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Section 1: 10-Q (10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2013

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the transition period from            to            

 

Commission File Number 001-15253

 

 

Janus Capital Group Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

43-1804048

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

151 Detroit Street, Denver, Colorado

 

80206

(Address of principal executive offices)

 

(Zip Code)

 

(303) 333-3863

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Yes x                    No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer x

 

Accelerated Filer o

 

Non-Accelerated Filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                    No x

 

As of October 18, 2013, there were 189,111,260 shares of the Company’s common stock, $0.01 par value per share, issued and outstanding.

 

 

 



 

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions, Except Share Data)

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

358.2

 

$

387.0

 

Investment securities

 

434.4

 

350.5

 

Accounts receivable

 

98.1

 

100.2

 

Income taxes receivable

 

10.2

 

3.5

 

Other current assets

 

35.3

 

47.2

 

Total current assets

 

936.2

 

888.4

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Property and equipment, net

 

29.8

 

33.3

 

Intangible assets, net

 

1,233.1

 

1,242.3

 

Goodwill

 

488.2

 

488.2

 

Other assets

 

6.6

 

8.2

 

 

 

 

 

 

 

Total assets

 

$

2,693.9

 

$

2,660.4

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

4.2

 

$

3.7

 

Accrued compensation and benefits

 

80.0

 

91.2

 

Current portion of long-term debt

 

95.9

 

 

Other accrued liabilities

 

55.8

 

64.6

 

Total current liabilities

 

235.9

 

159.5

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Long-term debt

 

447.1

 

545.1

 

Deferred income taxes

 

439.3

 

436.0

 

Other liabilities

 

50.6

 

41.8

 

Total liabilities

 

1,172.9

 

1,182.4

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

7.1

 

42.9

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Preferred stock ($1.00 par, 10,000,000 shares authorized, none issued)

 

 

 

Common stock ($0.01 par, 1,000,000,000 shares authorized; 265,500,708 and 265,500,708 shares issued, respectively; 189,347,010 and 187,522,000 shares outstanding, respectively)

 

1.9

 

1.9

 

Retained earnings

 

1,475.1

 

1,415.4

 

Accumulated other comprehensive (loss) income, net of tax

 

(1.2

)

0.6

 

Total JCG stockholders’ equity

 

1,475.8

 

1,417.9

 

Noncontrolling interests

 

38.1

 

17.2

 

Total equity

 

1,513.9

 

1,435.1

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,693.9

 

$

2,660.4

 

 

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

 

1



 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in Millions, Except Per Share Data)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

204.0

 

$

194.1

 

$

605.0

 

$

588.5

 

Performance fees

 

(22.0

)

(20.9

)

(63.7

)

(61.8

)

Shareowner servicing fees and other

 

35.7

 

35.8

 

106.4

 

106.7

 

Total

 

217.7

 

209.0

 

647.7

 

633.4

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

73.3

 

70.8

 

222.0

 

209.4

 

Long-term incentive compensation

 

15.8

 

16.2

 

45.3

 

51.0

 

Marketing and advertising

 

4.6

 

5.4

 

14.3

 

16.3

 

Distribution

 

30.8

 

32.3

 

94.0

 

96.0

 

Depreciation and amortization

 

7.1

 

9.9

 

21.9

 

26.0

 

General, administrative and occupancy

 

27.1

 

26.5

 

78.1

 

78.2

 

Total

 

158.7

 

161.1

 

475.6

 

476.9

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

59.0

 

47.9

 

172.1

 

156.5

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(9.5

)

(11.1

)

(31.7

)

(33.9

)

Investment gains, net

 

7.9

 

7.6

 

6.4

 

6.9

 

Other income, net

 

0.8

 

0.3

 

1.8

 

2.2

 

Loss on early extinguishment of debt

 

(0.9

)

 

(13.5

)

(7.2

)

Income before taxes

 

57.3

 

44.7

 

135.1

 

124.5

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

(21.7

)

(17.0

)

(53.0

)

(45.4

)

 

 

 

 

 

 

 

 

 

 

Net income

 

35.6

 

27.7

 

82.1

 

79.1

 

Noncontrolling interests

 

(3.0

)

(2.6

)

(5.7

)

(8.0

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to JCG

 

$

32.6

 

$

25.1

 

$

76.4

 

$

71.1

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to JCG common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

$

0.14

 

$

0.41

 

$

0.39

 

Diluted

 

$

0.17

 

$

0.14

 

$

0.41

 

$

0.38

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

$

0.7

 

$

0.1

 

$

0.6

 

$

0.6

 

Foreign currency items

 

 

0.3

 

 

0.1

 

Reclassifications for items included in net income

 

(0.7

)

0.2

 

(2.4

)

(0.1

)

Other comprehensive income (loss), net of tax

 

 

0.6

 

(1.8

)

0.6

 

Comprehensive income

 

35.6

 

28.3

 

80.3

 

79.7

 

Comprehensive income attributable to noncontrolling interests

 

(3.0

)

(2.6

)

(5.7

)

(8.0

)

Comprehensive income attributable to JCG

 

$

32.6

 

$

25.7

 

$

74.6

 

$

71.7

 

 

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

 

2



 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2013

 

2012

 

CASH FLOWS PROVIDED BY (USED FOR):

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

82.1

 

$

79.1

 

Adjustments to net income:

 

 

 

 

 

Depreciation and amortization

 

21.9

 

26.0

 

Deferred income taxes

 

13.5

 

12.1

 

Amortization of stock-based compensation

 

18.5

 

22.5

 

Investment gains, net

 

(6.4

)

(6.9

)

Amortization of debt discount and deferred issuance costs

 

7.9

 

8.4

 

Loss on early extinguishment of debt

 

13.5

 

7.2

 

Payment of deferred commissions, net

 

(3.3

)

(3.9

)

Other, net

 

(1.0

)

0.3

 

