APAM-2015-6-30-10Q
Table of Contents

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

Form 10-Q

(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-35826
 
Artisan Partners Asset Management Inc.
(Exact name of registrant as specified in its charter)

Delaware
45-0969585
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
875 E. Wisconsin Avenue, Suite 800
Milwaukee, WI
53202
(Address of principal executive offices)
(Zip Code)
 
 

(414) 390-6100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and Class C common stock, par value $0.01 per share, as of July 30, 2015 were 39,280,189, 18,344,757 and 15,798,402, respectively.
 


Table of Contents

TABLE OF CONTENTS
 
 
Page
Part I
Financial Information
 
Item 1.
Unaudited Consolidated Financial Statements
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II
Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Except where the context requires otherwise, in this report, references to the “Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its consolidated subsidiaries, including Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”). On March 12, 2013, APAM closed its initial public offering and related corporate reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings.
Forward-Looking Statements
This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business or financial results. These statements are only predictions based on our current expectations and projections about future events. Among the important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, adverse economic or market conditions, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Artisan Partners brand and other factors disclosed under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on February 25, 2015, which is accessible on the SEC’s website at www.sec.gov. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.






Table of Contents

Forward-looking statements include, but are not limited to, statements about:
our anticipated future results of operations;
our potential operating performance and efficiency;
our expectations with respect to future levels of assets under management, inflows and outflows;
our financing plans, cash needs and liquidity position;
our intention to pay dividends and our expectations about the amount of those dividends;
our expected levels of compensation of our employees;
our expectations with respect to future expenses and the level of future expenses;
our expected tax rate, and our expectations with respect to deferred tax assets; and
our estimates of future amounts payable pursuant to our tax receivable agreements.


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Part I — Financial Information
Item 1. Unaudited Consolidated Financial Statements
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Condensed Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except per share amount)
 
June 30,
2015
 
December 31,
2014
ASSETS
Cash and cash equivalents
$
215,464

 
$
182,284

Accounts receivable
76,725

 
69,361

Investment securities
13,129

 
6,712

Property and equipment, net
15,897

 
16,594

Deferred tax assets
683,353

 
562,396

Prepaid expenses and other assets
13,722

 
12,105

Total assets
$
1,018,290

 
$
849,452

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other
$
32,966

 
$
39,826

Accrued incentive compensation
73,760

 
12,973

Borrowings
200,000

 
200,000

Amounts payable under tax receivable agreements
599,535

 
489,154

Total liabilities
906,261

 
741,953

Commitments and contingencies

 


Common stock
 
 
 
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 39,280,189 and 34,238,131 shares outstanding at June 30, 2015 and December 31, 2014, respectively)
393

 
342

Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 18,344,757 and 21,463,033 shares outstanding at June 30, 2015 and December 31, 2014, respectively)
183

 
215

Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 15,798,402 and 17,226,379 shares outstanding at June 30, 2015 and December 31, 2014, respectively)
158

 
172

Additional paid-in capital
101,451

 
93,524

Retained earnings
15,840

 
16,417

Accumulated other comprehensive income (loss)
367

 
206

Total stockholders’ equity
118,392

 
110,876

Noncontrolling interest - Artisan Partners Holdings
(6,363
)
 
(3,377
)
Total equity
112,029

 
107,499

Total liabilities and equity
$
1,018,290

 
$
849,452

The accompanying notes are an integral part of the consolidated financial statements.

1

Table of Contents

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts)
 
For the Three Months Ended June 30,

For the Six Months Ended June 30,
 
2015

2014

2015

2014
Revenues
 
 
 
 
 
 
 
Management fees
$
210,426

 
$
208,333

 
$
413,655

 
$
410,125

Performance fees
1,147

 
154

 
1,493

 
154

Total revenues
$
211,573

 
$
208,487

 
$
415,148

 
$
410,279

Operating Expenses
 
 
 
 
 
 
 
Compensation and benefits
 
 
 
 
 
 
 
Salaries, incentive compensation and benefits
93,708

 
85,295

 
192,135

 
171,150

Pre-offering related compensation - share-based awards
10,650

 
16,166

 
21,064

 
39,803

Total compensation and benefits
104,358

 
101,461

 
213,199

 
210,953

Distribution and marketing
11,736

 
11,893

 
23,398

 
23,067

Occupancy
2,954

 
2,768

 
5,966

 
5,454

Communication and technology
6,441

 
5,483

 
11,654

 
9,959

General and administrative
7,771

 
6,057

 
14,789

 
12,869

Total operating expenses
133,260

 
127,662

 
269,006

 
262,302

Total operating income
78,313

 
80,825

 
146,142

 
147,977

Non-operating income (loss)
 
 
 
 
 
 
 
Interest expense
(2,978
)
 
(2,902
)
 
(5,857
)
 
(5,785
)
Net Investment Income
416

 

 
416

 

Net gain (loss) of Launch Equity

 
(884
)
 

 
(1,482
)
Net gain (loss) on the tax receivable agreements

 
(4,471
)
 
(6,427
)
 
(4,471
)
Other non-operating income (expense)
4

 
5

 
9

 
(271
)
Total non-operating income (loss)
(2,558
)
 
(8,252
)
 
(11,859
)
 
(12,009
)
Income before income taxes
75,755

 
72,573

 
134,283

 
135,968

Provision for income taxes
16,497

 
8,650

 
21,579

 
19,858

Net income before noncontrolling interests
59,258

 
63,923

 
112,704

 
116,110

Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings
35,522

 
45,547

 
69,454

 
89,696

Less: Net income (loss) attributable to noncontrolling interests - Launch Equity

 
(884
)
 

 
(1,482
)
Net income attributable to Artisan Partners Asset Management Inc.
$
23,736

 
$
19,260

 
$
43,250

 
$
27,896

 
 
 
 
 
 
 
 
Basic and diluted earnings (loss) per share
$
0.50

 
$
0.42

 
$
0.95

 
$
(1.64
)
Basic and diluted weighted average number of common shares outstanding
35,992,493

 
27,836,427

 
34,322,266

 
24,046,390

Dividends declared per Class A common share
$
0.60

 
$
0.55

 
$
2.15

 
$
2.73

The accompanying notes are an integral part of the consolidated financial statements.

2

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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income before noncontrolling interests
$
59,258

 
$
63,923

 
$
112,704

 
$
116,110

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Unrealized gains on investment securities:
 
 
 
 
 
 
 
Unrealized gain (loss) on investment securities, net of tax of ($19), $70, $69 and $156, respectively
333

 
285

 
563

 
306

Less: reclassification adjustment for gain (loss) included in net income
416

 

 
416

 

Net unrealized gain (loss) on investment securities
(83
)
 
285

 
147

 
306

Foreign currency translation gain (loss)
534

 
215

 
112

 
268

Total other comprehensive income (loss)
451

 
500

 
259

 
574

Comprehensive income
59,709

 
64,423

 
112,963

 
116,684

Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings
35,721

 
45,825

 
69,552

 
89,844

Comprehensive income (loss) attributable to noncontrolling interests - Launch Equity

 
(884
)
 

 
(1,482
)
Comprehensive income attributable to Artisan Partners Asset Management Inc.
$
23,988

 
$
19,482

 
$
43,411

 
$
28,322


The accompanying notes are an integral part of the consolidated financial statements.

3

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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in StockholdersEquity
(U.S. dollars in thousands)
 
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Non-controlling interest - Artisan Partners Holdings
Total equity
Balance at January 1, 2015
729

93,524

16,417

206

(3,377
)
107,499

Net income


43,250


69,454

112,704

Other comprehensive income - foreign currency translation



72

40

112

Other comprehensive income - available for sale investments, net of tax



60

122

182

Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax

(5,235
)

29

5,171

(35
)
Amortization of equity-based compensation

20,507



18,884

39,391

Deferred tax assets, net of amounts payable under tax receivable agreements

25,987




25,987

Issuance of Class A common stock, net of issuance costs
38

175,976




176,014

Forfeitures
(1
)
1





Issuance of restricted stock awards
6

(6
)




Purchase of equity and subsidiary equity
(38
)
(176,520
)



(176,558
)
Distributions




(96,657
)
(96,657
)
Dividends

(32,783
)
(43,827
)


(76,610
)
Balance at June 30, 2015
$
734

$
101,451

$
15,840

$
367

$
(6,363
)
$
112,029

 
Common stock
Convertible preferred stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Non-controlling interest - Artisan Partners Holdings
Non-controlling interest - Launch Equity
Total equity
Balance at January 1, 2014
$
703

$
34,909

$
6,388

$
1,401

$
378

$
38,060

$
50,472

$
132,311

Net income (loss)



27,896


89,696

(1,482
)
116,110

Other comprehensive income - foreign currency translation




104

164


268

Other comprehensive income - available for sale investments, net of tax




109

291


400

Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax


(10,371
)

213

10,064


(94
)
Capital contribution






2,980

2,980

Amortization of equity-based compensation


17,945



30,819


48,764

Deferred tax assets, net of amounts payable under tax receivable agreements


55,711





55,711

Issuance of Class A common stock, net of issuance costs
111


552,234





552,345

Purchase of convertible preferred stock and subsidiary equity
(85
)
(21,652
)
(533,204
)


812


(554,129
)
Conversion of preferred stock and exchange of subsidiary
(14
)
(13,257
)
23,289



(10,018
)


Distributions





(167,186
)

(167,186
)
Dividends


(28,679
)
(34,470
)



(63,149
)
Balance at June 30, 2014
$
715

$

$
83,313

$
(5,173
)
$
804

$
(7,298
)
$
51,970

$
124,331



The accompanying notes are an integral part of the consolidated financial statements.


4

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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
 
For the Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net income before noncontrolling interests
$
112,704

 
$
116,110

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,086

 
1,423

Deferred income taxes
7,761

 
2,716

Capital gains on the sale of investment securities
(416
)
 

Net loss on the tax receivable agreements
6,427

 
4,471

(Gains) losses of Launch Equity, net

 
1,482

Proceeds from sale of investments by Launch Equity

 
69,190

Purchase of investments by Launch Equity

 
(57,956
)
Loss on disposal of property and equipment
17

 
151

Amortization of debt issuance costs
224

 
224

Share-based compensation
39,391

 
48,764

Excess tax benefit on share-based awards
(1,153
)
 
(717
)
Change in assets and liabilities resulting in an increase (decrease) in cash:
 
 
 
Net change in operating assets and liabilities of Launch Equity

 
(14,214
)
Accounts receivable
(7,364
)
 
(923
)
Prepaid expenses and other assets
(1,846
)
 
(980
)
Accounts payable and accrued expenses
60,795

 
69,477

Class B liability awards
(4,161
)
 
(4,206
)
Deferred lease obligations
(155
)
 
104

Net cash provided by operating activities
214,310

 
235,116

Cash flows from investing activities
 
 
 
Acquisition of property and equipment
(1,175
)
 
(2,430
)
Leasehold improvements
(1,597
)
 
(1,940
)
Proceeds from sale of property and equipment

 
4

Proceeds from sale of investment securities
965

 

Purchase of investment securities
(6,750
)
 
(10,000
)
Net cash used in investing activities
(8,557
)
 
(14,366
)
Cash flows from financing activities
 
 
 
Partnership distributions
(96,657
)
 
(167,186
)
Dividends paid
(76,610
)
 
(63,149
)
Change in other liabilities
(34
)
 
(32
)
Net proceeds from issuance of common stock
176,558

 
554,129

Payment of costs directly associated with the issuance of Class A common stock
(425
)
 
(2,343
)
Purchase of equity and subsidiary equity
(176,558
)
 
(554,129
)
Capital invested into Launch Equity

 
2,980

Excess tax benefit on share-based awards
1,153

 
717

Net cash used in financing activities
(172,573
)
 
(229,013
)
Net increase (decrease) in cash and cash equivalents
33,180

 
(8,263
)
Cash and cash equivalents
 
 
 
Beginning of period
182,284

 
211,839

End of period
$
215,464

 
$
203,576

 
 
 
 
Supplementary information
 
 
 
Noncash activity:
 
 
 
Establishment of deferred tax assets
128,788

 
354,204

Establishment of amounts payable under tax receivable agreements
103,954

 
298,394

The accompanying notes are an integral part of the consolidated financial statements.

5

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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Notes to Unaudited Consolidated Financial Statements
(U.S. currencies in thousands, except per share or per unit amounts and as otherwise indicated)
Note 1. Nature of Business and Organization
Nature of Business
Artisan Partners Asset Management, Inc. (“APAM” or “Artisan”) is an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. Artisan has seven autonomous investment teams that manage fifteen distinct investment strategies. During the second quarter of 2015, Artisan launched its fifteenth investment strategy, the Artisan Partners Developing World strategy, which is managed by the firm’s Developing World team.
Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates. Artisan offers its investment management services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons.
Organization
On March 12, 2013, APAM completed its initial public offering (the “IPO”). APAM was formed for the purpose of becoming the general partner of Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”) in connection with the IPO. Holdings is a holding company for the investment management business conducted under the name “Artisan Partners”. The reorganization (“IPO Reorganization”) established the necessary corporate structure to complete the IPO while at the same time preserving the ability of the firm to conduct operations through Holdings and its subsidiaries.
As the sole general partner, APAM controls the business and affairs of Holdings. As a result, APAM consolidates Holdings’ financial statements and records a noncontrolling interest for the economic interests in Holdings held by the limited partners of Holdings. At June 30, 2015, APAM’s total economic interest in Holdings approximated 53% of Holdings’ economics.
Artisan Partners Asset Management has been allocated a part of Artisan Partners Holdings’ net income since March 12, 2013, when it became Holdings’ general partner. APAM and its subsidiaries are hereafter referred to collectively as “Artisan” or the “Company”.
2015 Follow-On Offering
On March 9, 2015, APAM completed a registered offering of 3,831,550 shares of Class A common stock (the “2015 Follow-On Offering”) and utilized all of the proceeds to purchase an aggregate of 3,831,550 common units of Artisan Partners Holdings at a price per unit of $46.08. The offering and subsequent purchase of units had the following impact on the consolidated financial statements:

APAM received 3,831,550 GP units of Holdings, which increased APAM’s ownership interest in Holdings. See Note 6, “Noncontrolling interest - Holdings” for the financial statement impact of changes in ownership.
APAM’s purchase of common units of Holdings with the proceeds resulted in an increase to deferred tax assets of approximately $105.1 million and an increase in amounts payable under the tax receivable agreements of approximately $89.4 million.

