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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, 2017

 

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 001-38103

 

 

 

Janus Henderson Group plc

(Exact name of registrant as specified in its charter)

 

 

Jersey, Channel Islands

 

98-1376360

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

201 Bishopsgate EC2M 3AE
United Kingdom

 

N/A

(Address of principal executive offices)

 

(Zip Code)

 

 

+44 (0) 20 7818 1818

(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 o       No x

 

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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer x

Smaller Reporting Company o

Emerging Growth Company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 August 4, 2017, there were 200,406,138 shares of the Group’s common stock, $1.50 par value per share, issued and outstanding.

 

 

 



 

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

 

JANUS HENDERSON GROUP PLC

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in Millions, Except Share Data)

 

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

 640.0

 

$

 279.0

 

Investment securities

 

274.1

 

79.6

 

Fees and other receivables

 

346.3

 

165.5

 

OEIC and unit trust debtors

 

274.8

 

142.1

 

Assets of consolidated VIEs:

 

 

 

 

 

Cash and cash equivalents

 

43.7

 

44.2

 

Investment securities

 

384.4

 

313.7

 

Other current assets

 

12.9

 

8.1

 

Other current assets

 

85.1

 

28.5

 

Total current assets

 

2,061.3

 

1,060.7

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

Property, equipment and software, net

 

76.5

 

41.2

 

Intangible assets, net

 

3,202.1

 

401.3

 

Goodwill

 

1,474.9

 

741.5

 

Retirement benefit asset, net

 

196.0

 

180.2

 

Other non-current assets

 

22.0

 

8.5

 

Total assets

 

$

 7,032.8

 

$

 2,433.4

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

 330.6

 

$

 141.7

 

Current portion of accrued compensation, benefits and staff costs

 

205.1

 

147.0

 

Current portion of long-term debt

 

115.4

 

 

OEIC and unit trust creditors

 

273.2

 

137.9

 

Liabilities of consolidated VIEs:

 

 

 

 

 

Accounts payable and accrued liabilities

 

23.9

 

26.2

 

Total current liabilities

 

948.2

 

452.8

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Accrued compensation, benefits and staff costs

 

21.0

 

8.7

 

Long-term debt

 

323.5

 

 

Deferred tax liabilities, net

 

1,091.8

 

70.7

 

Retirement benefit obligations, net

 

6.5

 

11.9

 

Other non-current liabilities

 

94.7

 

39.0

 

Total liabilities

 

2,485.7

 

583.1

 

 

 

 

 

 

 

Commitments and contingencies (See Note 13)

 

 

 

 

 

 

 

 

 

 

 

REDEEMABLE NONCONTROLLING INTERESTS

 

172.0

 

158.0

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

Common stock ($1.50 par and £0.125 par, 480,000,000 and 2,194,910,776 shares authorized; 200,406,138 and 1,131,842,109 shares issued and outstanding, respectively)

 

300.6

 

234.4

 

Additional paid-in-capital

 

3,824.5

 

1,237.9

 

Treasury shares (4,115,574 and 38,848,749 shares held, respectively)

 

(157.9

)

(155.1

)

Accumulated other comprehensive loss, net of tax

 

(344.1

)

(434.5

)

Retained earnings

 

708.0

 

764.8

 

Total shareholders’ equity

 

4,331.1

 

1,647.5

 

Nonredeemable noncontrolling interests

 

44.0

 

44.8

 

Total equity

 

4,375.1

 

1,692.3

 

Total liabilities, redeemable noncontrolling interests and equity

 

$

 7,032.8

 

$

 2,433.4

 

 

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

 

2



 

JANUS HENDERSON GROUP PLC

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in Millions, Except per Share Data)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

Management fees

 

$

296.0

 

$

222.9

 

$

493.5

 

$

441.2

 

Performance fees

 

57.7

 

13.9

 

72.5

 

28.7

 

Shareowner servicing fees

 

9.9

 

 

9.9

 

 

Other revenue

 

21.2

 

20.3

 

38.4

 

41.6

 

Total revenue

 

384.8

 

257.1

 

614.3

 

511.5

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

123.6

 

67.2

 

194.0

 

134.6

 

Long-term incentive plans

 

47.3

 

30.2

 

63.7

 

51.3

 

Distribution expenses

 

60.7

 

57.3

 

107.8

 

111.9

 

Investment administration

 

9.7

 

12.8

 

19.9

 

24.5

 

Marketing

 

10.1

 

3.7

 

13.3

 

7.1

 

General, administrative and occupancy

 

