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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, 2016

 

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 website, 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 21, 2016, there were 184,631,376 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,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

307.2

 

$

364.4

 

Investment securities

 

262.7

 

327.1

 

Accounts receivable

 

135.8

 

137.8

 

Other current assets

 

51.0

 

40.0

 

Assets of consolidated VIEs:

 

 

 

 

 

Cash and cash equivalents

 

0.7

 

 

Investment securities

 

38.5

 

 

Accounts receivable

 

0.4

 

 

Total current assets

 

796.3

 

869.3

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Property and equipment, net

 

37.9

 

38.7

 

Intangible assets, net

 

1,354.7

 

1,352.5

 

Goodwill

 

607.6

 

602.8

 

Other non-current assets

 

4.6

 

4.4

 

Total assets

 

$

2,801.1

 

$

2,867.7

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

6.9

 

$

6.9

 

Accrued compensation and benefits

 

44.7

 

145.3

 

Current portion of long-term debt

 

 

107.5

 

Other accrued liabilities

 

56.0

 

74.2

 

Liabilities of consolidated VIEs:

 

 

 

 

 

Accounts payable and other accrued liabilities

 

0.7

 

 

Total current liabilities

 

108.3

 

333.9

 

 

 

 

 

 

 

Other liabilities:

 

 

 

 

 

Long-term debt

 

403.3

 

294.8

 

Deferred income taxes, net

 

523.2

 

498.9

 

Other non-current liabilities

 

50.0

 

46.2

 

Total liabilities

 

1,084.8

 

1,173.8

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

29.0

 

21.8

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

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

 

 

 

Common stock ($0.01 par, 1,000,000,000 shares authorized; 184,940,347 and 183,660,673 shares outstanding, respectively)

 

1.8

 

1.8

 

Retained earnings

 

1,594.1

 

1,589.8

 

Accumulated other comprehensive loss, net of tax

 

(3.4

)

(8.9

)

Total JCG shareholders’ equity

 

1,592.5

 

1,582.7

 

Noncontrolling interests

 

94.8

 

89.4

 

Total equity

 

1,687.3

 

1,672.1

 

Total liabilities, redeemable noncontrolling interests and equity

 

$

2,801.1

 

$

2,867.7

 

 

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

 

2



 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in Millions, Except per Share Data)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Revenues:

 

 

 

 

 

Investment management fees

 

$

210.3

 

$

222.6

 

Performance fees

 

(2.4

)

(2.3

)

Shareowner servicing fees and other

 

40.6

 

42.4

 

Total revenue

 

248.5

 

262.7

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Employee compensation and benefits

 

87.9

 

91.4

 

Long-term incentive compensation

 

19.5

 

20.2

 

Marketing and advertising

 

5.3

 

5.7

 

Distribution

 

32.4

 

34.2

 

Depreciation and amortization

 

9.1

 

7.4

 

General, administrative and occupancy

 

31.7

 

27.8

 

Total operating expenses

 

185.9

 

186.7

 

 

 

 

 

 

 

Operating income

 

62.6

 

76.0

 

 

 

 

 

 

 

Interest expense

 

(5.2

)

(7.3

)

Investment gains, net

 

2.2

 

4.4

 

Investment losses within consolidated VIEs, net

 

(0.5

)

 

Other income (expense), net

 

1.8

 

(0.1

)

Income before taxes

 

60.9

 

73.0

 

Income tax provision

 

(23.9

)

(26.8

)

Net income

 

37.0

 

46.2

 

Noncontrolling interests

 

(1.9

)

(1.6

)

Net income attributable to JCG

 

$

35.1

 

$

44.6

 

 

 

 

 

 

 

Earnings per share attributable to JCG common shareholders:

 

 

 

 

 

Basic

 

$

0.19

 

$

0.24

 

Diluted

 

$

0.19

 

$

0.23

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

$

0.7

 

$

0.3

 

Foreign currency gain

 

4.8

 

 

Total other comprehensive income, net of tax

 

5.5

 

0.3

 

 

 

 

 

 

 

Comprehensive income

 

42.5

 

46.5

 

Comprehensive income attributable to noncontrolling interests

 

(1.9

)

(1.6

)

Comprehensive income attributable to JCG

 

$

40.6

 

$

44.9

 

 

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

 

3



 

JANUS CAPITAL GROUP INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

CASH FLOWS PROVIDED BY (USED FOR):

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

37.0

 

$

46.2

 

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

 

 

 

 

 

Depreciation and amortization

 

9.1

 

7.4

 

Deferred income taxes

 

22.3

 

32.9

 

Amortization of stock-based compensation

 

15.2

 

13.1

 

Investment gains, net

 

(2.2

)

(4.4

)

Investment losses within consolidated VIEs, net

 

0.5

 

 

Amortization of debt discounts, premiums and deferred issuance costs

 

1.1

 

1.0

 

Payment of deferred commissions, net

 

(1.9

)

(3.3

)

Other, net

 

0.4

 

0.3

 

Changes in working capital items:

 

 

 

 

 

Accounts receivable

 

2.1

 

(8.6

)