Holdings Unit Exchanges

During the six months ended June 30, 2015, certain limited partners of Artisan Partners Holdings exchanged common units (along with a corresponding number of shares of Class B or C common stock of APAM) for shares of Class A common stock (the “Holdings Common Unit Exchanges”). The following exchanges occurred during the six months ended June 30, 2015:

194,474 Class A common units were exchanged for Class A common stock on March 9, 2015.
332,538 Class B common units were exchanged for Class A common stock on March 9, 2015.
127,729 Class A common units were exchanged for Class A common stock on May 21, 2015.
5,232 Class B common units were exchanged for Class A common stock on May 21, 2015.

The Holdings Common Unit Exchanges increased APAM’s ownership interest in Holdings, and resulted in a combined increase to deferred tax assets of approximately $17.2 million and an increase in amounts payable under the tax receivable agreements of approximately $14.6 million.

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Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of such consolidated financial statements have been included. Such interim results are not necessarily indicative of full year results.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and accordingly they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. As a result, the interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in APAM’s latest annual report on Form 10-K.
The accompanying financial statements were prepared in accordance with U.S. GAAP and related rules and regulations of the SEC. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates or assumptions.
Principles of consolidation
Artisan’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest and variable interest entities (“VIEs”) of which Artisan is deemed to be the primary beneficiary. The primary beneficiary is deemed to be the entity that has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. The consolidated financial statements include the accounts of APAM, all subsidiaries or other entities in which APAM has a direct or indirect controlling financial interest and VIEs of which Artisan is deemed to be the primary beneficiary. All material intercompany balances have been eliminated in consolidation.
The Company makes initial seed investments in sponsored investment portfolios at the portfolio’s formation. If the seed investment results in a controlling financial interest, APAM consolidates the investment, and the underlying individual securities are accounted for as trading securities. Seed investments in which the Company does not have a controlling financial interest are classified as available-for-sale investments. As of June 30, 2015, APAM does not have a controlling financial interest in any of the funds in which it has made a seed investment.

Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing accounting standards for revenue recognition and creates a single framework. The new guidance will be effective on January 1, 2017 and requires either a retrospective or a modified retrospective approach to adoption. Early application is prohibited. The Company is currently evaluating its transition method and the potential impact on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The ASU will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new guidance will be effective for the year ending December 31, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The ASU modifies existing consolidation guidance for determining whether certain legal entities should be consolidated. The ASU eliminates the deferral under ASU 2010-10, Consolidation - Amendments for Certain Investment Funds, and, as a result, the Company must apply the new guidance to all entities, including investment companies. The presumption that a general partner controls a limited partnership has been eliminated. In addition, fees paid to decision makers that meet certain conditions no longer cause the decision makers to consolidate VIEs, in certain instances. The new guidance will be effective on January 1, 2016, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company is currently evaluating its transition method and the potential impact on its consolidated financial statements.

In April 2015 the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the note liability, rather than presented as an asset. The new guidance will be effective on January 1, 2016, and requires a retrospective approach to adoption. At June 30, 2015, the Company had approximately $0.8 million of debt issuance costs in prepaid expenses and other assets on its Condensed Consolidated Statements of Financial Condition that meet the criteria of this amendment.


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In April 2015 the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The new guidance will be effective on January 1, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on its consolidated financial statements.
Note 3. Investment Securities
The disclosures below include details of Artisan’s investments.
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
June 30, 2015
 
 
 
 
 
 
 
Mutual funds
$
11,819

 
$
1,319

 
$
(9
)
 
$
13,129

December 31, 2014
 
 
 
 
 
 
 
Mutual funds
$
5,618

 
$
1,096

 
$
(2
)
 
$
6,712

Artisan’s investments in mutual funds consist of investments in shares of Artisan Partners Funds, Inc. and Artisan Partners Global Funds plc and are considered to be available-for-sale securities. As a result, unrealized gains (losses) are recorded to other comprehensive income (loss).
As of June 30, 2015 and December 31, 2014, the total fair value of investments in an unrealized loss position was $771 thousand and $38 thousand, respectively. The $9 thousand and $2 thousand unrealized losses on available-for-sale securities are considered temporary, based on the severity and duration of the unrealized losses. No impairment losses were recorded on these available-for-sale securities.
During the six months ended June 30, 2015, Artisan made seed investments of $6.8 million, including a $5.0 million investment in the Artisan Developing World Fund. During the six months ended June 30, 2015, Artisan sold $1.0 million of its investments, resulting in realized gains of $0.4 million for the three and six months ended June 30, 2015.
Note 4. Fair Value Measurements
The table below presents information about Artisan’s assets and liabilities that are measured at fair value and the valuation techniques Artisan utilized to determine such fair value.
In accordance with ASC 820, fair value is defined as the price that Artisan would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
Level 1 – Observable inputs such as quoted (unadjusted) market prices in active markets for identical securities.
Level 2 – Other significant observable inputs (including but not limited to quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including Artisan’s own assumptions in determining fair value).

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The following provides the hierarchy of inputs used to derive fair value of Artisan’s assets and liabilities that are financial instruments as of June 30, 2015 and December 31, 2014:
 
Assets and Liabilities at Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
June 30, 2015
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents
$
109,004

 
$
109,004

 
$

 
$

Mutual funds
13,129

 
13,129

 

 

 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents
$
44,004

 
$
44,004

 
$

 
$

Mutual funds
6,712

 
6,712

 

 

Fair values determined based on Level 1 inputs utilize quoted market prices for identical assets. Level 1 assets generally consist of money market funds, marketable open-end mutual funds or Undertakings for Collective Investment in Transferable Securities (“UCITS”). There were no Level 2 or Level 3 assets or liabilities recorded at fair value as of June 30, 2015 and December 31, 2014.
Artisan’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no transfers between Level 1, Level 2 or Level 3 securities during the six months ended June 30, 2015 and 2014.
Note 5. Borrowings
Artisan’s borrowings consist of the following as of June 30, 2015 and December 31, 2014:
 
Maturity
 
Outstanding Balance
 
Interest Rate Per Annum
Revolving credit agreement
August 2017
 
$

 
NA

Senior notes
 
 
 
 
 
Series A
August 2017
 
60,000

 
4.98
%
Series B
August 2019
 
50,000

 
5.32
%
Series C
August 2022
 
90,000

 
5.82
%
Total borrowings
 
 
$
200,000

 
 
The fair value of borrowings was approximately $199.6 million as of June 30, 2015. Fair value was determined based on future cash flows, discounted to present value using current market interest rates. The inputs are categorized as Level 2 in the fair value hierarchy, as defined in Note 4, “Fair Value Measurements”.
Interest expense incurred on the unsecured notes and revolving credit agreement was $2.7 million for the three months ended June 30, 2015 and 2014, and $5.5 million for the six months ended June 30, 2015 and 2014.
As of June 30, 2015, the aggregate maturities of debt obligations, based on their contractual terms, are as follows:
2015
$

2016

2017
60,000

2018

2019
50,000

Thereafter
90,000

 
$
200,000


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Note 6. Noncontrolling interest - Holdings
Holdings is the predecessor of APAM for accounting purposes, and its consolidated financial statements are Artisan’s historical financial statements for periods prior to March 12, 2013, the date on which APAM became the general partner of Holdings. As of June 30, 2015, APAM held approximately 53% of the economic interests in Holdings.
Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings in the Unaudited Consolidated Statements of Operations represents the portion of earnings or loss attributable to the economic interests in Holdings held by the limited partners of Holdings.
During the six months ended June 30, 2015, APAM’s ownership interest in Holdings increased from 47% to 53%, due to the following transactions:
The issuance of 562,950 Holdings GP units corresponding to 562,950 restricted shares of Class A common stock issued by APAM during the period.
The issuance of 3,831,550 Holdings GP units and cancellation of 3,831,550 Holdings common units, in connection with the 2015 Follow-On Offering.
The issuance of 659,973 Holdings GP units and cancellation of 659,973 Holdings common units, in connection with the Holdings Common Unit Exchanges.
The forfeiture of 54,730 Holdings common units as a result of the termination of employment of employee-partners.
Since APAM continues to have a controlling interest in Holdings, changes in ownership of Holdings are accounted for as equity transactions. Additional paid-in capital and Noncontrolling interest - Artisan Partners Holdings in the Unaudited Condensed Consolidated Statements of Financial Condition are adjusted to reallocate Holdings’ historical equity to reflect the change in APAM’s ownership of Holdings.
The reallocation of equity had the following impact on the Consolidated Statements of Financial Condition:
Statement of Financial Condition
For the Six Months Ended June 30,
2015
 
2014
Additional paid-in capital
$
(5,235
)
 
$
(10,371
)
Noncontrolling interest - Artisan Partners Holdings
5,171

 
10,064

Accumulated other comprehensive income
29

 
213

Deferred tax assets
35

 
94

Net balance sheet impact

 

In addition to the reallocation of historical equity, the change in ownership resulted in an increase to deferred tax assets and additional paid in capital of $6.5 million and $3.2 million for the six months ended June 30, 2015 and 2014, respectively.
Note 7. Variable and Voting Interest Entities
Artisan Funds and Artisan Global Funds
Artisan serves as the investment adviser for Artisan Partners Funds, Inc. (“Artisan Funds”), a family of mutual funds registered with the SEC under the Investment Company Act of 1940, and Artisan Partners Global Funds plc (“Artisan Global Funds”), a family of Ireland-based UCITS. Artisan Funds and Artisan Global Funds are corporate entities the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain all voting rights, including the right to elect and reelect members of their respective boards of directors. As a result, each of these entities is a voting interest entity (“VOE”). While Artisan holds, in limited cases, direct investments in a fund (which are made on the same terms as are available to other investors and do not represent a majority voting interest in either fund), Artisan does not have a controlling financial interest or a majority voting interest and, as such, does not consolidate these entities.
Artisan Partners Launch Equity LP
Prior to December 2014, Artisan had an agreement to serve as the investment manager of Artisan Partners Launch Equity Fund LP (“Launch Equity”), which was a private investment partnership in which the investors were certain employees or former employees (or entities beneficially owned by such persons) of Artisan Partners Holdings. Artisan Partners Alternative Investments GP LLC (“Artisan Alternatives”), a wholly-owned subsidiary of Holdings, was the general partner of Launch Equity.


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In December 2014, Launch Equity was liquidated and the net assets were distributed as a return of capital to all limited partners of the fund, including Artisan Partners Alternative Investments GP LLC, which received proceeds of $1 thousand. The fair value of the consideration distributed was equal to the carrying amount of Launch Equity’s net assets on the date of liquidation. As a result, no gain or loss was recorded in connection with the transaction.
Prior to the dissolution, Launch Equity was determined to be a variable interest entity (“VIE”) which required consolidation within Artisan’s consolidated financial statements. Artisan’s maximum exposure to investment loss from its involvement with Launch Equity was limited to its equity investment of $1 thousand while the potential benefit was limited to the management and incentive fees receivable as investment adviser. Therefore, the gains or losses of Launch Equity have not had a significant impact on Artisan’s results of operations, liquidity or capital resources. Artisan had no right to the benefits from, nor did it bear the risks associated with, Launch Equity’s investments, beyond Artisan’s minimal direct investment in Launch Equity.
The following tables reflect the impact of consolidating Launch Equity’s results into the Unaudited Consolidated Statement of Operations for the three and six months ended June 30, 2014.
Condensed Consolidating Statements of Operations
 
Three Months Ended
 
June 30, 2014
 
Before
Consolidation
 
Launch Equity
 
Eliminations
 
As Reported
Total revenues
$
208,621

 
$

 
$
(134
)
 
$
208,487

Total operating expenses
127,796

 

 
(134
)
 
127,662

Operating income (loss)
80,825

 

 

 
80,825

Non-operating income (loss)
(7,368
)
 

 

 
(7,368
)
Net gain (loss) of Launch Equity

 
(884
)
 

 
(884
)
Total non-operating income (loss)
(7,368
)
 
(884
)
 

 
(8,252
)
Income (loss) before income taxes
73,457

 
(884
)
 

 
72,573

Provision for income taxes
8,650

 

 

 
8,650

Net income (loss)
64,807

 
(884
)
 

 
63,923

Less: Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings
45,547

 

 

 
45,547

Less: Net income (loss) attributable to noncontrolling interests - Launch Equity

 
(884
)
 

 
(884
)
Net income attributable to Artisan Partners Asset Management Inc.
$
19,260

 
$

 
$

 
$
19,260

Condensed Consolidating Statements of Operations
 
Six Months Ended
 
June 30, 2014
 
Before
Consolidation
 
Launch Equity
 
Eliminations
 
As Reported
Total revenues
$
410,538

 
$

 
$
(259
)
 
$
410,279

Total operating expenses
262,561

 

 
(259
)
 
262,302

Operating income (loss)
147,977

 

 

 
147,977

Non-operating income (loss)
(10,527
)
 

 

 
(10,527
)
Net gain (loss) of Launch Equity

 
(1,482
)
 

 
(1,482
)
Total non-operating income (loss)
(10,527
)
 
(1,482
)
 