67.3

 

23.9

 

92.4

 

48.9

 

Depreciation and amortization

 

9.4

 

5.6

 

15.7

 

11.2

 

Total operating expenses

 

328.1

 

200.7

 

506.8

 

389.5

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

56.7

 

56.4

 

107.5

 

122.0

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2.0

)

(1.4

)

(3.1

)

(5.6

)

Investment gains (losses), net

 

9.8

 

(8.9

)

8.9

 

(2.1

)

Other non-operating expenses, net

 

(2.0

)

(3.2

)

(0.7

)

(2.6

)

Income before taxes

 

62.5

 

42.9

 

112.6

 

111.7

 

Income tax provision

 

(21.0

)

(2.7

)

(28.5

)

(16.9

)

Net income

 

41.5

 

40.2

 

84.1

 

94.8

 

Net loss attributable to noncontrolling interests

 

0.2

 

6.1

 

0.2

 

3.0

 

Net income attributable to JHG

 

$

41.7

 

$

46.3

 

$

84.3

 

$

97.8

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to JHG common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

$

0.42

 

$

0.66

 

$

0.88

 

Diluted

 

$

0.28

 

$

0.41

 

$

0.64

 

$

0.86

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

$

 

$

0.4

 

$

(0.4

)

$

(0.5

)

Foreign currency translation gains (losses)

 

51.2

 

(95.5

)

74.5

 

(134.6

)

Actuarial gains

 

 

0.1

 

 

0.1

 

Other comprehensive income (loss), net of tax

 

51.2

 

(95.0

)

74.1

 

(135.0

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

15.9

 

(8.3

)

16.3

 

(7.2

)

Other comprehensive income (loss) attributable to JHG

 

67.1

 

(103.3

)

90.4

 

(142.2

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

92.7

 

$

(54.8

)

$

158.2

 

$

(40.2

)

Total comprehensive loss (income) attributable to noncontrolling interests

 

16.1

 

(2.2

)

16.5

 

(4.2

)

Total comprehensive income (loss) attributable to JHG

 

$

108.8

 

$

(57.0

)

$

174.7

 

$

(44.4

)

 

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

 

3



 

JANUS HENDERSON GROUP PLC

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in Millions)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2017

 

2016

 

CASH FLOWS PROVIDED BY (USED FOR):

 

 

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

Net income

 

$

84.1

 

$

94.8

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

15.7

 

11.2

 

Stock-based compensation expense

 

30.9

 

20.2

 

Losses from equity-method investments

 

 

(0.7

)

Investment gains (losses), net

 

(8.9

)

2.1

 

Impairment of equity-method investment

 

 

3.9

 

Contributions to pension plans in excess of costs recognized

 

(11.7

)

(4.3

)

Other, net

 

9.0

 

11.9

 

Changes in operating assets and liabilities:

 

 

 

 

 

OEIC and unit trust receivables and payables

 

2.6

 

(2.0

)

Other assets

 

(107.9

)

11.2

 

Other accruals and liabilities

 

47.8

 

(64.8

)

Net operating activities

 

61.6

 

83.5

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Cash acquired from acquisition

 

417.2

 

 

Proceeds from:

 

 

 

 

 

Investment securities - VIEs, net

 

139.9

 

 

Investment securities - seed capital, net

 

22.9

 

5.3

 

Dividends received from equity-method investments

 

 

0.3

 

Purchases of:

 

 

 

 

 

Investment securities - seed capital

 

 

(50.2

)

Property, equipment and software

 

(8.4

)

(9.6

)

Net cash paid on settled hedges

 

(7.3

)

(16.5

)

Net investing activities

 

564.3

 

(70.7

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from settlement of convertible note hedge

 

59.3

 

 

Settlement of stock warrant

 

(47.8

)

 

Proceeds from issuance of option

 

25.7

 

 

Proceeds from stock-based compensation plans

 

2.1

 

8.5

 

Purchase of common stock for stock-based compensation plans

 

(39.1

)

(46.1

)

Dividends paid to shareholders

 

(128.6

)

(115.9

)

Repayment of long-term borrowings

 

 

(215.0

)

Distributions to noncontrolling interests

 

(0.5

)

 

Third-party sales (redemptions) in consolidated seeded investment products, net

 

(148.8

)

40.7

 

Principal payments under capital lease obligations

 

(0.1

)

 

Net financing activities

 

(277.8

)

(327.8

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Effect of foreign exchange rate changes

 

12.4

 

(19.3

)

Net change

 

360.5

 