Other current assets

 

(9.2

)

(29.1

)

Accounts payable and accrued compensation payable

 

(105.2

)

(96.8

)

Other current and non-current liabilities

 

(15.9

)

(17.6

)

Net operating activities

 

(46.7

)

(58.9

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(1.9

)

(1.0

)

Purchases and settlements of investment securities

 

(23.7

)

(14.4

)

Proceeds from sales, settlements and maturities of investment securities

 

8.2

 

3.3

 

Proceeds from sales, settlements and maturities of investments in VIEs

 

48.2

 

 

Sales (purchases) of securities by consolidated seeded investment products (See Note 1)

 

10.6

 

(20.9

)

Net investing activities

 

41.4

 

(33.0

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Purchase of noncontrolling interests

 

 

(0.1

)

Distributions to noncontrolling interests

 

(0.6

)

(0.4

)

Proceeds from stock option exercises and employee stock purchases

 

6.2

 

6.1

 

Excess tax benefit from equity-based compensation

 

2.7

 

7.1

 

Principal payments under capital lease obligations

 

(0.3

)

(0.3

)

Third-party investments (redemptions) in consolidated seeded investment products (See Note 1)

 

(10.6

)

20.9

 

Repurchase of common stock

 

(32.6

)

(23.5

)

Dividends paid to JCG shareholders

 

(16.7

)

(15.0

)

Net financing activities

 

(51.9

)

(5.2

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Effect of foreign exchange rate changes

 

 

(0.3

)

Net change

 

(57.2

)

(97.4

)

At beginning of period

 

364.4

 

452.5

 

At end of period

 

$

307.2

 

$

355.1

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

7.8

 

$

0.4

 

Cash paid for income taxes, net of refunds

 

$

3.7

 

$

21.0

 

 

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

 

4



 

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

 

loss

 

interests

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

185.2

 

$

1.9

 

$

1,540.3

 

$

(1.4

)

$

47.3

 

$

1,588.1

 

Net income

 

 

 

44.6

 

 

0.3

 

44.9

 

Other comprehensive income

 

 

 

 

0.3

 

 

0.3

 

Amortization of stock-based compensation

 

 

 

8.8

 

 

1.0

 

9.8

 

Issuance and forfeitures of restricted stock awards, net

 

2.8

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.7

 

 

6.1

 

 

 

6.1

 

Tax impact of stock-based compensation

 

 

 

2.0

 

 

 

2.0

 

Changes in noncontrolling interests in consolidated investment products

 

 

 

 

 

(41.1

)

(41.1

)

Distributions to noncontrolling interests

 

 

 

 

 

(0.2

)

(0.2

)

Change in fair value of redeemable noncontrolling interests

 

 

 

0.1

 

 

 

0.1

 

Purchase of noncontrolling interests

 

 

 

 

 

(0.1

)

(0.1

)

Repurchase of common stock

 

(1.4

)

 

(23.5

)

 

 

(23.5

)

Dividends paid to JCG shareholders

 

 

 

(15.0

)

 

 

(15.0

)

Balance at March 31, 2015

 

187.3

 

$

1.9

 

$

1,563.4

 

$

(1.1

)

$

7.2

 

$

1,571.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

183.7

 

$

1.8

 

$

1,589.8

 

$

(8.9

)

$

89.4

 

$

1,672.1

 

Net income

 

 

 

35.1

 

 

1.1

 

36.2

 

Other comprehensive income

 

 

 

 

5.5

 

4.6

 

10.1

 

Amortization of stock-based compensation

 

 

 

10.4

 

 

0.1

 

10.5

 

Amortization of INTECH appreciation rights

 

 

 

 

 

0.1

 

0.1

 

Issuance and forfeitures of restricted stock awards, net

 

2.9

 

 

 

 

 

 

Stock option exercises and employee stock purchases

 

0.8

 

 

6.2

 

 

 

6.2

 

Tax impact of stock-based compensation

 

 

 

1.0

 

 

 

1.0

 

Distributions to noncontrolling interests

 

 

 

 

 

(0.5

)

(0.5

)

Change in fair value of redeemable noncontrolling interests

 

 

 

0.9

 

 

 

0.9

 

Repurchase of common stock

 

(2.5

)

 

(32.6

)

 

 

(32.6

)

Dividends paid to JCG shareholders

 

 

 

(16.7

)

 

 

(16.7

)

Balance at March 31, 2016

 

184.9

 

$

1.8

 

$

1,594.1

 

$

(3.4

)

$

94.8

 

$

1,687.3

 

 

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

 

5



 

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 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 financial statements through the issuance date, and the Company has determined that there were no subsequent events that require disclosure. These financial statements should be read in conjunction with the annual consolidated financial statements presented in JCG’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

The accompanying interim condensed consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the annual consolidated financial statements presented in JCG’s Annual Report on Form 10-K for the year ended December 31, 2015, except for the adoption of the consolidation guidance and reclassification of debt issuance costs discussed below.

