AGF Management Limited - Third Quarter Report to Shareholders for the three and nine months ended August 31, 2012

AGF MANAGEMENT LIMITED REPORTS THIRD QUARTER FINANCIAL RESULTS

Successful completion of the sale of AGF Trust for $422 million in cash proceeds
$44 million worth of AGF.B shares repurchased over the quarter

TORONTO, Sept. 26, 2012 /CNW/ - AGF Management Limited (AGF) today announced financial results for the third quarter ended August 31, 2012. Third quarter activities included the successful completion of the sale of AGF Trust, substantial share repurchases under the normal course issuer bid and a landmark win of a new international Natural Resources mandate. At the end of the quarter AGF was also pleased to announce four new hires to the award-winning Global Equity and Emerging Markets teams.

Diluted earnings per share (EPS) from continuing operations, excluding AGF Trust, were a loss of $0.20 per share, during the third quarter compared to earnings of $0.09 per share in the third quarter of 2011. EPS from continuing operations adjusted for one-time items was $0.11 per share in the third quarter of 2012. One-time items of $30 million, net of tax, include restructuring charges related to the realignment of the business as a result of the sale of AGF Trust, impairment charges and the impact of a tax rate change.

As part of AGF's continued focus to expand its core investment management business, on August 1, 2012 the Company announced that it had successfully completed the sale of AGF Trust to B2B Bank, for total consideration of $421.6 million. The sale allows AGF to focus exclusively on investment management and use the capital to accelerate business growth for its Canadian operations, expand its global asset management business and provide a return of capital to shareholders.

"The completion of the sale of AGF Trust demonstrates AGF's commitment to developing a highly focused global investment management firm," said AGF Chairman and Chief Executive Officer Blake C. Goldring. "We have already been active in executing our commitments to shareholders by deploying $44 million of cash from the proceeds to repurchase AGF shares and have started looking at growth opportunities both in Canada and internationally. We ended our quarter with the important addition of four talented team members to the Global Equity and Emerging Markets teams, which positions AGF to be actively selling to global institutions."

During the quarter AGF announced that it had been awarded a Natural Resources mandate by China's National Council for Social Security Fund (NCSSF).The NCSSF, a government agency on the ministerial level directly under the State Council of the People's Republic of China, is responsible for the management and operation of the National Social Security Fund.

Total assets under management (AUM) decreased 14.8% from $48.4 billion at August 31, 2011 to $41.2 billion as of August 31, 2012. High-net-worth AUM increased 3.1% to $3.4 billion in the third quarter compared to the same period in 2011. Driven by lower AUM levels, revenue from continuing operations decreased 20.9% to $119.8 million compared to $151.4 million during the same period in 2011.

Earnings before interest, taxes, depreciation, amortization and impairment of goodwill and management contracts (EBITDA) from continuing operations decreased to $36.3 million compared to $61.6 million in the third quarter of 2011. EBITDA adjusted for one-time items during the third quarter was $42.2 million.

Dividends paid, including dividends reinvested, on Class A Voting common shares and Class B Non-Voting shares were $25.8 million in the third quarter of 2012 compared to $25.8 million in the same period of 2011.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis (MD&A) includes forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes' or negative versions thereof and similar expressions, or future or conditional verbs such as 'may,' 'will,' 'should,' 'would' and 'could.' In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future action on our part, is also a forward-looking statement. Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations, business prospects, business performance and opportunities. While we consider these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about our operations, economic factors and the financial services industry generally. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by us due to, but not limited to, important risk factors such as level of assets under our management, volume of sales and redemptions of our investment products, performance of our investment funds and of our investment managers and advisors, competitive fee levels for investment management products and administration, and competitive dealer compensation levels and cost efficiency in our investment management operations, as well as interest and foreign-exchange rates, taxation, changes in government regulations, unexpected judicial or regulatory proceedings, and our ability to complete strategic transactions and integrate acquisitions. We caution that the foregoing list is not exhaustive. The reader is cautioned to consider these and other factors carefully and not place undue reliance on forward-looking statements. Other than specifically required by applicable laws, we are under no obligation (and expressly disclaim any such obligation) to update or alter the forward-looking statements, whether as a result of new information, future events or otherwise. For a more complete discussion of the risk factors that may impact actual results, please refer to the 'Risk Factors and Management of Risk' section of this MD&A.

Dear fellow shareholders,

As the coming election in the United States brings a challenged American economy to the forefront and the European Union searches for a long-term solution to the ongoing debt crisis, it is clear that uncertainty will continue to weigh on global markets for the foreseeable future. Even Canada, which has withstood the brunt of the unfolding economic malaise, has seen troubling signs in several key indicators. As we move into the fourth quarter of 2012, AGF Management Limited looks to weather these market conditions by focusing on our core investment management strengths that have served us well in our 55-year history; the expansion of our global asset management business and our strong relationships with our distribution partners.

This past quarter, AGF successfully completed the sale of our subsidiary, AGF Trust, to B2B Bank. As a result of the sale, AGF received total consideration of $421.6 million that will be used to increase value for shareholders, accelerate business growth in our Canadian operations and expand our existing global asset management platform. We also view this cash as an anchor to support our dividend in the near- to mid-term as we will take time to deploy the cash proceeds in a principled and strategic manner.

Since announcing the sale of AGF Trust, AGF has been active in executing against its stated plan and has repurchased, under the current normal course issuer bid, 3.8 million Class B Non-Voting shares during the third quarter for a total consideration of $43.5 million. In addition, we continue to deliver value for our shareholders through stable dividend payments. During the quarter, AGF added four talented investment professionals to our award-winning Global Equity and Emerging Markets teams. The Emerging Markets mandate continues to outperform benchmarks and our institutional business is well-positioned to begin selling this mandate. In recent meetings, several investment consultants voiced the need for more global exposure in institutional and retail portfolios. We firmly believe AGF is uniquely poised to capitalize on this current and future trend.

We are committed to improving our fund performance across the AGF suite of products - this is our number one priority.  We have seen some early signs of improvements; retail mutual funds ranked in the 1st and 2nd quartile by Morningstar increased on a one-year basis - this is up from the start of our fiscal year. In addition, during the quarter AGF announced that it had been awarded a landmark Natural Resources mandate by China's National Council for Social Security Fund (NCSSF). This is a mandate we are very proud of and look forward to future potential partnerships in Asia.

Although we remain confident in our progress against our long-term plan, we certainly recognize the difficulties of the markets and investor apathy towards equity investing. These continue to be challenging times for gross equity flows for the industry and AGF. However, we are confident that investors will return to the category as market volatility subsides and there is a sustained positive market. In the near term, we have trimmed our cost base as a prudent course in the face of lowering AUM and revenues. We will, however, continue to invest in products and capabilities that will be the source of future organic growth.

Our earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations decreased to $36.3 million compared to $61.6 million in the third quarter of 2011, and diluted earnings per share (EPS) from continuing operations decreased to a loss of $0.20 per share compared to earnings of $0.09 per share the same period in 2011. AGF incurred $30 million in one-time items during the quarter, which significantly impacted our results, with charges related to our restructuring plan, a writedown of goodwill and intangible assets and changes to our tax rate. Excluding all of these one-time items, our adjusted EBITDA from continuing operations was $42.2 million and our adjusted diluted EPS was $0.11 per share - much more representative of our business and market expectations.

Going forward with a renewed focus on our core investment management business, AGF is well-positioned to capitalize on strategic growth opportunities both in Canada and internationally. With the close of the sale of AGF Trust we now have significant capital to accelerate our growth and increase value to our shareholders. In addition, key strategic investments in our existing operations and new opportunities will foster organic growth in all of AGF's channels: retail, institutional and private client businesses.

Thank you for your continued support.

Sincerely,

(signed)

Blake C. Goldring, M.S.M., CFA
Chairman and Chief Executive Officer
September 26, 2012

Management's Discussion and Analysis of Financial Condition and Results of Operations

For the three and nine months ended August 31, 2012

This Management's Discussion and Analysis (MD&A) is as of September 25, 2012, and presents an analysis of the financial condition of AGF Management Limited (AGF) and its subsidiaries as at August 31, 2012, compared to November 30, 2011. On December 1, 2011, AGF adopted the International Financial Reporting Standards (IFRS) for financial reporting purposes, using a transition date of December 1, 2010. The financial statements for the three and nine months ended August 31, 2012, including required comparative information, have been prepared in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards and with International Accounting Standards (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). Prior to the adoption of IFRS, AGF prepared its Interim and Annual Consolidated Financial Statements in accordance with Canadian Generally Accepted Accounting Principles (GAAP). Unless otherwise noted, 2011 comparative information has been prepared in accordance with IFRS.

The adoption of IFRS has not had an impact on AGF's operations, strategic decisions and cash flow. Information on the IFRS adjustments is provided in the Notes to Consolidated Financial Statements for the three and nine months ended August 31, 2012. Information on opening adjustments as a result of the adoption of IFRS are provided in the Notes to the Consolidated Financial Statements for the three months ended February 29, 2012.

On August 1, 2012, AGF successfully completed the sale of AGF Trust Company to B2B Bank, a subsidiary of Laurentian Bank. The operating results of AGF Trust up to August 1, 2012 and for 2011 have been presented as discontinued operations.

The MD&A should be read in conjunction with our 2011 Annual MD&A and 2011 Annual Audited Consolidated Financial Statements and Notes. We also utilize non-IFRS financial measures to assess our overall performance. Details of non-IFRS measures used are outlined in the 'Key Performance Indicators and Non-IFRS Measures' section, which provides calculations of the non-IFRS measures along with reconciliation of non-IFRS financial measures to GAAP financial statements. All dollar amounts are in Canadian dollars unless otherwise indicated. Throughout this discussion, percentage changes are calculated based on results rounded to the nearest thousand. Results, except per share information, are presented in millions of dollars. Percentage changes are calculated using numbers rounded to the decimals that appear in this MD&A.

There have been no material changes, with the exception of the sale of AGF Trust, to the information discussed in the following sections of the 2011 Annual MD&A: 'Risk Factors and Management of Risk,' 'Contractual Obligations,' 'Intercompany and Related Party Transactions' and 'Government Regulations.'

Overview

AGF Management Limited, with $41.2 billion in assets under management (AUM) as at August 31, 2012, is one of the largest independent Canadian-based investment management firms, with operations and investments in Canada, the United States, the United Kingdom, Ireland and Asia.

The origin of our Company dates back to 1957 with the introduction of the American Growth Fund, the first mutual fund available to Canadians seeking to invest in the United States. As of August 31, 2012, our products and services include a diversified family of award-winning mutual funds, mutual fund wrap programs and pooled funds. AGF also manages assets on behalf of institutional investors including pension plans, foundations and endowments as well as for high-net-worth clients.

For purposes of this discussion, the operations of AGF and our subsidiary companies are referred to as 'we,' 'us,' 'our' or 'the Company.'

On August 1, 2012, the Company completed its sale of 100% of the shares of AGF Trust to B2B Bank, a subsidiary of Laurentian Bank, for cash consideration corresponding to the net book value of AGF Trust at closing of $247.0 million and caused AGF Trust to repay subordinated indebtedness owed to AGF and redeem preferred shares held by AGF for a consideration of $173.5 million. The agreement also includes contingent consideration to a maximum of $20.0 million over five years if credit performance meets certain thresholds. A contingent consideration receivable of $2.0 million was recorded on the sale of AGF Trust based on management's estimates.

During the quarter, AGF added new talent to the Emerging Markets and Global Equities teams to further invest in these mandates. Four new members have been added to these teams to further build on these high-performance mandates, with a focus on growth in our institutional business. To date, performance continues to perform above industry benchmarks and the impact on redemptions of AUM with respect to these mandates has been modest.

Strategy and Quarterly Overview

AGF Management Limited is committed to providing world-class financial solutions to clients in Canada and abroad. We look to expand our business through organic growth by building high-performance investment management teams and distributing these products through our global distribution platform. We will look to supplement our existing investment capability with strategic acquisitions that will fund new product growth. We continue to focus on our key financial priorities to create long-term value for our shareholders and clients.

Our Investment Management Operations provide a diverse suite of investment solutions to retail, institutional and high-net-worth clients. We are focused on delivering strong long-term investment performance and excellence in client service while continuing to build and maintain strong relationships with our distribution partners.

As part of a continued focus on our core investment management business, AGF Management Limited completed the sale of its subsidiary AGF Trust on August 1, 2012. The sale allows AGF to focus exclusively on investment management and use the capital to accelerate business growth for its Canadian operations, expand its global asset management business and provide a return of capital to shareholders in the form of share buybacks and dividends.

During the third quarter of 2012:

  • Total AUM decreased 14.8% to $41.2 billion at August 31, 2012, from $48.4 billion at August 31, 2011.

  • Retail fund net redemptions were $709.0 million in the third quarter of 2012, compared to net redemptions of $585.0 million in the third quarter of last year.

  • Revenue from continuing operations decreased 20.9% to $119.8 million compared to the same period in 2011, reflecting lower AUM levels.

  • Earnings before interest, taxes, depreciation, amortization and impairment of goodwill and management contracts (EBITDA) from continuing operations decreased to $36.3 million compared to $61.6 million in the third quarter of 2011. EBITDA margin decreased to 30.3% compared to 40.7% in the third quarter of 2011.

  • One-time items before tax of $33.9 million include impairment charges of $22.1 million, a restructuring charge of $3.8 million related to the realignment of costs due to the sale of AGF Trust, as well as an $8.0 million charge related to the impact of a tax rate change.

  • Diluted EPS from continuing operations in the third quarter of 2012 was a loss of $0.20 per share compared to earnings of $0.09 per share in the third quarter of 2011. Adjusted EPS from continuing operations was $0.11 per share in the third quarter, compared to $0.24 per share during the same period in 2011.

  • Under the current normal course issuer bid, 3,817,582 Class B Non-Voting shares were repurchased for a total consideration of $43.5 million at an average price of $11.37.

  • We delivered value directly to our shareholders through dividend payments. Dividends paid, including dividends reinvested, on Class A Voting common shares and Class B Non-Voting shares were $25.8 million in the third quarter of 2012 compared to $25.8 million in the same period in 2011.

  • AGF one-year investment management performance improved during the quarter, with 35% of retail mutual funds ranked by Morningstar being in the 1st and 2nd quartile.

Consolidated Operating Results

The table below summarizes our consolidated operating results for the three and nine months ended August 31, 2012 and 2011:

                                 
  Three months ended August 31, Nine months ended August 31,
($ millions, except per share data)   2012     2011     % change   2012     2011     % change
                                 
Revenue                                
  Investment Management Operations $ 121.2   $ 150.0     (19.2%) $ 383.1   $ 444.3     (13.8%)
  Share of profits (loss) of associated company   (1.4)     1.4     (200.0%)   2.1     3.2     (34.4%)
    119.8     151.4     (20.9%)   385.2     447.5     (13.9%)
                                 
Expenses                                
  Investment Management Operations   83.5     89.8     (7.0%)   246.1     265.8     (7.4%)
    83.5     89.8     (7.0%)   246.1     265.8     (7.4%)
                                 
EBITDA1   36.3     61.6     (41.1%)   139.1     181.7     (23.4%)
  Amortization   25.4     27.2     (6.6%)   74.6     73.3     1.8%
  Interest expense   3.4     3.0     13.3%   9.3     8.5     9.4%
  Impairment of goodwill and indefinite life assets   20.0     13.4     49.3%   20.0     13.4     49.3%
  Income taxes    6.8     9.5     (28.4%)   20.4     27.9     (26.9%)
Net income (loss) from continuing operations   (19.3)     8.5     (327.1%)   14.8     58.6     (74.7%)
                                 
Net income from discontinued operations   6.0     7.1     (15.5%)   21.9     20.6     6.3%
                                 
Net income attributable to non-controlling interest    -     0.2     n/m   0.1     0.7     (85.7%)
                                 
Net income (loss) attributable to equity owners
of the Company
$ (13.3)   $ 15.4     (186.4%) $ 36.6   $ 78.5     (53.4%)
                                 
Diluted earnings (loss) per share                                
  From continuing operations $ (0.20)   $ 0.09     (322.2%) $ 0.15   $ 0.61     (75.4%)
  From discontinued operations   0.06     0.07     (14.3%)   0.23     0.22     4.5%
  From net income (loss) for the period $ (0.14)   $ 0.16     (187.5%) $ 0.38   $ 0.83     (54.2%)

1  
For the definition of EBITDA, see the 'Key Performance Indicators and Non-IFRS Measures' section. The items required to reconcile EBITDA to net income (loss) from continuing operations, a defined term under IFRS, are detailed above.

A summary of the results from continuing operations is as follows:
Revenue for the three and nine months ended August 31, 2012, decreased by 20.9% and 13.9% from the corresponding periods in 2011. Revenue related to Investment Management Operations decreased 19.2% and 13.8% for the three and nine months ended August 31, 2012, compared to the corresponding periods in 2011. Revenue from share of profit of associated company, which represents the results of our 30.7% equity interest in S&WHL, decreased to a loss of $1.4 million and a gain of $2.1 million for the three and nine months ended August 31, 2012, compared to gains of $1.4 million and $3.2 million for the same periods in 2011. The loss includes a one-time charge of $2.1 million related to a goodwill impairment recorded by S&WHL in the quarter.

Expenses for the three and nine months ended August 31, 2012, decreased 7.0% and 7.4% compared to the same periods in 2011.

The impact of the above items resulted in a 41.1% and 23.4% decrease in EBITDA for the three and nine months ended August 31, 2012, over the respective 2011 periods.

Goodwill and indefinite life assets are not amortized, but are subject to impairment tests on an annual basis, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill and indefinite life assets are allocated to cash-generating units (CGUs), and any impairment is identified by comparing the carrying value of a CGU with its recoverable amount, determined as its fair value less cost of sell. An impairment is identified if the carrying value of a CGU is higher than its recoverable amount.