(334.3

)

At beginning of period

 

323.2

 

583.7

 

At end of period

 

$

683.7

 

$

249.4

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

0.3

 

$

7.7

 

Cash paid for income taxes, net of refunds

 

$

25.0

 

$

14.0

 

 

 

 

 

 

 

Reconciliation of cash and cash equivalents

 

 

 

 

 

Cash and cash equivalents

 

$

640.0

 

$

204.9

 

Cash and cash equivalents held in VIEs

 

$

43.7

 

$

44.5

 

Total cash and cash equivalents

 

$

683.7

 

$

249.4

 

 

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

 

4



 

JANUS HENDERSON GROUP PLC

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(Amounts in Millions)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

other

 

 

 

Nonredeemable

 

 

 

 

 

Number

 

Common

 

paid-in-

 

Treasury

 

comprehensive

 

Retained

 

noncontrolling

 

Total

 

 

 

of shares

 

stock

 

capital

 

shares

 

loss

 

earnings

 

interests

 

equity

 

Balance at December 31, 2015

 

1,131.8

 

$

234.4

 

$

1,237.9

 

$

(175.3

)

$

(189.6

)

$

759.5

 

$

44.1

 

$

1,911.0

 

Net income

 

 

 

 

 

 

97.8

 

(3.0

)

94.8

 

Other comprehensive income (loss)

 

 

 

 

 

(142.2

)

 

7.2

 

(135.0

)

Dividends paid to shareholders

 

 

 

 

 

 

(115.9

)

 

(115.9

)

Purchase of common stock for stock-based compensation plans

 

 

 

 

(46.1

)

 

 

 

(46.1

)

Vesting of stock-based compensation plans

 

 

 

 

65.8

 

 

(65.8

)

 

 

Stock-based compensation plan expense

 

 

 

 

 

 

20.2

 

 

20.2

 

Proceeds from stock-based compensation plans

 

 

 

 

 

 

8.5

 

 

8.5

 

Balance at June 30, 2016

 

1,131.8

 

$

234.4

 

$

1,237.9

 

$

(155.6

)

$

(331.8

)

$

704.3

 

$

48.3

 

$

1,737.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

1,131.8

 

$

234.4

 

$

1,237.9

 

$

(155.1

)

$

(434.5

)

$

764.8

 

$

44.8

 

$

1,692.3

 

Share consolidation

 

(1,018.6

)

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

84.3

 

(0.5

)

83.8

 

Other comprehensive income (loss)

 

 

 

 

 

90.4

 

 

(16.3

)

74.1

 

Dividends paid to shareholders

 

 

 

 

 

 

(128.6

)

 

(128.6

)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

(0.5

)

(0.5

)

Derivative instruments acquired on acquisition

 

 

 

54.4

 

 

 

 

 

54.4

 

Noncontrolling interests recognized on acquisition

 

 

 

 

 

 

 

16.5

 

16.5

 

Settlement of derivative instruments

 

 

 

(11.5

)

 

 

 

 

(11.5

)

Purchase of common stock for stock-based compensation plans

 

 

 

 

(39.1

)

 

 

 

(39.1

)

Issuance of common stock

 

87.2

 

130.8

 

2,551.2

 

 

 

 

 

2,682.0

 

Redenomination and reduction of par value of stock

 

 

(64.6

)

64.6

 

 

 

 

 

 

Acquisition adjustment in relation to unvested awards

 

 

 

(81.3

)

 

 

 

 

(81.3

)

Vesting of stock-based compensation plans

 

 

 

(13.9

)

36.3

 

 

(22.4

)

 

 

Stock-based compensation plan expense

 

 

 

21.0

 

 

 

9.9

 

 

30.9

 

Proceeds from stock-based compensation plans

 

 

 

2.1

 

 

 

 

 

2.1

 

Balance at June 30, 2017

 

200.4

 

$

300.6

 

$

3,824.5

 

$

(157.9

)

$

(344.1

)

$

708.0

 

$

44.0

 

$

4,375.1

 

 

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

 

5



 

JANUS HENDERSON GROUP PLC

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1 — Basis of Presentation

 

In the opinion of the management of Janus Henderson Group plc (“JHG” or “the Group”), previously Henderson Group plc (“Henderson”), the accompanying condensed consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of JHG in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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. These financial statements should be read in conjunction with the annual consolidated financial statements and notes included in the Henderson annual financial statements for the year ended December 31, 2016, which can be found in JHG’s prospectus dated March 21, 2017, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-216824) (the “Prospectus”). Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying financial statements through the issuance date and are included in the notes to the condensed consolidated financial statements. Certain prior period balances have been reclassified for conformity with current period presentation. There was no impact on the results.