 

Certain prior period amounts have been revised to conform to current period presentation. Third-party sales and redemptions of consolidated seeded investment products were incorrectly netted against the associated purchases and sales of investment securities within investing activities on JCG’s Condensed Consolidated Statements of Cash Flows. Sales and redemptions of consolidated seeded investment products should be presented as a financing activity and the offsetting purchases and sales of investment securities within the consolidated seeded investment products should be presented as an investing activity. Cash flows related to consolidated seeded investment products are now presented on a gross basis, within the “Sales (purchases) of securities by consolidated seeded investment products” and “Third-party investments (redemptions) in consolidated seeded investment products” captions on JCG’s Condensed Consolidated Statements of Cash Flows. Net investing activities were previously reported as ($12.1) million for the quarter ended March 31, 2015, and were adjusted by ($20.9) million. Net financing activities were previously reported as ($26.1) million for the quarter ended March 31, 2015, and were adjusted by $20.9 million. The corrections had no impact on the net change in cash and cash equivalents for the quarter ended March 31, 2015.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) 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 revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. The Company is evaluating the effect of adopting this new accounting standard.

 

In April 2015, the FASB issued an amendment to its debt standard requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts and premiums. The standard is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company retrospectively adopted this new accounting standard during the first quarter 2016 and reclassified the December 31, 2015 debt issuance cost balances of $1.4 million and $2.4 million from other

 

6



 

current assets and other non-current assets to current portion of long-term debt and long-term debt, respectively, on JCG’s Condensed Consolidated Balance Sheets.

 

In January 2016, the Company adopted the recently-amended consolidation guidance issued by the FASB on a modified retrospective basis. The amended guidance eliminated the deferral for investment funds and modified the analysis for determining if an entity is a variable interest entity (“VIE”). The amended VIE analysis changed the assessment of kick out rights and fees paid to a service provider when decision-making over an entity’s most significant activities has been outsourced. Additionally, limited partnerships and similar entities are now considered VIEs under the amended guidance unless limited partners hold substantive kick out rights or participation rights. Refer to Note 2 for further discussion.

 

In January 2016, the FASB issued amendments to its financial instruments standard, including changes relating to the accounting for equity investments, and the presentation and disclosure requirements for financial instruments. Under the amended guidance, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The amended guidance also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or market) and form of financial asset (e.g., loans, securities). The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the effect of adopting this new accounting standard.

 

In February 2016, the FASB issued a new standard on accounting for leases. The new standard represents a wholesale change to lease accounting and introduces a lessee model that brings most leases on to the balance sheet. The standard also aligns certain of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the new standard addresses other concerns related to the current leases model. The standard is effective for calendar periods beginning on January 1, 2019. The Company is evaluating the effect of adopting this new accounting standard.

 

In March 2016, the FASB issued an amendment to its principal-versus-agent guidance in the FASB’s new revenue standard. The key provisions of the amendment are assessing the nature of the entity’s promise to the customer, identifying the specified goods or services, application of the control principle and indicators of control. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. In addition, entities are required to adopt the amendment by using the same transition method they used to adopt the new revenue standard. The Company is evaluating the effect of adopting this new accounting standard.

 

In March 2016, the FASB issued an accounting standard update which simplified several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company is evaluating the effect of adopting this new accounting standard.

 

Note 2 — Consolidation

 

As discussed above, JCG adopted the amended consolidation guidance effective January 1, 2016. Upon adoption, JCG designated a number of its seeded investment products as VIEs, which are generally subject to consolidation by the Company at lower ownership percentages compared to the 50% threshold employed for voting rights entities (“VREs”), and are also subject to specific disclosure requirements. As a result of the adoption, the Company consolidated three additional seeded investment products as of March 31, 2016.

 

Analysis

 

JCG performs an analysis of affiliates and investment products to determine if the affiliate or product is a VIE or a VRE. Assessing whether an entity is a VIE or a VRE involves judgment and analysis. Factors considered in this assessment include the entity’s legal organization, the entity’s capital structure and equity ownership, and any de facto agent implications of the Company’s involvement with the entity. Investment products that are determined to be VIEs are consolidated if the Company is the primary beneficiary of the entity. VREs are consolidated if the Company holds the majority voting interest. Upon the occurrence of certain events (such as contributions and redemptions, either by JCG, or third parties, or amendments to the governing documents of the Company’s investment products), management reviews and reconsiders its previous conclusion

 

7



 

regarding the status of an entity as a VIE or a VRE. Additionally, management continually reconsiders whether JCG is considered a VIE’s primary beneficiary, and thus consolidates such entity.

 

Variable Interest Entities

 

Certain investment products for which a controlling financial interest is achieved through arrangements that do not involve or are not directly linked to voting interests are considered VIEs. JCG reviews factors, including whether or not: i) the entity has equity that is sufficient to permit the entity to finance its activities without additional subordinated support from other parties and ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns, and the right to direct the activities of the entity that most significantly impact the entity’s economic performance, to determine if the investment product is a VIE. JCG re-evaluates such factors as facts and circumstances change.

 

JCG consolidates a VIE if JCG is the VIE’s primary beneficiary. The primary beneficiary of a VIE is defined as the variable interest holder that has a controlling financial interest in the VIE. A controlling financial interest is defined as: i) the power to direct the activities of the VIE that most significantly impact its economic performance and ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that potentially could be significant to the VIE.