During the three months ended August 31, 2012 and 2011, we determined that the carrying value of a CGU was higher than its recoverable amount. As a result, an impairment charge of $20.0 million (2011 - $13.4 million) was recorded.

Income tax expense for the three and nine months ended August 31, 2012, was $6.8 million and $20.4 million as compared to $9.5 million and $27.9 million in the corresponding periods in 2011. The effective tax rate for the first nine months of 2012 was 58.0% compared to 32.3% in the same period of 2011 for continuing operations. The increase in the effective tax rate for the three and nine months ended August 31, 2012, compared to the same periods in 2011, is mainly the result of new legislation that became substantively enacted during the quarter. The Ontario general corporate tax rate was scheduled to be reduced to 10% by July 1, 2013, but the Ontario Ministry of Finance proposed a general corporate tax rate freeze at 11.5% in its 2012 budget. This legislation became substantively enacted on June 20, 2012, and resulted in approximately $8.0 million deferred income tax expense for the Company during the quarter.

The impact of the above revenue and expense items resulted in a net loss from continuing operations of $19.3 million and net income of $14.8 million for the three and nine months ended August 31, 2012, as compared to net income of $8.5 million and $58.6 million in the prior year. Diluted earnings per share from continuing operations were a loss of $0.20 and earnings of $0.15 for the three and nine months ended August 31, 2012, as compared to earnings of $0.09 and $0.61 in the same periods of 2011. Diluted EBITDA per share from continuing operations for the three and nine months ended August 31, 2012, was $0.38 and $1.45, compared to $0.64 and $1.91 during the same periods in 2011.

A further discussion of the results is as follows for the three and nine months ended August 31, 2012, compared to August 31, 2011.

One-time Adjustments

The table below summarizes the one-time adjustments for the three and nine months ended August 31, 2012 and 2011:

                       
  Three months ended August 31,  Nine months ended August 31,
($ millions, except per share data)   2012     2011   2012     2011
                     
EBITDA from continuing operations $ 36.3   $ 61.6 $ 139.1   $ 181.7
                     
Add:                    
  Acuity integration costs    -     1.7    -     9.9
  Lease termination fee   0.8     -   0.8     -
  Restructure charge   3.0     -   3.0     -
  S&WHL goodwill impairment   2.1     -   2.1     -
  S&WHL regulatory charge    -     -    -     1.0
Adjusted EBITDA from continuing operations $ 42.2   $ 63.3 $ 145.0   $ 192.6
                     
Net income from continuing operations $ (19.3)    $ 8.5 $ 14.8   $ 58.6
                     
Add:                    
  Adjustments to EBITDA from above   5.9     1.7   5.9     10.9
  Impairment charges - Highstreet   20.0     13.4   20.0     13.4
  Tax rate change   8.0     -   8.0     -
  Tax impact on the adjustments to EBITDA above                    
    (excluding tax rate change)   (3.9)     (0.3)   (3.9)     (1.8)
Adjusted net income from continuing operations $ 10.7   $ 23.3 $ 44.8   $ 81.1
                     
Adjusted diluted EPS from continuing operations  $ 0.11    $ 0.24 $ 0.47    $ 0.85

 

A summary of one-time adjustments is as follows:

Adjusted EBITDA from continuing operations for the three and nine months ended August 31, 2012, decreased 33.3% and 24.7% to $42.2 million and $145.0 million compared to $63.3 million and $192.6 million for the same periods in 2011.

Adjusted net income from continuing operations decreased 54.1% and 44.8% to $10.7 million and $44.8 million for the three and nine months ended August 31, 2012, compared to $23.3 million and $81.1 million for the same periods in 2011.

Adjusted diluted earnings per share from continuing operations were $0.11 and $0.47 for the three and nine months ended August 31, 2012, compared to $0.24 and $0.85 per share for the same periods in 2011.

Results from Continuing Operations 

Business and Industry Profile

We are an independent investment management operation servicing Canadian and international investors through our retail, institutional and high-net-worth businesses.

Our investment management teams provide a diverse range of investment strategies and philosophies and unique research-driven investment processes.

Our retail business delivers a wide range of products across a number of investment strategies including AGF mutual funds, the AGF Elements portfolios and the Harmony Private Investment Program. We compete with numerous domestic and foreign players serving the market. Our products are delivered through multiple channels, including advisors, financial planners, banks, life insurance companies and brokers. We have sales organizations located across Canada serving regional advisors and their clients, while our strategic accounts team serves our corporate distribution partners.

Our institutional business offers a variety of investment mandates through pooled funds and segregated accounts. We compete domestically and globally as an institutional investment manager and have sales and client service offices in Canada, the United States, Europe and Asia serving pension funds, foundations, institutions, endowments and sovereign wealth funds.

Our high-net-worth business delivers investment management and counselling services in local markets in Canada. It includes the operations of Cypress Capital Management Limited in Vancouver; Highstreet Asset Management (Highstreet) in London, Ontario; and Doherty & Associates in Ottawa and Montreal.

We hold a 30.7% interest in Smith & Williamson Holdings Limited (S&WHL), a leading independent private client investment management, financial advisory and accounting group based in the U.K. This interest is accounted for using the equity method.

Strategy and Highlights

Building on our over 50-year tradition of being independent, fostering innovation and maintaining integrity, we work to provide excellent products and services across all client segments while building enduring relationships and delivering value to shareholders, clients and unitholders. Our goal is to deliver strong long-term investment performance and client service excellence to the retail mutual fund, institutional and high-net-worth markets. We continue to foster our relationships with advisors and strategic distribution partners and provide a diverse suite of investment solutions. We strive to build strong portfolio management teams to ensure continuity and strength in investment management and to leverage our in-house investment management expertise across multiple client channels.

To enhance focus on our investment management operations, AGF completed the sale of AGF Trust on August 1, 2012. The capital raised from the sale will allow AGF to focus exclusively on investment management, expand its global asset management business and provide a return of capital to shareholders in the form of share buybacks, dividends and future increases in cash flow from operations.

During the quarter, AGF added new talent to the Emerging Markets and Global Equities teams to further invest in these mandates. Four new members have been added to the Emerging Markets and Global Equities teams to further build on these high-performance mandates, with a focus on growth in our institutional business. To date, performance continues to perform above industry benchmarks and the impact to AUM under these mandates has been modest.

Assets Under Management

The primary sources of revenue for AGF's Investment Management Operations are management and advisory fees. The amount of management and advisory fees depends on the level and composition of AUM, which in turn is dependent upon investment performance and net sales. Under the management and investment advisory contracts between AGF and each of the mutual funds, we are entitled to monthly fees. These fees are based on a specified percentage of the average daily net asset value of the respective fund. In addition, we earn fees on our institutional and sub-advisory accounts and high-net-worth client AUM. As a result, the level of AUM has a significant influence on financial results.

The following table illustrates the composition of the changes in total AUM during the three and nine months ended August 31, 2012 and 2011:

                 
  Three months ended August 31, 
($ millions)   2012   2011     % change
                 
Retail fund AUM (including retail pooled funds), beginning of period $ 20,846   $ 26,226     (20.5%)
                 
                 
  Gross sales   362     575     (37.0%)
  Redemptions   (1,071)     (1,160)     (7.7%)
  Net sales (redemptions)   (709)     (585)     21.2%
                 
  Market appreciation (depreciation) of fund portfolios   465     (1,686)     (127.6%)
                 
Retail fund AUM (including retail pooled funds), end of period $ 20,602   $ 23,955     (14.0%)
                 
Average daily retail fund AUM for the period $ 20,754   $ 25,243     (17.8%)
                 
Institutional and sub-advisory accounts AUM $ 17,286   $ 21,173     (18.4%)
                 
High-net-worth AUM $ 3,357   $ 3,256     3.1%
                 
Total AUM, end of period $ 41,245   $ 48,384     (14.8%)
                 
                 
                 
  Nine months ended August 31, 
($ millions)   2012   2011     % change
                 
Retail fund AUM (including retail pooled funds), beginning of period $ 22,703   $ 22,264     2.0%
                 
  Acquisition of Acuity1   -     3,768     n/m
                 
  Gross sales   1,447     2,219     (34.8%)
  Redemptions   (3,565)     (3,780)     (5.7%)
  Net sales (redemptions)   (2,118)     (1,561)     35.7%
                   
  Market appreciation (depreciation) of fund portfolios   17     (516)     (103.3%)
                 
Retail fund AUM (including retail pooled funds), end of period $ 20,602   $ 23,955     (14.0%)
                 
Average daily retail fund AUM for the period $ 21,808   $ 25,245     (13.6%)
                 
Institutional and sub-advisory accounts AUM, beginning of period $ 20,119   $ 17,585     14.4%
                 
Acquisition of Acuity1   -     3,754     n/m
                 
Net change in institutional and sub-advisory accounts   (2,833)     (166)     n/m
                 
Total institutional and sub-advisory accounts AUM  $ 17,286   $ 21,173     (18.4%)
                 
High-net-worth AUM $ 3,357   $ 3,256     3.1%
                 
Total AUM, end of period $ 41,245   $ 48,384     (14.8%)
1  Acuity was acquired on February 1, 2011.

 

Redemptions during the quarter resulted in a decrease in retail fund AUM, including retail pooled funds, of 14.0% to $20.6 billion at August 31, 2012, from $24.0 billion as at August 31, 2011. Retail fund net redemptions, including retail pooled funds, increased to $709.0 million and $2,118.0 million from $585.0 million and $1,561.0 million for the three and nine months ended August 31, 2011. The average daily retail fund AUM for the three and nine months ended August 31, 2012, decreased 17.8% and 13.6% to $20.8 billion and $21.8 billion, compared to $25.2 billion for the same periods in 2011. Our institutional and sub-advisory accounts AUM decreased 18.4% to $17.3 billion as at August 31, 2012, compared to $21.2 billion as at August 31, 2011. The decline in institutional AUM is primarily due to redemptions. Our high-net-worth AUM increased 3.1% to $3.4 billion at August 31, 2012, compared to $3.3 billion in the same period in 2011.

Stock market performance influences our AUM levels. Returns for the three and nine months ended August 31, 2012, are as follows:

                     
Stock market performance   Three months ended
August 31, 2012
   Nine months ended
August 31, 2012
AGF Retail Fund Portfolios         2.2%         0.1%
S&P 5001         3.1%         11.1%
NASDAQ1



      3.6%         13.3%
S&P/TSX Composite       4.6%         0.2%
MSCI         4.4%         7.0%
1 Canadian dollar adjusted.

Financial and Operational Results

The table below highlights the results from continuing operations for the three and nine months ended August 31, 2012 and 2011:

                                 
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011     % change   2012     2011     % change
                                 
Revenue                                
  Management and advisory fees $ 116.5   $ 142.7     (18.4)% $ 369.5   $ 425.9     (13.2)%
  Deferred sales charges    4.8     5.7     (15.8)%   16.1     18.0     (10.6)%
  Share of profits (loss) of associated company   (1.4)     1.4     (200.0)%   2.1     3.2     (34.4)%
  Fair value adjustments and other income (loss)   (0.1)     1.6     (106.3)%   (2.5)     0.4     (725.0)%
    119.8     151.4     (20.9)%   385.2     447.5     (13.9)%
                                 
Expenses                                
  Selling, general and administrative   49.8     46.0     8.3%   139.9     129.7     7.9%
  Business acquisition and integration    -     1.7     n/m    -     9.9     n/m
  Trailing commissions   32.2     39.8     (19.1)%   100.6     119.0     (15.5)%
  Investment advisory fees   1.5     2.3     (34.8)%   5.6     7.2     (22.2)%
    83.5     89.8     (7.0)%   246.1     265.8     (7.4)%
                                 
EBITDA   36.3     61.6     (41.1)%   139.1     181.7     (23.4)%
Amortization   25.4     27.2     (6.6)%   74.6     73.3     1.8%
Income before taxes and non-segmented items $ 10.9   $ 34.4     (68.3)% $ 64.5   $ 108.4     (40.5)%
1 As previously defined, see the 'Key Performance Indicators and Non-IFRS Measures - EBITDA' section.

Revenue

For the three and nine months ended August 31, 2012, revenue decreased by 20.9% and 13.9% over the previous year, with changes in the categories as follows:

Management and Advisory Fees
Management and advisory fees are directly related to our AUM levels. The 17.8% and 13.6% decrease in average daily retail fund AUM for the three and nine months ended August 31, 2012, combined with an 18.4% decrease in institutional and sub-advisory accounts AUM at August 31, 2012, contributed to an 18.4% and 13.2% decrease in management and advisory fee revenue compared to 2011.

Deferred Sales Charges (DSC)
We receive deferred sales charges upon redemption of securities sold on the contingent DSC or low-load commission basis for which we finance the selling commissions paid to the dealer. The DSC ranges from 2.5% to 5.0%, depending on the commission option of the original subscription price of the funds purchased if the funds are redeemed within the first two years and declines to zero after three or seven years. DSC revenue fluctuates based on the level of redemptions, the age of the assets being redeemed and the proportion of redemptions composed of back-end assets. DSC revenues decreased by 15.8% and 10.6% for the three and nine months ended August 31, 2012 as compared to 2011, reflecting the redemption of a larger proportion of older, lower-yielding DSC assets.

Fair Value Adjustments and Other Income

The following table illustrates the fair value adjustments and other income during the three and nine months ended August 31, 2012 and 2011:

             
  Three months ended August 31, 
(in thousands of Canadian dollars)     2012     2011
             
Fair value adjustment related to investment in AGF mutual funds   $ 479   $ (582)
Fair value adjustment related to acquisition consideration payable     (171)     1,719
Fair value adjustment related to put agreement with non-controlling shareholders      (866)     469
Other     513     71
     $ (45)    $ 1,677
             
  Nine months ended August 31,
(in thousands of Canadian dollars)     2012     2011
             
Fair value adjustment related to investment in AGF mutual funds   $ (94)   $ (547)
Fair value adjustment related to acquisition consideration payable     (196)     39
Fair value adjustment related to put agreement with non-controlling shareholders      (3,490)     756
Other     1,326     91
     $ (2,454)    $ 339

 Share of Profit of Associated Company

Share of profit of associated company decreased to a loss of $1.4 million and a gain of $2.1 million for the three and nine months ended August 31, 2012, compared to gains of $1.4 million and $3.2 million during the same periods in 2011. Equity pickup for the three months ended August 31, 2012, includes a $2.1 million charge recorded by S&WHL related to a goodwill impairment. Results for the nine months ended August 31, 2011, include a one-time $1.0 million regulatory levy recorded by S&WHL.

Expenses

For the three and nine months ended August 31, 2012, expenses decreased 7.0% and 7.4% from the previous year. Changes in specific categories are described in the discussion that follows:

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses increased by $3.8 million in the three months ended August 31, 2012, and increased by $10.2 million in the nine months ended August 31, 2012, compared to the same periods in 2011. A breakdown of the increases is as follows:

                     
    Three months ended  Nine months ended 
($ millions) August 31, 2012 August 31, 2012
                       
Increase in restructuring expenses   $     3.0   $     3.0
Decrease in compensation-related expenses         (2.6)         (7.1)
Increase in other expenses         1.2         9.3
Increase in fund absorption expenses         2.2         5.0
      $     3.8   $     10.2

 

The following explains expense changes in the three and nine months ended August 31, 2012 compared to the same periods in the prior year:

  • During the quarter, we recognized a $3.0 million restructuring charge related to the realignment of the business as a result of the sale of AGF Trust.

  • Compensation-related expenses decreased for the three months and nine months ended August 31, 2012, reflecting a decline in stock-based compensation due to a lower share price, combined with lower performance-based payout estimates and lower headcount levels.

  • Other expenses increased $1.2 million in the quarter due to higher IT costs associated with system upgrades. These costs, combined with costs associated with fund mergers and a full year of Acuity operations resulted in a $9.3 million increase for the nine months ended August 31, 2012, compared to the prior year.

  • Fund absorption expenses increased in the three and nine months ended August 31, 2012, reflecting lower AUM levels and expense caps lowered on certain funds offset by a reduction in our revenue commitment with Citigroup Fund Services.

Trailing Commissions

Trailing commissions paid to distributors depend on total AUM, the proportion of mutual fund AUM sold on a front-end versus back-end commission basis and the proportion of equity fund AUM versus fixed-income fund AUM. Annualized trailing commissions as a percentage of average daily retail fund AUM were 0.62% and 0.62% for the three and nine months ended August 31, 2012, compared to 0.63% and 0.63% in the same periods of 2011.

Investment Advisory Fees

External investment advisory fees decreased 34.8% and 22.2% for the three and nine months ended August 31, 2012, as compared to the three and nine months ended August 31, 2011, reflecting lower AUM levels and the repatriation of certain funds in-house.

EBITDA and EBITDA Margin

EBITDA from continuing operations were $36.3 million and $139.1 million for the three and nine months ended August 31, 2012, a 41.1% and 23.4% decrease from $61.6 million and $181.7 million for the same periods of the previous year. EBITDA margin was 30.0% and 36.3% in the three and nine months ended August 31, 2012, compared to 41.1% and 40.9% in the same periods in 2011.

Amortization

The category represents amortization of deferred selling commissions, customer contracts, other intangible assets, property, equipment and computer software. Deferred selling commission amortization represents the most significant category of amortization. We internally finance all selling commissions paid. These selling commissions are capitalized and amortized on a straight-line basis over a period that corresponds with their applicable DSC schedule. Unamortized deferred selling commissions related to units redeemed prior to the end of the schedule are immediately expensed. Amortization expense related to deferred selling commissions was $18.0 million and $51.6 million for the three and nine months ended August 31, 2012, compared to $20.0 million and $56.1 million for the same periods of 2011. The decrease in amortization for the three months ended August 31, 2012, reflect lower deferred selling commission amortization, offset by higher amortization related to customer contracts as a result of redemptions. Year to date, amortization is 1.8% higher, reflecting a full year of amortization of intangible assets related to the Acuity acquisition, offset by lower deferred selling commission amortization. Interest expense increased due to higher debt levels and increased rates.

