the normal course of business, the Company’s Affiliates sponsor and manage certain investment vehicles (the “Funds”). The Company assesses consolidation requirements with respect to its Funds pursuant to Accounting Standards Codification (“ASC”) Topic 810, Consolidation, as amended by Accounting Standards Update 2015-02, Consolidation: Amendments to the Consolidation Analysis ("ASU 2015-02") relating to the consolidation of VIEs.
In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. For VIEs that are investment companies subject to ASU 2010-10, Consolidation: Amendments for Certain Investment Funds, the primary beneficiary of the VIE is generally the variable interest holder that absorbs a majority of the expected losses of the VIE, receives a majority of the expected residual returns of the VIE, or both. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial.
The primary beneficiary of a VIE is defined as the variable interest holder that has a controlling financial interest. A controlling financial interest is defined as (i) the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. If no single party satisfies both criteria, but the Company and its related parties satisfy the criteria on a combined basis, then the primary beneficiary is the entity out of the related party group that is most closely associated to the VIE. The consolidation analysis can generally be performed qualitatively, however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The Company consolidates VOEs when it has control over significant operating, financial and investing decisions of the entity or holds the majority voting interest. For VOEs organized as limited partnerships or as an entity with governance structures similar to a limited partnership (e.g., limited liability company with a managing member), the Company consolidates an entity when it holds the controlling general partnership interest and the limited partners do not hold substantive participating rights or rights to remove and replace the general partner or rights that could provide the limited partners with the ability to impact the ongoing governance and operating activities of the entity.
Upon the occurrence of certain events (such as contributions and redemptions, either by the Company, its Affiliates, or third parties, or amendments to the governing documents of the Company’s investees or sponsored Funds) management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or a VOE. Additionally, management continually reconsiders whether the Company is deemed to be a VIE’s primary beneficiary who consolidates such entity. In the third quarter of 2016, following the transfer of certain seed capital investments from OM plc, the Company consolidated certain Funds pursuant to ASU 2015-02.
Use of Estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ significantly from those estimates.
Acquisitions
Acquisitions
On August 18, 2016, the Company acquired a majority of the equity interests in Landmark Partners, LLC, (“Landmark”) a leading global secondary private equity, real estate and real asset investment firm. The Company acquired a 60% interest in Landmark in exchange for $242.7 million. There is also the potential for an additional payment of up to $225.0 million on or around December 31, 2018, subject to a service and other conditions. The equity interests of Landmark purchased by the Company entitle the Company to participate in the earnings of Landmark. Certain key members of the management team of Landmark retained the remaining 40% interest in Landmark, subject to certain vesting conditions. The Company financed the acquisition through proceeds from multiple note offerings, including $275.0 million of 4.80% senior notes due July 27, 2026 and $125.0 million of 5.125% senior notes due August 1, 2031.
The Company accounted for the acquisition of Landmark as a business combination which requires assets acquired and liabilities assumed to be recorded at fair value. The following table presents a summary of the acquisition-date fair values of the assets acquired and liabilities assumed for OMAM’s acquisition of Landmark:
 
 
Landmark
Purchase price
 
 
Cash
 
$
239.2

Seller's expenses
 
3.5

Total consideration
 
242.7

Identifiable assets and liabilities
 
 
Cash
 
23.4

Receivables
 
8.5

Indefinite-life trade name
 
1.0

Amortizable intangible asset management contracts
 
85.0

Fixed assets
 
5.1

Other current assets (liabilities), net
 
(26.7
)
Assets (liabilities), net
 
(1.7
)
Total identifiable assets and liabilities
 
94.6

Goodwill
 
$
148.1


The primary aspects of the purchase price allocation relate to amortizable intangible asset management contracts, the indefinite-life trade name and goodwill, which is the amount by which the purchase price exceeds the fair value of the net assets acquired. The amounts recorded for certain assets and liabilities are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. During the six months ended June 30, 2017, certain measurement period adjustments were recorded to the provisional values recorded as of December 31, 2016. These adjustments primarily related to updated estimates, which resulted in an increase to the total consideration paid of $0.3 million, a decrease to the fair value of the identifiable net assets acquired of $1.6 million and an increase to the amount recorded to goodwill of $1.9 million. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the applicable acquisition date, as permitted under U.S. GAAP. The final values may also result in changes to the amortization expense related to intangible assets and will be recognized in the period of adjustment. Any potential adjustments made could be material in relation to the values presented in the table above.
The fair value of the amortizable intangible asset management contracts was determined using the excess earnings method, a form of the income approach. The principle behind the excess earnings method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only.  Excess earnings represent the earnings remaining after applying post-tax contributory asset charges to reflect the return required on other assets that contribute to the generation of the forecast cash flows of the intangible asset.

The fair value of the trade name intangible asset was determined utilizing a relief-from-royalty method. The principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset.

The fair value estimate for all identifiable intangible assets is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their best use.
The fair value of the acquired amortizable intangible asset management contracts had a useful life estimate of approximately 13.4 years at acquisition. Purchase price allocated to intangible assets and goodwill is expected to be deductible for U.S. tax purposes over a period of 15 years. Goodwill is calculated as the excess of the fair value of the consideration paid and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed.
During the second half of 2016, the Company incurred transaction costs of $6.1 million related to the acquisition of Landmark. These costs are recorded within general and administrative expense in the Condensed Consolidated Statements of Operations. There were no transaction costs incurred during the six months ended June 30, 2017.
In conjunction with the acquisition, the Company entered into compensation arrangements with employees of Landmark where pre-acquisition equity units held by Landmark employees became subject to a service condition. These units are accounted for as stock-based compensation, were fair valued as of the closing date of the acquisition and vest over varying increments from December 31, 2018 through December 31, 2024. These units contain put rights that provide liquidity to the employees upon vesting. The aforementioned additional payment of up to $225.0 million could be paid based on the growth of Landmark’s business. This arrangement is also accounted for as stock-based compensation, fair valued as of the closing date of the acquisition, and vests on December 31, 2018. Both the pre-acquisition equity units and the potential future payment are remeasured at the end of each reporting period.
The financial results of Landmark included in the Company’s consolidated financial results for the six months ended June 30, 2017, include revenues of $52.4 million, with $(26.2) million of net loss included in net income attributable to the Company, which includes amortization of intangible assets recorded in purchase accounting and compensation expense for the arrangements with the employees of Landmark noted above.
Investments
Investments
Investments are comprised of the following as of the dates indicated (in millions):
 
