Manning & Napier, Inc. - 10-Q filing on 2012-11-13

Summary of Significant Accounting Policies	9 Months Ended
Sep. 30, 2012
Summary of Significant Accounting Policies	Note 2—Summary of Significant Accounting Policies *Critical Accounting Policies* There have been no significant changes in new accounting pronouncements or in our critical accounting policies and estimates from those that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. The Company believes that the disclosures herein are adequate so that the information presented is not misleading; however, it is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2011. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year. *Basis of Presentation* The accompanying unaudited combined consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and include all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the combined consolidated financial statements. Actual results could differ from these estimates or assumptions. For the three months ended September 30, 2012, the Company recorded a correction of an immaterial error relating to the year 2011, and the first and second quarter of 2012 that increased net income by $0.2 million in the aggregate. The error relates to the number of Class A units of Manning & Napier Group that were subject to service vesting as opposed to performance vesting under the terms of the 2011 reorganization transactions. The error resulted in an understatement of $0.7 million, $1.4 million and an overstatement of $1.9 million non-cash component of compensation and related benefits for the periods ended December 31, 2011, March 31, 2012 and June 30, 2012, respectively. Approximately 1.5 million of such units were reclassified from performance-based to service-based awards. After evaluating the quantitative and qualitative aspects of the adjustment, the Company concluded that its prior period financial statements were not materially misstated. *Principles of Consolidation* Manning & Napier is the sole managing member of Manning & Napier Group. Following the Company’s 2011 reorganization transactions and initial public offering, Manning & Napier holds approximately 13.8% economic interest in Manning & Napier Group, but as managing member controls the management of Manning & Napier Group. As a result, the Company consolidates the financial results of Manning & Napier Group and records a noncontrolling interest on its statement of financial condition with respect to the remaining economic interest in Manning & Napier Group held by Manning & Napier Group Holdings, LLC (“M&N Group Holdings”), Manning & Napier Capital Company, LLC (“MNCC”) and the other members of Manning & Napier Group. For periods prior to the reorganization, the financial statements include the combined accounts of the Manning & Napier Companies. All material intercompany transactions have been eliminated in consolidation. *Operating Segments* The Company operates in one segment, the investment management industry. The Company primarily provides investment management services to separately managed accounts, mutual funds and collective investment trust funds. Management assesses the financial performance of these vehicles on a combined basis. *Advisory Agreements* The Company derives significant revenue from its role as advisor to the Manning & Napier Fund, Inc. series of mutual funds (“Fund”) and the Exeter Trust Company (“Exeter” or “ETC”) Collective Investment Trust (“CIT”) investment vehicles. Investments in the Fund amounted to approximately $0.2 million and $0.7 million at September 30, 2012 and December 31, 2011, respectively. For the three and nine months ended September 30, 2012, fees earned for advisory related services provided to the Fund and CIT investment vehicles totaled approximately $43.6 million and $128.6 million, respectively. For the three and nine months ended September 30, 2011, fees earned for advisory related services provided to the Fund and CIT investment vehicles were approximately $43.4 and $126.1 million, respectively. These amounts represent greater than 10% of revenue in each period. *Recent Accounting Pronouncements* In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. In December 2011, the FASB issued an amendment to this standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. These amendments are effective for annual periods beginning after December 15, 2011. The adoption of these amendments on January 1, 2012 did not have a material impact on the Company’s combined consolidated financial statements and related disclosures. In May 2011, FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. The amendments in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. These amendments are effective for annual periods beginning after December 15, 2011. The adoption of these amendments on January 1, 2012 did not have a material impact on the Company’s combined consolidated financial statements and related disclosures.

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Note 2—Summary of Significant Accounting Policies

Critical Accounting Policies

There have been no significant changes in new accounting pronouncements or in our critical accounting policies and estimates from those that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

The Company believes that the disclosures herein are adequate so that the information presented is not misleading; however, it is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2011. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.

Basis of Presentation

The accompanying unaudited combined consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and include all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the combined consolidated financial statements. Actual results could differ from these estimates or assumptions.

For the three months ended September 30, 2012, the Company recorded a correction of an immaterial error relating to the year 2011, and the first and second quarter of 2012 that increased net income by $0.2 million in the aggregate. The error relates to the number of Class A units of Manning & Napier Group that were subject to service vesting as opposed to performance vesting under the terms of the 2011 reorganization transactions. The error resulted in an understatement of $0.7 million, $1.4 million and an overstatement of $1.9 million non-cash component of compensation and related benefits for the periods ended December 31, 2011, March 31, 2012 and June 30, 2012, respectively. Approximately 1.5 million of such units were reclassified from performance-based to service-based awards. After evaluating the quantitative and qualitative aspects of the adjustment, the Company concluded that its prior period financial statements were not materially misstated.

Principles of Consolidation

Manning & Napier is the sole managing member of Manning & Napier Group. Following the Company’s 2011 reorganization transactions and initial public offering, Manning & Napier holds approximately 13.8% economic interest in Manning & Napier Group, but as managing member controls the management of Manning & Napier Group. As a result, the Company consolidates the financial results of Manning & Napier Group and records a noncontrolling interest on its statement of financial condition with respect to the remaining economic interest in Manning & Napier Group held by Manning & Napier Group Holdings, LLC (“M&N Group Holdings”), Manning & Napier Capital Company, LLC (“MNCC”) and the other members of Manning & Napier Group.

For periods prior to the reorganization, the financial statements include the combined accounts of the Manning & Napier Companies.

All material intercompany transactions have been eliminated in consolidation.

Operating Segments

The Company operates in one segment, the investment management industry. The Company primarily provides investment management services to separately managed accounts, mutual funds and collective investment trust funds. Management assesses the financial performance of these vehicles on a combined basis.

Advisory Agreements

The Company derives significant revenue from its role as advisor to the Manning & Napier Fund, Inc. series of mutual funds (“Fund”) and the Exeter Trust Company (“Exeter” or “ETC”) Collective Investment Trust (“CIT”) investment vehicles.

Investments in the Fund amounted to approximately $0.2 million and $0.7 million at September 30, 2012 and December 31, 2011, respectively.

For the three and nine months ended September 30, 2012, fees earned for advisory related services provided to the Fund and CIT investment vehicles totaled approximately $43.6 million and $128.6 million, respectively. For the three and nine months ended September 30, 2011, fees earned for advisory related services provided to the Fund and CIT investment vehicles were approximately $43.4 and $126.1 million, respectively. These amounts represent greater than 10% of revenue in each period.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. In December 2011, the FASB issued an amendment to this standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. These amendments are effective for annual periods beginning after December 15, 2011. The adoption of these amendments on January 1, 2012 did not have a material impact on the Company’s combined consolidated financial statements and related disclosures.

In May 2011, FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. The amendments in this update change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. These amendments are effective for annual periods beginning after December 15, 2011. The adoption of these amendments on January 1, 2012 did not have a material impact on the Company’s combined consolidated financial statements and related disclosures.