 
(12,009
)
Income (loss) before income taxes
137,450

 
(1,482
)
 

 
135,968

Provision for income taxes
19,858

 

 

 
19,858

Net income (loss)
117,592

 
(1,482
)
 

 
116,110

Less: Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings
89,696

 

 

 
89,696

Less: Net income (loss) attributable to noncontrolling interests - Launch Equity

 
(1,482
)
 

 
(1,482
)
Net income attributable to Artisan Partners Asset Management Inc.
$
27,896

 
$

 
$

 
$
27,896






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Note 8. Stockholders’ Equity

APAM - Stockholders’ Equity
As of June 30, 2015 and December 31, 2014, APAM had the following authorized and outstanding equity:
 
 
 
Outstanding
 
 
 
 
 
Authorized
 
June 30, 2015
 
December 31, 2014
 
Voting Rights (1)
 
Economic Rights
Common shares
 
 
 
 
 
 
 
 
 
Class A, par value $0.01 per share
500,000,000

 
39,280,189

 
34,238,131

 
1 vote per share
 
Proportionate
Class B, par value $0.01 per share
200,000,000

 
18,344,757

 
21,463,033

 
5 votes per share
 
None
Class C, par value $0.01 per share
400,000,000

 
15,798,402

 
17,226,379

 
1 vote per share
 
None
(1) The Company’s employees to whom Artisan has granted equity have entered into a stockholders agreement with respect to all shares of APAM common stock they have acquired from the Company and any shares they may acquire from the Company in the future, pursuant to which they granted an irrevocable voting proxy to a Stockholders Committee. As of June 30, 2015, Artisan’s employees held 3,251,169 restricted stock of Class A common stock subject to the agreement and all 18,344,757 outstanding shares of Class B common stock.
APAM is dependent on cash generated by Holdings to fund any dividends. Generally, Holdings will make distributions to all of its partners, including APAM, based on the proportionate ownership each holds in Holdings. APAM will fund dividends to its stockholders from its proportionate share of those distributions after provision for its taxes and other obligations. APAM declared and paid the following dividends per share during the three and six months ended June 30, 2015 and 2014:
Type of Dividend
 
Class of Stock
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
Quarterly
 
Common Class A
 
$0.60
 
$0.55
 
$1.20
 
$1.10
Special Annual
 
Common Class A
 
$—
 
$—
 
$0.95
 
$1.63
Quarterly
 
Convertible Preferred
 
$—
 
$0.81
 
$—
 
$3.81
APAM issued (canceled) the following shares during the six months ended June 30, 2015:
 
Total Stock
Class A Common Stock(1)
Class B Common Stock
Class C Common Stock
Balance at December 31, 2014
72,927,543

34,238,131

21,463,033

17,226,379

2015 Follow-On Offering

3,831,550

(2,415,253
)
(1,416,297
)
Holdings Common Unit Exchanges

659,973

(337,770
)
(322,203
)
Restricted Share Award Grants
562,950

562,950



Employee/Partner Terminations
(67,145
)
(12,415
)
(365,253
)
310,523

Balance at June 30, 2015
73,423,348

39,280,189

18,344,757

15,798,402

(1) There were 122,990 and 20,612 restricted stock units outstanding at June 30, 2015 and December 31, 2014, respectively.
Each Class A, Class B, Class D and Class E common unit of Holdings (together with the corresponding share of Class B or Class C common stock) is exchangeable for one share of Class A common stock.
Upon termination of employment with Artisan, an employee-partner’s vested Class B common units are automatically exchanged for Class E common units; unvested Class B common units are forfeited. The employee-partner’s shares of Class B common stock are canceled and APAM issues the former employee-partner a number of shares of Class C common stock equal to the former employee-partner’s number of Class E common units. The former employee-partner’s Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings.

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Table of Contents

Artisan Partners Holdings - Partners’ Equity
Holdings makes distributions of its net income to the holders of its partnership units for income taxes as required under the terms of the partnership agreement and also makes additional distributions under the terms of the partnership agreement. The distributions are recorded in the financial statements on the declaration date, or on the payment date in lieu of a declaration date.
Holdings’ partnership distributions for the three and six months ended June 30, 2015 and 2014, respectively, were as follows:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Holdings Partnership Distributions(1)
 
$109,194
 
$116,443
 
$188,564
 
$248,072
Holdings Partnership Distributions to APAM
 
$54,642
 
$42,262
 
$91,907
 
$80,886
(1) Including distributions to APAM
The portion of these distributions made to all partners are recorded as a reduction to consolidated stockholders’ equity, with the exception of the portion of distributions made to APAM, which is eliminated upon consolidation.
Note 9. Compensation and Benefits
Total compensation and benefits consists of the following:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Salaries, incentive compensation and benefits (1)
 
$
84,673


$
81,062

 
$
174,577


$
162,659

Restricted share-based award compensation expense
 
9,035


4,233

 
17,558


8,491

Total salaries, incentive compensation and benefits
 
93,708

 
85,295

 
192,135

 
171,150

Pre-offering related compensation - share-based awards
 
10,650

 
16,166

 
21,064

 
39,803

Total compensation and benefits
 
$
104,358

 
$
101,461

 
$
213,199

 
$
210,953

(1) Excluding restricted share-based award compensation expense
Incentive compensation
Cash incentive compensation paid to members of Artisan’s portfolio management teams and members of its distribution teams is generally based on formulas that are tied directly to revenues. These payments are made in the quarter following the quarter in which the incentive was earned with the exception of fourth quarter payments which are paid in the fourth quarter of the year. Cash incentive compensation paid to most other employees is discretionary and subjectively determined based on individual performance and Artisan’s overall results during the applicable year and has historically been paid in the fourth quarter of the year. The cash incentive compensation earned by the named executive officers for the year ended December 31, 2014, was paid in the three months ended March 31, 2015.
Restricted share-based awards
Artisan has registered 14,000,000 shares of Class A common stock for issuance under the 2013 Omnibus Incentive Compensation Plan (the “Plan”). Pursuant to the Plan, APAM has issued a combination of restricted stock awards and restricted stock units (collectively referred to as “restricted share-based awards”) of Class A common stock to employees. The restricted share-based awards generally vest on a pro rata basis over five years. Certain share-based awards will vest upon a combination of both (1) pro-rata annual time vesting and (2) qualifying retirement (as defined in the award agreements). Unvested awards are subject to forfeiture upon termination of employment. Grantees receiving the awards are entitled to dividends on unvested and vested shares and units. As of June 30, 2015, 10,336,935 shares of Class A common stock were reserved and available for issuance under the Plan.
During the six months ended June 30, 2015, Artisan issued 562,950 restricted stock awards and 80,000 restricted stock units of Class A common stock to employees of the Company. Total compensation expense associated with the 2015 grants is expected to be approximately $30.5 million. Compensation expense related to the restricted share-based awards is recognized based on the estimated grant date fair value, for only those awards expected to vest, on a straight-line basis over the requisite service period of the award.

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The Company estimated the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, based on actual forfeiture activity.
The following table summarizes the restricted share-based award activity for the six months ended June 30, 2015:
 
 
Weighted-Average Grant Date Fair Value
 
Number of Awards
Unvested at January 1, 2015
 
$
52.59

 
2,700,634

Granted
 
$
48.17

 
642,950

Forfeited
 
$
52.71

 
(12,415
)
Vested
 
$

 

Unvested at June 30, 2015
 
$
51.74

 
3,331,169

Compensation expense recognized related to awards was $9.1 million and $4.2 million for the three months ended June 30, 2015 and 2014, respectively, and $17.6 million and $8.5 million for the six months ended June 30, 2015 and 2014, respectively. The unrecognized compensation expense for the unvested awards as of June 30, 2015 was $139.5 million with a weighted average recognition period of 4.0 years remaining.
Pre-offering related compensation - share-based awards
Historical Class B share-based awards
Holdings historically granted Class B share-based awards to certain employees. These awards vested over a period of five years. Prior to the IPO, all vested Class B awards were subject to mandatory redemption on termination of employment for any reason and were reflected as liabilities measured at fair value; unvested Class B awards were forfeited on termination of employment.
The vested Class B liability awards of a terminated employee were historically redeemed in cash in annual installments, generally over the five years following termination of employment. The change in value of Class B liability awards and distributions to Class B limited partners were treated as compensation expense.
Historical redemption of Class B awards
Holdings historically redeemed the Class B awards of partners whose employment was terminated. The redemption value of the awards was determined in accordance with the terms of the grant agreement pursuant to which the award was granted. The remaining redemption payments for Class B awards of partners whose services to Holdings terminated prior to the IPO were $10.1 million and $14.3 million as of June 30, 2015 and December 31, 2014, respectively. Payments of $0.3 million and $0.8 million were made for the three months ended June 30, 2015 and 2014, respectively, and $4.2 million for the six months ended June 30, 2015 and 2014.
Modification of Class B share-based awards
As a part of the IPO Reorganization, the Class B grant agreements were amended to eliminate the cash redemption feature. The amendment was considered a modification under ASC 718 and the Class B awards have been classified as equity awards since such modification. Compensation expense is recorded for unvested Class B awards on a straight-line basis over the remaining vesting period.
The following table summarizes the activity related to unvested Class B awards for the six months ended June 30, 2015:
 
Weighted-Average Grant Date Fair Value
 
Number of Class B Awards
Unvested Class B awards at January 1, 2015
$
30.00

 
4,045,016

Granted

 

Forfeited
$
30.00

 
(54,730
)
Vested
$
30.00

 
(667,106
)
Unvested at June 30, 2015
$
30.00

 
3,323,180



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Compensation expense recognized related to the unvested Class B awards was $10.7 million and $16.2 million for the three months ended June 30, 2015 and 2014, respectively, and $21.1 million and $39.8 million for the six months ended June 30, 2015 and 2014, respectively. The unrecognized compensation expense for the unvested Class B awards as of June 30, 2015, was $64.5 million with a weighted average recognition period of 1.8 years remaining.
Note 10. Income Taxes and Related Payments
APAM is subject to U.S. federal and state income taxation on APAM’s allocable portion of the income of Holdings. APAM’s effective income tax rate was lower than the U.S. Federal statutory rate of 35% primarily due to a rate benefit attributable to the fact that approximately 50% of Holdings’ earnings are not subject to corporate level taxes. This favorable impact is partially offset by the impact of certain permanent items, primarily attributable to certain compensation related expenses, that are not deductible for tax purposes. Prior to the IPO Reorganization, none of Holdings’ earnings were subject to U.S. corporate-level taxes.
In connection with the IPO, APAM entered into two tax receivable agreements (“TRAs”). Under the first TRA, APAM generally is required to pay to a private equity fund controlled by Hellman & Friedman LLC 85% of the applicable cash savings, if any, in U.S. federal, state and local income tax that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) the tax attributes of the preferred units APAM acquired in the merger of a wholly-owned subsidiary of the private equity fund into APAM in March 2013, (ii) net operating losses available as a result of the merger and (iii) tax benefits related to imputed interest.
Under the second TRA, APAM generally is required to pay to current or former limited partners of Holdings 85% of the applicable cash savings, if any, in U.S. federal, state and local income tax that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their partnership units sold to APAM or exchanged (for shares of Class A common stock or convertible preferred stock) and that are created as a result of the sales or exchanges and payments under the TRAs and (ii) tax benefits related to imputed interest. Under both agreements, APAM generally will retain the benefit of the remaining 15% of the applicable tax savings.
For purposes of the TRAs, cash savings in tax are calculated by comparing APAM’s actual income tax liability to the amount it would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRAs, unless certain assumptions apply. The TRAs will continue in effect until all such tax benefits have been utilized or expired, unless APAM exercises its right to terminate the agreements or payments under the agreements are accelerated in the event that APAM materially breaches any of its material obligations under the agreements. The actual increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of future exchanges by the holders of limited partnership units, the price of the Class A common stock at the time of future exchanges, whether such exchanges are taxable, the amount and timing of the taxable income APAM generates in the future and the tax rate then applicable and the portion of APAM’s payments under the TRAs constituting imputed interest.
Payments under the TRAs, if any, will be made pro rata among all TRA counterparties entitled to payments on an annual basis to the extent APAM has sufficient taxable income to utilize the increased depreciation and amortization charges.
Artisan expects to make payments under the TRAs, to the extent they are required, within 125 days after APAM’s federal income tax return is filed for each fiscal year. Interest on such payments will begin to accrue at a rate equal to one-year LIBOR plus 100 basis points from the due date (without extension) of such tax return.
Amounts payable under tax receivable agreements is an estimate which is impacted by factors, including but not limited to, expected tax rates, projected taxable income, and projected ownership levels. During the six months ended June 30, 2015, a change in expected state tax rates resulted in an increase to deferred tax assets and amounts payable under tax receivable agreements of $7.7 million and $6.4 million, respectively. During the six months ended June 30, 2014, a change in assumptions used to estimate future tax benefits resulted in an increase to deferred tax assets and amounts payable under tax receivable agreements of $4.5 million. The change in the estimate of amounts payable under tax receivable agreements is recorded in non-operating income in the Consolidated Statements of Operations.
The 2015 Follow-On Offering and Holdings Common Unit Exchanges resulted in an increase to deferred tax assets and amounts payable under tax receivable agreements of $122.3 million and $104.0 million, respectively, for the six months ended June 30, 2015.