June 30,
2017
 
December 31,
2016
Investments of consolidated Funds held at fair value
$
46.7

 
$
35.5

Other investments held at fair value
14.5

 
17.5

Investments related to long-term incentive compensation plans held at fair value
88.1

 
78.1

Equity-accounted investments in unconsolidated Funds
28.5

 
30.5

Total investments held at fair value
177.8

 
161.6

Equity-accounted investments in Affiliates
60.5

 
55.2

Other investments*
1.9

 
52.0

Total investments per Condensed Consolidated Balance Sheets
$
240.2

 
$
268.8

 
 
* Other investments represent cost-basis investments made by one of our Affiliates, including investments in timber and timberlands. At December 31, 2016, $50.1 million of these investments were recorded at the lower of cost or fair value less costs to sell and subsequently sold in January 2017 for a net gain of approximately $1.7 million.
In September 2016, the Company purchased approximately $39.6 million of seed investments from OM plc under the terms of the seed capital management agreement, as amended (the “Seed Capital Management Agreement”).  In July 2017, the Company purchased all remaining seed capital investments covered by the Seed Capital Management Agreement from OM plc for $63.4 million. OMAM financed this purchase in part through borrowings under a non-recourse seed capital facility collateralized entirely by its seed capital holdings. See Note 8 for a further discussion of borrowings and debt and Note 14 for a further discussion of subsequent events.
In August 2017, the Company executed a non-binding term sheet with an entity owned by senior professionals of Heitman LLC to sell OMAM’s interest in Heitman LLC for $110 million with an expected closing date around year-end. The carrying value of OMAM’s investment in Heitman as of June 30, 2017 was $58.7 million and is included in the “Equity-accounted investments in Affiliates” line item in the table above. OMAM will retain its co-investment interests in Heitman-managed funds as well as any carried interest associated with these investments. See Note 14 for a further discussion of subsequent events.
Investment income is comprised of the following for the three and six months ended June 30 (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Investment return of equity-accounted investments in unconsolidated Funds
$
0.8

 
$
0.5

 
$
1.2

 
$
0.5

Realized and unrealized gains on other investments held at fair value
1.0

 

 
2.7

 

Investment return of held for sale investments

 
0.3

 
1.7

 
0.6

Total return on OMAM investments
1.8

 
0.8

 
5.6

 
1.1

Investment return of equity-accounted investments in Affiliates
3.2

 
3.7

 
5.5

 
6.9

Total investment income per Condensed Consolidated Statement of Operations
$
5.0

 
$
4.5

 
$
11.1

 
$
8.0

Fair Value Measurements
Fair Value Measurements
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2017 (in millions):
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value,
June 30, 2017
Assets of OMAM and consolidated Funds(1)
 
 

 
 

 
 
 
 

Common and preferred stock
$
46.5

 
$

 
$

 
$

 
$
46.5

Short-term investment funds
0.2

 

 

 

 
0.2

Consolidated Funds total
46.7

 

 

 

 
46.7

Investments in separate accounts(2)
8.5

 

 

 

 
8.5

Investments related to long-term incentive compensation plans(3)
88.1

 

 

 

 
88.1

Investments in unconsolidated Funds(4)

 

 

 
34.5

 
34.5

OMAM total
96.6

 

 

 
34.5

 
131.1

Total fair value assets
$
143.3

 
$

 
$

 
$
34.5

 
$
177.8

Liabilities of consolidated Funds(1)
 
 
 
 
 
 
 
 
Common stock
$
(5.9
)
 
$

 
$

 
$

 
$
(5.9
)
Consolidated Funds total
(5.9
)
 

 

 

 
(5.9
)
Total fair value liabilities
$
(5.9
)
 
$

 
$

 
$

 
$
(5.9
)

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2016 (in millions): 
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value December 31, 2016
Assets of OMAM and consolidated Funds(1)
 
 

 
 

 
 

 
 

Common and preferred stock
$
35.1

 
$

 
$

 
$

 
$
35.1

Short-term investment funds
0.4

 

 

 

 
0.4

Consolidated Funds total
35.5

 

 

 

 
35.5

Investments in separate accounts(2)
7.5

 

 

 

 
7.5

Investments related to long-term incentive compensation plans(3)
78.1

 

 

 

 
78.1

Investments in unconsolidated Funds(4)

 

 

 
40.5

 
40.5

OMAM total
85.6

 

 

 
40.5

 
126.1

Total fair value assets
$
121.1

 
$

 
$

 
$
40.5

 
$
161.6

Liabilities of OMAM and consolidated Funds(1)
 
 
 
 
 
 
 
 
Common stock
$
(5.0
)
 
$

 
$

 
$

 
$
(5.0
)
Consolidated Funds total
(5.0
)
 

 

 

 
(5.0
)
Derivative securities

 
(0.1
)
 

 

 
(0.1
)
OMAM total

 
(0.1
)
 

 

 
(0.1
)
Total fair value liabilities
$
(5.0
)
 