 

JCG is the manager of various types of seeded investment products, which may be considered VIEs. The Company’s involvement in financing the operations of the VIEs is generally limited to its investments in the entities. As a result of the adoption of amended consolidation guidance effective January 1, 2016, the Company consolidated certain seeded investment products that were not previously consolidated. Prior to January 1, 2016, none of the Company’s affiliates or seeded investment products were designated as VIEs.

 

Consolidated Variable Interest Entities

 

JCG’s consolidated VIEs as of March 31, 2016, include certain consolidated seeded investment products in which the Company has an investment and acts as the investment manager. The assets of these VIEs are not available to JCG or the creditors of JCG. In addition, the investors in these VIEs have no recourse to the credit of the Company.

 

Consolidated VIE assets and liabilities are presented after intercompany eliminations at March 31, 2016, and December 31, 2015, in the following table (in millions):

 

 

 

March 31, 2016

 

December 31, 2015

 

Investment securities

 

$

38.5

 

$

 

Cash and cash equivalents

 

0.7

 

 

Other current assets

 

0.4

 

 

Other accrued liabilities

 

(0.7

)

 

Total

 

38.9

 

 

Noncontrolling interests in consolidated VIEs

 

(20.0

)

 

JCG’s net interest in consolidated VIEs

 

$

18.9

 

$

 

 

Unconsolidated Variable Interest Entities

 

At March 31, 2016, JCG’s carrying value of investment securities included on the Condensed Consolidated Balance Sheets pertaining to unconsolidated VIEs was $7.5 million. JCG’s total exposure to unconsolidated VIEs represents the value of its economic ownership interest in the investment securities.

 

8



 

Voting Rights Entities

 

Consolidated Voting Rights Entities

 

JCG consolidates seeded investment products accounted for as VREs when it is considered to control such products, which generally exists if there is a greater than 50% voting equity interest. The following table presents the balances related to these consolidated VREs that were recorded on JCG’s Condensed Consolidated Balance Sheets, including JCG’s net interest in these products (in millions):

 

 

 

March 31, 2016

 

December 31, 2015

 

Investment securities

 

$

6.1

 

$

34.5

 

Cash and cash equivalents

 

0.3

 

1.2

 

Other current assets

 

0.2

 

 

Other accrued liabilities

 

(0.2

)

 

Total

 

6.4

 

35.7

 

Noncontrolling interests in consolidated VREs

 

(1.2

)

(13.8

)

JCG’s net interest in consolidated VREs

 

$

5.2

 

$

21.9

 

 

JCG’s total exposure to consolidated VREs represents the value of its economic ownership interest in these seeded investment products. Valuation changes associated with investments held at fair value by these consolidated VREs are reflected in investment gains, net on the Company’s Condensed Consolidated Statements of Comprehensive Income. Valuation changes are partially offset in noncontrolling interests in net income for the portion not attributable to JCG. Refer to Note 3 — Investment Securities.

 

JCG may not, under any circumstances, access cash and cash equivalents held by consolidated VREs to use in its operating activities or otherwise.

 

Note 3 — Investment Securities

 

JCG’s investment securities as of March 31, 2016, and December 31, 2015, are summarized as follows (in millions):

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

Trading securities:

 

 

 

 

 

Seeded investment products

 

$

204.3

 

$

235.6

 

Investments in advised mutual funds

 

4.3

 

4.2

 

Investments related to deferred compensation plans

 

16.7

 

16.3

 

Total trading securities

 

225.3

 

256.1

 

Available-for-sale securities:

 

 

 

 

 

Seeded investment products

 

75.9

 

71.0

 

Total investment securities

 

$

301.2

 

$

327.1

 

 

9



 

Trading Securities

 

Seeded investment products classified as trading securities consisted of the following as of March 31, 2016, and December 31, 2015:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Fair value
(in millions)

 

Number of
products

 

Fair value
(in millions)

 

Number of
products

 

Mutual funds advised by the Company:

 

 

 

 

 

 

 

 

 

Consolidated VREs

 

$

6.4

 

2

 

$

35.7

 

8

 

Consolidated VIEs

 

38.5

 

8

 

 

 

Unconsolidated VREs(1)

 

59.6

 

5

 

99.7

 

7

 

Total mutual funds advised by the Company

 

104.5

 

15

 

135.4

 

15

 

Separate accounts

 

89.8

 

27

 

86.8

 

25

 

Pooled investment funds

 

10.0

 

11

 

13.4

 

10

 

Total trading securities

 

$

204.3

 

53

 

$

235.6

 

50

 

 

Gains recognized on trading securities still held as of March 31, 2016 and 2015, are summarized as follows (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Gains on trading securities still held at period end

 

$

3.8

 

$

5.7

 

 

Available-for-Sale Securities

 

Seeded investment products classified as available-for-sale securities consisted of the following as of March 31, 2016, and December 31, 2015:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Fair value
(in millions)

 

Number of
products

 