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Table of Contents

Components of the provision for income taxes consist of the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Current:
 
 
 
 
 
 
 
Federal
$
7,074

 
$
7,472

 
$
12,114

 
$
15,082

State and local
1,021

 
929

 
1,541

 
1,910

Foreign
65

 
73

 
163

 
150

Total
8,160

 
8,474

 
13,818

 
17,142

Deferred:
 
 
 
 
 
 
 
Federal
7,886

 
170

 
14,629

 
2,946

State and local
451

 
6

 
(6,868
)
 
(230
)
Total
8,337

 
176

 
7,761

 
2,716

Income tax expense
$
16,497

 
$
8,650

 
$
21,579

 
$
19,858

Net deferred tax assets comprise the following:
 
As of June 30, 2015
 
As of December 31, 2014
Deferred tax assets:
 
 
 
Amortizable basis (1)
$
666,031

 
$
551,952

Other (2)
17,322

 
10,444

Total deferred tax assets
683,353

 
562,396

Less: valuation allowance (3)

 

Net deferred tax assets
$
683,353

 
$
562,396

(1) Represents the unamortized step-up of tax basis from the merger described above, the purchase of common and preferred units by APAM, and the exchange of common and preferred units for Class A common shares of APAM.
(2) Represents the net deferred tax assets associated with the merger described above and other miscellaneous deferred tax assets.
(3) Artisan assessed whether the deferred tax assets would be realizable and determined based on its history of taxable income that the benefits would more likely than not be realized. Accordingly, no valuation allowance is required.
Accounting standards establish a minimum threshold for recognizing, and a system for measuring, the benefits of income tax return positions in financial statements. There were no uncertain tax positions recorded as of June 30, 2015 and December 31, 2014.
In the normal course of business, Artisan is subject to examination by federal and certain state, local and foreign tax regulators. As of June 30, 2015, U.S. federal income tax returns for the years 2012 through 2014 are open and therefore subject to examination. State and local tax returns are generally subject to audit from 2011 to 2014. Foreign tax returns are generally subject to audit from 2011 to 2014.

16

Table of Contents

Note 11. Accumulated Other Comprehensive Income (loss)

Accumulated other comprehensive income (loss), net of tax, in the accompanying Condensed Consolidated Statements of Financial Condition represents the portion of accumulated other comprehensive income attributable to APAM, and consists of the following:
 
As of June 30, 2015
 
As of December 31, 2014
Unrealized gain on investments
$
444

 
$
326

Foreign currency translation
(77
)
 
(120
)
Accumulated Other Comprehensive Income (Loss)
$
367

 
$
206

Comprehensive income (loss) attributable to noncontrolling interests - Artisan Partners Holdings in the Consolidated Statements of Comprehensive Income (Loss) represents the portion of comprehensive income (loss) attributable to the economic interests in Holdings held by the limited partners of Holdings.
Note 12. Earnings (Loss) Per Share
Basic earnings per share is computed by dividing income available to Class A common stockholders by the weighted average number of Class A common shares outstanding during the period. Unvested restricted share-based awards are excluded from the number of Class A common shares outstanding for the basic earnings per share calculation because the shares have not yet been earned by the employees. Income available to Class A common stockholders is computed by reducing net income attributable to APAM by dividends declared or paid to convertible preferred stockholders during the period and earnings (distributed and undistributed) allocated to participating securities, according to their respective rights to participate in those earnings. Class B and Class C common shares do not share in profits of APAM and therefore are not reflected in the calculations.
The consideration Artisan paid to purchase shares of its convertible preferred stock in March 2014 exceeded the carrying amount of the shares of convertible preferred stock on Artisan’s consolidated balance sheet by $22.7 million, which is subtracted from net income as a deemed dividend to arrive at income available to common stockholders in the earnings per share calculation. The purchase of subsidiary preferred equity in March 2014 resulted in a similar deemed dividend, which also reduced net income available to common stockholders.

The computation of basic and diluted earnings per share under the two-class method for the three and six months ended June 30, 2015 and 2014 were as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
Basic and Diluted Earnings Per Share
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net income attributable to APAM
$
23,736

 
$
19,260

 
$
43,250

 
$
27,896

Less: Convertible preferred stock deemed dividends

 

 

 
22,694

Less: Subsidiary preferred equity deemed dividends

 

 

 
24,635

Less: Allocation to participating securities
5,638

 
7,692

 
10,726

 
19,969

Net income (loss) available to common stockholders
$
18,098

 
$
11,568

 
$
32,524

 
$
(39,402
)
Denominator:

 
 
 
 
 
 
Weighted average shares outstanding
35,992,493

 
27,836,427

 
34,322,266

 
24,046,390

Earnings (loss) per share
$
0.50

 
$
0.42

 
$
0.95

 
$
(1.64
)
Diluted earnings per share is computed by increasing the denominator by the amount of additional Class A common shares that would have been outstanding if all potential Class A common shares had been issued. The numerator is also increased for the net income allocated to the potential Class A common shares. For periods with a net loss available to common stockholders, all potential common shares are considered anti-dilutive.

The Holdings limited partnership units are anti-dilutive primarily due to the impact of public company expenses and unrecognized share-based compensation expense. Unvested restricted awards are anti-dilutive, primarily because the unvested shares are considered participating securities.


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The following table summarizes the weighted-average shares outstanding that are excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
Anti- Dilutive Weighted Average Shares Outstanding
2015
 
2014
 
2015
 
2014
Holdings limited partnership units
34,217,676

 
41,702,342

 
35,904,151

 
45,169,557

Convertible preferred stock

 
395,010

 

 
716,343

Unvested restricted share-based awards
3,330,863

 
1,616,969

 
3,162,097

 
1,611,887

Total
37,548,539

 
43,714,321

 
39,066,248

 
47,497,787

Note 13. Indemnifications
In the normal course of business, APAM enters into agreements that include indemnities in favor of third parties. Holdings has also agreed to indemnify APAM as its general partner, Artisan Investment Corporation (“AIC”) as its former general partner, the directors and officers of APAM, the directors and officers of AIC as its former general partner, the members of its former Advisory Committee, and its partners, directors, officers, employees and agents. Holdings’ subsidiaries may also have similar agreements to indemnify their respective general partner(s), directors, officers, directors and officers of their general partner(s), partners, members, employees, and agents. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred. APAM maintains insurance policies that may provide coverage against certain claims under these indemnities.
Note 14. Related Party Transactions
Artisan engages in transactions with its affiliates in the ordinary course of business.
Affiliate transactions—Artisan Funds     
Artisan has an agreement to serve as the investment manager of Artisan Funds, with which certain of Artisan employees are affiliated. Under the terms of the agreement, which generally is reviewed and continued by the board of directors of Artisan Funds annually, a fee is paid to Artisan based on an annual percentage of the average daily net assets of each Artisan Fund ranging from 0.63% to 1.25%. Artisan generally collects revenues related to these services on the last business day of each month and records them in Management Fees in the Consolidated Statement of Operations. Artisan has contractually agreed to waive its management fees or reimburse for expenses incurred to the extent necessary to limit annualized ordinary operating expenses incurred by certain of the Artisan Funds to not more than a fixed percentage (ranging from 1.25% to 1.50%) of the particular Fund’s average daily net assets. In addition, Artisan may voluntarily waive fees or reimburse any of the Artisan Funds for other expenses. The officers and a director of Artisan Funds who are affiliated with Artisan receive no compensation from the funds.
Fees for managing the Funds and amounts waived or reimbursed by Artisan for fees and expenses (including management fees) are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Investment management fees:
 
 
 
 
 
 
 
Artisan Funds
$
138,864

 
$
142,161

 
$
273,171

 
$
278,747

Fee waiver / expense reimbursement:
 
 
 
 
 
 
 
Artisan Funds
$
51

 
$
18

 
$
51

 
$
78

Affiliate transactions—Artisan Global Funds
Artisan has agreements to serve as the investment manager and promoter of Artisan Global Funds, with which certain Artisan employees are affiliated. Under the terms of these agreements, a fee is paid based on an annual percentage of the average daily net assets of each fund ranging from 0.75% to 1.80%. Artisan reimburses each sub-fund of Artisan Global Funds to the extent that sub-fund’s expenses, not including Artisan’s fee, exceed certain levels, which range from 0.10% to 0.20%. In addition, Artisan may voluntarily waive fees or reimburse any of the Artisan Global Funds for other expenses. The directors of Artisan Global Funds who are affiliated with Artisan receive no compensation from the funds. Accounts receivable included $2.6 million and $1.3 million due from Artisan Global Funds as of June 30, 2015 and December 31, 2014, respectively.

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Fees for managing Artisan Global Funds and amounts reimbursed to Artisan Global Funds by Artisan are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Investment management fees:
 
 
 
 
 
 
 
Artisan Global Funds
$
3,845

 
$
3,628

 
$
7,569

 
$
6,867

Fee waiver / expense reimbursement:
 
 
 
 
 
 
 
Artisan Global Funds
$
181

 
$
88

 
$
244

 
$
170

Affiliate transactions—Launch Equity
Prior to the dissolution described in Note 7, Artisan had an agreement to serve as the investment manager of Launch Equity. Under the terms of Artisan’s agreement with Launch Equity, Artisan earned a quarterly fee based on the value of the closing capital account of each limited partner for the quarter, at the rate of 1.00% (annualized). At Artisan’s discretion, the fee was waived and certain expenses reimbursed to the extent they exceeded a certain level. Artisan waived 100% of the quarterly fee and reimbursed Launch Equity for all operating expenses, and Artisan also waived other expenses as well. Expense reimbursements totaled $55 thousand and $93 thousand for the three and six months ended June 30, 2014.
Affiliate transactions—AIC
Artisan had cost sharing arrangements with entities controlled by Andrew A. Ziegler (a director of APAM and former Artisan employee) and Carlene M. Ziegler (also a former Artisan employee), pursuant to which the Ziegler entities reimbursed Artisan for the costs associated with three employees using Artisan’s office space while they transitioned to new facilities. This transition was completed during June 2014. In addition, Artisan has obtained and paid for insurance policies covering potential liability AIC may incur as the prior general partner of Holdings. At June 30, 2015 and December 31, 2014, no amounts were due from the Ziegler entities related to these transactions.
Note 15. Subsequent Events
Distributions and dividends
On July 23, 2015, the board of directors of APAM declared a distribution by Artisan Partners Holdings of $44.1 million to holders of Artisan Partners Holdings partnership units, including APAM. On the same date, the board declared a quarterly dividend of $0.60 per share of APAM’s Class A common stock. The APAM dividend is payable on August 31, 2015, to shareholders of record as of August 17, 2015.

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. Our operations are conducted through Artisan Partners Holdings and its subsidiaries. We derive essentially all of our revenues from investment management fees. Nearly all our fees are based on a specified percentage of clients’ average assets under our management. We operate our business in a single segment.
We have seven autonomous investment teams that manage fifteen distinct investment strategies. Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates.
Business and financial highlights for the six months ended June 30, 2015 included:

As of June 30, 2015, 96% and 97% of our assets under management were in strategies out-performing their broad-based benchmarks over the trailing 10-year period and since each strategys inception, respectively.
As of June 30, 2015, 8 of our 12 investment strategies that have a 5-year track record have added value relative to their broad-based performance benchmarks over the trailing 5 years. Six of our 8 strategies with a 10-year track record have added value over the trailing 10-year period.
The launch, in late June, of our newest investment strategy, the Artisan Developing World strategy, which is managed by our Developing World team.
Revenues of $415.1 million for the six months ended June 30, 2015, a 1% increase from revenues of $410.3 million for the six months ended June 30, 2014.
Organizational Structure
Organizational Structure
On March 12, 2013, Artisan Partners Asset Management Inc. (“APAM”) and the intermediary holding company through which APAM conducts its operations, Artisan Partners Holdings LP (“Holdings”), completed a series of transactions (“the IPO Reorganization”) to reorganize their capital structures in connection with the initial public offering (“IPO”) of APAM’s Class A common stock. The IPO Reorganization and IPO were completed on March 12, 2013. The IPO Reorganization was designed to create a capital structure that preserves our ability to conduct our business through Holdings, while permitting us to raise additional capital and provide access to liquidity through a public company. The IPO Reorganization is described in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 25, 2015.
Our employees and other limited partners of Holdings held approximately 47% of the equity interests in Holdings as of June 30, 2015. As a result, our post-IPO results reflect that significant noncontrolling interest. As of June 30, 2015, our net income represented approximately 53% of Holdings’ net income.
2015 Offering and Unit Exchanges
On March 9, 2015, we completed an offering of 3,831,550 shares of Class A common stock and utilized all of the proceeds to purchase an aggregate of 3,831,550 common units of Holdings from certain of the limited partners of Holdings. In connection with the offering, APAM received 3,831,550 GP units of Holdings.
During the six months ended June 30, 2015, certain limited partners of Holdings exchanged 659,973 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for 659,973 shares of Class A common stock. In connection with the exchanges, APAM received 659,973 GP units of Holdings.
The aforementioned transactions increased APAM’s ownership interest in Holdings from 47% at December 31, 2014 to 53% at June 30, 2015.
Tax Impact of IPO Reorganization
In connection with the IPO, APAM entered into two tax receivable agreements (“TRAs”). Under the first TRA, APAM generally is required to pay to a private equity fund controlled by Hellman & Friedman LLC 85% of the applicable cash savings, if any, in U.S. federal, state and local income tax that APAM actually realizes (or is deemed to realize in certain circumstance) as a result of (i) the tax attributes of the preferred units APAM acquired in the merger of a wholly-owned subsidiary of the private equity fund into APAM in March 2013, (ii) net operating losses available as a result of the merger and (iii) tax benefits related to imputed interest.
Under the second TRA, APAM generally is required to pay to current or former limited partners of Holdings 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their partnership units sold to APAM or exchanged (for shares of Class A common stock or convertible preferred stock) and that are created as a result of the sales or exchanges and payments under the

