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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 March 31, 2014

 

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 April 18, 2014, there were 190,065,285 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)

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

380.0

 

$

344.5

 

Investment securities

 

388.6

 

485.5

 

Accounts receivable

 

111.3

 

108.8

 

Other current assets

 

39.0

 

52.0

 

Total current assets

 

918.9

 

990.8

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Property and equipment, net

 

28.9

 

29.9

 

Intangible assets, net

 

1,227.3

 

1,230.1

 

Goodwill

 

488.2

 

488.2

 

Non-current assets

 

8.2

 

8.3

 

Total assets

 

$

2,671.5

 

$

2,747.3

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

7.0

 

$

4.1

 

Accrued compensation and benefits

 

56.4

 

122.7

 

Current portion of long-term debt

 

97.8

 

96.9

 

Other accrued liabilities

 

44.3

 

78.0

 

Total current liabilities

 

205.5

 

301.7

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Long-term debt

 

448.4

 

447.7

 

Deferred income taxes, net

 

454.4

 

447.7

 

Non-current liabilities

 

29.1

 

32.4

 

Total liabilities

 

1,137.4

 

1,229.5

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

4.8

 

7.3

 

 

 

 

 

 

 

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; 190,376,952 and 188,603,875 shares outstanding, respectively)

 

1.9

 

1.9

 

Retained earnings

 

1,511.3

 

1,496.0

 

Accumulated other comprehensive loss, net of tax

 

(0.1

)

(1.1

)

Total JCG stockholders’ equity

 

1,513.1

 

1,496.8

 

Noncontrolling interests

 

16.2

 

13.7

 

Total equity

 

1,529.3

 

1,510.5

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,671.5

 

$

2,747.3

 

 

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

 

 

 

March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

Investment management fees

 

$

208.2

 

$

198.2

 

Performance fees

 

(15.9

)

(19.5

)

Shareowner servicing fees and other

 

37.9

 

35.5

 

Total revenue

 

230.2

 

214.2

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Employee compensation and benefits

 

80.5

 

74.3

 

Long-term incentive compensation

 

12.0

 

15.8

 

Marketing and advertising

 

5.0

 

4.9

 

Distribution

 

32.8

 

31.4

 

Depreciation and amortization

 

6.6

 

7.5

 

General, administrative and occupancy

 

26.4

 

25.6

 

Total operating expenses

 

163.3

 

159.5

 

 

 

 

 

 

 

Operating income

 

66.9

 

54.7

 

 

 

 

 

 

 

Interest expense

 

(9.4

)

(11.2

)

Investment (losses) gains, net

 

(1.1

)

4.6

 

Other income, net

 

0.6

 

1.8

 

Income before taxes

 

57.0

 

49.9

 

 

 

 

 

 

 

Income tax provision

 

(25.9

)

(20.2

)

 

 

 

 

 

 

Net income

 

31.1

 

29.7

 

Noncontrolling interests

 

(0.6

)

(1.7

)

 

 

 

 

 

 

Net income attributable to JCG common shareholders

 

$

30.5

 

$

28.0

 

 

 

 

 

 

 

Earnings per share attributable to JCG common shareholders:

 

 

 

 

 

Basic and diluted

 

$

0.16

 

$

0.15

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

$

1.2

 

$

0.5

 

Reclassifications for items included in net income

 

(0.2

)

(1.6

)

Total other comprehensive income (loss), net of tax

 

1.0

 

(1.1

)

Comprehensive income

 

32.1

 

28.6

 

Comprehensive income attributable to noncontrolling interests

 

(0.6

)

(1.7

)

Comprehensive income attributable to JCG common shareholders

 

$

31.5

 

$

26.9

 

 

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)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

CASH FLOWS PROVIDED BY (USED FOR):

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

31.1

 

$

29.7

 

Adjustments to net income:

 

 

 

 

 

Depreciation and amortization

 

6.6

 

7.5

 

Deferred income taxes

 

29.6

 

16.8

 

Amortization of stock-based compensation

 

4.2

 

5.5

 

Investment losses (gains), net

 

1.1

 

(4.6

)