$
(0.1
)
 
$

 
$

 
$
(5.1
)
 
 
(1)
Assets and liabilities measured at fair value are comprised of financial investments managed by the Company's Affiliates. $46.7 million in assets and $5.9 million in liabilities at June 30, 2017 and $35.5 million in assets and $5.0 million in liabilities at December 31, 2016 are the result of the consolidation of Funds sponsored by the Company’s Affiliates.
The fair value of other investments is estimated based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs and therefore classified within Level II. The Company obtains prices from independent pricing services that may utilize broker quotes, but generally the independent pricing services will use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. The Company has not made adjustments to the prices provided. If the pricing services are only able to (a) obtain a single broker quote or (b) utilize a pricing model, such securities are classified as Level III. If the pricing services are unable to provide prices, the Company attempts to obtain one or more broker quotes directly from a dealer or values such securities at the last bid price obtained. In either case, such securities are classified as Level III. The Company performs due diligence procedures over third party pricing vendors to understand their methodology and controls to support their use in the valuation process to ensure compliance with required accounting disclosures.
Equity, short-term investment funds and derivatives which are traded on a national securities exchange are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified as Level I. These securities that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs obtained by the Company from independent pricing services are classified as Level II. 
(2)
Investments in separate accounts of $8.5 million at June 30, 2017 consist of approximately 2% of cash equivalents and 98% of equity securities. Investments in separate accounts of $7.5 million at December 31, 2016 consist of approximately 28% of cash equivalents and 72% of equity securities. The Company has valued these using the published price of the underlying securities as of the measurement date. Accordingly, the Company has classified these investments as Level I.
(3)
Investments related to long term compensation plans of $88.1 million and $78.1 million at June 30, 2017 and December 31, 2016, respectively, are investments in publicly registered daily redeemable funds (some managed by Affiliates), which the Company has classified as trading securities and valued using the published price as of the measurement dates. Accordingly, the Company has classified these investments as Level I.
(4)
The $34.5 million and $40.5 million at June 30, 2017 and December 31, 2016, respectively, relate to investments in unconsolidated Funds which consist primarily of investments in Funds advised by Affiliates and are valued using NAV which the Company relies on to determine their fair value as a practical expedient and has therefore not classified these investments in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to amounts presented in the Condensed Consolidated Balance Sheets. These unconsolidated Funds consist primarily of real estate investment Funds and UCITS. The NAVs that have been provided by investees have been derived from the fair values of the underlying investments as of the measurement dates.
These investments are subject to longer than monthly or quarterly redemption restrictions, and due to their nature, distributions are received only as cash flows are generated from underlying assets over the life of the Funds. The range of time over which the underlying assets are expected to be liquidated by the investees is approximately one to eight years from June 30, 2017. The valuation process for the underlying real estate investments held by the real estate investment Funds begins with each property or loan being valued by the investment teams. The valuations are then reviewed and approved by the valuation committee, which consists of senior members of the portfolio management, acquisitions, and research teams. For certain properties and loans, the valuation process may also include a valuation by independent appraisers. In connection with this process, changes in fair-value measurements from period to period are evaluated for reasonableness, considering items such as market rents, capitalization and discount rates, and general economic and market conditions. 
Not included in the above are $1.9 million and $52.0 million at June 30, 2017 and December 31, 2016, respectively, of various investments carried at cost, including investments in timber and timberlands.
There were no significant transfers of financial assets or liabilities among Levels I, II or III during the six months ended June 30, 2017 or 2016.
Variable Interest Entities
Variable Interest Entities
The Company, through its Affiliates, sponsors the formation of various entities considered to be VIEs. These VIEs are primarily Funds managed by Affiliates and are investment vehicles typically owned entirely by third-party investors. Certain Funds may be capitalized with seed capital investments from the Company and may be owned partially by Affiliate key employees and/or individuals that own minority interests in an Affiliate.
The Company’s determination of whether it is the primary beneficiary of a Fund that is a VIE is based in part on an assessment of whether or not the Company and its related parties are exposed to the majority of the risks and rewards of the entity. Typically the Fund’s investors are entitled to substantially all of the economics of these VIEs with the exception of the management fees and performance fees, if any, earned by the Company or any investment the Company has made into the Funds. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial.
The following table presents the assets and liabilities of Funds that are VIEs and consolidated by the Company (in millions):
 
6/30/2017
 
12/31/2016
Assets
 

 
 

Investments at fair value
$
21.4

 
$
14.9

Other assets of consolidated Funds
0.5

 
0.6

Total Assets
$
21.9

 
$
15.5

Liabilities
 

 
 

Other liabilities of consolidated Funds
$
0.5

 
$
0.7

Total Liabilities
$
0.5

 
$
0.7


"Investments at fair value" consist of investments in securities. The Company has also consolidated Funds that are not VIEs, and therefore the assets and liabilities of those Funds are not included in the table above.
The assets of consolidated VIEs presented in the table above belong to the investors in those Funds, are available for use only by the Fund to which they belong, and are not available for use by the Company to the extent they are held by non-controlling interests. Any debt or liabilities held by consolidated Funds have no recourse to the Company's general credit.
The Company’s involvement with Funds that are VIEs and not consolidated by the Company is generally limited to that of an investment manager and its investment in the unconsolidated VIE, if any. The Company’s investment in any unconsolidated VIE generally represents an insignificant interest of the Fund’s net assets and assets under management, such that the majority of the VIE’s results are attributable to third parties. The Company’s exposure to risk in these entities is generally limited to any capital contribution it has made or is required to make and any earned but uncollected management fees. The Company has not issued any investment performance guarantees to these VIEs or their investors.
The following information pertains to unconsolidated VIEs for which the Company holds a variable interest (in millions):
 