Changes in working capital items:

 

 

 

 

 

Accounts receivable

 

2.6

 

5.2

 

Other current assets

 

(6.6

)

6.8

 

Accounts payable and accrued compensation payable

 

(5.1

)

(8.7

)

Other liabilities

 

(5.6

)

(6.6

)

Net operating activities

 

132.0

 

141.5

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(5.0

)

(4.4

)

Purchase of investment securities

 

(167.8

)

(96.4

)

Proceeds from sales and maturities of investment securities

 

112.2

 

69.5

 

Net investing activities

 

(60.6

)

(31.3

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from issuance of stock warrants

 

10.5

 

 

Purchase of convertible note hedge

 

(16.1

)

 

Debt issuance costs

 

(3.3

)

 

Repayment of long-term debt

 

(8.9

)

(65.8

)

Purchase of noncontrolling interests

 

(34.1

)

(6.5

)

Proceeds from stock plans

 

7.1

 

5.3

 

Proceeds from stock option issuance

 

 

4.9

 

Excess tax benefit from equity-based compensation

 

1.6

 

1.3

 

Repurchase of common stock

 

(22.2

)

(14.9

)

Distributions to noncontrolling interests

 

(5.9

)

(9.1

)

Principal payments under capital lease obligations

 

(0.8

)

(0.8

)

Dividends paid to shareholders

 

(26.5

)

(31.9

)

Net financing activities

 

(98.6

)

(117.5

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Effect of exchange rate changes

 

(1.6

)

 

Net change

 

(28.8

)

(7.3

)

At beginning of period

 

387.0

 

360.0

 

At end of period

 

$

358.2

 

$

352.7

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

18.4

 

$

19.9

 

Cash paid for income taxes

 

$

46.2

 

$

27.3

 

 

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

 

3



 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(Amounts in Millions)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

Nonredeemable

 

 

 

 

 

 

 

Common

 

Retained

 

comprehensive

 

noncontrolling

 

Total

 

 

 

Shares

 

stock

 

earnings

 

income (loss)

 

interests

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

187.0

 

$

1.9

 

$

1,311.8

 

$

(0.5

)

$

35.9

 

$

1,349.1

 

Net income

 

 

 

 

 

71.1

 

 

 

1.4

 

72.5

 

Other comprehensive income

 

 

 

 

 

 

 

0.6

 

 

 

0.6

 

Amortization of stock-based compensation

 

 

 

 

 

20.5

 

 

 

3.5

 

24.0

 

Issuance and forfeitures of restricted stock awards, net

 

1.3

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.9

 

 

5.3

 

 

 

 

 

5.3

 

Stock option issuance

 

 

 

 

 

4.9

 

 

 

 

 

4.9

 

Change in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

(16.5

)

(16.5

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.8

)

(1.8

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

22.1

 

 

 

 

 

22.1

 

Vesting of noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.2

)

(1.2

)

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.6

)

(0.6

)

Common stock repurchases

 

(1.8

)

 

(14.9

)

 

 

 

 

(14.9

)

Common stock dividends

 

 

 

 

 

(31.9

)

 

 

 

 

(31.9

)

Balance at September 30, 2012

 

187.4

 

$

1.9

 

$

1,388.9

 

$

0.1

 

$

20.7

 

$

1,411.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

187.5

 

$

1.9

 

$

1,415.4

 

$

0.6

 

$

17.2

 

$

1,435.1

 

Net income

 

 

 

 

 

76.4

 

 

 

0.8

 

77.2

 

Other comprehensive loss

 

 

 

 

 

 

 

(1.8

)

 

 

(1.8

)

Amortization of stock-based compensation

 

 

 

 

 

16.1

 

 

 

1.7

 

17.8

 

Issuance and forfeitures of restricted stock awards, net

 

3.0

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

1.3

 

 

7.1

 

 

 

 

 

7.1

 

Convertible senior notes issuance

 

 

 

 

 

14.7

 

 

 

 

 

14.7

 

Extinguishment of convertible senior notes

 

 

 

 

 

(2.0

)

 

 

 

 

(2.0

)

Convertible note hedge issuance

 

 

 

 

 

(16.1

)

 

 

 

 

(16.1

)

Stock warrants issuance

 

 

 

 

 

10.5

 

 

 

 

 

10.5

 

Change in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

21.5

 

21.5

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.6

)

(1.6

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

1.7

 

 

 

 

 

1.7

 

Vesting of noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.2

)

(1.2

)

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.3

)

(0.3

)

Common stock repurchases

 

(2.5

)

 

(22.2

)

 

 

 

 

(22.2

)

Common stock dividends

 

 

 

 

 

(26.5

)

 

 

 

 

(26.5

)

Balance at September 30, 2013

 

189.3

 

$

1.9

 

$

1,475.1

 

$

(1.2

)

$

38.1

 

$

1,513.9

 

 

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

 

4



 

JANUS CAPITAL GROUP INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

Note 1 — Basis of Presentation

 

In the opinion of Janus Capital Group Inc. (collectively, “JCG” or the “Company”) management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of JCG in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All such adjustments are of a normal recurring nature. Such interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying condensed consolidated financial statements through the issuance date. These condensed consolidated financial statements should be read in conjunction with JCG’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

The accompanying condensed consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the consolidated financial statements that are presented in JCG’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Note 2 — Recent Accounting Guidance

 

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income”. The ASU requires an entity to disclose changes in accumulated other comprehensive income (“OCI”) balances by component and disaggregate the total change between current period OCI and reclassification adjustments. For significant reclassifications out of accumulated OCI, an entity is required to identify each line item affected by the reclassification in the notes to the financial statements or on the statement where net income is presented. The ASU is effective for JCG’s fiscal period beginning January 1, 2013. JCG adopted ASU No. 2013-02 on January 1, 2013, and added related disclosure in Note 10 Accumulated Other Comprehensive (Loss) Income.