Amortization of debt discounts, premiums and deferred issuance costs

 

3.2

 

3.0

 

Payment of deferred commissions, net

 

(1.6

)

(1.2

)

Other, net

 

(0.1

)

0.1

 

Changes in working capital items:

 

 

 

 

 

Accounts receivable

 

(2.3

)

(1.3

)

Other current assets

 

(26.6

)

(0.1

)

Accounts payable and accrued compensation payable

 

(60.4

)

(52.7

)

Other current and non-current liabilities

 

(20.8

)

(16.0

)

Net operating activities

 

(36.0

)

(13.3

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(1.6

)

(1.3

)

Purchase of investment securities

 

(23.1

)

(117.1

)

Proceeds from sales and maturities of investment securities

 

120.3

 

68.2

 

Net investing activities

 

95.6

 

(50.2

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Purchase of noncontrolling interests

 

(1.0

)

(0.2

)

Proceeds from stock option exercises and employee stock purchases

 

1.4

 

2.7

 

Excess tax benefit from equity-based compensation

 

0.7

 

1.2

 

Repurchase of common stock

 

(11.3

)

(3.6

)

Distributions to noncontrolling interests

 

(0.3

)

(3.5

)

Principal payments under capital lease obligations

 

(0.2

)

(0.2

)

Dividends paid to JCG common shareholders

 

(13.4

)

 

Net financing activities

 

(24.1

)

(3.6

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Net change

 

35.5

 

(67.1

)

At beginning of period

 

344.5

 

387.0

 

At end of period

 

$

380.0

 

$

319.9

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

1.5

 

$

2.8

 

Cash paid for income taxes

 

$

21.9

 

$

0.8

 

 

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, 2012

 

187.5

 

$

1.9

 

$

1,415.4

 

$

0.6

 

$

17.2

 

$

1,435.1

 

Net income

 

 

 

 

 

28.0

 

 

 

0.3

 

28.3

 

Other comprehensive loss

 

 

 

 

 

 

 

(1.1

)

 

 

(1.1

)

Amortization of stock-based compensation

 

 

 

 

 

5.3

 

 

 

0.6

 

5.9

 

Issuance and forfeitures of restricted stock awards, net

 

2.5

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.5

 

 

2.7

 

 

 

 

 

2.7

 

Change in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

0.9

 

0.9

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.1

)

(1.1

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

1.3

 

 

 

 

 

1.3

 

Vesting of nonredeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.2

)

(1.2

)

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.2

)

(0.2

)

Common stock repurchases

 

(0.4

)

 

(3.6

)

 

 

 

 

(3.6

)

Balance at March 31, 2013

 

190.1

 

$

1.9

 

$

1,449.1

 

$

(0.5

)

$

16.5

 

$

1,467.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

188.6

 

$

1.9

 

$

1,496.0

 

$

(1.1

)

$

13.7

 

$

1,510.5

 

Net income

 

 

 

 

 

30.5

 

 

 

0.3

 

30.8

 

Other comprehensive income

 

 

 

 

 

 

 

1.0

 

 

 

1.0

 

Amortization of stock-based compensation

 

 

 

 

 

6.2

 

 

 

0.4

 

6.6

 

Issuance and forfeitures of restricted stock awards, net

 

2.6

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.2

 

 

1.4

 

 

 

 

 

1.4

 

Change in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

2.4

 

2.4

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.2

)

(0.2

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

1.9

 

 

 

 

 

1.9

 

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.4

)

(0.4

)

Common stock repurchases

 

(1.0

)

 

(11.3

)

 

 

 

 

(11.3

)

Common stock dividends to JCG common shareholders

 

 

 

 

 

(13.4

)

 

 

 

 

(13.4

)

Balance at March 31, 2014

 

190.4

 

$

1.9

 

$

1,511.3

 

$

(0.1

)

$

16.2

 

$

1,529.3

 

 

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 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 interim condensed consolidated financial statements should be read in conjunction with JCG’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

The accompanying interim 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, 2013.

