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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 June 30, 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 July 18, 2014, there were 187,990,371 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)

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

438.2

 

$

344.5

 

Investment securities

 

318.3

 

485.5

 

Accounts receivable

 

120.1

 

108.8

 

Other current assets

 

50.1

 

52.0

 

Total current assets

 

926.7

 

990.8

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Property and equipment, net

 

30.0

 

29.9

 

Intangible assets, net

 

1,225.0

 

1,230.1

 

Goodwill

 

488.2

 

488.2

 

Other non-current assets

 

7.9

 

8.3

 

Total assets

 

$

2,677.8

 

$

2,747.3

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

8.3

 

$

4.1

 

Accrued compensation and benefits

 

83.6

 

122.7

 

Current portion of long-term debt

 

59.9

 

96.9

 

Other accrued liabilities

 

42.7

 

78.0

 

Total current liabilities

 

194.5

 

301.7

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Long-term debt

 

449.1

 

447.7

 

Deferred income taxes, net

 

461.6

 

447.7

 

Other non-current liabilities

 

30.4

 

32.4

 

Total liabilities

 

1,135.6

 

1,229.5

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

4.6

 

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; 188,452,797 and 188,603,875 shares outstanding, respectively)

 

1.9

 

1.9

 

Retained earnings

 

1,515.6

 

1,496.0

 

Accumulated other comprehensive income (loss), net of tax

 

0.7

 

(1.1

)

Total JCG shareholders’ equity

 

1,518.2

 

1,496.8

 

Noncontrolling interests

 

19.4

 

13.7

 

Total equity

 

1,537.6

 

1,510.5

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,677.8

 

$

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

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

210.5

 

$

202.8

 

$

418.7

 

$

401.0

 

Performance fees

 

(17.3

)

(22.2

)

(33.2

)

(41.7

)

Shareowner servicing fees and other

 

38.0

 

35.2

 

75.9

 

70.7

 

Total revenue

 

231.2

 

215.8

 

461.4

 

430.0

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

77.8

 

74.4

 

158.3

 

148.7

 

Long-term incentive compensation

 

12.5

 

13.7

 

24.5

 

29.5

 

Marketing and advertising

 

4.5

 

4.8

 

9.5

 

9.7

 

Distribution

 

32.5

 

31.8

 

65.3

 

63.2

 

Depreciation and amortization

 

6.2

 

7.3

 

12.8

 

14.8

 

General, administrative and occupancy

 

27.0

 

25.4

 

53.4

 

51.0

 

Total operating expenses

 

160.5

 

157.4

 

323.8

 

316.9

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

70.7

 

58.4

 

137.6

 

113.1

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8.9

)

(11.0

)

(18.3

)

(22.2

)

Investment gains (losses), net

 

0.9

 

(6.1

)

(0.2

)

(1.5

)

Other income (expense), net

 

0.4

 

(0.8

)

1.0

 

1.0

 

Loss on early extinguishment of debt

 

 

(12.6

)

 

(12.6

)

Income before taxes

 

63.1

 

27.9

 

120.1

 

77.8

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

(26.2

)

(11.1

)

(52.1

)

(31.3

)

 

 

 

 

 

 

 

 

 

 

Net income

 

36.9

 

16.8

 

68.0

 

46.5

 

Noncontrolling interests

 

(0.6

)

(1.0

)

(1.2

)

(2.7

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to JCG

 

$

36.3

 

$

15.8

 

$

66.8

 

$

43.8

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to JCG common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

$

0.09

 

$

0.35

 

$

0.24

 

Diluted

 

$

0.19

 

$

0.08

 

$

0.35

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale securities

 

$

1.1

 

$

(0.6

)

$

2.3

 

$

(0.1

)

Reclassifications for items included in net income

 

(0.3

)

(0.1

)

(0.5

)

(1.7

)

Total other comprehensive income (loss), net of tax

 

0.8

 

(0.7

)

1.8

 

(1.8

)

Comprehensive income

 

37.7

 

16.1

 

69.8

 

44.7

 

Comprehensive income attributable to noncontrolling interests

 

(0.6

)

(1.0

)

(1.2

)

(2.7

)

Comprehensive income attributable to JCG

 

$

37.1

 

$

15.1

 