 

The Group had $9.9 million and $20.2 million of stock-based compensation costs and nil and $8.5 million of proceeds from stock-based compensation plans included in retained earnings during the six-month periods ended June 30, 2017 and June 30, 2016, respectively. Prior to the Group’s Extraordinary General Meeting (“EGM”) on April 26, 2017, the Group’s articles of association did not allow the Group to recognize these items in additional paid-in-capital. A change in the Group’s articles of association was approved at the EGM and from April 26, 2017, all costs in relation to stock-based compensation will be recognized in additional paid-in-capital. The accumulated balance in relation to stock-based compensation plans within retained earnings as of June 30, 2017 and December 31, 2016, was $(105.4) million and $(92.9) million, respectively.

 

Share Redenomination and Consolidation

 

On April 26, 2017, Henderson redenominated its ordinary shares from Great British pound (“GBP”) to U.S. dollar (“USD”) resulting in a change in par value from £0.125 to $0.1547 per share. At that time Henderson had 1,131,842,110 shares in issue and as a result the ordinary share nominal capital became $175.1 million. The difference between the revised ordinary share nominal capital balance of $175.1 million and the previously stated ordinary share nominal capital balance of $234.4 million (converted at the historic exchange rate rather than the rate required for the redenomination under Jersey company law) was recognized as a component of additional paid-in-capital. Consequently, the additional paid-in-capital balance was adjusted from $1,237.9 million to $1,297.2 million.

 

Additionally, in accordance with a special resolution passed by the shareholders on May 3, 2017, the par value of the shares of Henderson was reduced to $0.15 per share from $0.1547 per share and the total ordinary share nominal capital became $169.8 million. In accordance with that resolution, the reduction in the total ordinary share nominal capital of $5.3 million was credited to the additional paid-in-capital account which moved from $1,297.2 million to $1,302.5 million.

 

On April 26, 2017, the shareholders approved a 10-to-1 share consolidation, which took effect on May 30, 2017. As a result of the share consolidation, the number of shares in issue was reduced by a factor of 10, and the par value of the shares became $1.50.

 

Merger with Janus Capital Group Inc.

 

On May 30, 2017 (the “Closing Date”), Janus Capital Group Inc. (“JCG”) and Henderson announced the completion of an all-stock merger of equals (“the Merger”). JCG is a U.S.-based asset manager. The Merger is expected to accelerate the Group’s strategic objectives for growth, diversification and the creation of a global active investment manager. Based on an evaluation of the Merger agreement provisions, Henderson was determined to be the acquirer for accounting purposes and the historical financial statements and notes included herein represent Henderson.

 

6



 

Prior to the Merger, Henderson’s functional currency was GBP. After consideration of numerous factors, management concluded that the post-merger functional currency of JHG will be USD.

 

The Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017, include JCG results from the Closing Date. The Condensed Consolidated Balance Sheet reflects the financial position of JHG at June 30, 2017. See Note 2 - Acquisitions, for more information on the Merger.

 

Recent Accounting Pronouncements Not Yet Adopted

 

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. The Group is evaluating the effect of adopting this new accounting standard, including the amending Accounting Standards Update (“ASU”), and is focused on the assessment of its mutual fund performance fees and the related applicability of the new guidance. Currently, JHG does not expect a change in accounting treatment for mutual fund performance fees or other operating revenues upon adoption of the new guidance. However, the Group’s evaluation is ongoing and not complete.

 

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 Group 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 significant change to lease accounting and introduces a lessee model that brings most leases onto 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 fiscal years beginning after December 15, 2018. The Group 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, and applying 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 Group’s principal-versus-agent assessment is focused on treatment of distribution fees collected from mutual fund assets and whether such fees should be reported as revenue (1) on a gross basis or (2) on a net basis, where such fees are reduced by distribution fees paid by the Group to intermediaries. The Group’s assessment is ongoing and not complete.

 

In August 2016, the FASB issued an ASU to clarify guidance on the classification of certain cash receipts and cash payments in the statements of cash flows. The FASB issued the ASU with the intent of reducing diversity in practice regarding eight types of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Group is evaluating the effect of adopting this new accounting standard.

 

In November 2016, the FASB issued an ASU to clarify guidance on the classification and presentation of restricted cash in the statements of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Group is evaluating the effect of adopting this new accounting standard.