 

Note 2 — Investment Securities

 

JCG’s investment securities as of March 31, 2014, and December 31, 2013, are summarized as follows (in millions):

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

Trading securities:

 

 

 

 

 

Seeded investment products

 

$

232.6

 

$

312.9

 

Investments in advised mutual funds

 

4.2

 

45.5

 

Investments related to deferred compensation plans

 

14.9

 

14.9

 

Total trading securities

 

251.7

 

373.3

 

Available-for-sale securities:

 

 

 

 

 

Seeded investment products

 

46.6

 

10.7

 

Debt securities

 

90.3

 

101.5

 

Total available-for-sale securities

 

136.9

 

112.2

 

Total investment securities

 

$

388.6

 

$

485.5

 

 

Trading Securities

 

Seeded investment products represented $150.3 million in 12 mutual funds advised by the Company and $82.3 million in 28 separately managed accounts at March 31, 2014. Seeded investment products represented $230.0 million in 12 mutual funds advised by the Company and $82.9 million in 28 separately managed accounts at December 31, 2013.

 

The Company recognized $0.9 million and $7.1 million of investment gains related to seeded investment products classified as trading securities that were still held as of March 31, 2014 and 2013, respectively.

 

Available-for-Sale Securities

 

Seeded investment products advised by the Company designated as available-for-sale securities represented $46.6 million held in 37 mutual funds and $10.7 million held in 34 mutual funds at March 31, 2014 and December 31, 2013, respectively.

 

5



 

The Company had $90.3 million invested in highly rated corporate debt securities at March 31, 2014. The debt securities mature primarily in the first half of 2014.

 

The following is a summary of available-for-sale securities at March 31, 2014, and December 31, 2013 (in millions):

 

 

 

March 31, 2014

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

Amortized

 

Gross unrealized investment

 

currency

 

Estimated

 

Carrying

 

 

 

cost

 

gains

 

losses

 

translation

 

fair value

 

value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Seeded investment products

 

$

37.5

 

$

7.6

 

$

(0.1

)

$

1.6

 

$

46.6

 

$

46.6

 

Debt securities

 

90.5

 

 

(0.2

)

 

90.3

 

90.3

 

Total available-for-sale securities

 

$

128.0

 

$

7.6

 

$

(0.3

)

$

1.6

 

$

136.9

 

$

136.9

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

Amortized

 

Gross unrealized investment

 

currency

 

Estimated

 

Carrying

 

 

 

cost

 

gains

 

losses

 

translation

 

fair value

 

value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Seeded investment products

 

$

9.9

 

$

0.9

 

$

 

$

(0.1

)

$

10.7

 

$

10.7

 

Debt securities

 

101.6

 

 

(0.1

)

 

101.5

 

101.5

 

Total available-for-sale securities

 

$

111.5

 

$

0.9

 

$

(0.1

)

$

(0.1

)

$

112.2

 

$

112.2

 

 

The Company 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 months ended March 31, 2014 or 2013.

 

Realized gains and losses related to the disposition of seeded investment products classified as available-for-sale securities were recognized within investment (losses) 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 months ended March 31, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Realized gains

 

$

 

$

0.8

 

Realized losses

 

(0.1

)

(0.6

)

Net realized (losses) gains

 

$

(0.1

)

$

0.2

 

 

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, debt markets and foreign currency markets are hedged by using index swaps, index futures and foreign currency forward contracts.

 

JCG was party to the following derivative instruments as of March 31, 2014, and December 31, 2013:

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

Number of
contracts

 

Notional value
(in millions)

 

Number of
contracts

 

Notional value
(in millions)

 

Index swaps

 

5

 

$

113.6

 

6

 

$

184.3

 

Index futures

 

7

 

$

90.9

 

6

 

$

66.6

 

Foreign currency forward contracts

 

4

 

$

35.9

 

6

 

$

93.6

 

 

These instruments are not designated as hedges for accounting purposes. Changes in fair value of the index swaps and index futures are recognized in investment (losses) gains, net on JCG’s Condensed Consolidated

 

6



 

Statements of Comprehensive Income while changes in the fair value of the foreign currency forward contracts are recognized in other income, net on JCG’s Condensed Consolidated Statements of Comprehensive Income.