 

Note 3 — Investment Securities

 

JCG’s investment securities as of September 30, 2013, and December 31, 2012, are summarized as follows (in millions):

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Trading securities:

 

 

 

 

 

Seeded investment products

 

$

338.9

 

$

219.5

 

Investments in advised mutual funds

 

58.4

 

89.0

 

Deferred compensation plans

 

13.8

 

11.9

 

Total trading securities

 

411.1

 

320.4

 

Available-for-sale securities:

 

 

 

 

 

Seeded investment products

 

23.3

 

30.1

 

Total investment securities

 

$

434.4

 

$

350.5

 

 

Trading Securities

 

Investment securities classified as trading include seeded investment products, investments in advised mutual funds and investments related to the economic hedging of deferred compensation plans. Investments in advised mutual funds represent those assets that had been previously utilized as economic hedges against JCG’s mutual fund share awards. Effective January 2013, JCG is no longer making dollar-for-dollar investments in advised mutual funds for purposes of economically hedging mutual fund share awards.

 

At September 30, 2013, seeded investment products represented $257.4 million in 13 mutual funds advised by JCG and $81.5 million in 27 separately managed accounts. At December 31, 2012, seeded investment products represented $155.3 million in 18 mutual funds advised by JCG and $64.2 million in 25 separately managed accounts.

 

5



 

JCG recognized $14.5 million and $13.5 million of gains related to trading securities that were still held as of the reporting date for the nine months ended September 30, 2013 and 2012, respectively.

 

Available-for-Sale Securities

 

At September 30, 2013, and December 31, 2012, seeded investment products advised by JCG classified as available-for-sale securities represented $23.3 million held in 37 mutual funds and $30.1 million held in 31 mutual funds, respectively.

 

The following is a summary of the cost, gross unrealized gains and losses, and estimated fair value of seeded investment products classified as available-for-sale securities at September 30, 2013, and December 31, 2012 (in millions):

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Cost basis

 

$

21.1

 

$

32.2

 

Gross unrealized gains

 

2.3

 

1.0

 

Gross unrealized losses

 

(0.1

)

(3.1

)

Estimated fair value

 

$

23.3

 

$

30.1

 

 

The gross unrealized gains and losses in seeded investment products were recognized as components of other comprehensive income (loss), net of tax on the Condensed Consolidated Statements of Comprehensive Income. JCG reviewed the gross unrealized losses and determined that the losses were not other-than-temporary. No other-than-temporary impairment charges were recognized in the three and nine months ended September 30, 2013 and 2012.

 

Realized gains and losses related to the disposition of seeded investment products classified as available-for-sale securities were recognized in investment gains, net on the Condensed Consolidated Statements of Comprehensive Income. The following is a summary of realized gains and losses upon disposition of seeded investment products classified as available-for-sale securities for the three and nine months ended September 30, 2013 and 2012 (in millions):

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Realized gains

 

$

1.8

 

$

 

$

2.6

 

$

0.6

 

Realized losses

 

(0.5

)

(0.6

)

(1.1

)

(0.6

)

Net realized gains (losses)

 

$

1.3

 

$

(0.6

)

$

1.5

 

$

 

 

Derivative Instruments

 

The Company maintains an economic hedge program that uses derivative instruments to hedge against market volatility of its seed investments. Fluctuations in equity markets, credit markets and foreign currency markets are hedged by using index swaps, futures contracts and forward contracts, respectively. As of September 30, 2013, JCG had six index swap positions with a notional value of $182.5 million, six futures contract positions with a notional value of $84.1 million and four foreign currency forward contract positions with a notional value of $81.6 million.

 

These instruments are not designated as hedges for accounting purposes. The index swaps and futures contracts are settled daily, and settlement amounts are recognized in investment gains, net on the Condensed Consolidated Statements of Comprehensive Income. The fair value of the foreign currency forward contracts as of September 30, 2013, and December 31, 2012, was $(2.6) million and $(0.2) million, respectively, and is netted against associated cash collateral within other current assets on the Condensed Consolidated Balance Sheets. Fair value adjustments for the foreign currency forward contracts are recognized in other income, net on the Condensed Consolidated Statements of Comprehensive Income.

 

6



 

JCG recognized the following net gains on hedged seed investments and net losses on associated index swaps and futures contracts for the three and nine months ended September 30, 2013 and 2012 (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Hedged seed investments classified as trading securities

 

$

15.4

 

$

4.8

 

$

18.6

 

$

9.4

 

Hedged seed investments classified as available-for-sale securities

 

0.6

 

 

0.6

 

 

Total hedged seed investments

 

16.0

 

4.8

 

19.2

 

9.4

 

Futures contracts

 

(13.7

)

(5.0

)

(20.5

)

(10.1

)

Index swaps

 

(0.7

)

 

(2.1

)

 

Total

 

$

1.6

 

$

(0.2

)

$

(3.4

)

$

(0.7

)

 

JCG recognized the following net gains on hedged trading securities denominated in a foreign currency and net losses on associated foreign currency forward contracts for the three and nine months ended September 30, 2013 and 2012 (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net losses in net income related to:

 

 

 

 

 

 

 

 

 

Translation gains

 

$

3.4

 

$

0.1

 

$

2.7

 

$

 

Foreign currency forward contracts

 

(3.7

)

(0.2

)

(2.9

)

 

Total

 

$

(0.3

)

$

(0.1

)

$

(0.2

)

$

 

 

Investment Gains, Net

 

Investment gains, net on the Condensed Consolidated Statements of Comprehensive Income includes the following for the three and nine months ended September 30, 2013 and 2012 (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Seeded investment products

 

$

17.4

 

$

8.7

 

$

18.0

 

$

15.3

 

Noncontrolling interests in seeded investment products

 

2.0

 

0.6

 

2.1

 

1.7

 

Investments in advised mutual funds

 

2.2

 