June 30,
2017
 
December 31,
2016
Unconsolidated VIE assets
$
5,931.6

 
$
6,006.3

Unconsolidated VIE liabilities
$
3,782.8

 
$
3,740.2

Equity interests on the Condensed Consolidated Balance Sheet
$
59.2

 
$
54.2

Maximum risk of loss(1)
$
63.5

 
$
58.5

 
 
(1)
Includes equity investments the Company has made or is required to make and any earned but uncollected management/incentive fees. The Company does not record performance/incentive allocations until the respective measurement period has ended.
In addition to the multiple unconsolidated VIE Funds, the Company determined that Heitman LLC, one of the Company’s Affiliates, is a VIE. The Company concluded that it is not the primary beneficiary of Heitman LLC because it does not hold the power to direct its most economically significant activities. The Company aggregated Heitman LLC with the Company’s other unconsolidated VIE Funds due to their similar risk profiles given that the risks and rewards are driven by changes in investment values and the Affiliates’ ability to manage those assets.
Related Party Transactions
Related Party Transactions
OM plc has historically provided the Company with various oversight services, including governance, which includes compensation for board and executive committees, investor relations, procurement of insurance coverage, human resources, financial reporting, internal audit, treasury, systems, risk and tax services. Many of these services have been transitioned to the Company. That portion of the above costs which (i) are directly attributable to the Company, (ii) have been charged to the Company by OM plc and (iii) have been paid to OM plc by the Company, have been recorded in the Company’s unaudited Condensed Consolidated Financial Statements and was $0.1 million and $0.1 million in the three months ended June 30, 2017 and 2016, respectively, and $0.4 million and $0.4 million in the six months ended June 30, 2017 and 2016, respectively.
During 2016, the Company made a loan to an equity-method Affiliate that was used to make co-investments in Affiliate Funds. Amounts due to the Company in connection with this loan are included in other assets on the Company’s Consolidated Balance Sheets and were $3.1 million and $2.7 million at June 30, 2017 and at December 31, 2016, respectively.
During 2014, the Company entered into a Seed Capital Management Agreement, a Deferred Tax Asset Deed, a Co-investment Deed and a shareholder agreement with OM plc and/or OM plc’s subsidiaries. During 2016, the Company and OM plc agreed to amend the Seed Capital Management Agreement. As a result of the amendment, the Company purchased approximately $39.6 million of seed investments from OM plc in September 2016. As of June 30, 2017, the Company managed approximately $97.2 million of seed and co-investment capital provided by OM plc. The Company purchased the remaining seed capital investments covered by the Seed Capital Management Agreement valued at $63.4 million in July 2017, financed by borrowings under a non-recourse seed capital facility (see Notes 8 and 14). Amounts owed to OM plc associated with the Co-investment Deed were $8.2 million at June 30, 2017. As of June 30, 2017, the Company had recorded $4.3 million for redemptions and estimated taxes due under the Co-investment Deed. Amounts withheld in excess of the future tax liability will be payable to OM plc upon settlement.
During 2016, the Company and OM plc agreed to amend the Deferred Tax Asset Deed. Under the terms of the Deferred Tax Asset Deed, as amended, the Company agreed to make a payment of the net present value of the future tax benefits due to OM plc valued as of December 31, 2016. This payment of $142.6 million will be made over three installments, with the first installment of $45.5 million paid on June 30, 2017 and the remaining two installments to be paid on December 31, 2017 and June 30, 2018. The Company retains an indemnity from OM plc that protects the realized and future tax benefits covered by the Deferred Tax Asset Deed (including the $142.6 million total payment referenced above) in the event of a tax law change or challenge from the IRS.
As the Company is a member of a group of related businesses, it is possible that the terms of certain related party transactions are not the same as those that would result from transactions with wholly unrelated parties.
Borrowings and Debt
Borrowings and Debt
The Company’s long-term debt at June 30, 2017 was comprised of a revolving credit facility and long-term bonds.
Revolving Credit Facility
On October 15, 2014, the Company entered into a revolving credit facility with Citibank, as administrative agent and issuing bank, and Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers and joint book runners (as amended, the “Credit Facility”). Pursuant to the terms of the Credit Facility, the Company may obtain loans on a revolving credit basis and procure the issuance of letters of credit in an aggregate amount at any time outstanding not in excess of $350 million. The Credit Facility has a maturity date of October 15, 2019. Borrowings under the credit facility bear interest, at OMAM’s option, at either the per annum rate equal to (a) the greatest of (i) the prime rate, (ii) the federal funds effective rate plus 0.5% and (iii) the one month Adjusted LIBO Rate plus 1.0%, plus, in each case an additional amount ranging from 0.25% to 1.00%, with such additional amount based from time to time on the ratio of the Company’s total consolidated indebtedness to Adjusted EBITDA (a “Leverage Ratio”) until either Moody’s Investor Service, Inc. or Standard & Poor’s assigned an initial rating to the Company’s senior, unsecured long-term indebtedness for borrowed money that was not subject to credit enhancement, or its credit rating, at which time such additional amount became based on its credit rating or (b) the London interbank offered rate for a period, at the Company’s election, equal to one, two, three or six months plus an additional amount ranging from 1.25% to 2.00%, with such additional amount based from time to time on the Company’s Leverage Ratio until it was assigned a credit rating, at which time such additional amount became based on its credit rating. In addition, the Company is charged a commitment fee based on the average daily unused portion of the revolving credit facility at a per annum rate ranging from 0.20% to 0.50%, with such amount based from time to time on its Leverage Ratio until it was assigned a credit rating, at which time such amount became based on the Company’s credit rating.
In July 2016, Moody’s Investor Service, Inc. and Standard & Poor’s each assigned an initial investment-grade rating to the Company’s senior, unsecured long-term indebtedness. As a result of the assignment of the credit ratings, the Company’s interest rate on outstanding borrowings was set at LIBOR + 1.50% and the commitment fee on the unused portion of the revolving credit facility was set at 0.25%. Prior to the assignment of the credit ratings, the Company’s interest rate on outstanding borrowings was based on the Company’s Leverage Ratio and was set at LIBOR + 1.25% and the commitment fee on the unused portion of the revolving credit facility was set at 0.20%. Under the Credit Facility, the ratio of third-party borrowings to trailing twelve months Adjusted EBITDA cannot exceed 3.0x, and the interest coverage ratio must not be less than 4.0x.
At June 30, 2017 the outstanding balance of the facility was $15.0 million ($335.0 million of undrawn revolving credit facility capacity). Including $392.5 million of long-term bonds (see below), the Company’s ratio of third-party borrowings to trailing twelve months Adjusted EBITDA was 1.67x and interest coverage ratio was 11.0x. The fair value of borrowings on the revolving credit facility approximated the net cost basis as of June 30, 2017.
At December 31, 2016 the outstanding balance of the facility was $0.0 million ($350.0 million of undrawn revolving credit facility capacity). Including $392.3 million of long-term bonds (see below), the Company’s ratio of third-party borrowings to trailing twelve months Adjusted EBITDA was 1.88x and interest coverage ratio was 18.5x.
Long-term bonds
The Company’s long-term bonds were comprised of the following as of the dates indicated (in millions): 
 