During the three and nine months ended August 31, 2012, we paid $7.0 million and $28.3 million in selling commissions, compared to $9.9 million and $40.4 million in the same periods of 2011, reflecting lower sales in the quarter. As at August 31, 2012, the unamortized balance of deferred selling commissions financed was $144.6 million (November 30, 2011 - $168.0 million).

Amortization related to intangible assets acquired as a result of the Acuity acquisition was approximately $5.7 million and $17.5 million for the three and nine months ended August 31, 2012 (2011 - $5.4 million and $12.2 million). Customer contracts related to the Acuity acquisition are amortized over seven years and other intangible assets are amortized over periods of three and 10 years. Unamortized customer contracts related to AUM redeemed are immediately expensed.

Impairment of Goodwill and Indefinite Life Assets

Goodwill and indefinite life assets are not amortized, but are subject to impairment tests on an annual basis, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill and indefinite life assets are allocated to cash-generating units (CGUs), and any impairment is identified by comparing the carrying value of a CGU with its recoverable amount, determined as its fair value less cost of sell. An impairment is identified if the carrying value of a CGU is higher than its recoverable amount.

During the three months ended August 31, 2012 and 2011, we determined that the carrying value of a CGU was higher than its recoverable amount. As a result, an impairment charge of $20.0 million (2011 - $13.4 million) was recorded.

Pre-tax Profit Margin

Pre-tax profit margin decreased to 9.0% and 16.8% for the three and nine months ended August 31, 2012, compared to 22.0% and 23.7% for 2011, reflecting the impact of lower revenues as a result of lower AUM.

Results from Discontinued Operations

On August 1, 2012, AGF Management Limited (AGF) successfully completed the sale of AGF Trust to B2B Bank, a subsidiary of Laurentian Bank. The results for AGF Trust are up to July 31, 2012, and are reported as a discontinued operation. Results from discontinued operations also include the gain on sale, other revenue attributable to discontinued operations and transaction costs related to the sale as per the Financial and Operational Results table below.

Financial and Operational Results

The following is a summary of discontinued operations up to July 31, 2012. AGF Trust was sold effective August 1, 2012. The results are as follows:

                                 
                    Three months ended           Nine months ended
($ millions)                    August 31, 2012           August 31, 2012
                                 
Net income from AGF Trust, up to July 31, 2012                 $ 0.5         $ 15.1
Interest income on subordinated debt classified as discontinued                                 
  operations, net of tax                   0.8           3.1
Gain on sale of AGF Trust, net of tax1                   4.7           3.8
Net income from discontinued operations                 $ 6.0         $ 22.0
1 Nine months include $1.0 million in transaction costs from Q2 2012.

Liquidity and Capital Resources

Cash flow generated from continuing operating activities, before net change in non-cash balances related to operations, was $24.6 million and $110.3 million for the three and nine months ended August 31, 2012, compared to $45.1 million and $145.7 million in the prior year. Cash flow generated from continuing operating activities is reduced due to a one-time current income tax expense of $4.5 million related to a change in tax estimate. As a result of the sale of AGF Trust, AGF received $421.6 million total consideration comprised of $247.0 million for the total equity of AGF Trust, repayment of the $109.5 million subordinated debt and the $64.0 million preferred shares from AGF Trust to AGF Management Limited. The primary uses of cash for the three and nine months ended August 31, 2012 were as follows:

  • During the nine months ended August 31, 2012, we repurchased a total of 4,079,822 shares for $47.6 million.

  • We paid $25.1 million and $75.5 million in dividends for the three and nine months ended August 31, 2012, compared to $25.3 million and $72.2 million in 2011.

  • We paid $7.0 million and $28.3 million in selling commissions for the three and nine months ended August 31, 2012, which were capitalized and are being amortized for accounting purposes, compared to $9.9 million and $40.4 million in 2011.

Consolidated cash and cash equivalents of $408.8 million increased by $346.7 million from the November 30, 2011 level of $62.1 million (2011 - decreased by $1.9 million).

On January 28, 2011, we arranged a four-year non-amortizing acquisition facility with two Canadian chartered banks. The facility allowed for a one-time drawdown of $185.0 million.

Upon the sale of AGF Trust, the four-year prime rate-based revolving term loan facility reduced to a maximum of $200.0 million, of which $194.9 million was available to be drawn as at August 31, 2012. The loan facility will be available to meet future operational and investment needs. We anticipate that cash balances and cash flow from operations, together with the available loan facility, will be sufficient in the foreseeable future to implement our business plan, finance selling commissions, satisfy regulatory requirements, service debt repayment obligations, meet capital spending needs, pay quarterly dividends and fund any future share buybacks.

Capital Management Activities from Continuing Operations

We actively manage our capital to maintain a strong and efficient capital base to maximize risk-adjusted returns to shareholders, to invest in future growth opportunities, including acquisitions, and to ensure that the regulatory capital requirements are met for each of our subsidiary companies.

AGF capital consists of shareholders' equity. On an annual basis, AGF prepares a five-year plan detailing projected operating budgets and capital requirements. Each of AGF's operating segments are required to prepare and submit a five-year operating plan and budget to AGF's Finance Committee for approval prior to seeking Board approval. AGF's Finance Committee consists of the Chairman and CEO, the Vice-Chairman, Executive Vice-President and CFO, and the Executive Vice-President and Chief Operating Officer. Once approved by the Finance Committee, the five-year plans are reviewed and approved by AGF's Board of Directors. These plans become the basis for the payment of dividends to shareholders, the repurchase of Class B Non-Voting shares and, combined with the reasonable use of leverage, the source of funds for acquisitions.

A significant objective of the Capital Management program is to ensure regulatory requirements are met for capital. Our Investment Management businesses, in general, are not subject to significant regulatory capital requirements in each of the jurisdictions in which they are registered and operate. The cumulative amount of minimum regulatory capital across all of our Investment Management Operations is approximately $6.0 million.

Normal Course Issuer Bid

In January 2012, the Company's Board of Directors authorized the renewal of AGF's normal course issuer bid for the purchase of up to 7,435,369 Class B Non-Voting shares, or 10% of the public float for such shares. The Company received approval from the Toronto Stock Exchange on January 25, 2012, for the renewal of its normal course issuer bid. This allows AGF to purchase up to 7,435,369 Class B Non-Voting shares through the facilities of the Toronto Stock Exchange (or as otherwise permitted by the Toronto Stock Exchange) between January 27, 2012 and January 26, 2013. The Class B Non-Voting shares may be repurchased from time to time at prevailing market prices or such other price as may be permitted by the Toronto Stock Exchange.

During the three and nine months ended August 31, 2012, under the current normal course issuer bid, 3,817,582 Class B Non-Voting shares were repurchased for a total consideration of $43.5 million at an average price of $11.37.

During the three months ended February 29, 2012, under the previous normal course issuer bid, 262,240 Class B Non-Voting shares were repurchased for a total consideration of $4.1 million at an average price of $15.73.

Dividends

For the three months ended August 31, 2012, we declared a $0.27 per share dividend on Class A Voting common and Class B Non-Voting shares. This dividend will be payable on October 19, 2012, to shareholders of record on October 9, 2012.

The holders of Class B Non-Voting and Class A Voting common shares are entitled to receive cash dividends. Dividends are paid in equal amounts per share on all the Class B Non-Voting shares and all the Class A Voting common shares at the time outstanding without preference or priority of one share over another. No dividends may be declared in the event that there is a default of a condition of our revolving loan or acquisition facilities or where such payment of dividends would create a default.

Our Board of Directors may determine that Class B Non-Voting shareholders shall have the right to elect to receive part or all of such dividend in the form of a stock dividend. They also determine whether a dividend in Class B Non-Voting shares is substantially equal to a cash dividend. This determination is based on the weighted average price at which the Class B Non-Voting shares traded on the Toronto Stock Exchange during the 10 trading days immediately preceding the record date applicable to such dividend.

The following table sets forth the dividends paid by AGF on Class B Non-Voting shares and Class A Voting common shares for the years indicated:

                                 
Years ended November 30       20121     2011     2010     2009     2008
                                 
Per share     $ 1.08   $ 1.07   $ 1.04   $ 1.00   $ 0.95
Percentage increase       -     3%     4%     5%     22%
1 Represents the total dividends paid in January 2012, April 2012 and July 2012 and to be paid in October 2012.

We review our dividend distribution policy on a quarterly basis, taking into account our financial position, profitability, cash flow and other factors considered relevant by our Board of Directors. The quarterly dividend paid on July 20, 2012, was $0.27 per share.

Outstanding Share Data

Set out below is our outstanding share data as at August 31, 2012 and 2011. For additional detail, see Note 4, Note 8 and Note 12 to the Q3 2012 Consolidated Financial Statements.

                     
    As at August 31,
            2012   2011
                     
Shares                    
  Class A Voting common shares             57,600   57,600
  Class B Non-Voting shares             92,453,391   95,143,630
                 
Stock Options                
  Outstanding options (including discontinued operations)             4,987,274   5,630,279
  Exercisable options (including discontinued operations)             3,286,213   3,110,597

 

Key Performance Indicators and Non-IFRS Measures

We measure the success of our business strategies using a number of key performance indicators (KPIs), which are outlined below. With the exception of revenue, the following KPIs are non-IFRS measures, which are not defined under IFRS. They should not be considered as an alternative to net income attributable to equity owners of the Company or any other measure of performance under IFRS. Segment discussions include a review of KPIs that are relevant to each segment.

a)     Consolidated Continuing Operations

Revenue

Revenue is a measurement defined by IFRS and is recorded net of fee rebates, sales taxes and distribution fees paid to limited partnerships. Revenue is indicative of our potential to deliver cash flow.

We derive our revenue principally from a combination of:

  • management and advisory fees based on AUM

  • deferred sales charges (DSC) earned from investors when mutual fund securities sold on a DSC basis are redeemed

  • 30.7% equity interest in S&WHL

EBITDA

We define EBITDA as earnings before interest, taxes, depreciation, amortization, non-controlling interest and impairment of goodwill and indefinite life assets. EBITDA is a standard measure used in the mutual fund industry by management, investors and investment analysts to understand and compare results. We believe this is an important measure as it allows us to assess our investment management businesses without the impact of non-operational items.

Please see the Consolidated Operating Results section on page 6 of this MD&A for a schedule showing how EBITDA reconciles to our IFRS financial statements.

Cash Flow from Continuing Operations

We report cash flow from continuing operations before net changes in non-cash balances related to continuing operations and other items as outlined below. Cash flow from continuing operations helps to assess the ability of the business to generate cash, which is used to pay dividends, repurchase shares, pay sales commissions, pay down debt and fund other needs.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
Net cash provided by continuing operating activities  $ 34.7    $ 49.9 $ 71.1   $ 99.9
Adjusted for:                    
  Net changes in non-cash working capital balances                     
    related to continuing operations   (14.1)     (9.8)   8.4     19.7
  Interest expense   (3.4)     (2.9)   (9.2)     (8.5)
  Deferred selling commissions paid   7.0     9.9   28.3     40.4
  Current income tax expense, net of payment   0.4     (2.0)   11.7     (5.8)
Cash flow from continuing operations $ 24.6   $ 45.1 $ 110.3   $ 145.7

 

Free Cash Flow from Continuing Operations

We define free cash flow from continuing operations as cash flow from operations before net changes in non-cash balances related to operations less selling commissions paid. This is a relevant measure in the investment management business since a substantial amount of cash is spent on upfront commission payments. Free cash flow from continuing operations represents cash available for distribution to our shareholders and for general corporate purposes.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
Cash flow from continuing operations (defined above)  $ 24.6    $ 45.1 $ 110.3   $ 145.7
Less:                    
  Deferred selling commissions paid   (7.0)     (9.9)   (28.3)     (40.4)
Free cash flow from continuing operations $ 17.6   $ 35.2 $ 82.0   $ 105.3

 

EBITDA Margin

EBITDA margin provides useful information to management and investors as an indicator of our overall operating performance. We believe EBITDA margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

                       
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012   2011
                       
EBITDA    $ 36.3    $ 61.6 $ 139.1   $ 181.7
Divided by revenue     119.8     151.4   385.2     447.5
EBITDA margin     30.3%     40.7%   36.1%     40.6%

 

Pre-tax Profit Margin

Pre-tax profit margin provides useful information to management and investors as an indicator of our overall operating performance. We believe pre-tax profit margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes to revenue.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
Net income (loss) from continuing operations  $ (19.3)    $ 8.5 $ 14.8   $ 58.6
Add: income taxes   6.8     9.5   20.4     27.9
Income before taxes  $ (12.5)    $ 18.0 $ 35.2   $ 86.5
Divided by revenue   119.8     151.4   385.2     447.5
Pre-tax profit margin   (10.4)%     11.9%   9.1%     19.3%

 

Return on Equity (ROE)

We monitor ROE to assess the profitability of the consolidated Company on an annual basis. We calculate ROE by dividing net income (loss) attributable to equity owners of the Company by average shareholders' equity.

                     
            Three months ended August 31,
($ millions)           2012   2011
                     
Net income (loss) from continuing operations (annualized)           $ (77.2)   $ 34.0
Divided by average shareholders' equity             1,147.3     1,133.4
Return on equity             (6.7)%     3.0%

 

Long-term Debt to EBITDA Ratio

Long-term debt to EBITDA ratio provides useful information to management and investors as an indicator of our ability to service our long-term debt. We define long-term debt to EBITDA ratio as long-term debt at the end of the year divided by EBITDA for the year.

                     
    Three months ended August 31,
($ millions)
        2012     2011
                     
Long-term debt1           $ 312.3   $ 316.2
Divided by EBITDA (annualized)             145.2     246.4
Long-term debt to EBITDA             215.1%     128.3%
1 Includes deferred cash consideration related to the Acuity acquisition.

Assets Under Management (AUM)

The amount of AUM is critical to our business since these assets generate fees from our mutual fund, institutional and sub-advisory accounts and high-net-worth relationships. AUM will fluctuate in value as a result of investment performance, sales and redemptions. Mutual fund sales and AUM determines a significant portion of our expenses because we pay upfront commissions on gross sales and trailing commissions to financial advisors as well as investment advisory fees based on the value of AUM.

Investment Performance

Investment performance, which represents market appreciation (depreciation) of fund portfolios and is shown net of management fees received, is a key driver of the level of AUM and is central to the value proposition that we offer advisors and unitholders. Growth in AUM resulting from investment performance increases the wealth of our unitholders, and, in turn, we benefit from higher revenues. Alternatively, poor investment performance will reduce our AUM levels and result in lower management fee revenues. Strong relative investment performance may also contribute to growth in gross sales or reduced levels of redemptions. Conversely, poor relative investment performance may result in lower gross sales and higher levels of redemptions. Refer to the 'Risk Factors and Management of Risk' section of this report for further information.

Net Sales (Redemptions)

Gross sales and redemptions are monitored separately and the sum of these two amounts comprises net sales (redemptions). Net sales (redemptions), together with investment performance and fund expenses, determine the level of average daily retail fund AUM, which is the basis on which management fees are charged. The average daily retail fund AUM is equal to the aggregate average daily net asset value of the AGF retail funds. We monitor AUM in our institutional, sub-advisory and high-net-worth businesses separately. We do not compute an average daily retail fund AUM figure for them.

EBITDA Margin (Excluding Share of Profit of Associated Company)

EBITDA margin provides useful information to management and investors as an indicator of our operating performance in our Investment Management Operations, excluding share of profit of associated company. We believe EBITDA margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
EBITDA  $ 36.3    $ 61.6 $ 139.1   $ 181.7
Divided by revenue   121.2     150.0   383.1     444.3
EBITDA margin   30.0%     41.1%   36.3%     40.9%

 

Pre-tax Profit Margin (Excluding Share of Profit of Associated Company)

Pre-tax profit margin provides useful information to management and investors as an indicator of our operating performance in our Investment Management Operations, excluding share of profit of associated company. We believe pre-tax profit margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes and non-segmented items to revenue.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012   2011     2012     2011
                     
Income before taxes and non-segmented items  $ 10.9    $ 33.0 $ 64.5   $ 105.2
Divided by revenue   121.2     150.0   383.1     444.3
Pre-tax profit margin   9.0%     22.0%   16.8%     23.7%

 

b)     Discontinued Operations - Trust Company

Net Interest Income

Net interest income is a common lending industry performance indicator. We monitor this figure to evaluate the growth of the financial contribution of AGF Trust. The figure is calculated by subtracting interest expense from interest income earned from AGF Trust loan assets.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
Interest income  $ 27.6    $ 42.2 $ 111.1   $ 129.5
Less: interest expense   15.7     23.4   61.6     70.9
Net interest income $ 11.9   $ 18.8 $ 49.5   $ 58.6

 

EBITDA Margin - Trust

EBITDA margin provides useful information to management and investors as an indicator of AGF Trust's operating performance. We believe EBITDA margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define EBITDA margin as the ratio of EBITDA to revenue.

                     
  Three months ended August 31,   Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
EBITDA  $ 1.6    $ 9.5 $ 21.6   $ 26.5
Divided by revenue   12.7     21.4   54.5     65.1
EBITDA margin   12.6%     44.4%   39.6%     40.7%

 

Pre-tax Profit Margin - Trust

Pre-tax profit margin provides useful information to management and investors as an indicator of AGF Trust's operating performance. We believe pre-tax profit margin is a valuable measure because it assesses the extent we are able to earn profit from each dollar of revenue. We define pre-tax profit margin as the ratio of income before taxes and non-segmented items to total revenue.

                     
  Three months ended August 31, Nine months ended August 31,
($ millions)   2012     2011   2012     2011
                     
Income before taxes and non-segmented items  $ 1.4    $ 9.2 $ 21.0   $ 25.5
Divided by revenue   12.7     21.4   54.5     65.1
Pre-tax profit margin   11.0%     43.0%   38.5%     39.2%

 

Significant Accounting Policies

A summary of AGF's significant accounting policies can be found in Note 3 of our Q1 2012 Consolidated Interim Financial Statements.