3.3

 

7.0

 

6.1

 

Futures contracts and index swaps

 

(14.4

)

(5.0

)

(22.6

)

(10.1

)

Economic hedges for deferred compensation plans

 

0.7

 

 

1.9

 

 

Other

 

 

 

 

(6.1

)

Investment gains, net

 

$

7.9

 

$

7.6

 

$

6.4

 

$

6.9

 

 

Purchases, Sales and Maturities

 

Cash flows related to investment securities for the three and nine months ended September 30, 2013 and 2012, are summarized as follows (in millions):

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

Purchases

 

Sales/
Maturities

 

Purchases

 

Sales/
Maturities

 

Purchases

 

Sales/
Maturities

 

Purchases

 

Sales/
Maturities

 

Trading securities

 

$

(2.1

)

$

2.2

 

$

(16.4

)

$

6.9

 

$

(113.5

)

$

62.5

 

$

(77.9

)

$

51.4

 

Available-for-sale securities

 

(0.1

)

8.1

 

(0.1

)

2.9

 

(0.4

)

18.2

 

(0.8

)

8.0

 

Seed capital derivative instruments

 

(19.2

)

8.0

 

(7.4

)

1.8

 

(53.9

)

31.5

 

(17.7

)

10.1

 

Total cash flows

 

$

(21.4

)

$

18.3

 

$

(23.9

)

$

11.6

 

$

(167.8

)

$

112.2

 

$

(96.4

)

$

69.5

 

 

7



 

Note 4 — Fair Value Measurements

 

The following table presents assets, liabilities and redeemable noncontrolling interests measured or disclosed at fair value on a recurring basis as of September 30, 2013 (in millions):

 

 

 

Fair Value Measurements Using:

 

 

 

 

 

Quoted prices in

 

 

 

 

 

 

 

 

 

active markets for

 

Significant other

 

Significant

 

 

 

 

 

identical assets

 

observable inputs

 

unobservable inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

$

179.3

 

$

 

$

179.3

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

245.6

 

93.3

 

 

338.9

 

Investments in advised mutual funds

 

58.4

 

 

 

58.4

 

Deferred compensation plans hedge assets

 

13.8

 

 

 

13.8

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

5.3

 

18.0

 

 

23.3

 

Total investment securities

 

323.1

 

111.3

 

 

434.4

 

Total assets

 

$

323.1

 

$

290.6

 

$

 

$

613.7

 

Liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

100.1

 

$

 

$

100.1

 

Long-term debt

 

 

507.2

 

 

507.2

 

Foreign currency forward contracts

 

 

2.6

 

 

2.6

 

Total liabilities

 

$

 

$

609.9

 

$

 

$

609.9

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

 

$

 

$

7.1

 

$

7.1

 

 

The following table presents assets, liabilities and redeemable noncontrolling interests measured or disclosed at fair value on a recurring basis as of December 31, 2012 (in millions):

 

 

 

Fair Value Measurements Using:

 

 

 

 

 

Quoted prices in

 

 

 

 

 

 

 

 

 

active markets for

 

Significant other

 

Significant

 

 

 

 

 

identical assets

 

observable inputs

 

unobservable inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

$

250.1

 

$

 

$

250.1

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

74.2

 

145.3

 

 

219.5

 

Investments in advised mutual funds

 

89.0

 

 

 

89.0

 

Deferred compensation plans hedge assets

 

11.9

 

 

 

11.9

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

7.5

 

22.6

 

 

30.1

 

Total investment securities

 

182.6

 

167.9

 

 

350.5

 

Total assets

 

$

182.6

 

$

418.0

 

$

 

$

600.6

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

 

$

618.3

 

$

 

$

618.3

 

Foreign currency forward contracts

 

 

0.1

 

 

0.1

 

Total liabilities

 

$

 

$

618.4

 

$

 

$

618.4

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

 

$

 

$

42.9

 

$

42.9

 

 

JCG’s Level 1 fair value measurements consist of trading securities and available-for-sale securities with quoted market prices in active markets. The majority of investment securities classified as Level 2 are debt securities with values derived from

 

8



 

evaluated pricing by independent third-party providers. Short-term securities with maturities of 60 days or less are valued at amortized cost, which approximates market value, and are also categorized as Level 2 in the hierarchy. The underlying securities of mutual funds and separate accounts may be denominated in a foreign currency. In some cases, the closing price of such securities may be adjusted to capture the effects of any post-closing activity impacting the markets in which they trade. Security prices are adjusted based upon historical impacts for similar post-close activity. These adjustments result in the securities being classified as Level 2 and may also result in movements of securities between Level 1 and Level 2.

 

Transfers between Level 1 and Level 2 classifications for the nine months ended September 30, 2013 and 2012, are summarized as follows (in millions):

 

 

 

September 30,

 

 

 

 2013 

 

 2012

 

Transfers from Level 1 to Level 2

 

$

— 

 

$

 

Transfers from Level 2 to Level 1

 

$

13.4

 

$

4.9

 

 

Transfers from Level 2 to Level 1 primarily represented foreign securities whose quoted market prices no longer required adjustment for subsequent fluctuations in active markets. Transfers are generally recognized at the end of each reporting period.

 

JCG’s Level 3 recurring fair value measurements represent redeemable noncontrolling interests in INTECH Investment Management LLC (“INTECH”) and Perkins Investment Management LLC (“Perkins”).