 

7



 

In January 2017, the FASB issued an ASU that simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The ASU requires goodwill impairments to be measured on the basis of the fair value of the reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. The ASU is effective for annual and interim impairment tests for periods beginning after December 15, 2021. Early adoption is allowed for annual and interim impairment tests occurring after January 1, 2017. The Group is evaluating the effect of adopting this new accounting standard.

 

Note 2 — Acquisitions

 

Merger with JCG

 

On the Closing Date, pursuant to the Agreement and Plan of Merger dated as of October 3, 2016 (the “Merger Agreement”), by and among JCG, a Delaware corporation, Henderson, a company incorporated in Jersey, and Horizon Orbit Corp., a Delaware corporation and a direct and wholly owned subsidiary of Henderson (“Merger Sub”), Merger Sub merged with and into JCG, with JCG surviving such merger as a direct and wholly owned subsidiary of Henderson. Upon closing of the Merger, Henderson became the parent holding company for the combined group and was renamed Janus Henderson Group plc.

 

Upon closing of the Merger, holders of JCG common stock received 0.47190 fully paid and non-assessable JHG ordinary shares with a par value of $1.50 per share (the “Ordinary Shares”) for each share of JCG common stock held, plus cash in lieu of any fractional shares based on prevailing market prices. Effective immediately prior to the closing of the Merger, Henderson implemented a share consolidation of ordinary shares at a ratio of one Ordinary Share (or Chess Depositary Interest (“CDI”), as applicable) for every 10 ordinary shares (or CDIs, as applicable) outstanding.

 

The fair value of consideration transferred to JCG common stockholders was $2,600.7 million, representing 87.2 million shares of JHG transferred at a share price of $30.75 each as of the Closing Date, adjusted for a post-combination stock-based compensation charge for unvested shares in relation to JCG share plans.

 

The issuance of JHG shares in connection with the Merger was registered under the Securities Act of 1933, as amended, pursuant to JHG’s registration statement on Form F- 4 (File No. 333- 216824) filed with the SEC on March 20, 2017 (the “Registration Statement”).

 

Preliminary Fair Values of Assets Acquired and Liabilities Assumed

 

Preliminary estimates of fair values of the assets acquired and liabilities assumed are based on information available as of the closing of the Merger. The Group is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the closing of the Merger.

 

8



 

The preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed is presented in the following table (in millions):

 

 

 

Preliminary

 

 

 

purchase price

 

 

 

allocation

 

Assets:

 

 

 

Cash and cash equivalents

 

$

417.2

 

Investment securities

 

270.4

 

Fees and other receivables

 

133.7

 

Other current assets

 

119.4

 

Property, equipment and software

 

32.3

 

Intangible assets

 

2,785.0

 

Goodwill

 

697.9

 

Other non-current assets

 

10.6

 

Liabilities:

 

 

 

Long-term debt

 

481.8

 

Deferred tax liabilities

 

1,025.6

 

Other current liabilities

 

243.8

 

Other non-current liabilities

 

55.2

 

Noncontrolling interests

 

59.4

 

Net assets acquired

 

$

2,600.7

 

 

Goodwill

 

Goodwill primarily represents the value JHG expects to obtain from growth opportunities and synergies for the combined operations. Goodwill is not deductible for tax purposes.

 

Intangible Assets

 

Acquired intangible assets include the value of investment advisory agreements for mutual funds, separate accounts and exchange traded products (“ETPs”). Also included are the values of acquired trademarks, which include trademarks for Janus Capital Management LLC (“Janus”), INTECH Investment Management LLC (“INTECH”), Kapstream Capital Pty Limited (“Kapstream”), Perkins Investment Management LLC (“Perkins”) and VS Holdings Inc. (“VelocityShares”). Preliminary estimates of acquired intangible assets and their related estimated useful lives are presented in the following table (in millions):

 

 

 

Estimated

 

Estimated useful

 

 

 

fair value

 

life (in years)

 

Investment management contracts - mutual funds

 

$

2,155.0

 

Indefinite

 

Investment management contracts - separate accounts

 

202.0

 

13-22

 

Investment management contracts - exchange traded notes

 

33.0

 

15

 

Investment management contracts - exchange traded funds

 

14.0

 

Indefinite

 

Trademarks

 

381.0

 

Indefinite

 

 

 

$

2,785.0

 

 

 

 

The following table presents movement in intangible assets during the period (in millions):

 

 

 

December 31, 2016

 

Merger

 

Amortization

 

Foreign currency
translation

 

June 30, 2017

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Investment management agreements