 
June 30, 2017
 
December 31, 2016
Long-term bonds:
 
Maturity amount
 
Discount and issuance costs
 
Carrying value
 
Fair Value
 
Carrying value
 
Fair Value
4.80% Senior Notes Due 2026
 
$
275.0

 
$
(3.3
)
 
$
271.7

 
$
279.1

 
$
271.6

 
$
271.0

5.125% Senior Notes Due 2031
 
125.0

 
(4.2
)
 
120.8

 
122.8

 
120.7

 
107.9

Total long-term bonds
 
$
400.0

 
$
(7.5
)
 
$
392.5

 
$
401.9

 
$
392.3

 
$
378.9


In July 2016, the Company issued $275.0 million of 4.80% Senior Notes due 2026 (the “2026 Notes”) and $125.0 million of 5.125% Senior Notes due 2031 (the “2031 Notes”). The Company used the net proceeds of these offerings to finance the acquisition of Landmark in August 2016, settle an outstanding interest rate lock, purchase seed capital from OM plc and pay down the balance of the Revolving Credit Facility.
4.80% Senior Notes Due July 2026
The $275.0 million 2026 Notes were sold at a discount of $(0.5) million and the Company incurred debt issuance costs of $(3.0) million, which are being amortized to interest expense over the ten-year term. The 2026 Notes can be redeemed at any time prior to the scheduled maturity in part or in aggregate, at the greater of 100% of the principal amount at that time or the sum of the remaining scheduled payments discounted at the treasury rate (as defined) plus 0.5%, together with any related accrued and unpaid interest.

5.125% Senior Notes Due August 2031
The $125.0 million 2031 Notes incurred debt issuance costs of $(4.3) million, which are being amortized to interest expense over the fifteen-year term. The 2031 Notes can be redeemed at any time, on or after August 1, 2019 at a redemption price equal to 100% of the principal amount together with any related accrued and unpaid interest.
The fair value of the long-term bonds was determined using broker quotes and any recent trading activity for each of the notes listed above, which are considered Level II inputs.
Interest expense
Interest expense incurred amounted to a total of $5.9 million and $0.5 million for the three months ended June 30, 2017 and 2016, respectively. Interest expense incurred amounted to a total of $11.8 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively. Interest expense consists of interest accrued on the long-term debt and amortization of debt-related costs.
Non-Recourse Seed Capital Facility
In July 2017, the Company purchased all remaining seed capital investments covered by the Seed Capital Management Agreement from OM plc for $63.4 million. OMAM financed this purchase in part through borrowings under a non-recourse seed capital facility collateralized entirely by its seed capital holdings. See Note 7 for a further discussion of the Seed Capital Management Agreement and Note 14 for a further discussion of subsequent events, including the terms of the non-recourse seed capital facility.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Operational commitments
The Company had unfunded commitments to invest up to approximately $67 million in co-investments with its Affiliates as of June 30, 2017. These commitments will be funded as required through the end of the respective investment periods ranging through fiscal 2022.
Certain Affiliates operate under regulatory authorities that require that they maintain minimum financial or capital requirements. Management is not aware of any violations of such financial requirements occurring during the period.
Litigation
The Company and its Affiliates are subject to claims, legal proceedings and other contingencies in the ordinary course of their business activities. Each of these matters is 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 for matters for which the outcome is probable and can be reasonably estimated. If an insurance claim or other indemnification for a litigation accrual is available to the Company, the associated gain will not be recognized until all contingencies related to the gain have been resolved. As of June 30, 2017, there were no material accruals for claims, legal proceedings or other contingencies.
Indemnifications
In the normal course of business, such as through agreements to enter into business combinations and divestitures of Affiliates, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred.
Foreign tax contingency
The Company has clients in non-U.S. jurisdictions which require entities that are conducting certain business activities in such jurisdictions to collect and remit tax assessed on certain fees paid for goods and services provided. The Company does not believe this requirement is applicable based on its limited business activities in these jurisdictions. However, given the fact that uncertainty exists around the requirement, the Company has chosen to evaluate its potential exposure related to non-collection and remittance of these taxes. At June 30, 2017, management of the Company has estimated the potential maximum exposure and concluded that it is not material. No accrual for the potential exposure has been recorded as the probability of incurring any potential liability relating to this exposure is not probable at June 30, 2017.
On July 13, 2017, the UK published revised draft legislation to be included in the U.K. Finance Bill (No. 2) 2017 that would impact the Company’s tax position as of July 13, 2017. See Note 14 for a further discussion of subsequent events.
Considerations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments. The Company maintains cash and cash equivalents and short term investments with various financial institutions. These financial institutions are typically located in cities in which the Company and its Affiliates operate. For the Company and certain Affiliates, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits.
Earnings Per Share
Earnings Per Share
ic earnings per share is calculated by dividing net income attributable to controlling interests by the weighted-average number of shares outstanding. Diluted earnings per share is similar to basic earnings per share, but is adjusted for the effect of potentially issuable ordinary shares, except when inclusion is antidilutive. 
The calculation of basic and diluted earnings per ordinary share is as follows (dollars in millions, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 