$

68.6

 

$

42.0

 

 

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)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2014

 

2013

 

CASH FLOWS PROVIDED BY (USED FOR):

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

68.0

 

$

46.5

 

Adjustments to net income:

 

 

 

 

 

Depreciation and amortization

 

12.8

 

14.8

 

Deferred income taxes

 

32.6

 

12.5

 

Amortization of stock-based compensation

 

7.8

 

12.0

 

Investment losses, net

 

0.2

 

1.5

 

Amortization of debt discounts, premiums and deferred issuance costs

 

5.8

 

5.8

 

Loss on early extinguishment of debt

 

 

12.6

 

Payment of deferred commissions, net

 

(2.9

)

(2.3

)

Other, net

 

0.1

 

0.1

 

Changes in working capital items:

 

 

 

 

 

Accounts receivable

 

(11.2

)

5.7

 

Other current assets

 

(34.5

)

(13.8

)

Accounts payable and accrued compensation payable

 

(26.1

)

(23.2

)

Other current and non-current liabilities

 

(22.7

)

(18.5

)

Net operating activities

 

29.9

 

53.7

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(5.1

)

(3.6

)

Purchase of investment securities

 

(49.8

)

(146.4

)

Proceeds from sales and maturities of investment securities

 

222.0

 

93.9

 

Net investing activities

 

167.1

 

(56.1

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Repayment of long-term debt

 

(38.9

)

 

Proceeds from issuance of stock warrants

 

 

10.5

 

Purchase of convertible note hedge

 

 

(16.1

)

Debt issuance costs

 

 

(3.3

)

Purchase of noncontrolling interests

 

(1.0

)

(0.2

)

Distributions to noncontrolling interests

 

(1.3

)

(5.6

)

Proceeds from stock option exercises and employee stock purchases

 

3.0

 

5.9

 

Excess tax benefit from equity-based compensation

 

0.9

 

1.4

 

Principal payments under capital lease obligations

 

(0.6

)

(0.5

)

Repurchase of common stock

 

(36.7

)

(12.6

)

Dividends paid to JCG shareholders

 

(28.6

)

(13.3

)

Net financing activities

 

(103.2

)

(33.8

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Effect of foreign exchange rate changes

 

(0.1

)

(1.5

)

Net change

 

93.7

 

(37.7

)

At beginning of period

 

344.5

 

387.0

 

At end of period

 

$

438.2

 

$

349.3

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

14.2

 

$

17.3

 

Cash paid for income taxes, net of refunds

 

$

55.6

 

$

33.8

 

 

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

 

 

 

 

 

43.8

 

 

 

0.5

 

44.3

 

Other comprehensive loss

 

 

 

 

 

 

 

(1.8

)

 

 

(1.8

)

Amortization of stock-based compensation

 

 

 

 

 

10.5

 

 

 

1.1

 

11.6

 

Issuance and forfeitures of restricted stock awards, net

 

2.3

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

1.1

 

 

5.9

 

 

 

 

 

5.9

 

Convertible senior notes issuance

 

 

 

 

 

14.7

 

 

 

 

 

14.7

 

Extinguishment of convertible senior notes

 

 

 

 

 

(2.0

)

 

 

 

 

(2.0

)

Convertible senior note hedge issuance

 

 

 

 

 

(16.1

)

 

 

 

 

(16.1

)

Stock warrants issuance

 

 

 

 

 

10.5

 

 

 

 

 

10.5

 

Changes in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

13.8

 

13.8

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.4

)

(1.4

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

1.7

 

 

 

 

 

1.7

 

Vesting of nonredeemable noncontrolling interests

 

 

 

 

 

 

 

 

 

(1.2

)

(1.2

)

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.2

)

(0.2

)

Repurchase of common stock

 

(1.4

)

 

(12.6

)

 

 

 

 

(12.6

)

Dividends paid to JCG shareholders

 

 

 

 

 

(13.3

)

 

 

 

 

(13.3

)

Balance at June 30, 2013

 

189.5

 

$

1.9

 

$

1,458.5

 

$

(1.2

)

$

29.8

 

$

1,489.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

188.6

 

$

1.9

 

$

1,496.0

 

$

(1.1

)

$

13.7

 

$

1,510.5

 