 

Index swaps are subject to a master netting arrangement. The values of the individual index swap contracts, including any associated cash collateral, are combined, and are included on a net basis in other current assets on JCG’s Condensed Consolidated Balance Sheets. Index futures are also subject to a master netting arrangement and are presented in the same manner as the index swaps. Foreign currency forward contracts are not subject to a master netting arrangement, and as such, fair values of individual contracts are not netted and are included separately within either other current assets or other accrued liabilities on JCG’s Condensed Consolidated Balance Sheets.

 

The Company pledged $2.7 million and $4.8 million in cash collateral with the counterparty of the index futures as of March 31, 2014 and December 31, 2013, respectively. The cash collateral is included in other current assets on JCG’s Condensed Consolidated Balance Sheets.

 

The following tables illustrate the effect of offsetting derivative instruments on JCG’s Condensed Consolidated Balance Sheets as of March 31, 2014, and December 31, 2013 (in millions):

 

 

 

March 31, 2014

 

 

 

Gross amounts

 

Gross amounts
offset

 

Net amounts

 

Assets

 

 

 

 

 

 

 

Index futures

 

$

0.2

 

$

(0.2

)

$

 

Foreign currency forward contracts

 

0.4

 

 

0.4

 

Total

 

$

0.6

 

$

(0.2

)

$

0.4

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Index futures

 

$

1.2

 

$

(1.2

)

$

 

 

 

 

December 31, 2013

 

 

 

Gross amounts

 

Gross amounts
offset

 

Net amounts

 

Assets

 

 

 

 

 

 

 

Index swaps

 

$

0.1

 

$

(0.1

)

$

 

Index futures

 

0.9

 

(0.4

)

0.5

 

Total

 

$

1.0

 

$

(0.5

)

$

0.5

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Index swaps

 

$

1.5

 

$

(1.5

)

$

 

Index futures

 

0.4

 

(0.4

)

 

Foreign currency forward contracts

 

1.5

 

 

1.5

 

Total

 

$

3.4

 

$

(1.9

)

$

1.5

 

 

JCG recognized the following net gains on hedged seed investments and net (losses) gains on associated index futures and index swaps for the three months ended March 31, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Hedged seed investments classified as trading securities

 

$

0.5

 

$

4.5

 

Hedged seed investments classified as available-for-sale securities

 

1.7

 

 

Total hedged seed investments

 

2.2

 

4.5

 

Index futures

 

(1.6

)

(6.8

)

Index swaps

 

0.2

 

 

Total

 

$

0.8

 

$

(2.3

)

 

7



 

JCG recognized the following net losses on hedged seed investments denominated in a foreign currency and net gains on associated foreign currency forward contracts for the three months ended March 31, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Net gains (losses) in net income related to:

 

 

 

 

 

Translation losses

 

$

(0.6

)

$

(2.4

)

Foreign currency forward contracts

 

0.7

 

1.8

 

Total

 

$

0.1

 

$

(0.6

)

 

Investment (Losses) Gains, Net

 

Investment (losses) gains, net on the Condensed Consolidated Statements of Comprehensive Income included the following for the three months ended March 31, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Seeded investment products

 

$

0.2

 

$

5.4

 

Noncontrolling interests in seeded investment products

 

0.2

 

0.3

 

Investments in advised mutual funds

 

(0.3

)

4.5

 

Index swaps and index futures

 

(1.4

)

(6.8

)

Economic hedge for deferred compensation plans

 

0.2

 

1.0

 

Other

 

 

0.2

 

Investment (losses) gains, net

 

$

(1.1

)

$

4.6

 

 

Purchases, Sales and Maturities

 

Cash flows related to investment securities for the three months ended March 31, 2014 and 2013, are summarized as follows (in millions):

 

 

 

Three months ended March 31,

 

 

 

2014

 

2013

 

 

 

Purchases

 

Sales/
Maturities

 

Purchases

 

Sales/
Maturities

 

Trading securities

 

$

(14.1

)

$

96.4

 

$

(98.1

)

$

50.0

 