 

Redeemable noncontrolling interests in INTECH are measured at fair value on an annual basis, or more frequently if events or circumstances indicate that material change in the fair value of INTECH has occurred. The fair value of INTECH is determined using a discounted cash flow methodology with probability-weighted scenarios. Discounted cash flow analyses are prepared internally within JCG’s finance organization by personnel with appropriate valuation experience and credentials. In preparing the analyses, JCG benchmarks valuation metrics such as multiples of earnings against recent market transactions of a similar size and nature to ensure that the estimates are reasonable. The analyses are reviewed by senior JCG finance personnel and JCG’s Chief Financial Officer. The analyses may also be reviewed by the holders of the noncontrolling interests in INTECH. If the analyses are reviewed by the holders of the noncontrolling interests in INTECH and the valuation is agreed to by both JCG and the holders of noncontrolling interests, JCG utilizes the analyses to value the redeemable noncontrolling interests. If the holders of noncontrolling interests object to the analyses, a valuation is obtained from a third-party investment bank agreed upon by the interested parties. JCG has engaged a third-party investment bank for such valuation in the past and may do so again in the future.

 

Significant unobservable inputs related to the INTECH discounted cash flow analysis include forecasted operating results, discount rate and terminal multiple of forecasted earnings before interest expense, taxes, depreciation and amortization. Significant increases or decreases in the forecasted operating results and terminal multiple inputs in isolation would result in a significantly higher or lower fair value measurement, respectively. A significant increase or decrease in the discount rate input would result in a significantly lower or higher fair value measurement, respectively. The terminal multiple input for each scenario is influenced by the growth rate contained in the forecasted operating results. Generally, a change in the assumptions used for forecasted operating results is accompanied by a directionally similar change in the terminal multiple. A fair value analysis on the INTECH redeemable noncontrolling interests was performed during the first quarter 2013. The average discount rate and average terminal multiple used in the first quarter 2013 analysis were 13% and 7.50x, respectively.

 

Redeemable noncontrolling interests in Perkins are measured by a contractual formula intended to represent fair value on a monthly basis. The contractual formula is prepared internally within JCG’s finance organization and is reviewed by senior JCG finance personnel and JCG’s Chief Financial Officer. The analyses are also reviewed by the holders of the noncontrolling interests in Perkins. In the event either party objects to the valuation determined by the contractual formula, a valuation is obtained from a third-party investment bank agreed upon by the interested parties. JCG has not engaged a third-party investment bank for such valuation in the past but may do so in the future.

 

Inputs to the Perkins contractual formula include trailing 12-month revenues of Perkins investment products and the relative performance of Perkins investment products as compared to benchmark indices. The contractual formula applies defined revenue multiples to trailing 12-month Perkins revenues to arrive at fair value; the revenue multiples are subject to increases if certain performance targets are met. Due to the contractual nature of the formula, the revenue and performance inputs are relationally independent. The revenue multiples used in the September 30, 2013, and December 31, 2012, valuations were 3.39x and 3.43x, respectively.

 

Nonrecurring Level 3 fair value measurements include goodwill and intangible assets. JCG measures the fair value of goodwill and intangible assets using a discounted cash flow analysis that requires assumptions regarding projected future earnings and discount rates. Because of the significance of the unobservable inputs in the fair value measurements of these assets and

 

9



 

liabilities, such measurements have been classified as Level 3. There were no remeasurements of these assets during the nine months ended September 30, 2013 and 2012.

 

The changes in fair value of JCG’s recurring Level 3 fair value measurements are as follows (in millions):

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

2012

 

 

 

Redeemable

 

Redeemable

 

Redeemable

 

Redeemable

 

Other

 

 

 

noncontrolling

 

noncontrolling

 

noncontrolling

 

noncontrolling

 

investment

 

 

 

interests

 

interests

 

interests

 

interests

 

securities

 

Beginning of period fair value

 

$

40.3

 

$

65.6

 

$

42.9

 

$

85.4

 

$

3.2

 

Distributions

 

(0.1

)

(1.3

)

(4.3

)

(7.3

)

 

Current earnings

 

0.7

 

1.5

 

2.8

 

4.9

 

 

Sale of investments

 

 

 

 

 

(3.2

)

Purchase of redeemable noncontrolling interests (1)

 

(33.8

)

(2.6

)

(33.8

)

(5.9

)

 

Vesting of noncontrolling interests

 

 

 

1.2

 

1.2

 

 

Change in fair value

 

 

(7.0

)

(1.7

)

(22.1

)

 

End of period fair value

 

$

7.1

 

$

56.2

 

$

7.1

 

$

56.2

 

$

 

 


(1)         Refer to Note 7Noncontrolling Interests for information regarding the redemption of certain Perkins ownership units.

 

Note 5 — Debt

 

Debt at September 30, 2013, and December 31, 2012, consisted of the following (in millions):

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

value

 

value

 

value

 

value

 

6.119% Senior Notes due 2014

 

$

38.9

 

$

39.8

 

$

38.9

 

$

40.7

 

3.250% Convertible Senior Notes due 2014

 

57.0

 

60.3

 

154.0

 

176.0

 

6.700% Senior Notes due 2017

 

344.4

 

384.9

 

352.2

 

401.6

 

0.750% Convertible Senior Notes due 2018

 

102.7

 

122.3

 

 

 

Total

 

543.0

 

607.3

 

545.1

 

618.3

 

Less: Current maturities

 

(95.9

)

(100.1

)

 

 

Total long-term debt

 

$

447.1

 

$

507.2

 

$

545.1

 

$

618.3

 

 

Fair Value of Debt

 

The fair value of debt was determined using broker quotes and recent trading activity for each of the notes listed above, which are considered Level 2 inputs.

 

Partial Buyback of 6.700% Senior Notes and Loss on Early Extinguishment of Debt

 

On August 30, 2013, JCG repurchased on the open market $8.0 million aggregate principal amount of the Company’s outstanding 6.70% Senior Notes due 2017 (“2017 Notes”) for $8.9 million in cash. JCG recognized a loss of $0.9 million on the repurchase.