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TRAs and (ii) tax benefits related to imputed interest. Under both agreements, APAM generally will retain the benefit of the remaining 15% of the applicable tax savings.
As of June 30, 2015, deferred tax assets of $683.4 million and amounts payable under tax receivable agreements of $599.5 million have been recorded in the Condensed Consolidated Statements of Financial Condition. APAM’s purchase of Holdings common units with the 2015 Follow-On Offering proceeds resulted in an increase to deferred tax assets of approximately $105.1 million and an increase in amounts payable under tax receivable agreements of approximately $89.4 million. The Holdings Unit Exchanges during the six months ended June 30, 2015, resulted in an increase to deferred tax assets and amounts payable under tax receivable agreements of $17.2 million and $14.6 million, respectively. The deferred tax assets and TRA payable also increased by $7.7 million and $6.4 million, respectively, for the six months ended June 30, 2015, due to changes in estimated tax rates during the period.
Financial Overview
Economic Environment
Global equity market conditions can materially affect our financial performance. Equity markets were generally positive during the six months ended June 30, 2015, driving the 3.5% increase in our AUM due to market appreciation during the six months ended June 30, 2015. The following table presents the total returns of relevant market indices for the three and six months ended June 30, 2015 and 2014:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
S&P 500 total returns
0.3
%
 
5.2
%
 
1.2
%
 
7.1
%
MSCI All Country World total returns
0.4
%
 
5.0
%
 
2.7
%
 
6.2
%
MSCI EAFE total returns
0.6
%
 
4.1
%
 
5.5
%
 
4.8
%
Key Performance Indicators
When we review our performance we consider, among other things, the following:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(unaudited; dollars in millions)
Assets under management at period end
$
109,174

 
$
112,041

 
$
109,174

 
$
112,041

Average assets under management (1)
$
111,423

 
$
108,181

 
$
109,932

 
$
107,181

Net client cash flows
$
(305
)
 
$
558

 
$
(2,532
)
 
$
1,971

Total revenues
$
211.5

 
$
208.5

 
$
415.1

 
$
410.3

Weighted average fee (2)
76

 
77

 
76

 
77

Adjusted operating margin (3)
42.1
%
 
46.5
%
 
40.3
%
 
45.8
%
 
 
 
 
 
(1) We compute average assets under management by averaging day-end assets under management for the applicable period.
(2) We compute our weighted average fee by dividing annualized investment management fees by average assets under management for the applicable period.
(3) Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in “Supplemental Non-GAAP Financial Information” below.
Because we earn investment management fees based primarily on the value of the assets we manage across a reporting period, we believe that average assets under management for a period is a better metric for understanding changes in our revenues than period end assets under management.

The weighted average fee represents annualized investment management fees as a percentage of average assets under management for the applicable period. Our weighted average fee for the periods shown has remained relatively consistent. We have historically been disciplined about maintaining our rates of fees. Over time, industry-wide fee pressure could cause us to reduce our fees.


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Table of Contents

Assets Under Management and Investment Performance
Changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management. Changes in the relative composition of our assets under management among our investment strategies and products and the effective fee rates on our products could also impact our operating results, and in some periods the impact could be material.

The amount and composition of our assets under management are, and will continue to be, influenced by a variety of factors including, among others:
investment performance, including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions;
flows of client assets into and out of our various strategies and investment vehicles;
our decision to close strategies or limit the growth of assets in a strategy when we believe it is in the best interest of our clients;
our ability to attract and retain qualified investment, management, and marketing and client service professionals;
competitive conditions in the investment management and broader financial services sectors; and
investor sentiment and confidence.
The table below sets forth changes in our total AUM:
 
For the Three Months Ended June 30,
 
Period-to-Period
 
2015
 
2014
 
$
 
%
 
(unaudited; in millions)
 
 
 
 
Beginning assets under management
$
108,723

 
$
107,397

 
$
1,326

 
1.2
 %
Gross client cash inflows
5,097

 
6,095

 
(998
)
 
(16.4
)%
Gross client cash outflows
(5,402
)
 
(5,537
)
 
135

 
2.4
 %
Net client cash flows
(305
)
 
558

 
(863
)
 
(154.7
)%
Market appreciation (depreciation)
756

 
3,945

 
(3,189
)
 
(80.8
)%
Net transfers (1)

 
141

 
(141
)
 
100.0
 %
Ending assets under management
$
109,174

 
$
112,041

 
$
(2,867
)
 
(2.6
)%
Average assets under management
$
111,423

 
$
108,181

 
$
3,242

 
3.0
 %
(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30,
 
Period-to-Period
 
2015
 
2014
 
$
 
%
 
(unaudited; in millions)
 
 
 
 
Beginning assets under management
$
107,915

 
$
105,477

 
$
2,438

 
2.3
 %
Gross client cash inflows
9,520

 
12,734

 
(3,214
)
 
(25.2
)%
Gross client cash outflows
(12,052
)
 
(10,763
)
 
(1,289
)
 
(12.0
)%
Net client cash flows
(2,532
)
 
1,971

 
(4,503
)
 
(228.5
)%
Market appreciation (depreciation)
3,791

 
4,593

 
(802
)
 
(17.5
)%
Ending assets under management
$
109,174

 
$
112,041

 
$
(2,867
)
 
(2.6
)%
Average assets under management
$
109,932

 
$
107,181

 
$
2,751

 
2.6
 %
(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.



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Table of Contents

For the three months ended June 30, 2015, net client cash outflows were $305 million. Our Non-U.S. Growth and Global Opportunities strategies had net inflows of $1.0 billion and $878 million, respectively. Most of our net outflows in the quarter were from our U.S. mid- and small-cap strategies.
For the three months ended June 30, 2015, our U.S. Mid-Cap Value, U.S. Mid-Cap Growth, U.S. Small-Cap Growth, and U.S. Small-Cap Value strategies, all of which are closed to most new clients and investors, experienced net client cash outflows of $1.2 billion, $635 million, $350 million, and $237 million, respectively.
For the six months ended June 30, 2015, our U.S. Mid-Cap Value and U.S. Small-Cap Value strategies have experienced net client cash outflows of $2.3 billion and $1.1 billion, respectively. Those strategies have underperformed their benchmarks over the trailing 1-, 3- and 5-year periods. If they continue to underperform their benchmarks and client trends continue, we expect they will continue to experience net outflows.
During the six months ended June 30, 2015, our Non-U.S. Growth and Global Opportunities strategies have experienced net client cash inflows of $2.0 billion and $1.0 billion, respectively. While our past inflow experience does not guarantee future activity, if those strategies continue to perform well relative to their benchmarks and global and international strategies remain in demand, we expect that those strategies will continue to gather assets.

We monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies. When appropriate, we will close a strategy to new investors or otherwise take action to slow or restrict its growth, even though our aggregate AUM may be negatively impacted in the short term. We may also re-open a strategy, widely or selectively, to fill available capacity or manage the diversification of our client base in that strategy. We believe that management of our investment capacity protects our ability to manage assets successfully, which protects the interests of our clients and, in the long term, protects our ability to retain client assets and maintain our profit margins.

As of the date of this filing, our Non-U.S. Small-Cap Growth, Non-U.S. Value, U.S. Mid-Cap Growth, U.S. Small-Cap Value, U.S. Mid-Cap Value, U.S. Small-Cap Growth and Global Value strategies are closed to most new investors and client relationships.

When we close a strategy, we typically continue to allow additional investments in the strategy by existing clients and certain related entities, which means that during a given period we could have net client cash inflows even in a closed strategy. However, when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows.

We believe that growth in AUM in an investment strategy requires the availability of attractive investment opportunities relative to the amount of AUM in the strategy at a time when the strategy has a competitive performance track record and there is stable or growing client demand for the strategy or asset class. When we believe that each of these factors is present with respect to an investment strategy, we say we have “realizable capacity” in that strategy. We believe that we currently have realizable capacity particularly in our Non-U.S. Growth, Global Equity, and Global Opportunities strategies, where we believe we are well-positioned to take advantage of increasing client and investor demand. Additionally, our High Income strategy continues to perform well and experience positive inflows, despite having a short-term track record. We have also seen strong initial interest in our Developing World strategy, which launched at the end of June 2015.

We discuss realizable capacity in general, rather than discussing the capacity of our strategies in precise dollar amounts, because capacity is affected by a number of factors, evolves over time, and is subject to change. We are confident that we have sufficient realizable capacity to continue to thoughtfully grow.

Historically, we have observed that client activity (whether inflows or outflows) tends to be higher in the first and fourth quarters of the calendar year, and lower in the second and third quarters. However, there can be no guarantee that past experience will be indicative of future activity. The “lumpiness” of such activity may make it difficult to recognize trends over short-term periods.

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Table of Contents

The table below sets forth the total AUM for each of our investment teams and strategies as of June 30, 2015, the inception date for each investment composite, and the average annual total returns for each strategy and its respective broad-based benchmark over a multi-horizon time period as of June 30, 2015.
 
 
 
 
 
 
 
 
 
 
 
Average Annual
Value-Added1
Since Inception
(bps)
 
Inception
 
Strategy AUM
 
Average Annual Total Returns (%)
 
Investment Team and Strategy
Date
 
 (in $MM)
 
1 YR
3 YR
5 YR
10 YR
Inception
 
Global Equity Team
 
 
 
 
 
Non-U.S. Growth Strategy
1/1/1996
 
$
32,348

 
0.43%
15.03%
14.29%
8.95%
11.26%
 
639
MSCI EAFE Index
 
 
 
 
(4.22)%
11.97%
9.53%
5.12%
4.87%
 
 
Non-U.S. Small-Cap Growth Strategy
1/1/2002
 
$
1,372

 
(1.89)%
17.08%
14.96%
11.68%
15.09%
 
459
MSCI EAFE Small Cap Index
 
 
 
 
(0.77)%
15.69%
12.39%
6.59%
10.50%
 
 
Global Equity Strategy
4/1/2010
 
$
762

 
10.57%
20.32%
18.65%
N/A
15.09%
 
647
MSCI All Country World Index
 
 
 
 
0.71%
13.01%
11.92%
N/A
8.62%
 
 
Global Small-Cap Growth Strategy
7/1/2013
 
$
143

 
(1.52)%
N/A
N/A
N/A
11.01%
 
(205)
MSCI All Country World Small Cap Index
 
 
 
 
1.48%
N/A
N/A
N/A
13.06%
 
 
U.S. Value Team
 
 
 
 
 
 
 
 
 
 
 
U.S. Mid-Cap Value Strategy
4/1/1999
 
$
11,532

 
(1.58)%
15.65%
16.01%
9.92%
14.04%
 
455
Russell Midcap® Index
 
 
 
 
6.63%
19.26%
18.22%
9.39%
9.49%
 
 
Russell Midcap® Value Index
 
 
 
 
3.67%
19.13%
17.72%
8.88%
10.12%
 
 
U.S. Small-Cap Value Strategy
6/1/1997
 
$
1,297

 
(9.00)%
7.44%
9.20%
7.20%
11.56%
 
334
Russell 2000® Index
 
 
 
 
6.49%
17.81%
17.07%
8.40%
8.21%
 
 
Russell 2000® Value Index
 
 
 
 
0.78%
15.50%
14.80%
6.87%
9.09%
 
 
Value Equity Strategy
7/1/2005
 
$
2,060

 
(2.27)%
13.51%
14.69%
7.88%
7.88%
 
(24)
Russell 1000® Index
 
 
 
 
7.37%
17.73%
17.57%
8.13%
8.13%
 
 
Russell 1000® Value Index
 
 
 
 
4.13%
17.34%
16.49%
7.04%
7.04%
 
 
Growth Team
 
 
 
 
 
 
 
 
 
 
 
U.S. Mid-Cap Growth Strategy
4/1/1997
 
$
16,552

 
10.25%
19.36%
20.74%
12.47%
16.18%
 
564
Russell Midcap® Index
 
 
 
 
6.63%
19.26%
18.22%
9.39%
10.54%
 
 
Russell Midcap® Growth Index
 
 
 
 
9.45%
19.24%
18.68%
9.68%
9.10%
 
 
U.S. Small-Cap Growth Strategy
4/1/1995
 
$
2,493

 
15.15%
19.54%
21.59%
9.84%
10.67%
 
116
Russell 2000® Index
 
 
 
 
6.49%
17.81%
17.07%
8.40%
9.51%
 
 
Russell 2000® Growth Index
 
 
 
 
12.34%
20.11%
19.31%
9.85%
7.88%
 
 
Global Opportunities Strategy
2/1/2007
 
$
6,661

 
9.14%
17.82%
19.36%
N/A
10.15%
 
635
MSCI All Country World Index
 
 
 
 
0.71%
13.01%
11.92%
N/A
3.81%
 
 
Global Value Team
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. Value Strategy
7/1/2002
 
$
17,588

 
(1.40)%
17.78%
15.61%
11.19%
13.63%
 
695
MSCI EAFE Index
 
 
 
 
(4.22)%
11.97%
9.53%
5.12%
6.68%
 
 
Global Value Strategy
7/1/2007
 
$
15,007

 
1.03%
17.52%
17.26%
N/A
8.57%
 
566
MSCI All Country World Index
 
 
 
 
0.71%
13.01%
11.92%
N/A
2.92%
 
 
Emerging Markets Team
 
 
 
 
 
 
 
 
 
 
 
Emerging Markets Strategy
7/1/2006
 
$
623

 
(5.63)%
2.83%
0.98%
N/A
4.51%
 
(93)
MSCI Emerging Markets Index
 
 
 
 
(5.12)%
3.71%
3.68%
N/A
5.43%
 
 
Credit Team
 
 
 
 
 
 
 
 
 
 
 
High Income Strategy
4/1/2014
 
$
726

 
4.57%
N/A
N/A
N/A
5.78%
 
418
BofA Merrill Lynch High Yield Master II Index
 
 
 
 
(0.55)%
N/A
N/A
N/A
1.60%
 
 
Developing World Team
 
 
 
 
 
 
 
 
 
 
 
Developing World Strategy 2
7/1/2015
 
$
10

 
N/A
N/A
N/A
N/A
N/A
 
N/A
MSCI Emerging Markets Index
 
 
 
 
(5.12)%
3.71%
3.68%
N/A
5.43%
 
 
Total Assets Under Management
 
 
$
109,174

 
 
 
 
 
 
 
 
(1) Value-added is the amount in basis points by which the average annual gross composite return of each of our strategies has outperformed the broad-based market index most commonly used by our clients to compare the performance of the relevant strategy. Value-added for periods less than one year is not annualized. The Artisan High Income strategy may hold loans and other security types that may not be included in the BofA Merrill Lynch High Yield Master II Index. At times, this can cause material differences in relative performance.
(2) Developing World Strategy’s composite inception date is July 1, 2015 for the purposes of calculating strategy performance. The strategy began investment operations on June 29, 2015.