Fair value
(in millions)

 

Number of
products

 

Mutual funds advised by the Company:

 

 

 

 

 

 

 

 

 

Unconsolidated VREs

 

$

68.4

 

20

 

$

71.0

 

41

 

Unconsolidated VIEs

 

7.5

 

22

 

 

 

Total mutual funds advised by the Company

 

$

75.9

 

42

 

$

71.0

 

41

 

 

The following is a summary of available-for-sale securities as of March 31, 2016, and December 31, 2015 (in millions):

 

 

 

 

 

Gross unrealized

 

Foreign

 

 

 

 

 

 

 

 

 

investment

 

currency

 

Estimated

 

Carrying

 

 

 

Cost

 

Gains

 

Losses

 

translation

 

fair value

 

value

 

March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unconsolidated VREs

 

$

69.9

 

$

0.1

 

$

(1.6

)

$

 

$

68.4

 

$

68.4

 

Unconsolidated VIEs

 

$

8.9

 

$

0.2

 

$

(1.2

)

$

(0.4

)

$

7.5

 

$

7.5

 

December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unconsolidated VREs

 

$

75.0

 

$

0.3

 

$

(3.9

)

$

(0.4

)

$

71.0

 

$

71.0

 

Unconsolidated VIEs

 

$

 

$

 

$

 

$

 

$

 

$

 

 


(1)         Represents unconsolidated seeded investment products which JCG’s ownership percentage is between 20% and 50%. The investments are classified as equity-method and are carried at fair value due to the nature of the underlying investments.

 

10



 

The Company reviewed the gross unrealized losses on available-for-sale securities and determined that the losses were not other-than-temporary. The Company considered the duration, extent and circumstances of any decline in fair value as well as JCG’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in the market value. No other-than-temporary impairment charges were recognized in the three months ended March 31, 2016 or 2015.

 

Derivative Instruments

 

The Company maintains an economic hedge program that uses derivative instruments to hedge against market volatility of certain seeded investments. Fluctuations in equity markets, debt markets, commodity markets and foreign currency markets are hedged by using index swaps, index and commodity futures (“futures”) and credit default swaps.

 

JCG reassessed its hedging strategy during the first quarter 2016, which resulted in a reduction in the use of index swaps and an increase in the use of futures and credit default swaps to hedge against market volatility of certain seeded investment products.

 

JCG was party to the following derivative instruments as of March 31, 2016, and December 31, 2015:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Number of
contracts

 

Notional value
(in millions)

 

Number of
contracts

 

Notional value
(in millions)

 

Index swaps

 

1

 

$

4.2

 

6

 

$

34.4

 

Futures

 

47

 

$

146.4

 

38

 

$

91.7

 

Credit default swaps

 

2

 

$

129.0

 

2

 

$

66.5

 

 

The above derivative instruments are not designated as hedges for accounting purposes. Changes in fair value of the index swaps, futures and credit default swaps were recognized in investment gains, 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. Futures and credit default swaps are also subject to a master netting arrangement and are presented in the same manner as the index swaps.

 

The Company posted $6.2 million and $3.3 million in cash collateral with the counterparty of the futures and credit default swaps as of March 31, 2016, and December 31, 2015, respectively. The cash collateral is included in other current assets on JCG’s Condensed Consolidated Balance Sheets.

 

11



 

The following tables illustrate the effect of offsetting derivative instruments on JCG’s Condensed Consolidated Balance Sheets as of March 31, 2016, and December 31, 2015 (in millions):

 

 

 

March 31, 2016

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.3

 

$

(0.3

)

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.8

 

$

(0.3

)

$

(0.5

)

$

 

Credit default swaps

 

1.6

 

 

(1.5

)

0.1

 

Total

 

$

2.4

 

$

(0.3

)

$

(2.0

)

$

0.1

 

 

 

 

December 31, 2015

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.3

 

$

(0.1

)

$

 

$

0.2

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Index swaps

 

$

0.1

 

$

 

$

 

$

0.1

 

Futures

 

0.1

 

(0.1

)

 

 

Credit default swaps

 

0.5

 

 

(0.5

)

 

Total

 

$

0.7

 

$

(0.1

)

$

(0.5

)

$

0.1

 

 

JCG recognized the following net gains on hedged seeded investments and net losses on associated futures, credit default swaps and index swaps for the three months ended March 31, 2016 and 2015 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Hedged seeded investments classified as trading securities(1)

 

$

3.4

 

$

4.5

 

Hedged seeded investments classified as available-for-sale securities(1)

 

 

0.1

 

Total hedged seeded investments

 

3.4

 

4.6

 

Futures

 

(3.0

)

(1.6

)

Credit default swaps

 

(0.3

)

 

Index swaps

 

(0.3

)

(1.4

)

Total

 

$

(0.2

)

$

1.6

 

 

Derivative Instruments in Consolidated Seeded Investment Products

 

Certain of the Company’s consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within investment securities on JCG’s Condensed Consolidated Balance Sheets. Gains and losses on these derivative instruments

 


(1)         Includes net gains (losses) associated with hedged equity and fixed income seeded investment products. Hedging activity is limited to the systematic market risk associated with equity products and the interest rate risk associated with fixed income products. In September 2015, JCG started hedging credit risk associated with fixed income seeded investment products.