 

$

334.8

 

$

2,169.0

 

$

 

$

23.5

 

$

2,527.3

 

Trademarks

 

 

381.0

 

 

 

381.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

Client relationships

 

126.9

 

235.0

 

 

1.0

 

362.9

 

Accumulated amortization

 

(60.4

)

 

(8.7

)

 

(69.1

)

Net intangible assets

 

$

401.3

 

$

2,785.0

 

$

(8.7

)

$

24.5

 

$

3,202.1

 

 

 

Amortization expense was $5.1 million and $8.7 million for the three and six months ended June 30, 2017, respectively, and $3.7 million and $7.4 million and for the same periods ended June, 2016. Expected future amortization expense is summarized below (in millions):

 

Year ended December 31,

 

Amount

 

2017 (remainder of year)

 

$

14.8

 

2018

 

29.6

 

2019

 

29.6

 

2020

 

29.6

 

2021

 

26.8

 

2022

 

18.3

 

Thereafter

 

144.6

 

Total

 

$

293.3

 

 

Debt

 

Debt was valued using quoted market prices, which are considered fair value Level 2 inputs.

 

The acquired 0.750% Convertible Senior Notes due 2018 (“2018 Convertible Notes”) may be wholly or partially settled in cash, and thereby the liability and conversion feature components are accounted for separately. The $115.2 million liability component was determined by discounting future contractual cash flows at a 1.9% rate, which is consistent with the estimated market interest rate for similar senior notes with no conversion option. The liability component will accrete up to the face value of $116.6 million, through interest expense, over the

 

9



 

remaining term of the notes. The $42.9 million equity component was determined as the difference between the liability component and the fair value of the notes at the Closing Date.

 

The 4.875% Senior Notes due 2025 (“2025 Senior Notes”) were recorded at their fair value of $323.7 million at the time of the Merger. The 2025 Senior Notes include unamortized debt premium at June 30, 2017, of $27.9 million, which will be amortized over the remaining life of the notes through interest expense. The unamortized debt premium is recorded as a liability within long-term debt on JHG’s Condensed Consolidated Balance Sheets.

 

Deferred Tax Liabilities, Net

 

Deferred income taxes primarily relate to deferred income tax balances acquired from JCG and the deferred tax impact of fair value adjustments of the assets and liabilities acquired from JCG, including intangible assets and long-term debt. Deferred income taxes were provisionally estimated based on statutory tax rates in the jurisdictions of the legal entities where the acquired assets and liabilities are taxed. Tax rates used are continually assessed, and updates to deferred income tax estimates are based on any changes to provisional valuations of the related assets and liabilities and refinement of the effective tax rates, which could result in changes to these provisional values.

 

Pro Forma Results of Operations

 

The following table presents summarized unaudited supplemental pro forma operating results as if the Merger had occurred at the beginning of each of the periods presented (in millions). The only material adjustment made was the inclusion of the JCG results for the periods.

 

 

 

Six months ended

 

 

 

June 30, 2017

 

June 30, 2016

 

Revenues

 

$

1,053.2

 

$

1,011.9

 

Net income attributable to JHG

 

$

133.4

 

$

174.0

 

 

JCG Results of Operations

 

Revenue and net income of JCG from the Closing Date through the end of the second quarter 2017 included in JHG’s Condensed Consolidated Statements of Comprehensive Income is presented in the following table (in millions):

 

 

 

Closing Date -

 

 

 

June 30, 2017

 

Revenues

 

$

105.2

 

Net income attributable to JCG

 

$

15.7

 

 

Options

 

On the Closing Date of the Merger, JHG granted Dai-ichi Life Holdings Inc. (“Dai-ichi”) 20 tranches of conditional options with each tranche allowing Dai-ichi to purchase 500,000 JHG ordinary shares at a strike price of £29.972 per share (the terms of such options having been adjusted in accordance with the terms of the Dai-ichi option agreement to take account of the effect of the share consolidation). The cash consideration of the options was £19.8 million ($25.7 million). The options can be exercised by Dai-ichi for the period from the Closing Date of the Merger until October 3, 2018.

 

Contingent Consideration

 

Acquisitions prior to the Merger included contingent consideration. Refer to Note 5 — Fair Value Measurements for a detailed discussion of the terms of the contingent consideration.