 

Exchange of Convertible Senior Notes and Loss on Early Extinguishment of Debt

 

On June 14, 2013, JCG entered into separate, privately negotiated exchange agreements pursuant to which $110.0 million aggregate principal amount of JCG’s existing, 3.25% Convertible Senior Notes due 2014 (“2014 Notes”) was exchanged for $116.6 million aggregate principal amount of newly issued, 0.75% Convertible Senior Notes due 2018 (“2018 Notes”). Immediately following the exchange, $60.0 million aggregate principal amount of existing 2014 Notes remained outstanding.

 

The non-cash exchange of the 2018 Notes for a portion of the 2014 Notes constituted an extinguishment of debt under applicable accounting guidance. As a result of the extinguishment, JCG recognized a $12.6 million loss on early extinguishment of debt related to the settlement of the liability component of the exchanged 2014 Notes, and a $2.0 million reduction in equity related to the retirement of the conversion feature of the exchanged 2014 Notes.

 

10



 

0.750% Convertible Senior Notes

 

The 2018 Notes pay interest semiannually at a rate of 0.75% per annum on January 15 and July 15 of each year, beginning on January 15, 2014, and will be convertible, under certain circumstances, into cash, shares of JCG common stock, or a combination of cash and shares of JCG common stock, at the Company’s election. The initial conversion rate of the 2018 Notes is 92.1 shares of JCG common stock per $1,000 principal amount of the 2018 Notes, which is equivalent to an initial conversion price of approximately $10.86 per share of common stock, subject to adjustment in certain circumstances. This initial conversion price represents a premium of 25% relative to the $8.69 per share closing price of JCG’s common stock on June 13, 2013, the date of pricing.

 

Holders may convert their 2018 Notes at their option prior to the close of business on the business day immediately preceding April 15, 2018, only under the following circumstances: (1) during any calendar quarter commencing after September 30, 2013, if the last reported sale price of JCG’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2018 Notes for each day of such period is less than 98% of the product of the last reported sale price of JCG’s common stock and the applicable conversion rate; or (3) upon the occurrence of specified corporate events.

 

Because the 2018 Notes may be wholly or partially settled in cash, the liability and conversion feature components are required to be accounted for separately. The initial $102.0 million liability component was determined by discounting future contractual cash flows at a 3.5% rate, which is consistent with the estimated market interest rate for similar senior notes with no conversion option. The liability component will accrete up to the face value of $116.6 million over the five-year expected term of the 2018 Notes through interest expense. The $14.6 million initial equity component was determined as the difference between the initial liability component and the face value of the 2018 Notes and was recorded as an adjustment to equity.

 

The 2018 Notes include an unamortized discount at September 30, 2013 of $13.9 million, which will be amortized over the remaining term. Interest expense related to the 2018 Notes includes interest on the outstanding principal balance as well as amortization of capitalized issuance costs and totaled $1.0 million and $1.1 million for the three and nine months ended September 30, 2013, respectively.

 

Convertible Note Hedge and Warrant Transactions

 

In connection with the 2018 Notes issuance, JCG entered into convertible note hedge and warrant transactions which, in combination, are intended to reduce the potential for future dilution to existing shareholders by effectively increasing the conversion price of the 2018 Notes to JCG from $10.86 to $12.60 per share of common stock.

 

The convertible note hedge and warrant transactions consist of two separate instruments: purchased call options and the sale of warrants. The call options represent the same number of shares of JCG’s common stock underlying the 2018 Notes with a strike price of $10.86 per share of common stock, which is equal to the conversion price of the 2018 Notes. The call options cost $16.1 million. To offset the cost of the call options, JCG sold warrants to the counterparty of the call options for the same number of shares of JCG’s common stock underlying the 2018 Notes with an exercise price of $12.60 per share of common stock. The proceeds from the sale of the warrants totaled $10.5 million. The call options and warrants may be settled in cash or stock at JCG’s election. The instruments are indexed to JCG’s equity and may potentially settle in JCG stock. Accordingly, the Company recorded the $5.6 million net cost of the instruments as a reduction in equity, and will not recognize subsequent changes in fair value of these financial instruments in its consolidated financial statements.

 

3.250% Convertible Senior Notes

 

In July 2009, JCG issued $170.0 million of 2014 Notes, which pay interest at 3.25% semiannually on July 15 and January 15 of each year and mature on July 15, 2014, unless earlier converted. As discussed above, $110.0 million aggregate principal amount of the 2014 Notes was exchanged for the 2018 Notes, leaving $60.0 million aggregate principal amount of 2014 Notes outstanding. The 2014 Notes are convertible under certain circumstances into cash, shares of JCG common stock, or a combination of cash and shares of JCG common stock at JCG’s election. The holders of the 2014 Notes have the right to require JCG to repurchase their notes for cash under certain circumstances. The original conversion rate of 71.3 shares of JCG common stock per $1,000 principal amount of 2014 Notes was most recently adjusted during the third quarter 2013 when JCG paid a quarterly cash dividend of $0.07 per share. As a result of the quarterly cash dividend paid on August 23, 2013, the conversion rate changed to 75.4 shares of JCG common stock per $1,000 principal amount of 2014 Notes, equivalent to a conversion price of approximately $13.26 per share of common stock. JCG is required to continue to adjust the conversion rate to the extent there are future dividend payments above $0.04 per share on an annual basis. The 2014 Notes are not callable by JCG. During the second quarter 2013, JCG derecognized $7.4 million and $0.6 million of unamortized debt discount and capitalized issuance costs, respectively, in conjunction with the exchange of $110.0 million aggregate principal amount of the 2014 Notes discussed above.

 

11



 

The 2014 Notes include an unamortized discount at September 30, 2013, of $3.0 million, which will be amortized over the remaining term. Interest expense related to the 2014 Notes includes interest on the outstanding principal balance as well as amortization of capitalized issuance costs and totaled $1.5 million and $9.3 million for the three and nine months ended September 30, 2013, respectively. Interest expense related to the 2014 Notes totaled $3.9 million and $11.6 million for the three and nine months ended September 30, 2012, respectively.