24

Table of Contents

The tables below set forth changes in our AUM by investment team:
 
 
By Investment Team
Three Months Ended
 
Global Equity
U.S. Value
Growth
Global Value
Emerging Markets
Credit
Developing World
Total
June 30, 2015
 
(unaudited; in millions)
Beginning assets under management
 
$
33,601

$
16,243

$
25,064

$
32,512

$
629

$
674

$

$
108,723

Gross client cash inflows
 
1,932

865

1,459

731

1

99

10

5,097

Gross client cash outflows
 
(889
)
(1,992
)
(1,566
)
(890
)
(11
)
(54
)

(5,402
)
Net client cash flows
 
1,043

(1,127
)
(107
)
(159
)
(10
)
45

10

(305
)
Market appreciation (depreciation)
 
(19
)
(227
)
749

242

4

7


756

Net transfers(1)
 









Ending assets under management
 
$
34,625

$
14,889

$
25,706

$
32,595

$
623

$
726

$
10

$
109,174

Average assets under management(2)
 
$
34,995

$
15,951

$
25,824

$
33,295

$
659

$
699

$
10

$
111,423

June 30, 2014
 
 
 
 
 
 
 
 
 
Beginning assets under management
 
$
28,604

$
22,051

$
23,344

$
31,995

$
1,327

$
76

$

$
107,397

Gross client cash inflows
 
2,498

775

1,617

968

3

234


6,095

Gross client cash outflows
 
(1,298
)
(1,881
)
(1,461
)
(729
)
(163
)
(5
)

(5,537
)
Net client cash flows
 
1,200

(1,106
)
156

239

(160
)
229


558

Market appreciation (depreciation)
 
1,496

604

(12
)
1,781

70

6


3,945

Net transfers
 


47

94




141

Ending assets under management
 
$
31,300

$
21,549

$
23,535

$
34,109

$
1,237

$
311

$

$
112,041

Average assets under management
 
$
29,798

$
21,428

$
22,279

$
33,135

$
1,316

$
225

$

$
108,181

(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.
(2) For the Developing World team, average assets under management is for the period between June 29, 2015, when the team’s strategy began investment operations, and June 30, 2015.
 
 
By Investment Team
Six Months Ended
 
Global Equity
U.S. Value
Growth
Global Value
Emerging Markets
Credit
Developing World
Total
June 30, 2015
 
(unaudited; in millions)
Beginning assets under management
 
$
31,452

$
18,112

$
24,499

$
32,481

$
806

$
565

$

$
107,915

Gross client cash inflows
 
4,169

1,310

2,348

1,450

4

229

10

9,520

Gross client cash outflows
 
(2,195
)
(4,578
)
(2,857
)
(2,133
)
(196
)
(93
)

(12,052
)
Net client cash flows
 
1,974

(3,268
)
(509
)
(683
)
(192
)
136

10

(2,532
)
Market appreciation (depreciation)
 
1,199

45

1,716

797

9

25


3,791

Net transfers (1)
 








Ending assets under management
 
$
34,625

$
14,889

$
25,706

$
32,595

$
623

$
726

$
10

$
109,174

Average assets under management(2)
 
$
33,814

$
16,602

$
25,283

$
32,873

$
704

$
655

$
10

$
109,932

June 30, 2014
 
 
 
 
 
 
 
 
 
Beginning assets under management
 
$
27,317

$
23,024

$
22,433

$
30,957

$
1,746

$

$

$
105,477

Gross client cash inflows
 
5,120

1,625

3,006

2,656

17

310


12,734

Gross client cash outflows
 
(2,277
)
(4,044
)
(2,358
)
(1,524
)
(555
)
(5
)

(10,763
)
Net client cash flows
 
2,843

(2,419
)
648

1,132

(538
)
305


1,971

Market appreciation (depreciation)
 
1,140

944

407

2,067

29

6


4,593

Net transfers
 


47

(47
)




Ending assets under management
 
$
31,300

$
21,549

$
23,535

$
34,109

$
1,237

$
311

$

$
112,041

Average assets under management
 
$
28,763

$
21,905

$
22,779

$
32,227

$
1,390

$
206

$

$
107,181

(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.
(2) For the Developing World team, average assets under management is for the period between June 29, 2015, when the team’s strategy began investment operations, and June 30, 2015.


25

Table of Contents

The goal of our marketing, distribution and client services efforts is to establish and maintain a client base that is diversified by investment strategy, investment vehicle and distribution channel. As distribution channels have evolved to have more institutional-like decision making processes and longer-term investment horizons, we have expanded our distribution efforts into those areas.
The table below sets forth our AUM by distribution channel:
 
As of June 30, 2015(1)
 
As of June 30, 2014(1)
 
$ in millions
 
% of total
 
$ in millions
 
% of total
 
(unaudited)
 
 
 
(unaudited)
 
 
Institutional
68,852

 
63.1
%
 
69,000

 
61.6
%
Intermediary
34,233

 
31.3
%
 
36,324

 
32.4
%
Retail
6,089

 
5.6
%
 
6,717

 
6.0
%
Ending Assets Under Management
$
109,174

 
100.0
%
 
$
112,041

 
100.0
%
(1) The allocation of AUM by distribution channel data involves the use of estimates and the exercise of judgment.
The following tables set forth the changes in our AUM for Artisan Funds, Artisan Global Funds and separate accounts:
Three Months Ended
Artisan Funds & Artisan Global Funds
 
Separate Accounts
 
Total
June 30, 2015
(unaudited; in millions)
Beginning assets under management
$
60,649

 
$
48,074

 
$
108,723

Gross client cash inflows
3,289

 
1,808

 
5,097

Gross client cash outflows
(3,888
)
 
(1,514
)
 
(5,402
)
Net client cash flows
(599
)
 
294

 
(305
)
Market appreciation (depreciation)
272

 
484

 
756

Net transfers (1)
(51
)
 
51

 

Ending assets under management
$
60,271

 
$
48,903

 
$
109,174

Average assets under management
$
61,761

 
$
49,662

 
$
111,423

June 30, 2014
 
 
 
 
 
Beginning assets under management
$
62,475

 
$
44,922

 
$
107,397

Gross client cash inflows
3,773

 
2,322

 
6,095

Gross client cash outflows
(3,470
)
 
(2,067
)
 
(5,537
)
Net client cash flows
303

 
255

 
558

Market appreciation (depreciation)
2,217

 
1,728

 
3,945

Net transfers (1)
(179
)
 
320

 
141

Ending assets under management
$
64,816

 
$
47,225

 
$
112,041

Average assets under management
$
62,736

 
$
45,445

 
$
108,181

(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.

26

Table of Contents

Six Months Ended
Artisan Funds & Artisan Global Funds
 
Separate Accounts
 
Total
June 30, 2015
(unaudited; in millions)
Beginning assets under management
$
60,257

 
$
47,658

 
$
107,915

Gross client cash inflows
6,997

 
2,523

 
9,520

Gross client cash outflows
(8,849
)
 
(3,203
)
 
(12,052
)
Net client cash flows
(1,852
)
 
(680
)
 
(2,532
)
Market appreciation (depreciation)
2,070

 
1,721

 
3,791

Net transfers (1)
(204
)
 
204

 

Ending assets under management
$
60,271

 
$
48,903

 
$
109,174

Average assets under management
$
61,025

 
$
48,907

 
$
109,932

June 30, 2014
 
 
 
 
 
Beginning assets under management
$
59,881

 
$
45,596

 
$
105,477

Gross client cash inflows
9,276

 
3,458

 
12,734

Gross client cash outflows
(6,649
)
 
(4,114
)
 
(10,763
)
Net client cash flows
2,627

 
(656
)
 
1,971

Market appreciation (depreciation)
2,522

 
2,071

 
4,593

Net transfers (1)
(214
)
 
214

 

Ending assets under management
$
64,816

 
$
47,225

 
$
112,041

Average assets under management
$
61,750

 
$
45,431

 
$
107,181

(1) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy, investment vehicle, or account and into another strategy, vehicle, or account.



27

Table of Contents

Results of Operations
Three months ended June 30, 2015, Compared to Three months ended June 30, 2014
 
For the Three Months Ended June 30,
 
For the Period-to-Period
 
2015
 
2014
 
$
 
%
Statements of operations data:
(unaudited; in millions, except per share data)
Revenues
$
211.5

 
$
208.5

 
$
3.0

 
1
 %
Operating Expenses
 
 
 
 
 
 
 
Total compensation and benefits
104.4

 
101.5

 
2.9

 
3
 %
Other operating expenses
28.8

 
26.2

 
2.6

 
10
 %
Total operating expenses
133.2

 
127.7

 
5.5

 
4
 %
Total operating income
78.3

 
80.8

 
(2.5
)
 
(3
)%
Non-operating income (loss)
 
 
 
 
 
 
 
Interest expense
(2.9
)
 
(2.9
)
 

 
 %
Other non-operating income
0.4

 
(5.4
)
 
5.8

 
107
 %
Total non-operating income (loss)
(2.5
)
 
(8.3
)
 
5.8

 
70
 %
Income before income taxes
75.8

 
72.5

 
3.3

 
5
 %
Provision for income taxes
16.5

 
8.6

 
7.9

 
92
 %
Net income before noncontrolling interests
59.3

 
63.9

 
(4.6
)
 
(7
)%
Less: Noncontrolling interests - Artisan Partners Holdings
35.5

 
45.5

 
(10.0
)
 
(22
)%
Less: Noncontrolling interests - Launch Equity

 
(0.9
)
 
0.9

 
100
 %
Net income attributable to Artisan Partners Asset Management Inc.
$
23.8

 
$
19.3

 
$
4.5

 
23
 %
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
Net income available to Class A common stock per basic and diluted share
$
0.50

 
$
0.42

 
 
 
 
Weighted average shares of Class A common stock outstanding
35,992,493

 
27,836,427

 
 
 
 
Revenues
Essentially all of our revenues consist of investment management fees earned from managing clients’ assets. Our investment management fees fluctuate based on a number of factors, including the total value of our AUM, the composition of AUM among our investment vehicles (including pooled vehicles available to U.S. investors, pooled vehicles available to non-U.S. investors and separate accounts) and our investment strategies (which have different fee rates), changes in the investment management fee rates on our products, the extent to which we enter into fee arrangements that differ from our standard fee schedules, which can be affected by custom and the competitive landscape in the relevant market, and for the few accounts on which we earn performance-based fees, the investment performance of those accounts relative to their designated benchmarks.
The increase in revenues of $3.0 million, or 1%, for the three months ended June 30, 2015, compared to the three months ended June 30, 2014, was driven primarily by a $3.2 billion, or 3%, increase in our average AUM.
Our weighted average investment management fee was 76 basis points for the three months ended June 30, 2015, compared to 77 for the three months ended June 30, 2014. Separate accounts, including U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise, in the aggregate paid a weighted average fee of 56 basis points and 55 basis points for the three months ended June 30, 2015 and 2014 , respectively. These assets represented 45% and 42% of our total AUM as of June 30, 2015 and 2014, respectively. Taken together, the assets of Artisan Funds and Artisan Global Funds, to which we provide services in addition to the services we provide to separate account clients, paid a weighted average fee of 93 basis points for the three months ended June 30, 2015 and 2014. These assets represented 55% and 58% of our AUM as of June 30, 2015 and 2014, respectively.

28

Table of Contents

For the three months ended June 30, 2015 and 2014, fees from separate accounts, including U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise, represented $68.9 million and $62.7 million of our revenues, respectively.
For the three months ended June 30, 2015 and 2014, fees from Artisan Funds represented $138.8 million and $142.2 million of our revenues, respectively, and fees from Artisan Global Funds represented $3.8 million and $3.6 million of our revenues, respectively.
Operating Expenses
The increase in total operating expenses of $5.5 million for the three months ended June 30, 2015, compared to the three months ended June 30, 2014, was primarily due to increased restricted share-based compensation expense and increased salary and incentive compensation. The increase was partially offset by a decrease in pre-offering related compensation expense.
Compensation and Benefits
 
For the Three Months Ended June 30,
 
Period-to-Period
 
2015
 
2014
 
$
 
%
 
(unaudited; in millions)
 
 
Salaries, incentive compensation and benefits (1)
$
84.6

 
$
81.1

 
$
3.5

 
4
 %
Restricted share-based award compensation expense
9.1

 
4.2

 
4.9

 
117
 %
Total salaries, incentive compensation and benefits
93.7

 
85.3

 
8.4

 
10
 %
Amortization expense on pre-offering Class B awards
10.7

 
16.2

 
(5.5
)
 
(34
)%
Pre-offering related compensation - share-based awards
10.7

 
16.2

 
(5.5
)
 
(34
)%
Total compensation and benefits
$
104.4

 
$
101.5

 
$
2.9

 
3
 %
(1) Excluding restricted share-based award compensation expense
 
 
 
 
 
 
 
The increase in salaries, incentive compensation, and benefits was driven primarily by incentive compensation expense for our investment and marketing professionals. The portion of cash incentive compensation directly linked to our revenues increased by $1.7 million as a result of higher investment management fee revenue. The remaining increase is primarily due to an increase in the number of employees.
Restricted share-based compensation expense was $9.1 million and $4.2 million for the three months ended June 30, 2015 and 2014, respectively. The increase resulted from the grant of awards in January 2015 and July 2014.
Amortization expense on pre-offering Class B awards decreased $5.5 million, as certain awards became fully vested during 2014 and 2015.
Total salaries, incentive compensation and benefits was 44% and 41% of our revenues for the three months ended June 30, 2015, and 2014, respectively.
Other operating expenses
Other operating expenses increased $2.6 million for the three months ended June 30, 2015, compared to the three months ended June 30, 2014. The overall increase includes a $0.9 million increase in communication and technology expenses as a result of an increase in information subscriptions and consulting expense related to firm initiatives. We expect to continue to invest in technology to support our investment teams, distribution efforts, and scalable operations.
Also included is approximately $1.4 million of additional distribution expenses resulting from the July 2014 change to the allocation of fees paid to intermediaries by Artisan Funds and us. That increase was partially offset by a $0.6 million reduction in intermediary fees resulting from the launch of the Advisor Share class for certain series of Artisan Funds. The amount we and Artisan Funds pay to intermediaries for distribution and administrative services with respect to Advisor Shares is less than the amount paid with respect to Investor Shares. The transfer in assets from Investor Shares to Advisor Shares reduced our intermediary fees by $0.6 million for the three months ended June 30, 2015. Based on the amount of assets that has transferred to date, we expect to realize annualized savings of approximately $3.5 million.