Net income

 

 

 

 

 

66.8

 

 

 

0.5

 

67.3

 

Other comprehensive income

 

 

 

 

 

 

 

1.8

 

 

 

1.8

 

Amortization of stock-based compensation

 

 

 

 

 

13.2

 

 

 

0.8

 

14.0

 

Issuance and forfeitures of restricted stock awards, net

 

2.6

 

 

 

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.5

 

 

3.0

 

 

 

 

 

3.0

 

Changes in noncontrolling interests in consolidated investment products

 

 

 

 

 

 

 

 

 

5.6

 

5.6

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.8

)

(0.8

)

Change in fair value of redeemable noncontrolling interests

 

 

 

 

 

1.9

 

 

 

 

 

1.9

 

Purchase of noncontrolling interests

 

 

 

 

 

 

 

 

 

(0.4

)

(0.4

)

Repurchase of common stock

 

(3.2

)

 

(36.7

)

 

 

 

 

(36.7

)

Dividends paid to JCG shareholders

 

 

 

 

 

(28.6

)

 

 

 

 

(28.6

)

Balance at June 30, 2014

 

188.5

 

$

1.9

 

$

1,515.6

 

$

0.7

 

$

19.4

 

$

1,537.6

 

 

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. The Company operates one business segment, its Investment Management Operations. 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.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board issued a new revenue recognition standard. The standard’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting standard.

 

Note 2 — Investment Securities

 

JCG’s investment securities as of June 30, 2014, and December 31, 2013, are summarized as follows (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

Trading securities:

 

 

 

 

 

Seeded investment products

 

$

244.3

 

$

312.9

 

Investments in advised mutual funds

 

4.4

 

45.5

 

Investments related to deferred compensation plans

 

12.4

 

14.9

 

Total trading securities

 

261.1

 

373.3

 

Available-for-sale securities:

 

 

 

 

 

Seeded investment products

 

45.2

 

10.7

 

Debt securities

 

12.0

 

101.5

 

Total available-for-sale securities

 

57.2

 

112.2

 

Total investment securities

 

$

318.3

 

$

485.5

 

 

5



 

Trading Securities

 

Seeded investment products represented $171.3 million in 14 mutual funds advised by the Company and $73.0 million in 30 separately managed accounts at June 30, 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 $8.8 million of investment gains and $1.0 million of investment losses related to trading securities still held as of June 30, 2014 and 2013, respectively.

 

Available-for-Sale Securities

 

Seeded investment products advised by the Company designated as available-for-sale securities represented $45.2 million held in 36 mutual funds and $10.7 million held in 34 mutual funds at June 30, 2014, and December 31, 2013, respectively.

 

The Company had $12.0 million invested in a highly rated corporate debt security at June 30, 2014, which matured on July 15, 2014. During the three and six months ended June 30, 2014, seven debt securities with a principal value of $78.0 million and eight debt securities with a principal value of $88.0 million matured, respectively.

 

The following is a summary of available-for-sale securities at June 30, 2014, and December 31, 2013 (in millions):

 

 

 

June 30, 2014

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

Gross unrealized investment

 

currency

 

Estimated

 

Carrying

 

 

 

Cost

 

gains

 

losses

 

translation

 

fair value

 

value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Seeded investment products

 

$

35.4

 

$

8.6

 

$

(0.1

)

$

1.3

 

$

45.2

 

$

45.2

 

Debt securities

 

12.0

 

 

 

 

12.0

 

12.0

 

Total available-for-sale securities

 

$

47.4

 

$

8.6

 

$

(0.1

)

$

1.3

 

$

57.2

 

$

57.2

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

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 on available-for-sale securities and determined that the losses were not other-than-temporary. No other-than-temporary impairment charges were recognized in the six months ended June 30, 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 gains (losses), net on JCG’s 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 six months ended June 30, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Realized gains

 

$

0.2

 

$

 

$

0.2

 

$

0.8

 

Realized losses

 

 

 

(0.1

)

(0.6

)

Net realized gains

 

$

0.2

 

$

 

$

0.1

 

$

0.2

 

 

6



 

Derivative Instruments

 

The Company maintains an economic hedge program that uses derivative instruments to hedge against market volatility of certain 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 June 30, 2014, and December 31, 2013:

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Number of
contracts

 

Notional value
(in millions)

 

Number of
contracts

 

Notional value
(in millions)

 

Index swaps

 

5

 

$

109.2

 

6

 

$

184.3

 

Index futures

 

7

 

$

91.2

 

6

 

$

66.6

 

Foreign currency forward contracts

 

4

 

$

32.2

 

6

 

$

93.6

 

 

The above derivative instruments are not designated as hedges for accounting purposes. Changes in fair value of the index swaps and index futures are recognized in investment gains (losses), net on JCG’s Condensed Consolidated Statements of Comprehensive Income while changes in the fair value of the foreign currency forward contracts are recognized in other income (expense), 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 $2.3 million and $4.8 million in cash collateral with the counterparty of the index futures as of June 30, 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 June 30, 2014, and December 31, 2013 (in millions):

 

 

 

June 30, 2014

 

 

 

Gross amounts

 

Gross amounts
offset

 

Net amounts

 

Assets

 

 

 

 

 

 

 

Index futures

 

$

0.1

 

$

(0.1

)

$

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Index futures

 

$

0.2

 

$

(0.1

)

$

0.1

 

Foreign currency forward contracts

 

0.3

 

 

0.3

 

Total

 

$

0.5

 

$

(0.1

)

$

0.4

 

 

 

 

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

 

 

7



 

JCG recognized the following net gains (losses) on hedged seed investments and net losses on associated index futures and index swaps for the three and six months ended June 30, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Hedged seed investments classified as trading securities

 

$

6.0

 

$

(1.3

)

$

6.5

 

$

3.2

 

Hedged seed investments classified as available-for-sale securities

 

1.5

 

 

3.2

 

 

Total hedged seed investments

 

7.5

 

(1.3

)

9.7

 

3.2

 

Index futures

 

(2.8

)

(1.4

)

(4.4

)

(8.2

)

Index swaps

 

(5.0

)

 

(4.8

)

 

Total

 

$

(0.3

)

$

(2.7

)

$

0.5

 

$

(5.0

)

 

JCG recognized the following net gains (losses) on hedged seed investments denominated in a foreign currency and net gains (losses) on associated foreign currency forward contracts for the three and six months ended June 30, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net (losses) gains in net income related to:

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

$

(0.4

)

$

1.7

 

$

(1.0

)

$

(0.7

)

Foreign currency forward contracts

 

0.1

 

(1.0

)

0.8

 

0.8

 

Total

 

$

(0.3

)

$

0.7

 

$

(0.2

)

$

0.1

 

 

Investment Gains (Losses), Net

 

Investment gains (losses), net on JCG’s Condensed Consolidated Statements of Comprehensive Income included the following for the three and six months ended June 30, 2014 and 2013 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Seeded investment products

 

$

7.7

 

$

(4.8

)

$

7.9

 

$

0.6

 

Noncontrolling interests in seeded investment products

 

0.2

 

(0.2

)

0.4

 

0.1

 

Investments in advised mutual funds

 

0.3

 

0.3

 

 

4.8

 

Index swaps and index futures

 

(7.8

)

(1.4

)

(9.2

)

(8.2

)

Economic hedge for deferred compensation plans

 

0.5

 

0.2

 

0.7

 

1.2

 

Other

 

 

(0.2

)

 

 

Investment gains (losses), net

 

$

0.9

 

$

(6.1

)

$

(0.2

)

$

(1.5

)

 

Purchases, Sales and Maturities

 

Cash flows related to investment securities for the three and six months ended June 30, 2014 and 2013, are summarized as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

Purchases

 

Sales /
Maturities

 

Purchases

 

Sales /
Maturities

 

Purchases

 

Sales /
Maturities

 

Purchases

 

Sales /
Maturities

 

Trading securities

 

$

(18.0

)

$

19.8

 

$

(13.3

)

$

10.3

 

$

(32.1

)

$

116.2

 

$

(111.4

)

$

60.3

 

Available-for-sale securities

 

(0.1

)

80.7

 

(0.2

)

1.2

 

(0.2

)

97.9

 

(0.3

)

10.1

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seed capital economic hedge

 

(8.6

)

1.2

 

(15.8

)

14.2

 

(17.5

)