Available-for-sale securities

 

(0.1

)

17.2

 

(0.1

)

8.9

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Seed capital economic hedge

 

(8.9

)

6.7

 

(18.9

)

9.3

 

Total cash flows

 

$

(23.1

)

$

120.3

 

$

(117.1

)

$

68.2

 

 

8



 

Note 3 — 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 March 31, 2014 (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

 

$

 

$

227.2

 

$

 

$

227.2

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

 

0.4

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

Index futures

 

 

0.2

 

 

0.2

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

166.7

 

65.9

 

 

232.6

 

Investments in advised mutual funds

 

4.2

 

 

 

4.2

 

Investments related to deferred compensation plans

 

14.9

 

 

 

14.9

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

46.6

 

 

 

46.6

 

Debt securities

 

 

90.3

 

 

90.3

 

Total investment securities

 

232.4

 

156.2

 

 

388.6

 

Total assets

 

$

232.4

 

$

384.0

 

$

 

$

616.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

99.3

 

$

 

$

99.3

 

Long-term debt

 

 

530.9

 

 

530.9

 

Index futures

 

 

1.2

 

 

1.2

 

Total liabilities

 

$

 

$

631.4

 

$

 

$

631.4

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

 

$

 

$

4.8

 

$

4.8

 

 

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

 

$

 

$

199.0

 

$

 

$

199.0

 

 

 

 

 

 

 

 

 

 

 

Index swaps

 

 

0.1

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

Index futures

 

 

0.9

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

265.9

 

47.0

 

 

312.9

 

Investments in advised mutual funds

 

45.5

 

 

 

45.5

 

Investments related to deferred compensation plans

 

14.9

 

 

 

14.9

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

10.7

 

 

 

10.7

 

Debt securities

 

 

101.5

 

 

101.5

 

Total investment securities

 

337.0

 

148.5

 

 

485.5

 

Total assets

 

$

337.0

 

$

348.5

 

$

 

$

685.5

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

101.3

 

$

 

$

101.3

 

Long-term debt

 

 

532.5

 

 

532.5

 

Index swaps

 

 

1.5

 

 

1.5

 

Index futures

 

 

0.4

 

 

0.4

 

Foreign currency forward contracts

 

 

1.5

 

 

1.5

 

Total liabilities

 

$

 

$

637.2

 

$

 

$

637.2

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

 

$

 

$

7.3

 

$

7.3

 

 

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 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 are recognized at the end of each reporting period. Transfers from Level 1 and Level 2 classifications for the three months ended March 31, 2014 and 2013, are summarized as follows (in millions):

 

 

 

March 31,

 

 

 

2014

 

2013

 

Transfers from Level 1 to Level 2

 

$

 

$

0.2

 

Transfers from Level 2 to Level 1

 

$

 

$

19.8

 

 

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

 

Redeemable noncontrolling interests in INTECH are measured at fair value on an annual basis, or more frequently if events or circumstances indicate that a 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 are also reviewed by the holders of the noncontrolling interests in INTECH. If 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.

 

Nonrecurring Level 3 fair value measurements included 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 liabilities, such measurements have been classified as Level 3.

 

10



 

The changes in fair value of JCG’s recurring Level 3 fair value measurements for the three months ended March 31, 2014 and 2013, are as follows (in millions):

 

 

 

Three months ended March 31,

 

 

 

2014

 

2013

 

 

 

Redeemable

 

Redeemable

 

 

 

noncontrolling

 

noncontrolling

 

 

 

interests

 

interests

 

Beginning of period fair value

 

$

7.3

 

$

42.9

 

Distributions

 

(0.1

)

(2.4

)

Current earnings

 

0.1

 

1.1

 

Purchase of redeemable noncontrolling interests

 

(0.6

)

 

Vesting of noncontrolling interests

 

 

1.2

 

Change in fair value

 

(1.9

)

(1.3

)

End of period fair value

 

$

4.8

 

$

41.5

 

 

Note 4 — Debt

 

Debt at March 31, 2014, and December 31, 2013, consisted of the following (in millions):

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

value

 

value

 

value

 

value

 