Adoption of International Financial Reporting Standards

AGF adopted IFRS effective December 1, 2011, with a transition date of December 1, 2010. The adoption of IFRS has not had a material impact on AGF's operations, strategic decisions and cash flow. AGF's IFRS accounting policies are provided in Note 3 of the Q1 2012 Consolidated Financial Statements. In addition, Note 21 of the Q1 2012 Consolidated Financial Statements presents reconciliations between AGF's GAAP results and IFRS results and explanations of the adjustments on transition to IFRS. The reconciliation includes the Consolidated Statement of Financial Position for the transition date of December 1, 2010 and the year ended November 30, 2011. Note 17 of our Q3 2012 Consolidated Financial Statements includes reconciliations of the Consolidated Statements of Income, Comprehensive Income and Cash Flows for the quarter ended August 31, 2011.

Managing Risk

AGF is subject to a number of company and non-company specific risk factors that may impact our operating and financial performance. These risks and the management of those risks are detailed in our 2011 Annual MD&A in the section entitled 'Risk Factors and Management of Risk.' The Company has not identified any material changes to the risk factors affecting its business or in the management of those risks.

Internal Controls Over Financial Reporting

The Chief Executive Officer and the Chief Financial Officer have designed or caused the design of the Internal Controls Over Financial Reporting (ICFR) and Disclosure Controls and Procedures. There have been no changes to AGF's internal controls for the quarter ended August 31, 2012 that have materially affected or are reasonably likely to materially affect the internal controls over financial reporting. On February 1, 2011, the Company completed its acquisition of Acuity. During the second quarter of 2011, certain internal controls over financial reporting were impacted and interim controls were relied upon. The financial reporting processes were fully integrated with AGF in the second quarter of 2011.

Selected Quarterly Information

                 
    IFRS   IFRS   IFRS   IFRS
($ millions, except per share amounts)   Aug. 31,   May 31,   Feb. 29,   Nov. 30,
For the three-month period ended    2012   2012   2012   2011
                 
Revenue (continuing operations)  $ 119.8  $ 133.5  $ 131.9  $ 138.1
Cash flow from continuing operations1   24.6   44.4   41.4   39.2
EBITDA (continuing operations)2   36.3   50.3   52.4   56.2
Pre-tax income (loss) (continuing operations)   (12.5)   22.7   25.0   28.1
Net income (loss) attributable to equity owners of the Company   (13.3)   23.8   26.1   25.1
                 
EBITDA per share (continuing operations)                
  Basic $ 0.38 $ 0.52 $ 0.55 $ 0.59
  Diluted $ 0.38 $ 0.52 $ 0.54 $ 0.59
                 
Earnings (loss) per share attributable to                 
  equity owners of the Company                
  Basic (continuing operations) $ (0.20) $ 0.17 $ 0.18 $ 0.19
  Diluted (continuing operations) $ (0.20) $ 0.17 $ 0.18 $ 0.19
  Basic $ (0.14) $ 0.25 $ 0.27 $ 0.26
  Diluted $ (0.14) $ 0.25 $ 0.27 $ 0.26
                 
Weighted average basic shares   94,311,520   96,143,964   95,662,657   95,230,703
Weighted average fully diluted shares   94,687,056   96,735,309   96,372,419   95,932,850
    IFRS   IFRS   IFRS   GAAP
($ millions, except per share amounts)   Aug. 31,    May 31,    Feb. 28,    Nov. 30, 
For the three-month period ended    2011    2011    2011    2010 
                 
Revenue (continuing operations)  $ 151.4  $ 158.1  $ 138.0  $ 131.5
Cash flow from continuing operations1   45.2   58.3   42.1   38.3
EBITDA (continuing operations)2   61.6   66.2   53.9   55.3
Pre-tax income (continuing operations)   18.0   37.3   31.3   33.2
Net income attributable to equity owners of the Company   15.4   33.9   29.2   31.0
                 
EBITDA per share (continuing operations)                
  Basic $ 0.64 $ 0.69 $ 0.59 $ 0.62
  Diluted $ 0.64 $ 0.68 $ 0.59 $ 0.62
                 
Earnings per share attributable to                 
equity owners of the Company                
  Basic (continuing operations) $ 0.09 $ 0.28 $ 0.25 $ 0.27
  Diluted (continuing operations) $ 0.09 $ 0.28 $ 0.25 $ 0.27
  Basic $ 0.16 $ 0.35  $ 0.33  $ 0.35
  Diluted $ 0.16 $ 0.35  $ 0.32  $ 0.35
                 
Weighted average basic shares   95,518,051   95,568,899   90,799,935   88,616,451
Weighted average fully diluted shares   96,446,821   96,794,115   92,010,135   89,665,401
1  Cash flow from continuing operations as previously defined, see 'Key Performance Indicators and Non-IFRS Measures - Cash flow from continuing operations' section.
2 As previously defined, see 'Key Performance Indicators and Non-IFRS Measures - EBITDA' section.

Additional Information

Additional information relating to the Company can be found in our Consolidated Financial Statements and accompanying notes for the three and nine months ended August 31, 2012, our 2011 Annual MD&A and Consolidated Financial Statements, our 2011 Annual Information Form (AIF) and other documents filed with applicable securities regulators in Canada. They may be accessed at www.sedar.com.

AGF Management Limited
CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the three and nine months ended August 31, 2012


AGF Management Limited
Consolidated Interim Statement of Financial Position

               
(unaudited)     August 31,       November 30,
(in thousands of Canadian dollars) Note   2012       2011
               
Assets               
  Current Assets               
    Cash and cash equivalents   $ 408,755     $ 246,634
    Investments 3   29,501       517,486
    Accounts receivable, prepaid expenses and other assets     57,922       71,805
    Derivative financial instruments 4   -       10,038
    Current portion of retained interest from securitization 4   -       38,939
    Real estate secured and investment loans due within one year 4   -       465,489
      496,178       1,350,391
               
  Real estate secured and investment loans 4   -       2,486,128
  Investment in associated company     73,290       76,616
  Management contracts 6   704,842       715,769
  Customer contracts, net of accumulated amortization 6   22,699       35,971
  Goodwill 6   244,549       254,588
  Other intangibles, net of accumulated amortization 6   16,267       21,959
  Deferred selling commissions, net of accumulated amortization  6   144,647       167,950
  Property, equipment and computer software, net of              
     accumulated amortization     9,679       11,027
  Deferred income tax assets     12,945       13,339
  Derivative financial instruments 4   -       14,271
  Other assets 4   7,841       7,310
Total assets   $ 1,732,937     $ 5,155,319
               
Liabilities              
  Current Liabilities               
    Accounts payable and accrued liabilities    $ 81,854     $ 101,934
    Income tax liability 13   22,361       23,104
    Provision for Elements Advantage     2,633       4,137
    Secured financing 4   -       41,998
    Acquisition consideration payable 5   3,799       31,663
    Derivative financial instrument     1,439       1,747
    Deposits due within one year 4   -       1,769,709
      112,086       1,974,292
               
  Deposits 4   -       1,260,090
  Long-term debt 7   308,455       308,269
  Secured financing 4   -       196,626
  Acquisition consideration payable 5   5,368       10,717
  Deferred income tax liabilities     190,510       198,822
  Derivative financial instrument     2,702       3,302
  Provision for Elements Advantage     1,840       2,506
  Other long-term liabilities     6,213       10,924
  Total liabilities     627,174       3,965,548
               
Equity              
  Equity attributable to owners of the Company              
    Capital stock 8   553,231       560,838
    Contributed surplus     26,475       24,797
    Retained earnings      526,977       594,804
    Accumulated other comprehensive income (loss) 9   (1,391)       8,860
      1,105,292       1,189,299
               
  Non-controlling interest     471       472
               
Total equity     1,105,763       1,189,771
Total liabilities and equity   $ 1,732,937     $ 5,155,319

(The accompanying notes are an integral part of these consolidated interim financial statements.)

AGF Management Limited
Consolidated Interim Statement of Income (Loss)

               
(unaudited)   Three months ended
      August 31,     August 31,  
(in thousands of Canadian dollars, except per share data) Note   2012     2011  
               
Revenue              
  Management and advisory fees    $ 116,461   $ 142,658  
  Deferred sales charges      4,788     5,661  
  Share of profit (loss) of associated company     (1,376)     1,417  
  Fair value adjustments and other income (loss) 10   (45)     1,677  
Total revenue     119,828     151,413  
               
Expenses               
  Selling, general and administrative  11   49,773     45,999  
  Business acquisition and integration 5, 11   -     1,700  
  Trailing commissions      32,163     39,828  
  Investment advisory fees      1,519     2,278  
  Amortization of deferred selling commissions      17,973     19,972  
  Amortization of customer contracts     4,205     4,261  
  Amortization of other intangibles     2,260     2,151  
  Amortization of property, equipment and computer software      989     856  
  Interest expense     3,422     2,938  
  Impairment of goodwill and management contracts 6   20,013     13,426  
      132,317     133,409  
               
Income (loss) before income taxes     (12,489)     18,004  
               
Income tax expense (benefit)              
  Current 13   10,140     10,760  
  Deferred 13   (3,357)     (1,218)  
      6,783     9,542  
               
Income (loss) from continuing operations, net of tax     (19,272)     8,462  
               
Income from discontinued operations, net of tax 4   6,006     7,117  
               
Net income (loss) for the period   $ (13,266)   $ 15,579  
               
Net income (loss) attributable to:              
  Equity owners of the Company   $ (13,304)   $ 15,394  
  Non-controlling interest     38     185  
    $ (13,266)   $ 15,579  
               
Earnings (loss) per share for the period attributable to the equity owners              
of the Company              
Basic earnings (loss) per share              
  Continuing operations 14 $ (0.20)   $ 0.09  
  Discontinued operations 14   0.06     0.07  
  14 $ (0.14)   $ 0.16  
               
Diluted earnings (loss) per share              
  Continuing operations 14 $ (0.20)   $ 0.09  
  Discontinued operations 14   0.06     0.07  
  14 $ (0.14)   $ 0.16  

(The accompanying notes are an integral part of these consolidated interim financial statements.)

AGF Management Limited
Consolidated Interim Statement of Income (Loss)

               
(unaudited)   Nine months ended
      August 31,     August 31,  
(in thousands of Canadian dollars, except per share data) Note   2012     2011  
               
Revenue              
  Management and advisory fees    $ 369,527   $ 425,915  
  Deferred sales charges      16,059     18,045  
  Share of profit of associated company     2,098     3,224  
  Fair value adjustments and other income (loss) 10   (2,454)     339  
Total revenue     385,230     447,523  
               
Expenses               
  Selling, general and administrative  11   139,869     129,719  
  Business acquisition and integration 5, 11   -     9,852  
  Trailing commissions      100,647     119,032  
  Investment advisory fees      5,591     7,155  
  Amortization of deferred selling commissions      51,631     56,058  
  Amortization of customer contracts     13,272     10,034  
  Amortization of other intangibles     6,990     4,945  
  Amortization of property, equipment and computer software      2,747     2,237  
  Interest expense     9,236     8,507  
  Impairment of goodwill and management contracts 6   20,013     13,426  
      349,996     360,965  
               
Income before income taxes     35,234     86,558  
               
Income tax expense (benefit)              
  Current 13   26,330     33,129  
  Deferred 13   (5,915)     (5,210)  
      20,415     27,919  
               
Income from continuing operations     14,819     58,639  
               
Income from discontinued operations, net of taxes 4   21,925     20,596  
               
Net income for the period   $ 36,744   $ 79,235  
               
Net income attributable to:              
  Equity owners of the Company   $ 36,602   $ 78,517  
  Non-controlling interest     142     718  
    $ 36,744   $ 79,235  
               
Earnings per share for the period attributable to the equity owners of the Company              
  Basic earnings per share              
    Continuing operations 14 $ 0.15   $ 0.62  
    Discontinued operations 14   0.23     0.22  
  14 $ 0.38   $ 0.84  
               
  Diluted earnings per share              
    Continuing operations 14 $ 0.15   $ 0.61  
    Discontinued operations 14   0.23     0.22  
  14 $ 0.38   $ 0.83  

 (The accompanying notes are an integral part of these consolidated interim financial statements.)


AGF Management Limited
Consolidated Interim Statement of Comprehensive Income (Loss)

                     
(unaudited) Three months ended August 31,   Nine months ended August 31,
(in thousands of Canadian dollars)   2012     2011   2012     2011
                     
Net income (loss) for the period $ (13,266)   $ 15,579 $ 36,744   $ 79,235
                       
  Other comprehensive income (loss), net of tax                    
                       
  Cumulative translation adjustment                    
    Foreign currency translation adjustments related to net                    
      investments in foreign operations   (1,573)     (17)   (1,459)     (315)
    (1,573)     (17)   (1,459)     (315)
  Net unrealized gains (losses) on                     
    available for sale securities                    
    Unrealized gains (losses)   37     (46)   56     (191)
    37     (46)   56     (191)
  Net unrealized gains (losses) on cash flow hedge                    
    Unrealized gains (losses)   448     (2,713)   (35)     (2,713)
    Reclassification of realized loss to earnings   238     -   761     -
    686     (2,713)   726     (2,713)
Total other comprehensive loss                    
  from continuing operations, net of tax $ (850)   $ (2,776) $ (677)   $ (3,219)
                     
Total other comprehensive income (loss)                    
  from discontinued operations, net of tax $ (94)   $ 2,938 $ (2,875)   $ (3,967)
Recycling of unrealized gain on available for sale securities                    
  related to the sale of AGF Trust   (6,699)     -   (6,699)     -
                     
Comprehensive income (loss) $ (20,909)   $ 15,741 $ 26,493   $ 72,049
                     
Comprehensive income (loss) attributable to:                    
  Equity holders of the Company $ (20,947)   $ 15,556 $ 26,351   $ 71,331
  Non-controlling interest   38     185   142     718
  $ (20,909)   $ 15,741 $ 26,493   $ 72,049

 (The accompanying notes are an integral part of these consolidated interim financial statements.)

AGF Management Limited
Consolidated Interim Statement of Changes in Equity

                             
(unaudited)                            
(in thousands of Canadian dollars)     Capital
stock
  Contributed
surplus
Retained
earnings
Accumulated
other
  comprehensive
income (loss)
Attributable to
  equity owners of
the Company
Non-
  controlling
interest
Total
equity
                             
Balance, December 1, 2010 $ 439,216 $ 22,580   $ 599,667   $ 16,010 $ 1,077,473 $ 497   $ 1,077,970
Net income for the period   -   -   78,517   -   78,517   718   79,235
Other comprehensive loss                            
  (net of tax)   -   -   -   (7,186)   (7,186)   -   (7,186)
Comprehensive income (loss)                            
  for the period   -   -   78,517   (7,186)   71,331   718   72,049
Issued through dividend                            
  reinvestment plan   1,554   -   -   -   1,554   -   1,554
Stock options   5,766   1,914   -   -   7,680   -   7,680
AGF Class B Non-Voting                            
  shares repurchased for                            
  cancellation   (2,934)   -   (5,096)   -   (8,030)   -   (8,030)
AGF Class B Non-Voting shares                            
  issued on acquisition of Acuity   114,679   -   -   -   114,679   -   114,679
Dividends on AGF Class A                            
  Voting common shares and                             
  AGF Class B Non-Voting shares   -   -   (73,736)   -   (73,736)   -   (73,736)
Increase in ownership interest                            
  in Highstreet Partners Limited   -   -   (1,596)   -   (1,596)   -   (1,596)
Dividends to non-controlling                            
  interest   -   -   -   -   -   (604)   (604)
Balance, August 31, 2011 $ 558,281 $ 24,494   $ 597,756   $ 8,824 $ 1,189,355 $ 611   $ 1,189,966
                             
Balance, December 1, 2011 $ 560,838 $ 24,797 $ 594,804   $ 8,860 $ 1,189,299 $ 472 $ 1,189,771
Net income for the period   -   -   36,602   -   36,602   142   36,744
Other comprehensive loss                            
  (net of tax)   -   -   -   (10,251)   (10,251)   -   (10,251)
Comprehensive income (loss)                            
  for the period   -   -   36,602   (10,251)   26,351   142   26,493
Issued through dividend                            
  reinvestment plan   2,102   -   -   -   2,102   -   2,102
Stock options   1,274   1,678   -   -   2,952   -   2,952
AGF Class B Non-Voting                            
  shares repurchased for                            
  cancellation   (24,305)   -   (23,278)   -   (47,583)   -   (47,583)
AGF Class B Non-Voting shares                            
  issued on acquisition of Acuity   13,322   -   -   -   13,322   -   13,322
Dividends on AGF Class A                            
  Voting common shares and                             
  AGF Class B Non-Voting                            
  shares, including tax   -   -   (80,120)   -   (80,120)   -   (80,120)
Increase in ownership interest                            
  in Highstreet Partners Limited   -   -   (1,031)   -   (1,031)   -   (1,031)
Dividends to non-controlling                            
  interest   -   -   -   -   -   (143)   (143)
Balance, August 31, 2012 $ 553,231 $ 26,475   $ 526,977     $ (1,391) $ 1,105,292 $ 471 $ 1,105,763

 (The accompanying notes are an integral part of these consolidated interim financial statements.)