 

12



 

are classified within investment gains, net on JCG’s Condensed Consolidated Statements of Comprehensive Income. The consolidated seeded investment products posted $2.8 million and $4.7 million in cash collateral with the counterparty of the derivative instruments as of March 31, 2016, and December 31, 2015, respectively.

 

JCG’s consolidated seeded investment products were party to the following derivative instruments as of March 31, 2016, and December 31, 2015:

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Number of
contracts

 

Notional value
(in millions)

 

Number of
contracts

 

Notional value
(in millions)

 

Swaps

 

93

 

$

32.3

 

96

 

$

40.9

 

Futures

 

97

 

$

42.0

 

75

 

$

20.8

 

Foreign currency forward contracts

 

133

 

$

26.2

 

61

 

$

9.9

 

Options

 

68

 

$

 

66

 

$

0.2

 

 

The following table illustrates the effect of offsetting derivative instruments within consolidated seeded investment products on JCG’s Condensed Consolidated Balance Sheets as of March 31, 2016 (in millions):

 

 

 

March 31, 2016

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Swaps

 

$

0.4

 

$

 

$

 

$

0.4

 

Futures

 

0.3

 

(0.3

)

 

 

Foreign currency forward contracts

 

0.1

 

(0.1

)

 

 

Total

 

$

0.8

 

$

(0.4

)

$

 

$

0.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.4

 

$

(0.3

)

$

 

$

0.1

 

Foreign currency forward contracts

 

0.5

 

(0.1

)

 

0.4

 

Options

 

0.1

 

 

 

0.1

 

Total

 

$

1.0

 

$

(0.4

)

$

 

$

0.6

 

 

The following table illustrates the effect of offsetting derivative instruments within consolidated seeded investment products on JCG’s Condensed Consolidated Balance Sheets as of December 31, 2015 (in millions):

 

 

 

December 31, 2015

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Swaps

 

$

0.9

 

$

(0.5

)

$

 

$

0.4

 

Futures

 

0.1

 

(0.1

)

 

 

Foreign currency forward contracts

 

0.1

 

(0.1

)

 

 

Total

 

$

1.1

 

$

(0.7

)

$

 

$

0.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Swaps

 

$

0.6

 

$

(0.6

)

$

 

$

 

Futures

 

0.3

 

(0.1

)

(0.2

)

 

Foreign currency forward contracts

 

0.1

 

(0.1

)

 

 

Total

 

$

1.0

 

$

(0.8

)

$

(0.2

)

$

 

 

As of March 31, 2016, certain consolidated seeded investment products sold credit protection through the use of credit default swap contracts. The contracts provide alternative credit risk exposure to individual companies and

 

13



 

countries outside of traditional bond markets. The terms of the credit default swap contracts range from one to five years.

 

As sellers in credit default swap contracts, the consolidated seeded investment products would be required to pay the notional value of a referenced debt obligation to the counterparty in the event of a default on the debt obligation by the issuer. The notional value represents the estimated maximum potential undiscounted amount of future payments required upon the occurrence of a credit default event. As of March 31, 2016, the notional value of the agreements was $8.9 million. The credit default swap contracts include recourse provisions that allow for recovery of a certain percentage of amounts paid upon the occurrence of a credit default event. As of March 31, 2016, the fair value of the credit default swap contracts selling protection was $0.1 million.

 

Investment Gains, Net

 

Investment gains, net on JCG’s Condensed Consolidated Statements of Comprehensive Income included the following for the three months ended March 31, 2016 and 2015 (in millions):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Seeded investment products accounted for as VREs

 

$

5.1

 

$

5.9

 

Noncontrolling interests in seeded investment products accounted for as VREs

 

0.6

 

1.1

 

Investments in advised mutual funds

 

0.1

 

0.1

 

Index swaps, credit default swaps and futures

 

(3.6

)

(3.0

)

Economic hedge for deferred compensation plans

 

 

0.3

 

Investment gains, net

 

$

2.2

 

$

4.4

 

 

Purchases, Sales, Settlements and Maturities

 

Cash flows related to investment securities for the three months ended March 31, 2016 and 2015, are summarized as follows (in millions):

 

 

 

Three months ended March 31,

 

 

 

2016

 

2015

 

 

 

Purchases

 

Sales,

 

Purchases

 

Sales,

 

 

 

and

 

settlements and

 

and

 

settlements and

 

 

 

settlements

 

maturities

 

settlements

 

maturities

 

Trading securities

 

$

(14.4

)

$

54.1

 

$

(10.4

)

$

2.1

 

Available-for-sale securities

 

(0.4

)

 

(0.3

)

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

Seed capital economic hedge

 

(8.9

)

2.3

 

(3.7

)

1.2

 

Total cash flows

 

$

(23.7

)

$

56.4

 

$

(14.4

)

$

3.3

 

 

14



 

Note 4 — Fair Value Measurements

 