 
 

 
 

 
 

Net income attributable to controlling interests
$
12.9

 
$
36.3

 
$
34.3

 
$
67.1

Less: Total income available to participating unvested securities(1)
(0.1
)
 
(0.3
)
 
(0.2
)
 
(0.4
)
Total net income attributable to ordinary shares
$
12.8

 
$
36.0

 
$
34.1

 
$
66.7

Denominator:
 

 
 

 
 

 
 

Weighted-average ordinary shares outstanding—basic
111,342,172

 
119,397,224

 
112,404,797

 
119,711,021

Potential ordinary shares:
 
 
 
 
 
 
 
Restricted stock units
502,847

 
185,007

 
690,052

 
104,044

Weighted-average ordinary shares outstanding—diluted
111,845,019

 
119,582,231

 
113,094,849

 
119,815,065

Earnings per ordinary share attributable to controlling interests:
 

 
 

 
 

 
 

Basic
$
0.12

 
$
0.30

 
$
0.30

 
$
0.56

Diluted
$
0.11

 
$
0.30

 
$
0.30

 
$
0.56

 
 
(1)
Income available to participating unvested securities includes dividends paid on unvested restricted shares and their proportionate share of undistributed earnings.
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
The following tables show the tax effects allocated to each component of other comprehensive income (in millions):
 
For the six months ended June 30, 2017
 
Pre-Tax
 
Tax Benefit
(Expense)
 
Net of Tax
Foreign currency translation adjustment
$
1.7

 
$

 
$
1.7

Amortization related to derivative securities
1.3

 
(0.6
)
 
0.7

Other comprehensive income (loss)
$
3.0

 
$
(0.6
)
 
$
2.4

 
For the six months ended June 30, 2016
 
Pre-Tax
 
Tax Benefit
 
Net of Tax
Foreign currency translation adjustment
$
(1.1
)
 
$

 
$
(1.1
)
Change in net realized and unrealized gain (loss) on derivative securities
(23.8
)
 
4.1

 
(19.7
)
Other comprehensive income (loss)
$
(24.9
)
 
$
4.1

 
$
(20.8
)
The components of accumulated other comprehensive income (loss) for the six months ended June 30, 2017 were as follows (in millions):
 
Foreign currency translation adjustment
 
Valuation of derivative securities
 
Total
Balance, as of December 31, 2016
$
(1.2
)
 
$
(26.9
)
 
$
(28.1
)
Other comprehensive income
1.7

 
0.7

 
2.4

Balance, as of June 30, 2017
$
0.5

 
$
(26.2
)
 
$
(25.7
)

The Company reclassified $1.3 million from accumulated other comprehensive income (loss) to interest expense on the Consolidated Statements of Income for the six months ended June 30, 2017. There were no material amounts reclassified from accumulated other comprehensive income (loss) to the Condensed Consolidated Statements of Operations for the six months ended June 30, 2016.
Derivatives and Hedging
Derivatives and Hedging
Cash flow hedge
In July 2015, the Company entered into a $300 million notional Treasury rate lock contract which was designated and qualified as a cash flow hedge. The Company documented its hedging strategy and risk management objective for this contract in anticipation of a future debt issuance. The Treasury rate lock contract eliminated the impact of fluctuations in the underlying benchmark interest rate for future forecasted debt issuances. The Company assessed the effectiveness of the hedging contract at inception and on a quarterly basis thereafter. In November 2015, at the Treasury rate lock termination date, the Company de-designated the Treasury rate lock and entered into an extension for the same $300 million notional through early July 2016. In July 2016, the Company entered into a second extension to the Treasury rate lock in conjunction with the issuances of the previously forecasted debt. The forecasted debt issuances occurred in July 2016 and the Treasury rate lock, which had an accumulated fair value of $(34.4) million, was settled. Refer to Note 8, Borrowings and Debt, for additional information on the debt issuances.
Consistent with the original Treasury rate lock, the extended Treasury rate locks were designated and qualified as cash flow hedges. The Company documented its hedging strategy and risk management objective for these contracts in anticipation of the July 2016 debt issuance. The extended Treasury rate locks effectively eliminated the impact of fluctuations in the underlying benchmark interest rate for the debt issuances. The Company assessed the effectiveness of the hedging contracts at each of the extended Treasury rate locks’ inception dates and on a quarterly basis thereafter, where applicable. At the rate lock settlement the hedging contracts were evaluated to be highly effective in offsetting changes in cash flows associated with the hedged items. The Company did not record any hedge ineffectiveness in 2016.
As of June 30, 2017 the balance recorded in accumulated other comprehensive income was $(26.2) million, net of tax. This balance will be reclassified to earnings through interest expense over the life of the issued debt. An amount of $1.3 million has been reclassified for the six months ended June 30, 2017. During the next twelve months the Company expects to reclassify approximately $2.7 million to interest expense.
Discontinued Operations and Restructuring
Discontinued Operations and Restructuring
Discontinued Operations and Restructuring
All of the Company’s discontinued operations were wound down or transferred to OM plc prior to 2016.
The Company recognized a gain on disposal, net of taxes, of $0.0 million and $1.4 million, with basic and diluted discontinued operations earnings per share of $0.00 and $0.01 for the three months ended June 30, 2017 and 2016, respectively.