AGF Management Limited
Consolidated Interim Statement of Cash Flow

               
(unaudited)   Nine months ended
      August 31,     August 31,  
(in thousands of Canadian dollars) Note   2012     2011  
               
Operating Activities               
  Net income for the period   $ 36,744   $ 79,235  
               
  Adjustments for              
    Net income from discontinued operations     (21,925)     (20,596)  
    Amortization     74,640     73,274  
    Impairment of goodwill and management contracts     20,013     13,426  
    Interest expense     9,236     8,507  
    Income tax expense     20,415     27,919  
    Income taxes paid     (38,068)     (27,291)  
    Stock-based compensation     1,864     5,891  
    Share of profit of associated company     (2,098)     (3,224)  
    Dividends from associated company     4,151     1,247  
    Deferred selling commissions paid      (28,328)     (40,369)  
    Other     2,883     1,542  
      79,527     119,561  
               
  Net change in non-cash working capital balances related to operations              
    Accounts receivable     16,370     1,611  
    Other assets     (1,617)     (1,351)  
    Accounts payable and accrued liabilities     (13,415)     (20,603)  
    Other liabilities     (9,722)     671  
      (8,384)     (19,672)  
               
  Net cash provided by continuing operating activities     71,143     99,889  
  Net cash used in discontinued operating activities 4   (214,306)     (123,141)  
  Net cash used in operating activities      (143,163)     (23,252)  
               
Financing Activities               
  Repurchase of Class B Non-Voting shares for cancellation     (47,583)     (8,030)  
  Issue of Class B Non-Voting shares     1,191     5,073  
  Dividends paid     (75,467)     (72,182)  
  Decrease in long-term debt related to Facility 1 7   -     (18,999)  
  Increase in long-term debt related to Facility 2 and Acquisition facility 7   -     185,000  
  Investment Management interest paid     (8,540)     (6,390)  
  Net cash provided by (used in) continuing financing activities     (130,399)     84,472  
  Net cash provided by discontinued financing activities 4   464,359     -  
  Net cash provided by financing activities     333,960     84,472  
               
Investing Activities               
  Increase in ownership interest in Highstreet Partners Limited 5   (2,417)     (1,596)  
  Acquisition of Acuity Funds Ltd. and Acuity Investment Management,              
    net of cash acquired 5   (20,976)     (173,415)  
  Acquisition of Robitaille Asset Management Inc.     (1,200)     -  
  Proceeds from sale of discontinued operations, net of AGF Trust cash 4   8,850     -  
  Purchase of property, equipment and computer software     (4,440)     (3,063)  
  Purchase of Investment Management investments 3   (15,735)     (4,245)  
  Proceeds from sale of Investment Management investments 3   7,408     11,065  
  Net cash used in continuing investing activities     (28,510)     (171,254)  
  Net cash provided by (used in) discontinued investing activities 4   (166)     1,008  
  Net cash used in investing activities      (28,676)     (170,246)  
               
Increase (decrease) in cash and cash equivalents
  during the period 
    162,121     (109,026)  
               
Balance of cash and cash equivalents, beginning of period     246,634     456,921  
               
Balance of cash and cash equivalents, end of period   $ 408,755   $ 347,895  
               
Represented by:               
  Cash and cash equivalents per the balance sheet   $ 408,755   $ 55,985  
  Cash and cash equivalents included in assets classified as discontinued operations     -     291,910  
    $ 408,755   $ 347,895  

 (The accompanying notes are an integral part of these consolidated interim financial statements.)


Notes to Consolidated Interim Financial Statements

For the three and nine months ended August 31, 2012 (unaudited)

Note 1: General Information

AGF Management Limited (AGF or the Company) is a limited liability company incorporated and domiciled in Canada under the Business Corporations Act (Ontario). The address of its registered office and principal place of business is Toronto-Dominion Bank Tower, 66 Wellington Street West, Toronto, Ontario.

The Company is an integrated, global wealth management corporation whose principal subsidiaries provide investment management for mutual funds, institutions and corporations, as well as high-net-worth clients. The Company conducts the management and distribution of mutual funds in Canada under the brand names AGF, Acuity, Elements and Harmony (collectively, AGF Investments). Prior to August 1, 2012, the Company had a principal subsidiary that provided trust products and services. The trust business was conducted under the name AGF Trust Company (AGF Trust). On August 1, 2012, the Company completed its sale of 100% of the shares of AGF Trust to B2B Bank, a subsidiary of Laurentian Bank. Refer to Note 4 for further details.

These consolidated interim financial statements were authorized for issue by the Board of Directors on September 25, 2012.

Note 2: Basis of Preparation and Adoption of IFRS

The Company prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP) as set out in the Handbook of the Canadian Institute of Chartered Accountants (CICA Handbook). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (IFRS), and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis in its 2012 consolidated interim financial statements. In these consolidated financial statements, the term 'Canadian GAAP' refers to Canadian GAAP before the adoption of IFRS.

These consolidated interim financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 and IFRS 1. The accounting policies followed in these consolidated interim financial statements are the same as those applied in the Company's consolidated interim financial statements for the period ended February 29, 2012. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect. Note 17 discloses the impact of the transition to IFRS on the Company's reported financial position as at August 31, 2011, financial performance for the three and nine months ended August 31, 2011 and cash flows for the nine months ended August 31, 2011.

The accounting policies applied in these consolidated interim financial statements are based on IFRS effective for the year ending November 30, 2012, as issued and outstanding as of the date the Board of Directors authorized the statements for issue. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending November 30, 2012, could result in restatement of these consolidated interim financial statements, including the transition adjustments recognized on changeover to IFRS.

These consolidated interim financial statements should be read in conjunction with the Company's Canadian GAAP annual consolidated financial statements for the year ended November 30, 2011, and the Company's consolidated interim financial statements for the quarter ended February 29, 2012 prepared in accordance with IFRS applicable to interim financial statements.

Note 3: Investments and Investment in Associated Company

(a)     The following table presents a breakdown of investments:

                       
              August 31,       November 30,
(in thousands of Canadian dollars)             2012       2011 
                       
Canadian government debt - Federal           $ 1,250     $ 299
AGF mutual funds and other             23,655       15,673
Equity securities             4,596       5,040
              29,501       21,012
                       
Investments related to discontinued operations (Note 4)              -       496,474
                       
            $ 29,501     $ 517,486

 

The investment in Canadian government debt is composed of fixed-rate treasury bonds with maturity dates within one year and credit ratings of AAA. During the three and nine months ended August 31, 2012 and 2011, no impairment charges were required.

(b)     The Company holds a 30.7% investment in S&WHL accounted for using the equity method. At August 31, 2012, the carrying value was $73.3 million (November 30, 2011 - $76.6 million). During the three and nine months ended August 31, 2012, the Company recognized a loss of $1.4 million and earnings of $2.1 million, respectively (2011 - $1.4 million and $3.2 million in earnings, respectively). During the nine months ended August 31, 2012, the Company received $4.2 million in dividends (2011 - $1.2 million) from S&WHL. During the three and nine months ended August 31, 2012, the Company recognized a one-time charge of $2.1 million related to a goodwill impairment recorded by S&WHL. During the nine months ended August 31, 2011, the Company recognized a one-time charge of $1.0 million related to a regulatory levy recorded by S&WHL.

Note 4: Discontinued Operations

On August 1, 2012, the Company completed its sale of 100% of the shares of AGF Trust to B2B Bank, a subsidiary of Laurentian Bank, for cash consideration corresponding to the net book value of AGF Trust at closing of $247.0 million. The transaction also caused AGF Trust to repay subordinated indebtedness owed to AGF and redeem preferred shares held by AGF for an additional consideration of $173.5 million.

In addition, the agreement includes a contingent consideration to a maximum of $20.0 million over five years if the credit performance of AGF Trust's loan portfolio meets certain thresholds. Accordingly, a contingent consideration receivable of $2.0 million was recorded on the sale of AGF Trust and is included in other assets on the statement of financial position, representing management's best estimate of the fair value thereof. The key assumptions used in the five-year analysis of the credit quality of the loan portfolio was a 9.0% liquidation rate on the secured investment loans in year 1 and a 3.0% liquidation rate in years 2 to 5. A 1% increase in the secured investment loan liquidation rate used in the analysis of the credit quality of the loan portfolio would result in a decrease to the contingent consideration receivable of $2.0 million, whereas a 1% decrease would result in an increase to the contingent consideration receivable of $12.4 million.

For the nine months ended August 31, 2012, the income from discontinued operations included in the consolidated statement of income and the cash inflow from the sale of AGF Trust included in the consolidated statement of cash flow is as follows:

             
(in thousands of Canadian dollars)            
                 
  Consideration:            
    Cash received          $ 419,537
    Contingent consideration receivable            2,033
            421,570
             
  Less: net AGF Trust assets disposed           (422,196)
             
  Other items:            
    Expenses related to the sale of AGF Trust, net of tax           (1,780)
    Recycling of unrealized gain on available for sale securities           6,699
    Tax on contingent receivable           (539)
            4,380
                 
  Gain on disposal         $ 3,754
             
  Net income related to AGF Trust           18,171
Income from discontinued operations         $ 21,925
             
Cash flows:            
  Cash consideration         $ 419,537
  Cash disposed           (410,687)
Cash inflow in the period         $ 8,850

 

For the three and nine months ended August 31, 2012 and 2011, the operating performance of AGF Trust up to July 31, 2012, has been included in the Company's consolidated statement of income as discontinued operations as follows:

               
    Three months ended
      August 31,     August 31,  
(in thousands of Canadian dollars)     2012     2011  
               
Revenue              
  RSP loan securitization income, net of impairment   $ -   $ 636  
  Other income     741     1,930  
  AGF Trust net interest income1     13,028     20,376  
Total revenue     13,769     22,942  
               
Expenses               
  Selling, general and administrative      9,718     8,980  
  Amortization of property, equipment and computer software      140     289  
  Provision for AGF Trust loan losses     1,428     2,926  
      11,286     12,195  
               
Income before income taxes     2,483     10,747  
               
Income tax expense (benefit)              
  Current1     172     3,787  
  Deferred     1,029     (157)  
      1,201     3,630  
               
Net income related to AGF Trust   $ 1,282   $ 7,117  
               
Net income attributable to:              
  Equity owners of the Company   $ 1,282   $ 7,117  
  Non-controlling interest     -     -  
    $ 1,282   $ 7,117  

               
    Nine months ended
      August 31,     August 31,  
(in thousands of Canadian dollars)     2012     2011  
               
Revenue              
  RSP loan securitization income, net of impairment   $ 1,263   $ 1,931  
  Other income     3,713     4,576  
  AGF Trust net interest income1     53,744     63,312  
Total revenue     58,720     69,819  
               
Expenses               
  Selling, general and administrative      28,721     29,424  
  Amortization of property, equipment and computer software      563     1,008  
  Provision for AGF Trust loan losses     4,195     9,164  
      33,479     39,596  
               
Income before income taxes     25,241     30,223  
               
Income tax expense (benefit)              
  Current1     8,398     10,224  
  Deferred     (1,328)     (597)  
      7,070     9,627  
               
Net income related to AGF Trust   $ 18,171   $ 20,596  
               
Net income attributable to:              
  Equity owners of the Company   $ 18,171   $ 20,596  
  Non-controlling interest     -     -  
    $ 18,171   $ 20,596  
1 Adjusted for interest income on subordinated debt classified as discontinued operations, net of tax.

i)     AGF Trust Net Interest Income

A breakdown of AGF Trust net interest income is as follows:

               
  Three months ended August 31, 
(in thousands of Canadian dollars)        20121       2011
               
AGF Trust interest income              
  Loan interest   $ 25,042     $ 38,347
  Investment interest     2,638       3,885
      27,680       42,232
               
AGF Trust interest expense              
  Deposit interest     12,293       23,752
  Hedging interest income     (1,094)       (4,546)
  Other interest expense2     3,453       2,650
      14,652       21,856
               
AGF Trust net interest income    $ 13,028      $ 20,376
               
  Nine months ended August 31,
(in thousands of Canadian dollars)     20121       2011
               
AGF Trust interest income              
  Loan interest   $ 100,784     $ 118,017
  Investment interest     10,348       11,437
      111,132       129,454
               
AGF Trust interest expense              
  Deposit interest     51,145       74,985
  Hedging interest income     (5,899)       (16,994)
  Other interest expense2     12,142       8,151
      57,388       66,142
               
AGF Trust net interest income    $ 53,744      $ 63,312
1 Includes AGF Trust activity up to July 31, 2012.
2 Adjusted for interest income on subordinated debt classified as discontinued operations.

ii)     Stock-based Compensation and Other Stock-based Payments

(a)     Stock Option Plans

Refer to Note 12 for further details on the Company's stock option plans. The change in stock options related to AGF Trust during the nine months ended August 31, 2012 and 2011 is summarized as follows:

                       
Nine months ended August 31, 2012 August 31, 2011
          Weighted         Weighted
          average           average
    Options   exercise price     Options     exercise price
                       
Class B Non-Voting share options related to AGF Trust                      
  Balance, beginning of the period   456,750   $ 17.93     507,300   $ 16.28
  Options granted   31,505     15.87     48,400     19.03
  Options expired   (10,000)     17.12     -     -
  Options exercised   (4,750)     8.24     (98,000)     10.05
  Balance, end of the period   473,505   $ 17.91     457,700   $ 17.91

 

During the three months ended August 31, 2012, no stock options were granted to AGF Trust employees (2011 - nil) and compensation expense and contributed surplus of $0.2 million (2011 - less than $0.1 million) were recorded. During the nine months ended August 31, 2012, 31,505 stock options were granted to AGF Trust employees (2011 - 48,400) and compensation expense and contributed surplus of $0.3 million (2011 - $0.2 million) were recorded. The fair value of options granted during the nine months ended August 31, 2012, has been estimated at $3.10 per share (2011 - $4.43 per share) using the Black-Scholes option-pricing model. The following assumptions were used to determine the fair value of the options granted during the nine months ended August 31, 2012:

Risk-free interest rate      1.3%
Expected dividend yield      6.8%
Expected share price volatility      41.8%
Option term       5.0 years

(a)     Restricted Share Unit (RSU) Plans

The change in share units related to AGF Trust during the nine months ended August 31, 2012 and 2011 is as follows:

                   
Nine months ended August 31, 2012   August 31, 2011
  Number of share units   Number of share units
                   
Outstanding, beginning of the period                  
  Non-vested       18,369       51,378
Issued                  
  Initial grant     17,458       10,824
  In lieu of dividends     1,730       1,522
Settled in cash     (20,805)       -
Forfeited and cancelled     (16,752)       (2,469)
Outstanding, end of the period       -         61,255

 

Compensation expense for the three months ended August 31, 2012, related to these share units was $0.2 million (2011 - nil), and for the nine months ended August 31, 2012, was $0.4 million (2011 - $0.2 million).

Note 5: Acquisitions

(a)     Acquisition of Acuity Funds Ltd. and Acuity Investment Management Inc.

On February 1, 2011, the Company completed its acquisition of 100% of the shares of Acuity Funds Ltd. and Acuity Investment Management Inc. (Acuity) for a purchase price of $335.5 million. Acuity manages retail and institutional assets. Goodwill of $118.3 million was recognized as the fair value of consideration paid in excess of the fair value of separately recognized tangible and intangible assets acquired, net of liabilities assumed.

The fair values of net assets acquired and consideration paid are summarized in the table below:

                     
(in thousands of Canadian dollars)                    
                     
Net assets acquired                    
  Cash                 $ 4,842
  Other assets                   10,646
  Management contracts                   211,500
  Customer contracts                   39,278
  Non-competition agreement                   21,900
  Finite-life management contracts                   5,500
  Trademark                   1,600
  Goodwill                   118,325
  Liabilities                   (14,028)
  Future income taxes                   (64,014)
                  $ 335,549
                     
Consideration paid                    
  Cash                 $ 178,257
  Cash payments due February 1, 2012                   18,391
  Cash payments due February 1, 2013                   3,644
  Cash payments due February 1, 2014                   3,579
  Issuance of Class B Non-Voting shares                   55,683
  Issuance of Class B Non-Voting shares held in escrow                   58,996
  Issuance of Class B exchangeable preferred shares, redeemable February 1, 2012                   9,756
  Issuance of Class C exchangeable preferred shares, redeemable February 1, 2012                   2,517
  Issuance of Class D exchangeable preferred shares, redeemable February 1, 2013                   2,400
  Issuance of Class E exchangeable preferred shares, redeemable February 1, 2014                   2,326
                    $ 335,549

 

The non-competition agreement, finite-life management contracts, and trademarks are stated at cost (being the fair value at the date of acquisition), net of accumulated amortization and impairment, if any, on the consolidated statement of financial position under other intangibles. Amortization is computed on a straight-line basis over three to 10 years based on the estimated useful lives of these assets.

The deferred cash payments and Class B, C, D and E exchangeable preferred shares are subject to an adjustment based on Acuity's net sales of institutional AUM between the date of acquisition and the payment or redemption date of these preferred shares. As at August 31, 2012, the maximum adjustment to the acquisition consideration payable related to Acuity's net sales of institutional AUM is an increase of $6.7 million and a decrease of nil. The Class B, C, D and E exchangeable preferred shares are to be settled by the issuance of a variable number of AGF Class B Non-Voting shares, the number of which is determined by reference to a fixed exchange ratio. The deferred cash payments and Class B, C, D and E exchangeable preferred shares are accounted for as contingently returnable consideration carried at fair value and have been classified on the consolidated statement of financial position as acquisition consideration payable.

The Class B Non-Voting shares held in escrow, as part of the consideration paid outlined in the above table, are released to the Acuity vendors between August 1, 2011, and February 1, 2014. Dividends declared on the Class B Non-Voting shares are paid to the vendors during the escrow period. During the three months ended August 31, 2012, no Class B Non-Voting shares were released from escrow. During the nine months ended August 31, 2012, 3,105,516 Class B Non-Voting shares were released from escrow. As at August 31, 2012, 370,236 Class B Non-Voting shares continue to be held in escrow. Prior to the acquisition, the Company also advanced $14.0 million to Acuity, which was converted into common shares of Acuity upon closing and has been reflected above as cash consideration paid.

On February 1, 2012, $34.3 million was paid to the Acuity vendors, consisting of $21.0 million in cash and a settlement of the Class B and C exchangeable preferred shares through the issuance of 828,452 Class B Non-Voting shares valued at $13.3 million.