 

Credit Facility

 

At September 30, 2013, JCG had a $250 million, unsecured, revolving credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent and swingline lender. Under the Credit Facility, JCG’s financing leverage ratio cannot exceed 3.00x, and its interest coverage ratio must equal or exceed 4.00x. At September 30, 2013, JCG was in compliance with all covenants, and there were no borrowings under the Credit Facility. The Credit Facility has a maturity date of October 14, 2014.

 

Capital Lease Obligations

 

JCG’s capital lease obligations represent leased computer equipment. The carrying values of the obligations totaled $2.1 million and $2.9 million at September 30, 2013, and December 31, 2012, respectively, and are included in other accrued liabilities and other liabilities on the Condensed Consolidated Balance Sheets. The related lease terms extend through 2017.

 

Note 6 — Income Taxes

 

JCG’s provision for income taxes was $21.7 million and $17.0 million, or 37.8% and 38.0% of income before taxes, for the three months ended September 30, 2013 and 2012, respectively. The provision for income taxes was $53.0 million and $45.4 million, or 39.2% and 36.5% of income before taxes, for the nine months ended September 30, 2013 and 2012, respectively. The Company’s effective tax rate for the nine month period ending September 30, 2013 increased by 2.7% due largely to the reversal of unrealized deferred tax assets upon the expiration and vesting of certain equity-based compensation awards.

 

As of September 30, 2013, JCG had $6.0 million of accrued reserves for income tax contingencies. JCG accrued additional reserves for income tax contingencies in the amount of $0.3 million during the three months ended September 30, 2013, creating a net tax expense of $0.2 million. JCG also decreased its income tax contingency reserves by $0.1 million and $0.7 million during the three and nine months ended September 30, 2013, respectively, as a result of the expiration of statutes of limitations and audit settlements, creating a net tax benefit of $0.1 million and $0.5 million, respectively. JCG anticipates that its income tax contingency reserves will decrease by approximately $1.2 million in the next 12 months, primarily from the expiration of statutes of limitations and the resolution of audits. Accrued reserves for income tax contingencies are presented in other accrued liabilities and other liabilities on the Condensed Consolidated Balance Sheets.

 

Note 7 — Noncontrolling Interests

 

Noncontrolling interests in net income consist of the following (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Nonredeemable noncontrolling interests in subsidiaries

 

$

0.3

 

$

0.5

 

$

0.8

 

$

1.4

 

Nonredeemable noncontrolling interests in consolidated seeded investment products

 

2.0

 

0.6

 

2.1

 

1.7

 

Redeemable noncontrolling interests in subsidiaries

 

0.7

 

1.5

 

2.8

 

4.9

 

 

 

 

 

 

 

 

 

 

 

Total noncontrolling interests in net income

 

$

3.0

 

$

2.6

 

$

5.7

 

$

8.0

 

 

Noncontrolling interests on the Condensed Consolidated Balance Sheets consist of the following:

 

Nonredeemable Noncontrolling Interests

 

Noncontrolling interests that are not subject to redemption rights include, or have included, employee ownership interests in two of JCG’s subsidiaries, INTECH and Perkins, and third-party investors’ ownership in consolidated seeded investment products. Certain of the Perkins ownership interests granted to employees became subject to redemption rights upon vesting in the first quarter 2013 at which time such interests were reclassified to redeemable noncontrolling interests.

 

12



 

Nonredeemable noncontrolling interests as of September 30, 2013, and December 31, 2012, are summarized as follows (in millions):

 

 

 

September 30,
2013

 

December 31,
2012

 

Nonredeemable noncontrolling interests in consolidated seeded investment products

 

$

33.9

 

$

12.4

 

Nonredeemable noncontrolling interests in subsidiaries

 

4.2

 

4.8

 

Total nonredeemable noncontrolling interests

 

$

38.1

 

$

17.2

 

 

Changes in noncontrolling interests in consolidated seeded investment products are driven by two factors: changes in the market value of the underlying seeded investment products and changes in ownership of the underlying seeded investment products.

 

The following table presents a rollforward of noncontrolling interests in consolidated seeded investment products (in millions):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Beginning of period balance

 

$

26.1

 

$

35.6

 

$

12.4

 

$

29.2

 

Change in market value

 

2.0

 

0.6

 

2.1

 

1.7

 

Change in ownership

 

5.8

 

(23.6

)

19.4

 

(18.3

)

End of period balance

 

$

33.9

 

$

12.6

 

$

33.9

 

$

12.6

 

 

Redeemable Noncontrolling Interests

 

Redeemable noncontrolling interests consist of INTECH and Perkins interests that are currently redeemable or will become subject to redemption rights at certain future dates. Also included are undistributed earnings due to the redeemable noncontrolling interests. As of September 30, 2013, and December 31, 2012, redeemable noncontrolling interests are summarized as follows (in millions):

 

 

 

September 30,
2013

 

December 31,
2012

 

Redeemable noncontrolling interest in subsidiaries

 

$

5.8

 

$

40.1

 

Undistributed earnings

 

1.3

 

2.8

 

Total redeemable noncontrolling interests

 

$

7.1

 

$

42.9

 

 

INTECH

 

INTECH ownership interests held by a founding member had an estimated value of approximately $5.2 million and $4.8 million as of September 30, 2013, and December 31, 2012, respectively, representing approximately 1.0% aggregate ownership of INTECH for both periods. This founding member is entitled to retain his remaining INTECH interests until his death and has the option to require JCG to purchase from him his ownership interest of INTECH at fair value.

 

At September 30, 2013, and December 31, 2012, no ownership interests subject to redemption rights were held by other INTECH employees.

 

Perkins

 

The total Perkins noncontrolling interests subject to redemption rights had an estimated fair value of approximately $0.6 million and $35.3 million as of September 30, 2013, and December 31, 2012, respectively.