The Company recognized a gain (loss) on disposal, net of taxes, of $(0.1) million and $1.6 million, with basic and diluted discontinued operations earnings per share of $0.00 and $0.01 for the six months ended June 30, 2017 and 2016, respectively. Gains and losses on disposal of discontinued operations represent the Company’s rights or obligations related to contractual residual interests in previously discontinued operations.
Subsequent Events Subsequent Events
Subsequent Events
Sale of Heitman LLC to senior professionals of Heitman

Following the closing of the first tranche of the sale transaction to HNA Capital, OMAM provided an entity owned by senior professionals of Heitman LLC a right of first offer to buy OMAM’s interest in Heitman LLC at a price the Company determined to be its “good faith estimate of the reasonable value” of such interest. In August 2017, the Company executed a non-binding term sheet to sell its stake in Heitman LLC for cash consideration totaling $110 million. The transaction is expected to close around year-end. OMAM will retain its co-investment interests in Heitman-managed funds as well as any carried interest associated with these investments. Equity method income from Heitman represented approximately 8% of GAAP earnings for the first six months of 2017 and approximately 6% of GAAP earnings of OMAM for 2016.

Purchase of seed capital and associated financing

In July 2017, the Company purchased all remaining seed capital investments covered by the Seed Capital Management Agreement from OM plc for $63.4 million. OMAM financed this purchase in part through borrowings under a non-recourse seed capital facility collateralized entirely by its seed capital holdings. The Company entered into this facility as of July 17, 2017, and may borrow up to $65.0 million, so long as the borrowing does not represent more than 50% of the value of the seed capital collateral. Since this facility is non-recourse to OMAM beyond the seed investments themselves, drawdowns under this facility are excluded from the Company’s third party debt levels for purposes of calculating the Company’s credit ratio covenants under its revolving credit facility (see Note 8).

UK tax legislation

On July 13, 2017, (the “Effective Date”) the UK published revised draft legislation to be included in the U.K. Finance Bill (No. 2) 2017 (the “Finance Bill”) that would impact the Company’s tax position as of the Effective Date. The legislation is expected to receive Royal Assent later in the year and there is still scope for changes to be made as the Finance Bill is finalized. If this legislation is enacted as proposed, the Company’s UK tax liability is expected to increase by approximately $10 million annually. While the Company continues to explore alternative structures that comply with these new rules, given the Effective Date, the Company expects to record the incremental U.K. tax as of that date.
Basis of Presentation and Significant Accounting Policies (Policies)
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations and of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows of the Company. Within these Condensed Consolidated Financial Statements, entities that are part of OM plc’s consolidated results, but are not part of OMAM, as defined above, are referred to as “related parties.”
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Transactions between the Company and OM plc are included in the Condensed Consolidated Financial Statements, however material intercompany balances and transactions among the Company and its consolidated Affiliates are eliminated in consolidation.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 22, 2017. The Company’s significant accounting policies, which have been consistently applied, are summarized in those Financial Statements.
Consolidation
Affiliates
The Company evaluates each of its Affiliates and other operating entities to determine the appropriate method of accounting. Generally, majority-owned entities or otherwise controlled investments in which the Company holds a controlling financial interest as the principal shareholder, managing member, or general partner are consolidated.
Funds
In evaluating whether or not a legal entity must be consolidated, the Company determines if such entity is a variable interest entity (“VIE”) or a voting interest entity (“VOE”). A VOE is considered an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk 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 the entity’s economic performance. A VIE is an entity that lacks one or more of the characteristics of a VOE. Assessing whether an entity is a VIE or VOE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership and any related party or de facto agent implications of the Company’s involvement with the entity. Investments that are determined to be VIEs are consolidated if the Company or a consolidated Affiliate is the primary beneficiary of the investment. VOEs are typically consolidated if the Company holds the majority voting interest or otherwise controls the entity.
In the normal course of business, the Company’s Affiliates sponsor and manage certain investment vehicles (the “Funds”). The Company assesses consolidation requirements with respect to its Funds pursuant to Accounting Standards Codification (“ASC”) Topic 810, Consolidation, as amended by Accounting Standards Update 2015-02, Consolidation: Amendments to the Consolidation Analysis ("ASU 2015-02") relating to the consolidation of VIEs.
In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. For VIEs that are investment companies subject to ASU 2010-10, Consolidation: Amendments for Certain Investment Funds, the primary beneficiary of the VIE is generally the variable interest holder that absorbs a majority of the expected losses of the VIE, receives a majority of the expected residual returns of the VIE, or both. The Company generally is not the primary beneficiary of Fund VIEs created to manage assets for clients unless the Company’s ownership interest, including interests of related parties, is substantial.
The primary beneficiary of a VIE is defined as the variable interest holder that has a controlling financial interest. A controlling financial interest is defined as (i) the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. If no single party satisfies both criteria, but the Company and its related parties satisfy the criteria on a combined basis, then the primary beneficiary is the entity out of the related party group that is most closely associated to the VIE. The consolidation analysis can generally be performed qualitatively, however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The Company consolidates VOEs when it has control over significant operating, financial and investing decisions of the entity or holds the majority voting interest. For VOEs organized as limited partnerships or as an entity with governance structures similar to a limited partnership (e.g., limited liability company with a managing member), the Company consolidates an entity when it holds the controlling general partnership interest and the limited partners do not hold substantive participating rights or rights to remove and replace the general partner or rights that could provide the limited partners with the ability to impact the ongoing governance and operating activities of the entity.
Upon the occurrence of certain events (such as contributions and redemptions, either by the Company, its Affiliates, or third parties, or amendments to the governing documents of the Company’s investees or sponsored Funds) management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or a VOE. Additionally, management continually reconsiders whether the Company is deemed to be a VIE’s primary beneficiary who consolidates such entity. In the third quarter of 2016, following the transfer of certain seed capital investments from OM plc, the Company consolidated certain Funds pursuant to ASU 2015-02.
Use of Estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ significantly from those estimates.
Acquisitions (Tables)
Acquisition date purchase price allocation
The following table presents a summary of the acquisition-date fair values of the assets acquired and liabilities assumed for OMAM’s acquisition of Landmark:
 