The following is a summary of the fair values of contingently returnable consideration as at August 31, 2012, and November 30, 2011:

                     

            August 31,     November 30,
(in thousands of Canadian dollars)             2012     2011
                     
Cash payments due February 1, 2012           $ -   $ 19,693
Cash payments due February 1, 2013             2,650     3,563
Cash payments due February 1, 2014             3,812     3,306
Issuance of Class B exchangeable preferred shares, redeemable February 1, 2012         -     9,515
Issuance of Class C exchangeable preferred shares, redeemable February 1, 2012         -     2,455
Issuance of Class D exchangeable preferred shares, redeemable February 1, 2013         1,149     1,984
Issuance of Class E exchangeable preferred shares, redeemable February 1, 2014         1,556     1,864
            $ 9,167   $ 42,380
Less: current portion             3,799     31,663
            $ 5,368   $ 10,717

 

The following is a summary of post-acquisition amounts included in the Company's consolidated statement of income for the three and nine months ended August 31, 2011:

                       
  Three months ended August 31,    Nine months ended August 31, 
(in thousands of Canadian dollars)
            2011         2011
                       
Revenue   $         21,171   $     51,443
Net income1             6,936         16,577
1 Excluding integration costs and fair value adjustments related to the acquisition consideration payable.

During the three and nine months ended August 31, 2012, the Company recognized nil (2011 - $1.7 million and $9.9 million) in expenses related to the acquisition and integration of Acuity and $0.3 million and $1.1 million in charges (2011 - $1.0 million recovery and $1.6 million in charges) related to the fair value adjustment on the acquisition consideration payable.

(b)     Acquisition of Highstreet Partners Ltd.

During the nine months ended August 31, 2012, the Company increased its ownership interest in Highstreet Partners Ltd. from 84.7% to 87.2% for cash consideration of $2.4 million. The payments were recorded as an adjustment to a related put agreement liability and retained earnings. Refer to Note 12(e) for further details regarding the put agreement.

Note 6: Intangible assets

                                       
 (in thousands of Canadian dollars)       Management
contracts 
    Customer
contracts
    Goodwill     Other
intangibles
    Deferred
selling
commissions
     Total
At December 1, 2010                                      
  Cost, net of derecognition     $ 552,415   $ 52,129   $ 173,708   $ -   $ 411,855   $ 1,190,107
  Accumulated amortization                                       
    and impairment       (48,146)     (41,803)     (24,019)     -     (220,889)     (334,857)
Net book amount      $ 504,269    $ 10,326   $ 149,689   $ -   $ 190,966   $ 855,250
                                       
Year ended November 30, 2011                                      
  Opening net book amount     $ 504,269   $ 10,326   $ 149,689   $ -   $ 190,966   $ 855,250
  Additions       211,500     39,279     118,325     29,000     50,622     448,726
  Derecognition       -     (1,432)     -     (55)     (17,967)     (19,454)
  Amortization       -     (12,202)     -     (6,986)     (55,671)     (74,859)
  Impairment       -     -     (13,426)     -     -     (13,426)
Closing net book amount     $ 715,769   $ 35,971   $ 254,588   $ 21,959   $ 167,950   $ 1,196,237
                                       
At November 30, 2011                                      
  Cost, net of derecognition     $ 763,915   $ 89,976   $ 292,033   $ 28,945   $ 444,510   $ 1,619,379
  Less: fully amortized assets       -     -     -     -     (42,979)     (42,979)
        763,915     89,976     292,033     28,945     401,531     1,576,400
  Accumulated amortization                                      
    and impairment       (48,146)     (54,005)     (37,445)     (6,986)     (276,560)     (423,142)
  Less: fully amortized assets       -     -     -     -     42,979     42,979
        (48,146)     (54,005)     (37,445)     (6,986)     (233,581)     (380,163)
                                       
Net book amount     $ 715,769   $ 35,971   $ 254,588   $ 21,959   $ 167,950   $ 1,196,237
                                       
Nine months ended August 31, 2012                                      
  Opening net book amount     $ 715,769    $ 35,971   $ 254,588   $ 21,959   $ 167,950    $ 1,196,237
  Additions       -     -     -     1,298     28,328     29,626
  Derecognition       -     (4,619)     -     (674)     (11,960)     (17,253)
  Amortization       -     (8,653)     -     (6,316)     (39,671)     (54,640)
  Impairment       (10,927)     -     (9,086)     -     -     (20,013)
  Disposal       -     -     (953)     -     -     (953)
Closing net book amount     $ 704,842   $ 22,699   $ 244,549   $ 16,267   $ 144,647   $ 1,133,004
                                       
At August 31, 2012                                      
  Cost, net of derecognition     $ 763,915   $ 85,357   $ 291,080   $ 29,569   $ 417,899   $ 1,587,820
  Accumulated amortization                                      
    and impairment       (59,073)     (62,658)     (46,531)     (13,302)     (273,252)     (454,816)
Net book amount     $ 704,842   $ 22,699   $ 244,549   $ 16,267   $ 144,647   $ 1,133,004

 

During the nine months ended August 31, 2012, in accordance with its accounting policies, the Company completed its annual impairment test on its indefinite life intangibles. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units, or CGUs). The following is a summary of the goodwill allocation by CGU:

                                             
(in thousands of Canadian dollars)     Investment
Management
- Retail
  Investment
Management
- Institutional
  Highstreet
Partners
Limited
  Cypress
Capital
Management
Ltd.
  Doherty &
Associates
Ltd.
  AGF
Trust
  Total
                                             
Year ended November 30, 2011                                            
  Opening net book amount     $ 109,955   $ -   $ 22,512   $ 12,548   $ 3,721   $ 953   $ 149,689
  Additions       41,669     76,656     -     -     -     -     118,325
  Impairment       -     -     (13,426)     -     -     -     (13,426)
Closing net book amount     $ 151,624   $ 76,656   $ 9,086   $ 12,548   $ 3,721   $ 953   $ 254,588
                                             
Nine months ended August 31, 2012                                            
  Opening net book amount     $ 151,624   $ 76,656   $ 9,086   $ 12,548   $ 3,721   $ 953   $ 254,588
  Impairment       -     -     (9,086)     -     -     -     (9,086)
  Disposal       -     -     -     -     -     (953)     (953)
Closing net book amount     $ 151,624   $ 76,656   $ -   $ 12,548   $ 3,721   $ -   $ 244,549

 

To determine whether an impairment loss should be recognized, the carrying value of the assets and liabilities of the cash-generating unit is compared to their recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. Fair value less cost to sell is the best estimate obtainable from the sale of a CGU in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal. Accordingly, the Company determined the recoverability of each of its CGUs based on an analysis of the underlying AUM associated with the CGU and available AUM multiples from recent transactions for similar assets within the same industry. Based on the test, the Company concluded that goodwill and management contracts related to Highstreet Partners Limited were not fully recoverable due to the loss of significant institutional clients in the quarter and therefore recorded a total impairment charge of $20.0 million for the nine months ended August 31, 2012 (2011 - $13.4 million). No other impairments were identified. Management continues to regularly monitor its intangibles for triggers of impairment.

Note 7: Long-term Debt

               
      August 31,       November 30,
(in thousands of Canadian dollars)     2012       2011
               
Revolving term loans1              
  Facility 1   $ -      $ -
  Facility 2     124,333       124,269
Acquisition facility1     184,122       184,000
    $ 308,455      $ 308,269
1 Net of transaction costs.

(a)     Revolving Term Loans

As part of the sale of AGF Trust, on August 1, 2012, the Company reduced the maximum aggregate principal of its revolving committed term loan (Facility 1). Facility 1 is a syndicated revolving term loan with two Canadian chartered banks and with a reduced maximum aggregate principal of $200.0 million (November 30, 2011 - $300.0 million). Advances under Facility 1 are made available by prime-rate loans in U.S. or Canadian dollars, under BAs or by issuance of letters of credit. Facility 1, if not renewed, is due in full on January 28, 2015. As at August 31, 2012 and November 30, 2011, AGF had not drawn against Facility 1.

On August 31, 2011, the Company arranged an additional syndicated revolving committed term loan with two major Canadian chartered banks (Facility 2). Facility 2 is a five-year revolving term loan with a maximum aggregate principal of $125.0 million. Advances under Facility 2 are made available by prime-rate loans in U.S. or Canadian dollars, under BAs or by issuance of letters of credit. Facility 2, if not renewed, is due in full on August 31, 2016. As at August 31, 2012, AGF had drawn down $125.0 million (November 30, 2011 - $125.0 million) against Facility 2 in the form of a one-month BA at an effective average interest rate of 3.0% per annum (November 30, 2011 - 2.7%).

To hedge the Company's exposure to fluctuating interest rates on its long-term debt, AGF has entered into an interest rate swap transaction with a Canadian chartered bank. The swap transaction expires in July 2016 and involves the exchange of the one-month BA rate to receive a fixed interest rate of 3.8%. The swap contract is designated as a cash flow hedging instrument and is used to mitigate interest expense volatility on Facility 2. As at August 31, 2012, the notional amount of the swap transaction was $125.0 million (November 30, 2011 - $125.0 million).

(b)     Acquisition Facility

On August 31, 2011, the Company amended its syndicated four-year non-amortizing term loan credit facility with two Canadian chartered banks (acquisition facility). The acquisition facility was originally arranged on January 28, 2011, to partially fund the acquisition of Acuity, and consists of a one-time drawdown of $185.0 million. The facility must be fully repaid by January 28, 2015, and is not renewable. Advances under the facility are made available by way of Canadian-dollar prime-rate loans or Canadian-dollar BAs. As at August 31, 2012, AGF had drawn $185.0 million (November 30, 2011 - $185.0 million) against the facility in the form of a one-month BA at an effective average interest rate of 3.0% per annum (November 30, 2011 - 2.7%).

Note 8: Capital Stock

(a)     Authorized Capital

The authorized capital of AGF consists of an unlimited number of AGF Class B Non-Voting shares and an unlimited number of AGF Class A Voting common shares. The Class B Non-Voting shares are listed for trading on the Toronto Stock Exchange (TSX).

(b)     Changes During the Period

The change in capital stock is summarized as follows:

                   
Nine months ended August 31, 2012 August 31, 2011
(in thousands of Canadian dollars, except share amounts)   Shares   Stated value     Shares   Stated value
                   
Class A Voting common shares   57,600 $ -     57,600 $ -
                   
Class B Non-Voting shares                  
  Balance, beginning of the period   95,406,796 $ 560,838     88,606,196 $ 439,216
  Issued through dividend reinvestment plan   153,365   2,102     81,131   1,554
  Stock options exercised    144,600   1,274     469,100   5,766
  Issued on acquisition of Acuity   828,452   13,322     6,487,203   114,679
  Repurchased for cancellation   (4,079,822)   (24,305)     (500,000)   (2,934)
  Balance, end of the period   92,453,391 $ 553,231     95,143,630 $ 558,281

 

(c)     Class B Non-Voting Shares Purchased for Cancellation

AGF has obtained applicable regulatory approval to purchase for cancellation, from time to time, certain of its Class B Non-Voting shares through the facilities of the TSX (or as otherwise permitted by the TSX). Under its normal course issuer bid, AGF may purchase up to 10% of the public float outstanding on the date of the receipt of regulatory approval or up to 7,435,369 shares through to January 26, 2013. During the three months ended August 31, 2012, 3,817,582 Class B Non-Voting shares were repurchased at a cost of $43.5 million and the excess paid of $20.7 million over the recorded capital stock value of the shares repurchased for cancellation was charged to retained earnings. During the nine months ended August 31, 2012, 4,079,822 Class B Non-Voting shares were repurchased at a cost of $47.6 million and the excess paid of $23.3 million over the recorded capital stock value of the shares repurchased for cancellation was charged to retained earnings.

Note 9: Accumulated Other Comprehensive Income (Loss)

                 
        Foreign    Available           
        currency    for sale    Cash flow   Discontinued    
(in thousands of Canadian dollars)       translation    securities    hedge   operations   Total 
                         
Opening Balance                        
  Other comprehensive income     $ - $ 3,309 $ - $ 19,098 $ 22,407
  Income tax expense       -   (477)   -   (5,920)   (6,397)
Balance, November 30, 2010       -   2,832   -   13,178   16,010
Transactions during the year ended November 30, 2011                        
  Other comprehensive income (loss)       50   (6)   (4,772)   (5,463)   (10,191)
  Income tax recovery (expense)       (6)   (5)   1,193   1,859   3,041
Balance, November 30, 2011       44   2,821   (3,579)   9,574   8,860
Transactions during the nine months ended August 31, 2012                        
  Other comprehensive income (loss)       (1,682)   14   891   (13,635)   (14,412)
  Income tax recovery (expense)       223   42   (165)   4,061   4,161
Balance, August 31, 2012     $ (1,415) $ 2,877 $ (2,853) $ - $ (1,391)

 

Note 10: Fair Value Adjustments and Other Income (Loss)

             
  Three months ended August 31, 
(in thousands of Canadian dollars)     2012     2011
             
Fair value adjustment related to investment in AGF mutual funds (Note 3)   $ 479   $ (582)
Fair value adjustment related to acquisition consideration payable (Note 5)     (171)     1,719
Fair value adjustment related to put agreement with non-controlling shareholders (Note 12(e))     (866)     469
Other     513     71
     $ (45)    $ 1,677
             
             
  Nine months ended August 31,
(in thousands of Canadian dollars)     2012     2011
             
Fair value adjustment related to investment in AGF mutual funds (Note 3)   $ (94)   $ (547)
Fair value adjustment related to acquisition consideration payable (Note 5)     (196)     39
Fair value adjustment related to put agreement with non-controlling shareholders (Note 12(e))     (3,490)     756
Other     1,326     91
     $ (2,454)    $ 339

 

Note 11: Expenses by Nature

             
  Three months ended August 31, 
(in thousands of Canadian dollars)     2012     2011
             
Selling, general and administrative            
  Employee benefit expense   $ 28,593   $ 28,839
  Sales and marketing     3,191     3,619
  Information technology and facilities     6,370     4,756
  Professional fees     4,903     4,643
  Fund absorption and other fund costs     4,924     3,351
  Other     1,792     791
    $ 49,773   $ 45,999
             
Business acquisition and integration            
  Professional fees   $ -   $ 1,614
  Other     -     86
     $ -    $ 1,700
             
             
  Nine months ended August 31,
(in thousands of Canadian dollars)     2012     2011
             
Selling, general and administrative            
  Employee benefit expense   $ 79,907   $ 84,526
  Sales and marketing     8,936     8,865
  Information technology and facilities     18,036     14,355
  Professional fees     14,398     12,760
  Fund absorption and other fund costs     14,796     9,213
  Other     3,796     -
    $ 139,869   $ 129,719
             
Business acquisition and integration            
  Employee benefit expense   $ -   $ 1,718
  Professional fees     -     7,998
  Other     -     136
     $ -    $ 9,852

 

Note 12: Stock-based Compensation and Other Stock-based Payments

(a)     Stock Option Plans

AGF has established stock option plans for senior employees. Under the plan, an additional maximum of 4,458,926 Class B Non-Voting shares could have been granted as at August 31, 2012 (2011 - 4,191,371). The stock options are issued at a price not less than the market price of the Class B Non-Voting shares immediately prior to the grant date. Stock options are vested to the extent of 25% to 33% of the individual's entitlement per annum, or in some instances, vest at the end of the term of the option.

The change in stock options, excluding those related to AGF Trust, during the nine months ended August 31, 2012 and 2011 is summarized as follows:

                   
                   
Nine months ended August 31, 2012 August 31, 2011
        Weighted         Weighted 
        average         average
    Options   exercise price     Options   exercise price
                   
Class B Non-Voting share options, excluding AGF Trust                  
  Balance, beginning of the period   4,942,679 $ 17.47     5,033,099 $ 16.35
  Options granted   469,750   15.87     630,380   19.03
  Options forfeited   (252,910)   20.26     (119,800)   16.57
  Options expired   (505,900)   17.08     -   -
  Options exercised   (139,850)   8.24     (371,100)   11.01
Balance, end of the period   4,513,769 $ 17.48     5,172,579 $ 17.06

 

During the three months ended August 31, 2012, no stock options were granted (2011 - nil) and compensation expense and contributed surplus of $0.4 million (2011 - $0.8 million) were recorded. During the nine months ended August 31, 2012, 469,750 stock options were granted (2011 - 678,780) and compensation expense and contributed surplus of $1.1 million (2011 - $1.8 million) were recorded. The fair value of options granted during the nine months ended August 31, 2012, has been estimated at $3.10 per share (2011 - $4.43 per share) using the Black-Scholes option-pricing model. The following assumptions were used to determine the fair value of the options granted during the nine months ended August 31, 2012:

Risk-free interest rate        1.3% 
Expected dividend yield        6.8%
Expected share price volatility        41.8%
Option term         5.0 years

(b)     Restricted Share Unit (RSU) and Performance Share Unit (PSU) Plans

The change in share units, excluding those related to AGF Trust, during the nine months ended August 31, 2012 and 2011 is as follows:

                   
Nine months ended August 31, 2012   August 31, 2011  
    Number of share units   Number of share units
             
Outstanding, beginning of the period                    
  Non-vested     319,799       436,383
Issued                  
  Initial grant     605,099       315,674
  In lieu of dividends     41,527       26,512
Settled in cash     (5,032)       (7,433)
Forfeited and cancelled     (125,676)       (29,711)
Outstanding, end of the period       835,717           741,425

 

Compensation expense for the three months ended August 31, 2012, related to these share units was $0.6 million (2011 - $0.8 million recovery), and for the nine months ended August 31, 2012, was $0.5 million recovery (2011 - $2.6 million expense).

(c)     Deferred Share Unit (DSU) Plan

As at August 31, 2012, 162,764 (2011 - 65,939) DSUs were outstanding. Compensation expense related to these DSUs for the three months ended August 31, 2012, was $0.1 million (2011 - $0.1 million recovery), and for the nine months ended August 31, 2012, was $0.1 million expense (2011 - $0.2 million expense).