29

Table of Contents

Non-Operating Income (Loss)
Non-operating income (loss) for the three months ended June 30, 2015, includes $0.4 million of realized gains on the sale of investment securities.

Non-operating income (loss) for the three months ended June 30, 2014, includes $4.5 million of expense resulting from the change in our estimate of the payment obligation under the tax receivable agreements. The effect of changes in that estimate after the date of an exchange or sale that triggers a potential future payment under the agreements is included in net income. Similarly, the effect on the estimate of changes in enacted tax rates and in applicable tax laws are included in net income.
Non-operating income (loss) for the three months ended June 30, 2014 also includes $0.9 million net loss of Launch Equity, which represents net realized and unrealized losses of the underlying assets of Launch Equity. Nearly all losses were allocable to, and were offset by, net income (loss) attributable to noncontrolling interests - Launch Equity. In December 2014, we dissolved Launch Equity LP.
Provision for Income Taxes
The provision for income taxes represents APAM’s U.S. federal and state income tax on its allocable portion of the income of Holdings. APAM’s effective income tax rate for the three months ended June 30, 2015 and 2014, was 21.8% and 11.9%, respectively. Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 50% and 61% of Holdings’ earnings were not subject to corporate-level taxes for the three months ended June 30, 2015 and 2014, respectively. Income before income taxes includes amounts that are passed through to limited partners of Holdings and not taxable to Holdings and its subsidiaries, which reduces the effective tax rate. This favorable impact is partially offset by the impact of certain permanent items, primarily attributable to pre-IPO share-based compensation expenses that are not deductible for tax purposes. These factors are expected to continue to impact the effective tax rate for future years, although as our ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes. Included in the tax provision for the three months ended June 30, 2014, is a discrete tax benefit of $4.5 million related to a change in estimate associated with our deferred tax assets.
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding were higher for the three months ended June 30, 2015, compared to the three months ended June 30, 2014, as a result of stock offerings, unit exchanges, and equity award grants. See Note 12, “Earnings (Loss) Per Share” in the Notes to the Unaudited Consolidated Financial Statements for further discussion of earnings per share.

30

Table of Contents

Six months ended June 30, 2015, Compared to Six months ended June 30, 2014
 
For the Six Months Ended June 30,
 
For the Period-to-Period
 
2015
 
2014
 
$
 
%
Statements of operations data:
(unaudited; in millions, except per share data)
Revenues
$
415.1

 
$
410.3

 
$
4.8

 
1
 %
Operating Expenses
 
 
 
 
 
 
 
Total compensation and benefits
213.2

 
211.0

 
$
2.2

 
1
 %
Other operating expenses
55.8

 
51.3

 
$
4.5

 
9
 %
Total operating expenses
269.0

 
262.3

 
$
6.7

 
3
 %
Total operating income
146.1

 
148.0

 
$
(1.9
)
 
(1
)%
Non-operating income (loss)
 
 
 
 
 
 
 
Interest expense
(5.8
)
 
(5.8
)
 
$

 
 %
Other non-operating income
(6.0
)
 
(6.3
)
 
$
0.3

 
5
 %
Total non-operating income (loss)
(11.8
)
 
(12.1
)
 
$
0.3

 
2
 %
Income before income taxes
134.3

 
135.9

 
$
(1.6
)
 
(1
)%
Provision for income taxes
21.6

 
19.8

 
$
1.8

 
9
 %
Net income before noncontrolling interests
112.7

 
116.1

 
(3.4
)
 
(3
)%
Less: Noncontrolling interests - Artisan Partners Holdings
69.4

 
89.7

 
(20.3
)
 
(23
)%
Less: Noncontrolling interests - Launch Equity

 
(1.5
)
 
1.5

 
100
 %
Net income attributable to Artisan Partners Asset Management Inc.
$
43.3

 
$
27.9

 
$
15.4

 
55
 %
 
 
 
 
 
 
 
 
Per Share Data
 
 
 
 
 
 
 
Net income (loss) available to Class A common stock per basic and diluted share
$
0.95

 
$
(1.64
)
 
 
 
 
Weighted average shares of Class A common stock outstanding
34,322,266

 
24,046,390

 
 
 
 
Revenues
The increase in revenues of $4.8 million, or 1%, for the six months ended June 30, 2015, compared to the six months ended June 30, 2014, was driven primarily by a $2.8 billion, or 3%, increase in our average AUM.
Our weighted average investment management fee was 76 basis points for the six months ended June 30, 2015, compared to 77 basis points for the six months ended June 30, 2014. Separate accounts, including U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise, in the aggregate paid a weighted average fee of 55 basis points for the six months ended June 30, 2015 and 2014. Artisan Funds and Artisan Global Funds, to which we provide services in addition to the services we provide to separate account clients, paid in the aggregate a weighted average fee of 93 basis points for the six months ended June 30, 2015 and 2014.
For the six months ended June 30, 2015 and 2014, fees from separate accounts, including U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise, represented $134.4 million and $124.7 million of our revenues, respectively. For the six months ended June 30, 2015 and 2014, fees from Artisan Funds represented $273.2 million and $278.8 million of our revenues, respectively, and fees from Artisan Global Funds represented $7.5 million and $6.8 million of our revenues, respectively.
Operating Expenses
The increase in total operating expenses of $6.7 million for the six months ended June 30, 2015, compared to the six months ended June 30, 2014, was due to costs associated with the formation of our seventh investment team, increased restricted share-based compensation expense, and smaller increases in other expense line items. We incurred $6.5 million of start-up costs related to the Developing World team in the first quarter of 2015. The increased expenses were partially offset by a decrease in pre-offering related compensation expense.

31

Table of Contents

Compensation and Benefits
 
For the Six Months Ended June 30,
 
Period-to-Period
 
2015
 
2014
 
$
 
%
 
(unaudited; in millions)
 
 
Salaries, incentive compensation and benefits (1)
$
174.5

 
$
162.7

 
11.8

 
7
 %
Restricted share-based award compensation expense
17.6

 
8.5

 
9.1

 
107
 %
Total salaries, incentive compensation and benefits
192.1

 
171.2

 
20.9

 
12
 %
Amortization expense on pre-offering Class B awards
21.1

 
39.8

 
(18.7
)
 
(47
)%
Pre-offering related compensation - share-based awards
21.1

 
39.8

 
(18.7
)
 
(47
)%
Total compensation and benefits
$
213.2

 
$
211.0

 
$
2.2

 
1
 %
(1) Excluding share-based compensation
 
 
 
 
 
 
 
The increase in salaries, incentive compensation, and benefits was driven primarily by $6.0 million of the start-up costs discussed above, and increased incentive compensation expense for our investment and marketing professionals. The portion of cash incentive compensation directly linked to our revenues increased by $1.3 million as a result of higher investment management fee revenue. The remaining increase is primarily due to an increase in the number of employees.
Restricted share-based compensation expense was $17.6 million and $8.5 million for the six months ended June 30, 2015 and 2014, respectively. The increase resulted from grants of awards in January 2015 and July 2014. We expect restricted share-based award compensation expense to continue to increase as we make additional equity awards each year. The ultimate size of the expense will depend primarily on the number of awards granted and our stock price.
We grant equity awards to our employees pursuant to the Artisan Partners Asset Management Inc. 2013 Omnibus Incentive Compensation Plan. During the six months ended June 30, 2015, we granted 642,950 restricted share-based awards to our employees. A portion of these awards will vest pro rata in the first fiscal quarter of each of the next five years. The remaining awards are career awards that will vest only upon a qualifying retirement (as defined in the award agreements). Total compensation expense associated with the 2015 awards is expected to be approximately $30.5 million, which is being recognized on a straight-line basis over the requisite service period.
Amortization expense on pre-offering Class B awards decreased $18.7 million, as certain awards became fully vested during 2015 and 2014.
Total salaries, incentive compensation and benefits was 46% and 42% of our revenues for the six months ended June 30, 2015, and 2014, respectively.
Other operating expenses
Other operating expenses increased $4.5 million, or 9% for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to a $1.6 million increase in communication and technology expenses as a result of an increase in information subscriptions and consulting expense related to firm initiatives. Included in other operating expenses was approximately $2.4 million of additional distribution expenses related to the July 2014 change to the allocation of fees paid to intermediaries by Artisan Funds and us as discussed above. The increase was partially offset by a $0.6 million reduction in intermediary fees resulting from the launch of the Advisor Share class also discussed above.
Non-Operating Income (Loss)
Non-operating income (loss) for the six months ended June 30, 2015, includes $0.4 million of realized gains on the sale of investment securities.

Non-operating income (loss) for the six months ended June 30, 2015 and 2014, includes $6.4 million and $4.5 million, respectively, of expense resulting from changes in the estimate of the payment obligation under the tax receivable agreements. The effect of changes in that estimate after the date of an exchange or sale that triggers a potential future payment under the agreements is included in net income. Similarly, the effect on the estimate of changes in enacted tax rates and in applicable tax laws are included in net income.
Non-operating income (loss) for the six months ended June 30, 2014 also includes $1.5 million net loss of Launch Equity, which represents net realized and unrealized losses of the underlying assets of Launch Equity. Nearly all losses were allocable to, and were offset by, net income (loss) attributable to noncontrolling interests - Launch Equity. In December 2014, we dissolved Launch Equity LP.

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Table of Contents

Provision for Income Taxes
The provision for income taxes represents APAM’s U.S. federal and state income tax on its allocable portion of the income of Holdings. APAM’s effective income tax rate for the six months ended June 30, 2015 and 2014, was 16.1% and 14.6%, respectively. Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 50% and 61% of Holdings’ earnings were not subject to corporate-level taxes for the six months ended June 30, 2015 and 2014, respectively. Income before income taxes includes amounts that are passed through to limited partners of Holdings and not taxable to Holdings and its subsidiaries, which reduces the effective tax rate. This favorable impact is partially offset by the impact of certain permanent items, primarily attributable to pre-IPO share-based compensation expenses that are not deductible for tax purposes. These factors are expected to continue to impact the effective tax rate for future years, although as our ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes. Included in the tax provision for the six months ended June 30, 2015 and 2014, are discrete tax benefits of $7.7 million and $4.5 million, respectively, related to changes in estimates associated with our deferred tax assets.
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding were higher for the six months ended June 30, 2015, compared to the six months ended June 30, 2014, as a result of stock offerings, unit exchanges, and equity award grants. Basic and diluted earnings per share were negatively impacted in the six months ended June 30, 2014, by our purchase of our preferred securities because the purchase price was greater than the equity carrying value. See Note 12, “Earnings (Loss) Per Share” in the Notes to the Unaudited Consolidated Financial Statements for further discussion of earnings per share.


33

Table of Contents

Supplemental Non-GAAP Financial Information
Our management uses non-GAAP measures (referred to as “adjusted” measures) of net income and operating income to evaluate the profitability and efficiency of the underlying operations of our business and as a factor when considering net income available for distributions and dividends. These adjusted measures remove the impact of (1) pre-offering related compensation, (2) offering related proxy expense and (3) net gain (loss) on the tax receivable agreements. These adjustments also remove the non-operational complexities of our structure by adding back non-controlling interests and assuming all income of Artisan Partners Holdings is allocated to us. Management believes these non-GAAP measures provide more meaningful information to analyze our profitability and efficiency between periods and over time. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to manage the company.
Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. Our non-GAAP measures are as follows:
Adjusted net income represents net income excluding the impact of (1) pre-offering related compensation, (2) offering related proxy expense, and (3) net gain (loss) on the tax receivable agreements. Adjusted net income also reflects income taxes assuming the vesting of all unvested share-based awards of Class A common stock and as if all outstanding limited partnership units of Artisan Partners Holdings and all shares of the Company’s convertible preferred stock had been exchanged for or converted into Class A common stock of the Company on a one-for-one basis. Assuming full vesting, exchange and conversion, all income of Artisan Partners Holdings is treated as if it were allocated to the Company, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting assumed federal, state, and local income taxes. The estimated adjusted effective tax rate was 37.0% and 36.2% for the 2015 and 2014 periods, respectively.
Adjusted net income per adjusted share is calculated by dividing adjusted net income by adjusted shares. The number of adjusted shares is derived by assuming the vesting of all unvested share-based awards of Class A common stock, the exchange of all outstanding limited partnership units of Artisan Partners Holdings and the conversion of all outstanding shares of the Company’s convertible preferred stock for or into Class A common stock of the Company on a one-for-one basis.
Adjusted operating income represents the operating income of the consolidated company excluding offering related proxy expense and pre-offering related compensation.
Adjusted operating margin is calculated by dividing adjusted operating income by total revenues.
Adjusted EBITDA represents income before income taxes, interest expense and depreciation and amortization, adjusted to exclude the impact of net income attributable to non-controlling interests, offering related proxy expense, pre-offering related compensation and net gain (loss) on the tax receivable agreements.