 

On February 1, 2013, the noncontrolling owners of Perkins (who then owned 22.2% of the equity units of Perkins) exercised their right to put 98% of their equity units to JCG. Under the terms of the put, the noncontrolling ownership units were redeemed at fair value of $33.8 million as determined on August 31, 2013, six full months following the month of the put exercise. The fair value of the ownership units was based on a contractual formula driven by revenue and investment performance of products managed by Perkins.

 

The noncontrolling interests were primarily held by founding members who are not involved in the management of Perkins. Perkins management continue to hold the majority of their interests in Perkins through senior profits interests awards and long-term incentive compensation plans. The Perkins senior profits interests awards generally receive 5% of Perkins annual taxable

 

13



 

income and have a terminal value based on Perkins revenue and relative investment performance of products managed by Perkins. The Perkins senior profits interests awards and long-term incentive compensation plans provide active members of Perkins management an ongoing stake in the success of Perkins.

 

Note 8 — Long-Term Incentive Compensation

 

JCG generally grants annual long-term incentive awards in February of each year. JCG granted $55.8 million in long-term incentive awards during the nine months ended September 30, 2013, which generally vest and will be recognized ratably over a four-year period. The 2013 awards consisted of $33.4 million of restricted stock (3.5 million shares at a weighted-average price of $9.55 per share), $22.2 million of mutual fund share awards and $0.2 million of stock option awards.

 

JCG records compensation expense associated with long-term incentive awards based on the amount of awards expected to vest at the end of the stated service period, comprising the total value of the awards less an estimate for forfeitures.

 

During the three and nine months ended September 30, 2013, JCG recognized $2.4 million and $5.7 million of long-term incentive compensation expense related to mark-to-market adjustments of mutual fund share awards and deferred compensation plans, respectively, and $1.7 million and $4.3 million during the same periods in 2012, respectively.

 

Note 9 — Other Income, Net

 

The components of other income, net are as follows (in millions):

 

 

 

 Three months ended 

 

 Nine months ended

 

 

 

 September 30, 

 

 September 30,

 

 

 

 2013 

 

 2012 

 

 2013 

 

 2012

 

Dividend income

 

$

0.4

 

$

0.3

 

$

1.1

 

$

1.0

 

Interest income

 

0.1

 

0.2

 

0.4

 

0.4

 

Foreign currency gains (losses)

 

0.3

 

(0.2

)

0.2

 

(1.0

)

Other, net

 

 

 

0.1

 

1.8

 

Total

 

$

0.8

 

$

0.3

 

$

1.8

 

$

2.2

 

 

Note 10 — Accumulated Other Comprehensive (Loss) Income

 

Changes in accumulated other comprehensive (loss) income, net of tax, for the three months ended September 30, 2013 and 2012, are as follows (in millions):

 

 

 

Three months ended September 30,

 

 

 

2013

 

2012

 

 

 

Unrealized gains

 

 

 

 

 

Unrealized gains

 

 

 

 

 

 

 

(losses) on

 

Foreign

 

 

 

(losses) on

 

Foreign

 

 

 

 

 

available-for-sale

 

currency

 

 

 

available-for-sale

 

currency

 

 

 

 

 

securities

 

items

 

Total

 

securities

 

items

 

Total

 

Beginning balance

 

$

1.1

 

$

(2.3

)

$

(1.2

)

$

0.9

 

$

(1.4

)

$

(0.5

)

Other comprehensive gain before reclassifications

 

0.7

 

 

0.7

 

0.1

 

0.3

 

0.4

 

Amounts reclassified from accumulated other comprehensive (loss) income to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment gains, net

 

(0.7

)

 

(0.7

)

0.2

 

 

0.2

 

Net current period other comprehensive income

 

 

 

 

0.3

 

0.3

 

0.6

 

Ending balance

 

$

1.1

 

$

(2.3

)

$

(1.2

)

$

1.2

 

$

(1.1

)

$

0.1

 

 

14



 

Changes in accumulated other comprehensive (loss) income, net of tax, for the nine months ended September 30, 2013 and 2012, are as follows (in millions):

 

 

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

 

 

Unrealized gains

 

 

 

 

 

Unrealized gains

 

 

 

 

 

 

 

(losses) on

 

Foreign

 

 

 

(losses) on

 

Foreign

 

 

 

 

 

available-for-sale

 

currency

 

 

 

available-for-sale

 

currency

 

 

 

 

 

securities

 

items

 

Total

 

securities

 

items

 

Total

 

Beginning balance

 

$

1.4

 

$

(0.8

)

$

0.6

 

$

0.7

 

$

(1.2

)

$

(0.5

)

Other comprehensive gain before reclassifications

 

0.6

 

 

0.6

 

0.6

 

0.1

 

0.7

 

Amounts reclassified from accumulated other comprehensive (loss) income to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment gains, net

 

(0.9

)

 

(0.9

)

(0.1

)

 

(0.1

)

Other income, net

 

 

(1.5

)

(1.5

)

 

 

 

Net current period other comprehensive (loss) income

 

(0.3

)

(1.5

)

(1.8

)

0.5

 

0.1

 

0.6

 

Ending balance

 

$

1.1

 

$

(2.3

)

$

(1.2

)

$

1.2

 

$

(1.1

)

$

0.1

 

 

Note 11 — Earnings Per Share

 

Basic earnings per common share is calculated by dividing net income attributable to JCG common shareholders by the weighted-average number of common shares outstanding during the period. The calculation of diluted earnings per common share adjusts the weighted-average shares outstanding by the dilutive impact of shares underlying stock options, unvested restricted stock awards and price-vesting units.

 

The following is a summary of the earnings per share calculation for the three and nine months ended September 30, 2013 and 2012 (in millions, except per share data):

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to JCG common shareholders

 

$

32.6

 

$

25.1

 

$

76.4

 

$

71.1

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to JCG common shareholders:

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

184.7

 

183.4

 

184.8

 

183.8

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$