7.9

 

(34.7

)

23.5

 

Total cash flows

 

$

(26.7

)

$

101.7

 

$

(29.3

)

$

25.7

 

$

(49.8

)

$

222.0

 

$

(146.4

)

$

93.9

 

 

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 June 30, 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

 

$

 

$

292.8

 

$

 

$

292.8

 

 

 

 

 

 

 

 

 

 

 

Index futures

 

 

0.1

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

151.8

 

92.5

 

 

244.3

 

Investments in advised mutual funds

 

4.4

 

 

 

4.4

 

Investments related to deferred compensation plans

 

12.4

 

 

 

12.4

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products

 

45.2

 

 

 

45.2

 

Debt securities

 

 

12.0

 

 

12.0

 

Total investment securities

 

213.8

 

104.5

 

 

318.3

 

Total assets

 

$

213.8

 

$

397.4

 

$

 

$

611.2

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

60.6

 

$

 

$

60.6

 

Long-term debt

 

 

541.7

 

 

541.7

 

Index futures

 

 

0.2

 

 

0.2

 

Foreign currency forward contracts

 

 

0.3

 

 

0.3

 

Total liabilities

 

$

 

$

602.8

 

$

 

$

602.8

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

$

 

$

 

$

4.6

 

$

4.6

 

 

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. 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 six months ended June 30, 2014 and 2013, are summarized as follows (in millions):

 

 

 

June 30,

 

 

 

2014

 

2013

 

Transfers from Level 1 to Level 2

 

$

 

$

 

Transfers from Level 2 to Level 1

 

$

 

$

16.0

 

 

JCG’s Level 3 recurring fair value measurements represent redeemable noncontrolling interests in INTECH Investment Management LLC (“INTECH”) as of June 30, 2014.

 

Redeemable noncontrolling interests in INTECH are measured at fair value on a quarterly 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 relative value methodology that incorporates observable metrics from publicly traded peer companies as valuation comparables, and adjustments related to investment performance and changes in assets under management. The relative value analysis is prepared internally within JCG’s finance organization by personnel with appropriate valuation experience and credentials. In preparing the analysis, JCG benchmarks valuation metrics such as multiples of earnings before interest expense, taxes, depreciation and amortization (“EBITDA”) against current market observables and recent market transactions of a similar size and nature to ensure that the estimates are reasonable. The analysis is reviewed by senior JCG finance personnel and JCG’s Chief Financial Officer. The analysis is 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 analysis to value the redeemable noncontrolling interests.

 

Significant inputs related to the relative value analysis include INTECH’s trailing twelve month operating results, performance fees, investment performance, and trends in assets under management. In addition to these, market trading comparables from a relevant publicly traded peer set are included to complete the relative valuation process. Publicly available comparables utilized for the second quarter 2014 valuation analysis ranged from approximately 8.0x to 12.0x EBITDA. Significant increases or decreases in historical INTECH operating results would result in a significantly higher or lower fair value measurement, respectively. Additionally, a significant increase or decrease in market trading comparables would result in a significantly higher or lower fair value measurement, respectively. Generally, any period-over-period change in INTECH performance or level of assets under management in isolation is accompanied by a directionally similar change in the fair value measurement, all else being equal.

 

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 liabilities, such measurements have been classified as Level 3.

 

The changes in fair value of JCG’s redeemable noncontrolling interests, which are classified as recurring Level 3 fair value measurements, for the three and six months ended June 30, 2014 and 2013, are as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Beginning of period fair value

 

$

4.8

 

$

41.5

 

$

7.3

 

$

42.9

 

Distributions

 

(0.4

)

(1.8

)

(0.5

)

(4.2

)

Current earnings

 

0.2

 

1.0

 

0.3

 

2.1

 

Purchase of redeemable noncontrolling interests

 

 

 

(0.6

)

 

Vesting of noncontrolling interests

 

 

 

 

1.2

 

Change in fair value

 

 

(0.4

)

(1.9

)

(1.7

)

End of period fair value

 

$

4.6

 

$

40.3

 

$

4.6

 

$

40.3

 

 

10



 

Note 4 — Debt

 

Debt at June 30, 2014, and December 31, 2013, consisted of the following (in millions):

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Carrying

 

Fair