 

10



 

Note 3 — Consolidation

 

Variable Interest Entities

 

Consolidated Variable Interest Entities

 

JHG’s consolidated variable interest entities (“VIEs”) as of June 30, 2017, include certain consolidated seeded investment products in which the Group has an investment and acts as the investment manager. The assets of these VIEs are not available to JHG or the creditors of JHG. JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VIEs to use in its operating activities or otherwise. In addition, the investors in these VIEs have no recourse to the credit of the Group.

 

Consolidated VIE assets and liabilities, presented after intercompany eliminations, at June 30, 2017, and December 31, 2016, are as follows (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

Investment securities

 

$

384.4

 

$

313.7

 

Cash and cash equivalents

 

43.7

 

44.2

 

Other current assets

 

12.9

 

8.1

 

Accounts payable and accrued liabilities

 

(23.9

)

(26.2

)

Total

 

417.1

 

339.8

 

Redeemable noncontrolling interests in consolidated VIEs

 

(150.8

)

(158.0

)

Nonredeemable noncontrolling interests in consolidated VIEs

 

(27.9

)

(44.8

)

JHG’s net interest in consolidated VIEs

 

$

238.4

 

$

137.0

 

 

Unconsolidated Variable Interest Entities

 

At June 30, 2017, and December 31, 2016, JHG’s carrying values of investment securities included on the Condensed Consolidated Balance Sheets pertaining to unconsolidated VIEs was $1.1 million and nil, respectively. JHG’s total exposure to unconsolidated VIEs represents the value of its economic ownership interest in the investment securities.

 

Voting Rights Entities

 

Consolidated Voting Rights Entities

 

The following table presents the balances related to consolidated voting rights entities (“VREs”) that were recorded on JHG’s Condensed Consolidated Balance Sheets, including JHG’s net interest in these products (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

Investment securities

 

$

12.7

 

$

5.1

 

Redeemable noncontrolling interests in consolidated VREs

 

(1.4

)

 

JHG’s net interest in consolidated VREs

 

$

11.3

 

$

5.1

 

 

JHG’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 are reflected in investment gains (losses), net on the Group’s Condensed Consolidated Statements of Comprehensive Income. Valuation changes are partially offset in net loss attributable to noncontrolling interests for the portion not attributable to JHG. Refer to Note 4 — Investment Securities.

 

11



 

JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VREs to use in its operating activities or for any other purpose.

 

Unconsolidated Voting Rights Entities

 

At June 30, 2017, and December 31, 2016, JHG’s carrying value of investment securities included on the Condensed Consolidated Balance Sheets pertaining to unconsolidated VREs was $52.0 million and $4.9 million, respectively. JHG’s total exposure to unconsolidated VREs represents the value of its economic ownership interest in the investment securities.

 

Note 4 — Investment Securities

 

JHG’s investment securities as of June 30, 2017, and December 31, 2016, are summarized as follows (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

Trading securities:

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

Consolidated VIEs

 

$

365.1

 

$

288.0

 

Consolidated VREs

 

12.7

 

5.1

 

Unconsolidated

 

43.2

 

4.5

 

Separate accounts

 

70.0

 

 

Pooled investment funds

 

26.5

 

 

Total seeded investment products

 

517.5

 

297.6

 

Investments related to deferred compensation plans

 

99.2

 

66.5

 

Other investments

 

12.6

 

3.1

 

Total trading securities

 

629.3

 

367.2

 

Available-for-sale securities:

 

 

 

 

 

Seeded investment products:

 

 

 

 

 

Consolidated VIEs

 

19.3

 

25.7

 

Unconsolidated

 

9.9

 

0.4

 

Total available-for-sale securities

 

29.2

 

26.1

 

Total investment securities

 

$

658.5

 

$

393.3

 

 

Trading Securities

 

Net unrealized gains (losses) on trading securities held as of June 30, 2017 and 2016, are summarized as follows (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Trading securities held at period end

 

$

(7.0

)

$

3.3

 

$

(4.5

)

$

10.2

 

 

12



 

Available-for-Sale Securities

 

The following is a summary of available-for-sale securities as of June 30, 2017, and December 31, 2016 (in millions):

 

 

 

 

 

Gross unrealized

 

Foreign

 

 

 

 

 

 

 

investment

 

currency

 

 

 

 

 

Cost

 

Gains

 

Losses

 

translation

 

Fair value

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

24.7

 

$

3.0

 

$

 

$

1.5

 

$

29.2

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

15.1

 

$

3.4

 

$

 

$

7.6

 

$

26.1

 

 

Derivative Instruments

 

JHG maintains an economic hedge program that uses derivative instruments to mitigate against market volatility of certain seeded investments by using index and commodity futures (“futures”), index swaps, total return swaps (“TRSs”) and credit default swaps. Certain foreign currency exposures associated with the Group’s seeded investment products are also hedged by using foreign currency forward contracts.