(d)     Partners Incentive Plan (PIP)

Compensation expense related to this incentive plan was recorded in payroll costs and amounted to $0.2 million for the three months ended August 31, 2012 (2011 - $0.4 million), and $1.2 million for the nine months ended August 31, 2012 (2011 - $1.3 million).

(e)     Put Agreement with Non-controlling Shareholders

As at August 31, 2012, the Company has recorded a $7.8 million (November 30, 2011 - $5.5 million) liability related to the put agreement with non-controlling shareholders of one of its subsidiaries. In the three months ended August 31, 2012, the Company recorded a loss of $0.9 million (2011 - gain of $0.5 million) related to the change in the fair value of the put agreement. In the nine months ended August 31, 2012, the Company recorded a loss of $3.5 million (2011 - gain of $0.8 million) related to the change in the fair value of the put agreement.

Note 13: Income Taxes

Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated effective tax rate for the nine months ended August 31, 2012, was 58.0% (2011 - 32.3%). The increase in the effective tax rate is the result of new legislation that became substantively enacted during the quarter. The Ontario general corporate tax rate was scheduled to be reduced to 10% by July 1, 2013 but the Ontario Ministry of Finance proposed a general corporate tax rate freeze at 11.5% in its 2012 Budget. This legislation became substantively enacted on June 20, 2012 and resulted in approximately $8.0 million deferred income tax expense for the Company during the quarter.

The income tax expense related to income from discontinued operations for the nine months ended August 31, 2012, was $7.4 million (2011 - $9.6 million).

Note 14: Earnings (Loss) per Share

                         
  Three months ended August 31,   Nine months ended August 31,
(in thousands of Canadian dollars, except per share amounts)     2012     2011     2012     2011
                         
Numerator                         
  Net income (loss) for the period from continuing operations                         
    attributable to the equity holders of the Company   $ (19,310)   $  8,277   $  14,677   $  57,921
  Net income for the period from discontinued operations                         
    attributable to the equity holders of the Company     6,006     7,117     21,925     20,596
  Net income (loss) for the period attributable to the                         
    equity holders of the Company     (13,304)     15,394     36,602     78,517
                         
Denominator                         
  Weighted average number of shares - basic      94,311,520     95,518,051     95,371,661     93,985,380
  Dilutive effect of employee stock options      375,536     928,770     538,252     1,060,418
  Weighted average number of shares - diluted      94,687,056     96,446,821     95,909,913     95,045,798
                         
Basic earnings (loss) per share                        
  Continuing operations   $ (0.20)   $ 0.09   $ 0.15   $ 0.62
  Discontinued operations     0.06     0.07     0.23     0.22
    $ (0.14)   $ 0.16   $ 0.38   $ 0.84
                         
Diluted earnings (loss) per share                        
  Continuing operations   $ (0.20)   $ 0.09   $ 0.15   $ 0.61
  Discontinued operations     0.06     0.07     0.23     0.22
    $ (0.14)   $ 0.16   $ 0.38   $ 0.83

 

Note 15: Dividends

The dividends paid, including dividends reinvested, in the three and nine months ended August 31, 2012, were $25.8 million and $77.6 million, compared to $25.8 million and $73.7 million in 2011. On September 25, 2012, the Board of Directors of AGF declared a quarterly dividend on both the Class A Voting common shares and Class B Non-Voting shares of the Company of $0.27 per share in respect of the three months ended August 31, 2012, amounting to a total dividend of approximately $25.0 million. These consolidated financial statements do not reflect this dividend payable.

Note 16: Related Party Transactions

The Company is controlled by Blake C. Goldring, Chairman and Chief Executive Officer of AGF, through his indirect ownership of all the voting shares of Goldring Capital Corporation, which owns 80% of the Company's Class A Voting common shares. The remaining 20% of the Class A Voting common shares are held by the Vice-Chairman of AGF, who is also a Director.

The remuneration of Directors and other key management personnel of AGF is as follows:

                       
  Three months ended August 31,   Nine months ended August 31,
(in thousands of Canadian dollars)   2012     2011     2012     2011

                     
Salaries and other short-term employee benefits $ 1,046   $ 1,773   $ 3,913   $ 4,886
Share-based payments
  542     341     1,556     1,199
  $ 1,588   $ 2,114   $ 5,469   $ 6,085

 

Note 17: Transition to IFRS

First-time Application of IFRS

Until December 1, 2011, AGF prepared its consolidated financial statements in accordance with Canadian GAAP. The Company followed the provisions of IFRS 1 in preparing its opening IFRS consolidated statement of financial position as of the date of transition, December 1, 2010. Certain of the Company's IFRS accounting policies used for this opening consolidated statement of financial position differed from its Canadian GAAP policies applied at the same date. The resulting adjustments arose from events and transactions before the date of transition to IFRS. IFRS 1 generally requires that an entity apply all IFRS effective at the end of its first IFRS reporting period retrospectively. Therefore, as required by IFRS 1, those adjustments were recognized directly through retained earnings (or another category of equity where appropriate) as of December 1, 2010. There are some exceptions required and some exceptions permitted by IFRS 1. AGF's first-time adoption decisions regarding these exemptions are detailed below. Other options available under IFRS 1, which are not discussed here, are not material to the Company's consolidated financial statements.

  • Business Combinations
    IFRS 1 provides the option to apply IFRS 3, "Business Combinations," prospectively from the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company elected to apply IFRS 3 prospectively to business combinations occurring after its transition date. Business combinations prior to the transition date have not been restated.

  • Cumulative Translation Differences
    IFRS permits cumulative translation gains and losses to be reset to zero at the transition date. This provides relief from determining cumulative currency translation differences in accordance with IAS 21, "The effects of changes in foreign exchange rates," from the date a subsidiary or equity method investee was formed or acquired. The Company elected to reset to zero all cumulative translation gains and losses at the transition date related to investments in foreign operations through an adjustment to retained earnings.

  • Securitization
    In November 2010, the IASB approved amendments to IFRS 1 with regard to the derecognition exemption, which provides the option to grandfather certain securitization transactions occurring prior to an entity's transition date instead of the fixed mandatory date of January 1, 2004. The Company elected to apply the derecognition requirements in IAS 39 prospectively for transactions occurring on or after the transition date.

Effect of the Transition to IFRS

Until December 1, 2011, AGF prepared its consolidated financial statements in accordance with Canadian GAAP. The following sets out, by accounting topic, the main differences between the Company's Canadian GAAP accounting policies applied at that date and the IFRS accounting policies adopted.

(A)     Finite-life intangibles

Under both IFRS and Canadian GAAP, customer contracts are amortized on a straight-line basis over the period that the economic benefit is expected to arise. Under IFRS, the unamortized customer contracts for which client attrition occurs is immediately charged to net income and included in the amortization of customer contracts. Under Canadian GAAP, the amortization of customer contracts was not adjusted for client attrition.

(B)     Deferred selling commissions

Under Canadian GAAP, sales commissions paid to brokers on mutual fund securities sold on a DSC basis were recorded at cost and amortized on a straight-line basis over the applicable DSC schedule (which ranges from three to seven years). No adjustment was recognized to the cost on redemption of mutual funds and the DSC asset was tested annually for impairment. Under IFRS, sales commissions continue to be recorded at cost and amortized similar to Canadian GAAP; however, upon redemption, the asset is derecognized and the unamortized amount is charged to income through amortization.

(C)     Investments in AGF mutual funds and investments available for sale

Under Canadian GAAP, investments in AGF mutual funds were designated as available for sale (AFS). These assets were initially recorded at fair value on the settlement date in the consolidated statement of financial position and remeasured at fair value with unrealized gains and losses recognized in OCI until the financial asset was disposed of or became impaired. Under IFRS, investments in AGF mutual funds are designated as fair value through profit and loss.

(D)     Goodwill

Under Canadian GAAP, goodwill is tested at the reporting unit level. Under IFRS, goodwill must be tested annually at the lowest identifiable cash generating unit (CGU) level at which management monitors internally. Management has reviewed its CGUs and has identified its Highstreet business as a separate goodwill CGU. As a result, the Company determined that the carrying amount of the Highstreet CGU exceeded its recoverable amount, indicating an impairment of goodwill at December 1, 2010 and subsequently at August 31, 2011. Under Canadian GAAP, goodwill associated with Highstreet was tested under the Investment Management reporting segment.

(E)     Written put options on non-controlling interests

Under Canadian GAAP, put options written by the Company on non-controlling interests were accounted for as cash-settled share-based payments and carried at the intrinsic value of the vested options. Under IFRS, to the extent that such options are associated with the shareholder's employment, they are treated as cash-settled share-based payments and are recorded based on the fair value of the vested portion of the options, determined using graded vesting.

(F)     Termination fees

Under Canadian GAAP, termination fees associated with contracts with referral agents, where the agent continues to have a relationship with the client, are recognized as an expense upon termination. Under IFRS, this cost is recognized over the service period or the contractual period.

(G)     OCI tax changes

Under Canadian GAAP, changes in tax rates or laws relating to items previously recognized in OCI have been recognized in the consolidated statement of income. Under IFRS, the effect of these changes should be recognized in income, OCI or equity and charged directly to those items.

(H)     Transaction costs

Under Canadian GAAP, entities could elect an accounting policy to account for transaction costs incremental to the acquisition of financial instruments either by capitalizing them on the consolidated statement of financial position or by recognizing them immediately on the consolidated statement of income. Under IFRS, transactions costs must be accounted for as an expense for financial instruments at fair value through profit or loss and capitalized to the initial carrying amount for all other financial instruments.

(I)     Presentation reclassifications

Certain amounts have been reclassified to conform to IFRS, including deferred income tax assets and liabilities and accrued interest. Under IFRS, deferred income tax assets and liabilities must be classified as non-current whereas under Canadian GAAP, deferred income tax assets and liabilities were classified as current or non-current as appropriate. In addition, under IFRS, accrued interest is included in the financial statement line related to the financial assets and liabilities it is associated with. Previously, accrued interest on loans and GICs was recorded in accounts receivable or accounts payable as appropriate.

Reconciliation of the Company's consolidated statement of financial position prepared under Canadian GAAP and IFRS, including the impacts on shareholders' equity, as of August 31, 2011, is as follows:

                                                                             
(in thousands of Canadian dollars)                                                                            
                        Deferred                                        
        Canadian     IFRS 1     Finite-life selling               Termination     OCI     Transaction     Presentation      
August 31, 2011       GAAP     election     intangibles commissions Investments Goodwill     NCI put     fees     tax     costs     reclassification     IFRS
                      (A)     (B)     (C)     (D)     (E)     (F)     (G)     (H)     (I)      
                                                                             
Assets                                                                             
  Current Assets                                                                            
    Cash and cash equivalents     $ 347,572     $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ 323   $ 347,895
    Investments       405,018       -     -     -     -     -     -     -     -     -     -     405,018
    Accounts receivable and prepaid expenses                                                                            
      and other assets       82,071       -     -     -     -     -     -     -     -     -     (19,751)     62,320
    Derivative financial instruments       4,355       -     -     -     -     -     -     -     -     -     8,997     13,352
    Current portion of retained interest                                                                            
      from securitization       38,556       -     -     -     -     -     -     -     -     -     -     38,556
    Real estate secured and investment                                                                             
      loans due within one year       440,381       -     -     -     -     -     -     -     -     -     3,213     443,594
        1,317,953       -     -     -     -     -     -     -     -     -     (7,218)     1,310,735
                                                                             
  Real estate secured and investment loans       2,477,846       -     -     -     -     -     -     -     -     -     3,323     2,481,169
  Investment in associated company       78,801       -     -     -     -     -     -     -     -     -     -     78,801
  Management contracts       715,769       -     -     -     -     -     -     -     -     -     -     715,769
  Customer contracts,                                                                             
    net of accumulated amortization       41,593       -     (2,022)     -     -     -     -     -     -     -     -     39,571
  Goodwill       289,835       -     -     -     -     (37,445)     -     -     -     -     -     252,390
  Other intangibles,                                                                             
    net of accumulated amortization       24,110       -     (55)     -     -     -     -     -     -     -     -     24,055
  Deferred selling commissions                                                                            
    net of accumulated amortization       228,171       -     -     (51,286)     -     -     -     -     -     -     -     176,885
  Property, equipment and computer software,                                                                             
    net of accumulated depreciation       12,238       -     -     -     -     -     -     -     -     -     -     12,238
  Deferred income tax assets       -       -     -     -     -     -     -     -     -     -     13,703     13,703
  Derivative financial instruments       13,602       -     -     -     -     -     -     -     -     -     3,895     17,497
  Other assets       8,018       -     -     -     -     -     -     -     -     -     -     8,018
Total assets     $ 5,207,936     $ -   $ (2,077)   $ (51,286)   $ -   $ (37,445)   $ -   $ -   $ -   $ -   $ 13,703   $ 5,130,831
                                                                             
Liabilities                                                                            
  Current Liabilities                                                                            
    Accounts payable and accrued liabilities      $ 207,060     $ -   $ -   $ -   $ -   $ -   $ 7,508   $ 743   $ -   $ -   $ (120,952)   $ 94,359
    Income tax liability       13,625       -     -     -     -     -     -     -     -     -     -     13,625
    Provision for Elements Advantage       3,442       -     -     -     -     -     -     -     -     -     -     3,442
    Acquisition consideration payable       31,926       -     -     -     -     -     -     -     -     -     -     31,926
    Deferred income tax liabilities       25,242       -     -     -     -     -     -     -     -     -     (25,242)     -
    Derivative financial instruments       1,773       -     -     -     -     -     -     -     -     -     -     1,773
    Deposits due within one year       1,639,947       -     -     -     -     -     -     -     -     -     71,226     1,711,173
        1,923,015       -     -     -     -     -     7,508     743     -     -     (74,968)     1,856,298
                                                                             
  Deposits       1,492,932       -     -     -     -     -     -     -     -     -     49,726     1,542,658
  Long-term debt        309,723       -     -     -     -     -     -     -     -     (1,145)     -     308,578
  Acquisition consideration payable       12,239       -     -     -     -     -     -     -     -     -     -     12,239
  Deferred income tax liabilities       179,195       -     (513)     (13,000)     -     -     -     (336)     -     -     38,945     204,291
  Provision for Elements Advantage       2,517       -     -     -     -     -     -     -     -     -     -     2,517
  Derivative financial instruments       2,142       -     -     -     -     -     -     -     -     -     -     2,142
  Other long-term liabilities       11,634       -     -     -     -     -     -     508     -     -     -     12,142
Total liabilities       3,933,397       -     (513)     (13,000)     -     -     7,508     915     -     (1,145)     13,703     3,940,865
                                                                             
Equity                                                                            
  Equity attributable to owners of the Company                                                                            
    Capital stock       558,281       -     -     -     -     -     -     -     -     -     -     558,281
    Contributed surplus       24,494       -     -     -     -     -     -     -     -     -     -     24,494
    Retained earnings        711,937       (29,936)     (1,564)     (38,286)     400     (37,445)     (7,508)     (915)     (72)     1,145     -     597,756
    Accumulated other comprehensive income       (20,784)       29,936     -     -     (400)     -     -     -     72     -     -     8,824
        1,273,928       -     (1,564)     (38,286)     -     (37,445)     (7,508)     (915)     -     1,145     -     1,189,355
                                                                             
    Non-controlling interest       611       -     -     -     -     -     -     -     -     -     -     611
                                                                             
Total equity       1,274,539       -     (1,564)     (38,286)     -     (37,445)     (7,508)     (915)     -     1,145     -     1,189,966
Total liabilities and equity     $ 5,207,936     $ -   $ (2,077)   $ (51,286)   $ -   $ (37,445)   $ -   $ -   $ -   $ -   $ 13,703   $ 5,130,831

 

Reconciliations of the Company's consolidated statement of income for the three and nine months ended August 31, 2011, prepared in accordance with Canadian GAAP and IFRS, are as follows:

                                                               
(in thousands of Canadian dollars)                                                                    
              Finite-     Deferred                                                
      Canadian       life     selling                       Termination     Transaction     Presentation     Discontinued      
Three months ended August 31, 2011     GAAP       intangibles     commissions     Investments     Goodwill     NCI put     fees     costs     reclassification     operations     IFRS
              (A)     (B)     (C)     (D)     (E)     (F)     (H)     (I)     Note 4      
                                                                     
Revenue                                                                    
  Management and advisory fees    $ 142,658     $ -   $ -   $ -     -   $ -   $ -   $ -   $ -   $ -   $ 142,658
  Deferred sales charges      5,661       -     -     -     -     -     -     -     -     -     5,661
  RSP loan securitization income (loss),                                                                    
    net of impairment     636       -     -     -     -     -     -     -     -     (636)     -
  Share of profit of associated company     1,417       -     -     -     -     -     -     -     -     -     1,417
  Fair value adjustments                                                                    
    and other income     5,306       -     -     (581)     -     469     -     -     -     (3,517)     1,677
  AGF Trust net interest income     18,811       -     -     -     -     -     -     -     (22)     (18,789)     -
Total revenue     174,489       -     -     (581)           469     -     -     (22)     (22,942)     151,413
                                                                     
Expenses                                                                     
  Selling, general and administrative      55,408       -     -     -     -     -     -     (429)     -     (8,980)     45,999
  Business acquisition and integration     1,700       -     -     -     -     -     -     -     -     -     1,700
  Trailing commissions      39,880       -     -     -     -     -     (52)     -     -     -     39,828
  Investment advisory fees      2,278       -     -     -     -     -     -     -     -     -     2,278
  Amortization of deferred selling                                                                    
    commissions     19,248       -     724     -     -     -     -     -     -     -     19,972
  Amortization of customer contracts     3,684       577     -     -     -     -     -     -     -     -     4,261
  Amortization of other intangibles     2,096       55     -     -     -     -     -     -     -     -     2,151
  Amortization of property, equipment                                                                    
    and computer software     1,145       -     -     -     -     -     -     -     -     (289)     856
  Provision for Trust Company                                                                    
    loan losses     2,948       -     -     -     -     -     -     -     (22)     (2,926)     -
  Interest expense     2,938       -     -     -     -     -     -     -     -     -     2,938
  Impairment of goodwill     -       -     -     -     13,426     -     -     -     -     -     13,426
      131,325       632     724     -     13,426     -     (52)     (429)     (22)     (12,195)     133,409
                                                                     