The following table presents assets, liabilities and redeemable noncontrolling interests presented in the financial statements or disclosed in the notes to the financial statements at fair value on a recurring basis as of March 31, 2016 (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

 

$

106.3

 

$

100.5

 

$

 

$

206.8

 

Futures

 

0.3

 

 

 

0.3

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

 

 

 

 

Consolidated VREs

 

2.6

 

3.8

 

 

6.4

 

Consolidated VIEs

 

15.5

 

23.0

 

 

38.5

 

Unconsolidated VREs

 

59.6

 

 

 

59.6

 

Separate accounts

 

39.3

 

50.5

 

 

89.8

 

Pooled investment funds

 

3.6

 

6.4

 

 

10.0

 

Investments in advised mutual funds

 

4.3

 

 

 

4.3

 

Investments related to deferred compensation plans

 

16.7

 

 

 

16.7

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

 

 

 

 

Unconsolidated VREs

 

68.4

 

 

 

68.4

 

Unconsolidated VIEs

 

7.5

 

 

 

7.5

 

Total investment securities

 

217.5

 

83.7

 

 

301.2

 

Total assets

 

$

324.1

 

$

184.2

 

$

 

$

508.3

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.8

 

$

 

$

 

$

0.8

 

Credit default swaps

 

1.6

 

 

 

1.6

 

Long-term debt(1)

 

 

484.5

 

 

484.5

 

Kapstream contingent consideration

 

 

 

7.4

 

7.4

 

VelocityShares contingent consideration

 

 

 

16.3

 

16.3

 

Total liabilities

 

$

2.4

 

$

484.5

 

$

23.7

 

$

510.6

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

 

 

Consolidated seeded investment products

 

$

9.3

 

$

11.9

 

$

 

$

21.2

 

INTECH

 

 

 

7.8

 

7.8

 

Total redeemable noncontrolling interests

 

$

9.3

 

$

11.9

 

$

7.8

 

$

29.0

 

 


(1)         Carried at amortized cost and disclosed at fair value.

 

15



 

The following table presents assets, liabilities and redeemable noncontrolling interests presented in the financial statements or disclosed in the notes to the financial statements at fair value on a recurring basis as of December 31, 2015 (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

 

$

57.4

 

$

189.5

 

$

 

$

246.9

 

Futures

 

0.3

 

 

 

0.3

 

Trading securities:

 

 

 

 

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

 

 

 

 

Consolidated VREs

 

10.9

 

24.8

 

 

35.7

 

Unconsolidated VREs

 

99.7

 

 

 

99.7

 

Separate accounts

 

46.7

 

40.1

 

 

86.8

 

Pooled investment funds

 

13.1

 

0.3

 

 

13.4

 

Investments in advised mutual funds

 

4.2

 

 

 

4.2

 

Investments related to deferred compensation plans

 

16.3

 

 

 

16.3

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

 

 

 

 

Unconsolidated VREs

 

71.0

 

 

 

71.0

 

Total investment securities

 

261.9

 

65.2

 

 

327.1

 

Total assets

 

$

319.6

 

$

254.7

 

$

 

$

574.3

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Index swaps

 

$

 

$

0.1

 

$

 

$

0.1

 

Futures

 

0.1

 

 

 

0.1

 

Credit default swaps

 

 

0.5

 

 

0.5

 

Current portion of long-term debt(1)

 

 

158.6

 

 

158.6

 

Long-term debt(1)

 

 

307.6

 

 

307.6

 

Kapstream contingent consideration

 

 

 

6.9

 

6.9

 

VelocityShares contingent consideration

 

 

 

13.1

 

13.1

 

Total liabilities

 

$

0.1

 

$

466.8

 

$

20.0

 

$

486.9

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

 

 

Consolidated seeded investment products

 

$

6.1

 

$

7.7

 

$

 

$

13.8

 

INTECH

 

 

 

8.0

 

8.0

 

Total redeemable noncontrolling interests

 

$

6.1

 

$

7.7

 

$

8.0

 

$

21.8

 

 

Level 1 Fair Value Measurements

 

JCG’s Level 1 fair value measurements consist mostly of seeded investment products, investments in advised mutual funds, cash equivalents and investments related to deferred compensation plans with quoted market prices in active markets. The fair value level of consolidated seeded investment products is determined by the underlying securities of the product. The fair value level of unconsolidated seeded investment products and available-for-sale seeded investment products is determined using the respective net asset value (“NAV”) of each product. All seeded investment products for which the NAV is used to determine their fair value are classified as Level 1 and primarily represent seeded mutual funds where JCG’s ownership level is under 50% or where JCG is not considered the primary beneficiary.

 

Level 2 Fair Value Measurements

 

JCG’s Level 2 fair value measurements consist mostly of cash equivalents, consolidated seeded investment products and JCG’s long-term debt. Cash equivalents are short-term, highly liquid investments with an initial maturity of three months or less when purchased and consist primarily of commercial paper, certificates of deposits and other short-term investments. The fair value of consolidated seeded investment products which JCG’s ownership level is above 50%, or JCG is the primary beneficiary, is determined by the underlying securities of the product. The fair value of JCG’s long-term debt is determined using broker quotes and recent trading activity, which are considered Level 2 inputs.