Pre-offering related compensation includes the amortization of unvested Class B common units of Artisan Partners Holdings that were granted before our initial public offering, which closed on March 12, 2013.

Offering related proxy expense represents costs incurred as a result of the change of control (for purposes of the Investment Company Act and Investment Advisers Act) which occurred on March 12, 2014. We incurred costs through the first quarter of 2014 to solicit the necessary approvals and consents from the boards and shareholders of the mutual funds that we advise or sub-advise and from our separate accounts clients, which were necessary because of the change of control.

Net gain (loss) on tax receivable agreements represents the income or expense associated with the valuation of amounts payable under the tax receivable agreements entered into in connection with the Company’s initial public offering and related reorganization.


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The following table sets forth, for the periods indicated, a reconciliation from GAAP financial measures to non-GAAP measures:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(unaudited; in millions, except per share data)
Reconciliation of non-GAAP financial measures:
 
 
 
 
 
 
 
Net income attributable to Artisan Partners Asset Management Inc. (GAAP)
$
23.8

 
$
19.3

 
$
43.3

 
$
27.9

Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings
35.5

 
45.5

 
69.4

 
89.7

Add back: Provision for income taxes
16.5

 
8.6

 
21.6

 
19.8

Add back: Pre-offering related compensation - share-based awards
10.7

 
16.2

 
21.1

 
39.8

Add back: Offering related proxy expense

 

 

 
0.1

Add back: Net (gain) loss on the tax receivable agreements

 
4.5

 
6.4

 
4.5

Less: Adjusted provision for income taxes
32.1

 
34.1

 
59.9

 
65.8

Adjusted net income (Non-GAAP)
$
54.4

 
$
60.0

 
$
101.9

 
$
116.0

 
 
 
 
 
 
 
 
Average shares outstanding
 
 
 
 
 
 
 
Class A common shares
36.0

 
27.8

 
34.3

 
24.0

Assumed vesting, conversion or exchange of:
 
 
 
 
 
 
 
Unvested Class A restricted shares-based awards
3.3

 
1.6

 
3.2

 
1.6

Convertible preferred shares outstanding

 
0.4

 

 
0.7

Artisan Partners Holdings units outstanding (noncontrolling interest)
34.2

 
41.8

 
35.9

 
45.2

Adjusted shares
73.5

 
71.6

 
73.4

 
71.5

 
 
 
 
 
 
 
 
Adjusted net income per adjusted share (Non-GAAP)
$
0.74

 
$
0.84

 
$
1.39

 
$
1.62

 
 
 
 
 
 
 
 
Operating income (GAAP)
$
78.3

 
$
80.8

 
$
146.1

 
$
148.0

Add back: Pre-offering related compensation - share-based awards
10.7

 
16.2

 
21.1

 
39.8

Add back: Offering related proxy expense

 

 

 
0.1

Adjusted operating income (Non-GAAP)
$
89.0

 
$
97.0

 
$
167.2

 
$
187.9

 
 
 
 
 
 
 
 
Adjusted operating margin (Non-GAAP)
42.1
%
 
46.5
%
 
40.3
%
 
45.8
%
 
 
 
 
 
 
 
 
Net income attributable to Artisan Partners Asset Management Inc. (GAAP)
$
23.8

 
$
19.3

 
$
43.3

 
$
27.9

Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings
35.5

 
45.5

 
69.4

 
89.7

Add back: Pre-offering related compensation - share-based awards
10.7

 
16.2

 
21.1

 
39.8

Add back: Offering related proxy expense

 

 

 
0.1

Add back: Net (gain) loss on the tax receivable agreements

 
4.5

 
6.4

 
4.5

Add back: Interest expense
2.9

 
2.9

 
5.8

 
5.8

Add back: Provision for income taxes
16.5

 
8.6

 
21.6

 
19.8

Add back: Depreciation and amortization
1.1

 
0.7

 
2.1

 
1.4

Adjusted EBITDA (Non-GAAP)
$
90.5

 
$
97.7

 
$
169.7

 
$
189.0


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Table of Contents

Liquidity and Capital Resources
Our working capital needs, including accrued incentive compensation payments, have been and are expected to be met primarily through cash generated by our operations. The following table shows our liquidity position as of June 30, 2015, and December 31, 2014.
 
June 30, 2015
 
December 31, 2014
 
(unaudited; in millions)
Cash and cash equivalents
$
215.5

 
$
182.3

Accounts receivable
$
76.7

 
$
69.4

Undrawn commitment on revolving credit facility
$
100.0

 
$
100.0

We manage our cash balances in order to fund our day-to-day operations. Accounts receivable primarily represent investment management fees that have been earned, but not yet received from our clients. We perform a review of our receivables on a monthly basis to assess collectability.
In August 2012, we issued $200.0 million in unsecured notes and entered into the $100.0 million five-year revolving credit facility. The notes are comprised of three series, each with a balloon payment at maturity. The fixed interest rate on each series of unsecured notes is subject to a 100 basis point increase in the event Holdings receives a below-investment grade rating and any such increase will continue to apply until an investment grade rating is received. The $100.0 million revolving credit facility was unused as of and for the six months ended June 30, 2015.
These borrowings contain various restrictive covenants. Our failure to comply with any of the covenants could result in an event of default under the agreements, giving our lenders the ability to accelerate repayment of our obligations. We were in compliance with all debt covenants as of June 30, 2015.
Distributions and Dividends
Artisan Partners Holdings distributions, including distributions to APAM for the three and six months ended June 30, 2015 and 2014, respectively, were as follows:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(unaudited, in millions)
Holdings Partnership Distributions(1)
 
$109.2
 
$116.5
 
$188.6
 
$248.1
Holdings Partnership Distributions to APAM
 
$54.6
 
$42.3
 
$91.9
 
$80.9
(1) Including distributions to APAM
APAM declared and paid the following dividends per share during the three and six months ended June 30, 2015 and 2014:
Type of Dividend
 
Class of Stock
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
Quarterly
 
Common Class A
 
$0.60
 
$0.55
 
$1.20
 
$1.10
Special Annual
 
Common Class A
 
$—
 
$—
 
$0.95
 
$1.63
Quarterly
 
Convertible Preferred
 
$—
 
$0.81
 
$—
 
$3.81
Subject to board approval each quarter, we expect to pay a quarterly dividend of $0.60 per share of Class A common stock during 2015. After the end of each year, our board expects to consider paying a special dividend that will take into consideration our annual adjusted earnings, business conditions and the amount of cash we want to retain at that time. Although we currently expect to pay dividends each year, as described above, our dividend policy allows us flexibility to not pay dividends according to that description or at all.
On July 23, 2015, we, acting as the general partner of Artisan Partners Holdings, declared a distribution of $44.1 million payable by Artisan Partners Holdings to holders of its partnership units, including us. In addition, our board of directors declared a quarterly dividend of $0.60 per share of Class A common stock, to be paid on August 31, 2015, to shareholders of record as of the close of business on August 17, 2015.
In addition to funding our normal operations, we will be required to fund amounts payable by us under the TRAs that we entered into in connection with the IPO.

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Table of Contents

Tax Receivable Agreements (“TRAs”)
In connection with the IPO, APAM entered into two TRAs, which resulted in the recognition of a $599.5 million liability as of June 30, 2015. The $599.5 million liability represents 85% of the tax benefits we expect to realize as a result of the merger of an entity into us as part of the IPO Reorganization and the redemption or exchange of the common and preferred units of Holdings after the IPO. The estimated liability assumes no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits subject to the TRAs.
The liability will increase upon future redemptions of Holdings units or exchanges of Holdings units for our Class A common stock, with the increase representing 85% of the estimated future tax benefits, if any, resulting from the redemptions or exchanges. We intend to fund the payment of amounts due under the TRAs out of the reduced tax payments that APAM actually realizes in respect of the attributes to which the TRAs relate.
The actual payments, and associated tax benefits, will vary depending upon a number of factors, including the timing of exchanges by the holders of Holdings units, the price of our Class A common stock at the time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the TRAs constituting imputed interest or depreciable or amortizable basis. In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRAs. In such cases, we intend to fund those payments with cash on hand, although we may have to borrow funds depending on the amount and timing of the payments.
Cash Flows
 
For the Six Months Ended June 30,
 
2015
 
2014
 
(unaudited; in millions)
Cash as of January 1
$
182.3

 
$
211.8

Net cash provided by operating activities
214.3

 
235.1

Net cash used in investing activities
(8.5
)
 
(14.3
)
Net cash used in financing activities
(172.6
)
 
(229.0
)
Cash as of June 30
$
215.5

 
$
203.6

Operating activities provided net cash of $214.3 million and $235.1 million for the six months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015, compared to the six months ended June 30, 2014, our operating income, excluding share-based and pre-offering related compensation expenses, decreased $11.5 million. Timing differences in working capital accounts, primarily due to the timing of executive incentive compensation payments, also decreased our operating cash flows by $16.2 million for the six months ended June 30, 2015, compared to the six months ended June 30, 2014.
Investing activities consist primarily of acquiring and selling property and equipment, leasehold improvements and the purchase and sale of available-for-sale securities. Investing activities used net cash of $8.5 million and $14.3 million for the six months ended June 30, 2015 and 2014, respectively. The decrease in net cash used in investing activities was due to a $4.2 million decrease in the net purchases of investment securities during the six months ended June 30, 2015, compared to the six months ended June 30, 2014. In addition, cash used in acquisitions of property and equipment and leasehold improvements decreased by $1.6 million.
Financing activities consist primarily of partnership distributions to non-controlling interests, dividend payments to holders of our Class A common stock, proceeds from the issuance of Class A common stock in follow-on offerings, and payments to purchase Holdings partnership units. Financing activities used net cash of $172.6 million and $229.0 million for the six months ended June 30, 2015 and 2014, respectively. This decrease in net cash used by financing activities was primarily the result of a $70.5 million decrease in distributions to limited partners, partially offset by a $13.5 million increase in dividends paid during the six months ended June 30, 2015, compared to the six months ended June 30, 2014.

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Table of Contents

Certain Contractual Obligations
As of June 30, 2015, there have been no material changes to our contractual obligations outside the ordinary course of business from those listed in the “Certain Contractual Obligations” table and related notes to the table in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 25, 2015, except for increases in the TRA liability. As previously discussed in this report, the TRA liability increased from $489.2 million at December 31, 2014, to $599.5 million at June 30, 2015. Amounts payable under the TRAs will increase upon exchanges of Holdings units for our Class A common stock or sales of Holdings units to us, with the increase representing 85% of the estimated future tax benefits, if any, resulting from the exchanges or sales. The actual amount and timing of payments associated with our existing payable under the TRAs or future exchanges or sales, and associated tax benefits, will vary depending upon a number of factors as described under “Liquidity and Capital Resources.” As a result, the timing of payments by period is currently unknown. We expect the estimated payments to be funded by realized tax benefits.

Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2015.
Critical Accounting Policies and Estimates
There have been no updates to our critical accounting policies from those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2014.
New or Revised Accounting Standards
See Part I, Item 1, Unaudited Consolidated Financial Statements - Note 2, “Summary of Significant Accounting Policies.”
Item 3. Qualitative and Quantitative Disclosures Regarding Market Risk
There have been no material changes in our Quantitative and Qualitative Disclosures Regarding Market Risk from those previously reported in our Form 10-K for the year ended December 31, 2014.

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Table of Contents

Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at June 30, 2015. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended June 30, 2015, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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Table of Contents

Part II — Other Information
Item 1. Legal Proceedings
In the normal course of business, we may be subject to various legal and administrative proceedings. Currently, there are no legal or administrative proceedings that management believes may have a material effect on our consolidated financial position, cash flows or results of operations.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our latest annual report on Form 10-K, which is accessible on the SEC’s website at www.sec.gov.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
As described in Note 8, “Stockholders’ Equity”, to the Unaudited Consolidated Financial Statements included in Part I of this report, upon termination of employment with Artisan, an employee-partner’s vested Class B common units of Holdings are automatically exchanged for Class E common units, and unvested Class B common units are forfeited. The employee-partner’s shares of APAM Class B common stock are canceled and APAM issues the former employee-partner a number of shares of APAM Class C common stock equal to the former employee-partner’s number of Class E common units. The former employee-partner’s Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings. During the six months ended June 30, 2015, 365,253 shares of Class B common stock were canceled, and 310,523 shares of Class C common stock were issued, as a result of the termination of employment of employee-partners.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No.
 
Description
31.1
 
Certification of the Company’s Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
 
The following Extensible Business Reporting Language (XBRL) documents are collectively included herewith as Exhibit 101: (i) the Unaudited Condensed Consolidated Statements of Financial Condition as of June 30, 2015 and December 31, 2014; (ii) the Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014; (iii) the Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014; (iv) the Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and 2014; (v) the Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (vi) the Notes to Unaudited Consolidated Financial Statements as of and for the three and six months ended June 30, 2015 and 2014

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Artisan Partners Asset Management Inc.

Dated: August 3, 2015
By:
/s/ Eric R. Colson
Eric R. Colson
President and Chief Executive Officer and Director
(principal executive officer)
 
/s/ Charles J. Daley, Jr.
Charles J. Daley, Jr.
Executive Vice President, Chief Financial Officer and Treasurer
(principal financial and accounting officer)



41