Income before income taxes     43,164       (632)     (724)     (581)     (13,426)     469     52     429     -     (10,747)     18,004
                                                                     
Income tax expense (benefit)                                                                    
  Current     14,547       -     -     -     -     -     -     -     -     (3,787)     10,760
  Deferred     (1,519)       (172)     376     (72)     -     -     12     -     -     157     (1,218)
      13,028       (172)     376     (72)     -     -     12     -     -     (3,630)     9,542
                                                                     
Net income from continuing operations     30,136       (460)     (1,100)     (509)     (13,426)     469     40     429     -     (7,117)     8,462
                                                                     
Net income from discontinued                               -                                    
  operations, net of taxes     -       -     -     -           -     -     -     -     7,117     7,117
                                                                     
Net income for the period   $ 30,136     $ (460)   $ (1,100)   $ (509)   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ -   $ 15,579
                                                                     
Net income attributable to:                                                                    
  Equity owners of the Company   $ 29,951     $ (460)   $ (1,100)   $ (509)   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ -   $ 15,394
  Non-controlling interest     185       -     -     -           -     -     -     -     -     185
    $ 30,136     $ (460)   $ (1,100)   $ (509)   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ -   $ 15,579

 

                                                               
(in thousands of Canadian dollars)                                                                    
              Finite-     Deferred                                                
      Canadian       life     selling                       Termination     Transaction     Presentation     Discontinued      
Nine months ended August 31, 2011     GAAP       intangibles     commissions     Investments     Goodwill     NCI put     fees     costs     reclassification     operations     IFRS
              (A)     (B)     (C)     (D)     (E)     (F)     (H)     (I)     Note 4      
                                                                     
Revenue                                                                    
  Management and advisory fees    $ 425,915     $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ 425,915
  Deferred sales charges      18,045       -     -     -     -     -     -     -     -     -     18,045
  RSP loan securitization income (loss),                                                                    
    net of impairment     1,931       -     -     -     -     -     -     -     -     (1,931)     -
  Share of profit of associated company     3,224       -     -     -     -     -     -     -     -     -     3,224
  Fair value adjustments                                                                    
    and other income     9,432       -     -     (546)     -     756     -     -     -     (9,303)     339
  AGF Trust net interest income     58,957       -     -     -     -     -     -     -     (372)     (58,585)     -
  Total revenue     517,504       -     -     (546)     -     756     -     -     (372)     (69,819)     447,523
                                                                     
Expenses                                                                     
  Selling, general and administrative      159,505       -     -     -     -     -     -     (362)     -     (29,424)     129,719
  Business acquisition and integration     10,635       -     -     -     -     -     -     (783)     -     -     9,852
  Trailing commissions      119,035       -     -     -     -     -     (3)     -     -     -     119,032
  Investment advisory fees      7,155       -     -     -     -     -     -     -     -     -     7,155
  Amortization of deferred selling                                                                    
    commissions     57,666       -     (1,608)     -     -     -     -     -     -     -     56,058
  Amortization of customer contracts     9,068       966     -     -     -     -     -     -     -     -     10,034
  Amortization of other intangibles     4,890       55     -     -     -     -     -     -     -     -     4,945
  Amortization of property, equipment                                                                    
    and computer software     3,245       -     -     -     -     -     -     -     -     (1,008)     2,237
  Provision for Trust Company                                                                    
    loan losses     9,536       -     -     -     -     -     -     -     (372)     (9,164)     -
  Interest expense     8,507       -     -     -     -     -     -     -     -     -     8,507
  Impairment of goodwill     -       -     -     -     13,426     -     -     -     -     -     13,426
      389,242       1,021     (1,608)     -     13,426     -     (3)     (1,145)     (372)     (39,596)     360,965
                                                                     
Income before income taxes     128,262       (1,021)     1,608     (546)     (13,426)     756     3     1,145     -     (30,223)     86,558
                                                                     
Income tax expense (benefit)                                                                    
  Current     43,353       -     -     -     -     -     -     -     -     (10,224)     33,129
  Deferred     (6,157)       (277)     685     (67)     -     -     9     -     -     597     (5,210)
      37,196       (277)     685     (67)     -     -     9     -     -     (9,627)     27,919
                                                                     
Net income from continuing operations     91,066       (744)     923     (479)     (13,426)     756     (6)     1,145     -     (20,596)     58,639
                                                                     
Net income from discontinued                                                                    
  operations, net of taxes     -       -     -     -     -     -     -     -     -     20,596     20,596
                                                                     
Net income for the period   $ 91,066     $ (744)   $ 923   $ (479)   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ -   $ 79,235
                                                                     
Net income attributable to:                                                                    
  Equity owners of the Company   $ 90,348     $ (744)   $ 923   $ (479)   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ -   $ 78,517
  Non-controlling interest     718       -     -     -     -     -     -     -     -     -     718
    $ 91,066     $ (744)   $ 923   $ (479)   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ -   $ 79,235

 

Reconciliations of the Company's consolidated statement of comprehensive income for the three and nine months ended August 31, 2011, prepared in accordance with Canadian GAAP and IFRS, are as follows:

                                                               
(in thousands of Canadian dollars)                                                              
              Finite-     Deferred                                          
      Canadian       life     selling                       Termination     Transaction     Discontinued      
Three months ended August 31, 2011     GAAP       intangibles     commissions     Investments     Goodwill     NCI put     fees     costs     operations     IFRS
              (A)     (B)     (C)     (D)     (E)     (F)     (H)     Note 4      
                                                               
Net income for the period   $ 30,136     $ (460)   $ (1,100)   $ (509)     (13,426)   $ 469   $ 40   $ 429   $ -   $ 15,579
                                                               
Other comprehensive income (losses),                                                               
  net of tax                                                              
                                                               
  Cumulative translation adjustment                                                              
    Foreign currency translation                                                               
    adjustments related to net                                                              
    investments in foreign operations     (17)       -     -     -     -     -     -     -     -     (17)
      (17)       -     -     -     -     -     -     -     -     (17)
                                                               
  Net unrealized gains (losses) on                                                               
  available for sale securities                                                              
    Unrealized gains (losses)     2,747       -     -     518     -     -     -     -     (3,311)     (46)
    Reclassification of realized loss or                                                               
    impairment to earnings      (364)       -     -     (9)     -     -     -     -     373     -
      2,383       -     -     509     -     -     -     -     (2,938)     (46)
                                                               
Net unrealized gains (losses) on                                                              
cash flow hedge                                                              
    Unrealized loss     (2,713)       -     -     -     -     -     -     -     -     (2,713)
      (2,713)       -     -     -     -     -     -     -     -     (2,713)
                                                               
  Total other comprehensive income (loss)                                                              
    from continuing operations, net of tax   $ (347)     $ -   $ -   $ 509   $ -   $ -   $ -   $ -   $ (2,938)   $ (2,776)
                                                               
  Total other comprehensive income (loss)                                                              
  from discontinued operations, net of tax   $ -     $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ 2,938   $ 2,938
                                                               
Comprehensive income   $ 29,789     $ (460)   $ (1,100)   $ -   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ 15,741
                                                               
Comprehensive income attributable to:                                                              
  Equity owners of the Company   $ 29,604     $ (460)   $ (1,100)   $ -   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ 15,556
  Non-controlling interest     185       -     -     -     -     -     -     -     -     185
    $ 29,789     $ (460)   $ (1,100)   $ -   $ (13,426)   $ 469   $ 40   $ 429   $ -   $ 15,741

 

                                                               
(in thousands of Canadian dollars)                                                              
              Finite-     Deferred                                          
      Canadian       life     selling                       Termination     Transaction     Discontinued      
Nine months ended August 31, 2011     GAAP       intangibles     commissions     Investments     Goodwill      NCI put     fees     costs     operations     IFRS
              (A)     (B)     (C)     (D)      (E)     (F)     (H)     Note 4      
                                                               
Net income for the period   $ 91,066     $ (744)   $ 923   $ (479)   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ 79,235
                                                               
Other comprehensive income (losses),                                                               
  net of tax                                                              
                                                               
  Cumulative translation adjustment                                                              
    Foreign currency translation                                                               
      adjustments related to net                                                              
      investments in foreign operations     (315)       -     -     -         -     -     -     -     (315)
      (315)       -     -     -         -     -     -     -     (315)
                                                               
  Net unrealized gains (losses) on 
available for sale securities
                                                             
    Unrealized gains (losses)     (4,570)       -     -     809         -     -     -     3,570     (191)
    Reclassification of realized loss or                                                               
      impairment to earnings      (67)       -     -     (330)         -     -     -     397     -
      (4,637)       -     -     479         -     -     -     3,967     (191)
                                                               
  Net unrealized gains (losses) on cash flow hedge                                                              
  Unrealized loss     (2,713)       -     -     -     -     -     -     -     -     (2,713)
      (2,713)       -     -     -     -     -     -     -     -     (2,713)
                                                               
  Total other comprehensive income (loss)
  from continuing operations, net of tax
  $ (7,665)     $ -   $ -   $ 479     - $   -   $ -   $ -   $ 3,967   $ (3,219)
                                                               
  Total other comprehensive income (loss)
  from discontinued operations, net of tax
  $ -     $ -   $ -   $ -   $ - $     $   $ $   (3,967)   $ (3,967)
                                                               
Comprehensive income   $ 83,401     $ (744)   $ 923   $ -   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ 72,049
                                                                 
  Comprehensive income attributable to:                                                              
    Equity owners of the Company   $ 82,683     $ (744)   $ 923   $ -   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ 71,331
    Non-controlling interest     718                                                       718
    $ 83,401     $ (744)   $ 923   $ -   $ (13,426)   $ 756   $ (6)   $ 1,145   $ -   $ 72,049

Reconciliation of the Company's consolidated statement of cash flows for the nine months ended August 31, 2011, prepared in accordance with Canadian GAAP and IFRS, is as follows:

                                                         
(in thousands of Canadian dollars)                   AGF                                    
      Canadian       IFRS     Trust     DSC     Investments     Interest     Tax     Discontinued      
Nine months ended August 31, 2011     GAAP       adjustments     reclass     reclass     reclass     reclass     reclass     operations     IFRS
              (A) to (I)                                   Note 4      
                                                         
Operating Activities                                                         
  Net income for the period   $ 91,066     $ (11,831)   $ -   $ -   $ -   $ -   $ -   $ -   $ 79,235
                                                         
  Adjustments for                                                        
    Net income from discontinued operations     -       -     -     -     -     -     -     (20,596)     (20,596)
    Amortization     74,869       (587)     -     -     -     -     -     (1,008)     73,274
    Impairment of goodwill     -       13,426     -     -     -     -     -     -     13,426
    Interest expense     -       -     -     -     -     8,507     -     -     8,507
    AGF Trust interest expense, net of payments     -       -     (17,459)     -     -     -     -     17,459     -
    Income tax expense     36,293       350     -     -     -     -     903     (9,627)     27,919
    Income taxes paid     (42,450)       -     -     -     -     -     -     15,159     (27,291)
    RSP loan securitization income, net of impairment     (1,931)       -     -     -     -     -     -     1,931     -
    Provision for AGF Trust loan losses     9,536       (372)     -     -     -     -     -     (9,164)     -
    Stock-based compensation     6,287       -     -     -     -     -     -     (396)     5,891
    Share of profit (loss) of associated company     (3,224)       -     -     -     -     -     -     -     (3,224)
    Dividends from associated company     1,247       -     -     -     -     -     -     -     1,247
    Deferred selling commissions paid      -       -     -     (40,369)     -     -     -     -     (40,369)
    Purchase of AGF Trust investments available for sale     -       -     -     -     (39,580)     -     -     39,580     -
    Proceeds from sale of AGF Trust                                                        
      investments available for sale     -       -     -     -     129,952     -     -     (129,952)     -
    Other     2,802       -     -     -     -     -     -     (1,260)     1,542
      174,495       986     (17,459)     (40,369)     90,372     8,507     903     (97,874)     119,561
  Net change in non-cash working                                                         
    capital balances related to operations                                                        
    Accounts receivable     17,406       (2,753)     (9,760)     -     -     -     -     (3,282)     1,611
    Other assets     (7,475)       1,463     -     -     (150)     -     -     4,811     (1,351)
    Accounts payable and accrued liabilities     (54,567)       23,888     27,219     -     -     (2,117)     (903)     (14,123)     (20,603)
    Other liabilities     3,512       (24,647)     -     -     -     (1,100)     -     22,906     671
    Net change in balances related to                                                        
    AGF Trust deposits and loans     -       2,160     (212,863)     -     -     -     -     210,703     -
      (41,124)       111     (195,404)     -     (150)     (3,217)     (903)     221,015     (19,672)
  Net cash provided by (used in) continuing operating activities   133,371       1,097     (212,863)     (40,369)     90,222     5,290     -     123,141     99,889
  Net cash provided by (used in) discontinued operating activities   -       -     -     -     -     -     -     (123,141)     (123,141)
  Net cash provided by (used in) operating activities    133,371       1,097     (212,863)     (40,369)     90,222     5,290     -     -     (23,252)
                                                         
Financing Activities                                                         
  Repurchase of Class B Non-Voting Shares                                                        
    for cancellation     (8,030)       -     -     -     -     -     -     -     (8,030)
  Issue of Class B Non-Voting shares     5,073       -     -     -     -     -     -     -     5,073
  Dividends paid     (72,182)       -     -     -     -     -     -     -     (72,182)
  Increase in long-term debt related to Facility 1     (18,954)       -     -     -     -     (45)     -     -     (18,999)
  Increase in long-term debt related to Facility 2                                                        
    and Acquisition facility     185,000       (1,145)     -     -     -     1,145     -     -     185,000
  Investment Management interest paid     -       -     -     -     -     (6,390)     -     -     (6,390)
  Net decrease in AGF Trust deposits      (407,411)       -     407,411     -     -     -     -     -     -
  Net cash provided by (used in) continuing financing activities   (316,504)       (1,145)     407,411     -     -     (5,290)     -     -     84,472
  Net cash provided by (used in) discontinued financing activities   -       -     -     -     -     -     -     -     -
  Net cash provided by (used in) financing activities   (316,504)       (1,145)     407,411     -     -     (5,290)     -     -     84,472
                                                          
Investing Activities                                                       
  Deferred selling commissions paid     (40,369)       -     -     40,369     -     -     -     -     -
  Acquistion of Highstreet Partners Limited     (1,596)       -     -     -     -     -     -     -     (1,596)
  Acquisition of Acuity Funds Ltd. and Acuity                                                        
  Investment Management, net of cash acquired   (173,415)       -     -     -     -     -     -     -     (173,415)
  Purchase of property, equipment and                                                        
    computer software     (2,055)       -     -     -     -     -     -     (1,008)     (3,063)
  Purchase of Investment Management                                                        
    investments available for sale     -       -     -     -     (4,245)     -     -     -     (4,245)
  Proceeds from sale of Investment                                                         
  Management investments available for sale   -       -     -     -     11,065     -     -     -     11,065
  Net proceeds from sale (purchase) of                                                        
    investments available for sale     97,042       -     -     -     (97,042)     -     -     -     -
  Net decrease in AGF Trust real estate                                                        
    secured and investment loans     194,548       -     (194,548)     -     -     -     -     -     -
  Net cash provided by (used in) continuing investing activities     74,155       -     (194,548)     40,369     (90,222)     -     -     (1,008)     (171,254)
  Net cash provided by (used in) discontinued investing activities     -       -     -     -     -     -     -     1,008     1,008
  Net cash provided by (used in)                                                        
    investing activities      74,155       -     (194,548)     40,369     (90,222)     -     -     -     (170,246)
                                                         
Decrease in cash and cash equivalents,
                                                     
during the period      (108,978)       (48)     -     -     -     -     -     -     (109,026)
                                                         
Balance of cash and cash equivalents,                                                        
 beginning of period     456,550       371     -     -     -     -     -     -     456,921
Balance of cash and cash equivalents,                                                       
  end of period   $ 347,572     $ 323   $ -   $ -   $ -   $ -   $ -   $ -   $ 347,895

 

This report contains forward-looking statements with respect to AGF, including its business operations, strategy, financial performance and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially include, among other things, general economic and market factors including interest rates, business competition, changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.

Conference Call

AGF will host a conference call to review its earnings results today at 11 a.m. ET. The live audio webcast with supporting materials will be available in the Investor Relations section of AGF's website at www.agf.com or at http://www.media-server.com/m/p/6u8pyodc. Alternatively, the call can be accessed toll-free in North America by dialing 1-866-713-8562 (Passcode #: 93355383). A complete archive of this discussion along with supporting materials will be available at the same webcast address within 24 hours of the end of the conference call.

About AGF Management Limited

AGF Management Limited is one of Canada's premier independent investment management firms with offices across Canada and subsidiaries around the world. AGF's products include a diversified family of award-winning mutual funds, mutual fund wrap programs and pooled funds. AGF also manages assets on behalf of institutional investors including pension plans, foundations and endowments as well as for private clients. With over $41 billion in total assets under management, AGF serves more than one million investors. AGF trades on the Toronto Stock Exchange under the symbol AGF.B. 

 

SOURCE: AGF

For further information:

Robert J. Bogart, CPA
Executive Vice-President and Chief Financial Officer
416-865-4264, bob.bogart@agf.com

Michael Clabby
Vice-President, Investor Relations and Corporate Development
416-815-6275, michael.clabby@agf.com


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