 


(1)        Carried at amortized cost and disclosed at fair value.

 

16



 

Level 3 Fair Value Measurements

 

JCG’s Level 3 recurring fair value measurements largely represent redeemable noncontrolling interests in INTECH Investment Management LLC (“INTECH”) and contingent consideration related to the acquisition of VS Holdings Inc., the parent company of VelocityShares, LLC (“VelocityShares”) and Kapstream Capital Pty Limited (“Kapstream”).

 

INTECH

 

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 valuation 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.

 

VelocityShares

 

The acquisition of VelocityShares in 2014 included contingent cash consideration. The payments are contingent on certain VelocityShares’ exchange traded products (“ETPs”) reaching defined net revenue targets on the first, second, third and fourth anniversaries of the acquisition, in amounts up to $10.0 million each for the first and second anniversaries, and $8.0 million each for the third and fourth anniversaries. The fair value of the contingent consideration is calculated on a quarterly basis by forecasting net ETP revenue, as defined by the purchase agreement, over the contingency period, and determining whether targets are met given forecasted VelocityShares operating results. Forecasted contingent payments are then discounted back to the valuation date. Significant unobservable inputs used in the valuation are limited to forecasted gross revenues and certain expense items, which are deducted from these revenues. Increases in forecasted net revenue would increase the fair value of the consideration, subject to payment limitations, while decreases in net revenues would decrease the fair value. In November 2015, VelocityShares reached the defined net revenue target and the Company paid the first contingent consideration amount of $10.0 million, which represents the maximum amount for the first anniversary. As of March 31, 2016, the total maximum payment over the remaining contingent consideration period is $26.0 million.

 

Kapstream

 

The July 2015 transaction to acquire a controlling 51% voting interest in Kapstream included contingent cash consideration. The contingent cash consideration is payable at 18 and 36 months after acquisition if certain Kapstream assets under management reach defined targets. The fair value of the contingent consideration is calculated on a quarterly basis by forecasting certain Kapstream assets under management over the contingency period and determining whether the forecasted amounts meet the defined targets. Significant unobservable inputs used in the valuation are limited to forecasted Kapstream assets under management. As of March 31, 2016, the total maximum payment over the remaining contingent consideration period is $9.6 million.

 

17



 

The changes in fair value of JCG’s Level 3 items for the three months ended March 31, 2016 and 2015, are as follows (in millions):

 

 

 

Three months ended March 31, 2016

 

 

 

Redeemable
noncontrolling
interests in
INTECH

 

VelocityShares
contingent
consideration

 

Kapstream
contingent
consideration

 

Beginning of period fair value

 

$

8.0

 

$

13.1

 

$

6.9

 

Distributions

 

(0.2

)

 

 

Current earnings

 

0.2

 

 

 

Amortization of INTECH appreciation rights

 

0.7

 

 

 

Foreign currency translation

 

 

 

0.4

 

Change in fair value

 

(0.9

)

3.2

 

0.1

 

End of period fair value

 

$

7.8

 

$

16.3

 

$

7.4

 

 

 

 

Three months ended March 31, 2015

 

 

 

Redeemable
noncontrolling
interests in
INTECH

 

VelocityShares
contingent
consideration

 

Seeded
investment
products

 

Beginning of period fair value

 

$

5.4

 

$

17.9

 

$

 

Distributions

 

(0.2

)

 

 

Current earnings

 

0.2

 

 

 

Change in fair value

 

(0.1

)

0.2

 

0.2

 

End of period fair value

 

$

5.3

 

$

18.1

 

$

0.2

 

 

Nonrecurring Level 3 Fair Value Measurements

 

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.

 

Transfers Between Fair Value Levels

 

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 affecting 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.

 

Additionally, the deconsolidation of a seeded investment product can cause changes to its fair value level classification. Upon deconsolidation, the entire seeded investment product is valued using the NAV rather than valued using its underlying securities. Generally, seeded investment products that use the NAV to determine their fair value are classified as Level 1. During the first quarter 2016, a certain seeded investment product was deconsolidated and its $7.9 million of Level 2 assets were reclassified to Level 1.

 

Transfers are recognized at the end of each reporting period. Transfers between Level 1 and Level 2 classifications for the three months ended March 31, 2016 and 2015, are summarized as follows (in millions):

 

 

 

March 31,

 

 

 

2016

 

2015

 

Transfers from Level 1 to Level 2

 

$

 

$

2.9

 

Transfers from Level 2 to Level 1

 

$

7.9

 

$

44.3

 

 

18



 

Note 5 — Debt

 

Debt at March 31, 2016, and December 31, 2015, consisted of the following (in millions):

 

 

 

March 31, 2016

 

December 31, 2015

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

value

 

value

 

value

 

value

 

4.875% Senior Notes due 2025

 

$

294.9

 

$

318.6

 

$

294.8

 

$

307.6

 

0.750% Convertible Senior Notes due 2018

 

108.4

 

165.9

 

107.5

 

158.6

 

Total