 
Landmark
Purchase price
 
 
Cash
 
$
239.2

Seller's expenses
 
3.5

Total consideration
 
242.7

Identifiable assets and liabilities
 
 
Cash
 
23.4

Receivables
 
8.5

Indefinite-life trade name
 
1.0

Amortizable intangible asset management contracts
 
85.0

Fixed assets
 
5.1

Other current assets (liabilities), net
 
(26.7
)
Assets (liabilities), net
 
(1.7
)
Total identifiable assets and liabilities
 
94.6

Goodwill
 
$
148.1

Investment (Tables)
Investments are comprised of the following as of the dates indicated (in millions):
 
June 30,
2017
 
December 31,
2016
Investments of consolidated Funds held at fair value
$
46.7

 
$
35.5

Other investments held at fair value
14.5

 
17.5

Investments related to long-term incentive compensation plans held at fair value
88.1

 
78.1

Equity-accounted investments in unconsolidated Funds
28.5

 
30.5

Total investments held at fair value
177.8

 
161.6

Equity-accounted investments in Affiliates
60.5

 
55.2

Other investments*
1.9

 
52.0

Total investments per Condensed Consolidated Balance Sheets
$
240.2

 
$
268.8

 
 
* Other investments represent cost-basis investments made by one of our Affiliates, including investments in timber and timberlands. At December 31, 2016, $50.1 million of these investments were recorded at the lower of cost or fair value less costs to sell and subsequently sold in January 2017 for a net gain of approximately $1.7 million.
Investment income is comprised of the following for the three and six months ended June 30 (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Investment return of equity-accounted investments in unconsolidated Funds
$
0.8

 
$
0.5

 
$
1.2

 
$
0.5

Realized and unrealized gains on other investments held at fair value
1.0

 

 
2.7

 

Investment return of held for sale investments

 
0.3

 
1.7

 
0.6

Total return on OMAM investments
1.8

 
0.8

 
5.6

 
1.1

Investment return of equity-accounted investments in Affiliates
3.2

 
3.7

 
5.5

 
6.9

Total investment income per Condensed Consolidated Statement of Operations
$
5.0

 
$
4.5

 
$
11.1

 
$
8.0

Fair Value Measurements (Tables)
Summary of the assets and liabilities that are measured at fair value on a recurring basis
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2017 (in millions):
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value,
June 30, 2017
Assets of OMAM and consolidated Funds(1)
 
 

 
 

 
 
 
 

Common and preferred stock
$
46.5

 
$

 
$

 
$

 
$
46.5

Short-term investment funds
0.2

 

 

 

 
0.2

Consolidated Funds total
46.7

 

 

 

 
46.7

Investments in separate accounts(2)
8.5

 

 

 

 
8.5

Investments related to long-term incentive compensation plans(3)
88.1

 

 

 

 
88.1

Investments in unconsolidated Funds(4)

 

 

 
34.5

 
34.5

OMAM total
96.6

 

 

 
34.5

 
131.1

Total fair value assets
$
143.3

 
$

 
$

 
$
34.5

 
$
177.8

Liabilities of consolidated Funds(1)
 
 
 
 
 
 
 
 
Common stock
$
(5.9
)
 
$

 
$

 
$

 
$
(5.9
)
Consolidated Funds total
(5.9
)
 

 

 

 
(5.9
)
Total fair value liabilities
$
(5.9
)
 
$

 
$

 
$

 
$
(5.9
)

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2016 (in millions): 
 
Quoted prices
in active
markets
(Level I)
 
Significant
other
observable
inputs
(Level II)
 
Significant
unobservable
inputs
(Level III)
 
Uncategorized
 
Total value December 31, 2016
Assets of OMAM and consolidated Funds(1)
 
 

 
 

 
 

 
 

Common and preferred stock
$
35.1

 
$

 
$

 
$

 
$
35.1

Short-term investment funds
0.4

 

 

 

 
0.4

Consolidated Funds total
35.5

 

 

 

 
35.5

Investments in separate accounts(2)
7.5

 

 

 

 
7.5

Investments related to long-term incentive compensation plans(3)
78.1

 

 

 

 
78.1

Investments in unconsolidated Funds(4)

 

 

 
40.5

 
40.5

OMAM total
85.6

 

 

 
40.5

 
126.1

Total fair value assets
$
121.1

 
$

 
$

 
$
40.5

 
$
161.6

Liabilities of OMAM and consolidated Funds(1)
 
 
 
 
 
 
 
 
Common stock
$
(5.0
)
 
$

 
$

 
$

 
$
(5.0
)
Consolidated Funds total
(5.0
)
 

 

 

 
(5.0
)
Derivative securities

 
(0.1
)
 

 

 
(0.1
)
OMAM total

 
(0.1
)