6.119% Senior Notes due 2014

 

$

38.9

 

$

39.0

 

$

38.9

 

$

39.5

 

3.250% Convertible Senior Notes due 2014

 

58.9

 

60.3

 

58.0

 

61.8

 

6.700% Senior Notes due 2017

 

344.4

 

390.1

 

344.4

 

383.7

 

0.750% Convertible Senior Notes due 2018

 

104.0

 

140.8

 

103.3

 

148.8

 

Total debt

 

546.2

 

630.2

 

544.6

 

633.8

 

Less: Current maturities

 

(97.8

)

(99.3

)

(96.9

)

(101.3

)

Total long-term debt

 

$

448.4

 

$

530.9

 

$

447.7

 

$

532.5

 

 

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.

 

6.119% Senior Notes due 2014

 

On April 15, 2014, the 6.119% Senior Notes due 2014 matured and JCG paid the principal balance of $38.9 million.

 

Interest Rate Adjustment Covenant

 

The 6.119% Senior Notes due 2014 and 6.700% Senior Notes due 2017 are subject to an interest rate adjustment covenant that provides that the interest rate payable will increase by 25 basis points for each level that the Company’s debt rating is decreased by Moody’s Investor Services Inc. (“Moody’s”) from Baa3 or by Standard & Poor’s Rating Service (“S&P”) from BBB-, up to a maximum increase of 200 basis points. If the interest rate has been adjusted upward as a result of either Moody’s or S&P decreasing its rating, then for each level of a subsequent rating increase, the interest payable will be decreased by 25 basis points, but in no event to a rate less than the interest rate payable on the date of issuance of the respective notes. The interest rate adjustment covenant will permanently terminate if the Company’s debt ratings increase to Baa2

 

11



 

(or higher) by Moody’s and BBB (or higher) by S&P, with a stable or positive outlook regardless of any subsequent decrease in the ratings by either or both rating agencies. On March 18, 2014, S&P reaffirmed JCG’s credit rating of BBB-, with a negative outlook and Moody’s reaffirmed JCG’s credit rating of Baa3, with a stable outlook.

 

Credit Facility

 

At March 31, 2014, JCG had a $200 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 March 31, 2014, JCG was in compliance with all covenants and there were no borrowings under the Credit Facility. The Credit Facility has a maturity date of November 23, 2018.

 

Capital Lease Obligations

 

JCG’s capital lease obligations represent leased computer equipment. The carrying values of the obligations totaled $1.5 million and $1.8 million at March 31, 2014, and December 31, 2013, respectively, and are included in other accrued liabilities and other liabilities on JCG’s Condensed Consolidated Balance Sheets. The related lease terms extend through 2017.

 

Note 5 — Income Taxes

 

JCG’s provision for income taxes was $25.9 million and $20.2 million, or 45.4% and 40.5% of income before taxes, for the three months ended March 31, 2014 and 2013, respectively. The Company’s effective tax rate for the three month period ending March 31, 2014 increased by 4.9% due largely to the reversal of unrealized deferred tax assets upon the expiration and vesting of certain equity-based compensation awards.

 

As of March 31, 2014, JCG had $5.8 million of accrued reserves for income tax contingencies. JCG accrued additional reserves for income tax contingencies in the amount of $0.2 million during the first quarter 2014, creating a net tax expense of $0.1 million. JCG anticipates that its income tax contingency reserves will decrease by approximately $1.6 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 JCG’s Condensed Consolidated Balance Sheets.

 

Note 6 — Noncontrolling Interests

 

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

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Nonredeemable noncontrolling interests in subsidiaries

 

$

0.3

 

$

0.3

 

Nonredeemable noncontrolling interests in consolidated seeded investment products

 

0.2

 

0.3

 

Redeemable noncontrolling interests in subsidiaries

 

0.1

 

1.1

 

Total noncontrolling interests in net income

 

$

0.6

 

$

1.7

 

 

Nonredeemable Noncontrolling Interests

 

At March 31, 2014, noncontrolling interests that are not subject to redemption rights included employee ownership interests in INTECH and third-party investors’ ownership in consolidated seeded investment products.

 

12



 

Nonredeemable noncontrolling interests as of March 31, 2014, and December 31, 2013, are summarized as follows (in millions):

 

 

 

March 31,
2014

 

December 31,
2013

 

Nonredeemable noncontrolling interests in consolidated seeded investment products

 

$

11.2

 

$

8.8

 

Nonredeemable noncontrolling interests in subsidiaries

 

5.0

 

4.9

 

Total nonredeemable noncontrolling interests

 

$

16.2

 

$

13.7

 

 

Changes in noncontrolling interests in consolidated seeded investment products were 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

 

 

 

March 31,

 

 

 

2014

 

2013

 

Beginning of period balance

 

$

8.8

 

$

12.4

 

Change in market value

 

0.2

 

0.3

 

Change in ownership

 

2.2

 

0.6

 

End of period balance

 

$

11.2

 

$

13.3

 

 

Redeemable Noncontrolling Interests

 

As of March 31, 2014, and December 31, 2013, redeemable noncontrolling interests are summarized as follows (in millions):

 

 

 

March 31,
2014

 

December 31,
2013

 

Redeemable noncontrolling interests in subsidiaries

 

$

5.2

 

$

5.9

 

Undistributed earnings

 

(0.4

)

1.4

 

Total redeemable noncontrolling interests

 

$

4.8

 

$

7.3

 

 

INTECH

 

INTECH ownership interests held by a founding member have an estimated value of $5.2 million and $5.3 million as of March 31, 2014, and December 31, 2013, 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.

 

Perkins

 

On February 3, 2014, JCG exercised its right to purchase the remaining noncontrolling ownership units in Perkins Investment Management LLC (“Perkins”) of 0.4%. Under the terms of the call, the remaining noncontrolling ownership units were redeemed for $0.6 million on March 14, 2014, based on the fair value as of the call exercise date. 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 continues to hold the majority of their interests in Perkins through senior profits interests awards and

 

13



 

long-term incentive compensation plans. 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 7 — Long-Term Incentive Compensation

 

JCG generally grants annual long-term incentive awards in February of each year. JCG granted $53.9 million in long-term incentive awards in the first quarter 2014, which generally vest and will be recognized ratably over a four-year period. The 2014 awards consisted of $31.2 million of restricted stock (2.9 million shares at a weighted-average price of $10.89 per share) and $22.7 million of mutual fund share 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 months ended March 31, 2014 and 2013, JCG recognized $0.5 million and $2.9 million of long-term incentive compensation expense related to mark-to-market adjustments of mutual fund share awards and deferred compensation plans, respectively.

 

Note 8 — Other Income, Net

 

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

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

Dividend income

 

$

0.4

 

$

0.4

 

Interest income

 

0.2

 

0.1

 

Foreign currency gains, net

 

 

1.2

 

Other, net

 

 

0.1

 

Total other income, net

 

$

0.6

 

$

1.8

 

 

Note 9 — Accumulated Other Comprehensive Loss

 

Changes in accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2014 and 2013, are as follows (in millions):

 

 

 

Three months ended March 31,

 

 

 

2014

 

2013

 

 

 

Unrealized gains

 

 

 

 

 

Unrealized gains

 

 

 

 

 

 

 

(losses) on

 

Foreign

 

 

 

(losses) on

 

Foreign

 

 

 

 

 

available-for-sale

 

currency

 

 

 

available-for-sale

 

currency

 

 

 

 

 

securities

 

losses

 

Total

 

securities

 

losses

 

Total

 

Beginning balance

 

$

1.2

 

$

(2.3

)

$

(1.1

)

$

1.4

 

$

(0.8

)

$

0.6

 

Other comprehensive gain before reclassifications

 

1.2

 

 

1.2

 

0.5

 

 

0.5

 

Amounts reclassified from accumulated other comprehensive loss to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment (losses) gains, net

 

(0.2

)

 

(0.2

)

(0.1

)

 

(0.1

)

Other income, net

 

 

 

 

 

(1.5

)

(1.5

)

Net current period other comprehensive income (loss)