 

JHG was party to the following derivative instruments as of June 30, 2017, and December 31, 2016 (in millions):

 

 

 

Notional value

 

 

 

June 30, 2017

 

December 31, 2016

 

Futures

 

$

214.7

 

$

14.7

 

Credit default swaps

 

113.5

 

 

Index swaps

 

67.0

 

34.2

 

Total return swaps

 

68.1

 

59.5

 

Foreign currency forward contracts

 

82.3

 

170.1

 

 

The derivative instruments are not designated as hedges for accounting purposes, with the exception of certain foreign currency forward contracts used for net investment hedging. Changes in fair value of the futures, index swaps, TRSs and credit default swaps are recognized in investment gains (losses), net on JHG’s Condensed Consolidated Statements of Comprehensive Income. Changes in the fair value of the foreign currency forward contracts designated as hedges for accounting purposes are recognized in other comprehensive income, net of tax on JHG’s Condensed Consolidated Statements of Comprehensive Income.

 

The value of the individual derivative contracts are recognized on a gross basis and included in other current assets or accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet. The Group has entered into netting arrangements with certain counterparties. The impacts of any potential netting are shown below.

 

13



 

The following tables illustrate the effect of offsetting derivative instruments on JHG’s Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016 (in millions):

 

 

 

June 30, 2017

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral pledged

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Futures

 

$

5.9

 

$

(0.5

)

$

 

$

5.4

 

Total assets

 

$

5.9

 

$

(0.5

)

$

 

$

5.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

(0.5

)

$

0.5

 

$

 

$

 

Index swaps

 

(1.1

)

 

1.1

 

 

Credit default swaps

 

(2.3

)

 

1.1

 

(1.2

)

Foreign currency forward contracts

 

(1.8

)

 

1.0

 

(0.8

)

Total liabilities

 

$

(5.7

)

$

0.5

 

$

3.2

 

$

(2.0

)

 

 

 

December 31, 2016

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral pledged

 

Net amounts

 

Liabilities:

 

 

 

 

 

 

 

 

 

Total return swaps

 

$

(1.1

)

$

 

$

1.1

 

$

 

Index swaps

 

(0.8

)

 

0.5

 

(0.3

)

Foreign currency forward contracts

 

(3.2

)

 

 

(3.2

)

Total liabilities

 

$

(5.1

)

$

 

$

1.6

 

$

(3.5

)

 

The Group recognized the following net foreign currency translation gains on hedged seed investments denominated in currencies other than the Group’s functional currency and net losses associated with foreign currency forward contracts under net investment hedge accounting for the three and six months ended June 30, 2017 and 2016 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Foreign currency translation

 

$

0.1

 

$

8.4

 

$

0.7

 

$

14.4

 

Foreign currency forward contracts

 

(0.1

)

(8.4

)

(0.7

)

(14.4

)

Total

 

$

 

$

 

$

 

$

 

 

The foreign currency translation gains and losses on foreign currency forward contracts associated with the net investment hedge are recognized in other comprehensive income, net on JHG’s Condensed Consolidated Statements of Comprehensive Income.

 

Derivative Instruments in Consolidated Seeded Investment Products

 

Certain of the Group’s consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within other current assets or accounts payable and accrued liabilities on JHG’s Condensed Consolidated Balance Sheets. Gains and losses on these derivative instruments are classified within investment gains (losses), net on JHG’s Condensed Consolidated Statements of Comprehensive Income.

 

14



 

JHG’s consolidated seeded investment products were party to the following derivative instruments as of June 30, 2017, and December 31, 2016 (in millions):

 

 

 

Notional value

 

 

 

June 30, 2017

 

December 31, 2016

 

Futures

 

$

164.6

 

$

22.3

 

Contracts for differences

 

 

9.2

 

Credit default swaps

 

7.4

 

1.8

 

Interest rate swaps

 

38.1

 

8.3

 

Options

 

0.2

 

184.8

 

Swaptions

 

2.4

 

1.7

 

Foreign currency forward contracts

 

89.1

 

120.0

 

 

The following table illustrates the effect of offsetting derivative instruments within consolidated seeded investment products on JHG’s Condensed Consolidated Balance Sheets as of June 30, 2017 (in millions):

 

 

 

June 30, 2017

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral pledged

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.7

 

$

(0.6

)

$

 

$

0.1

 

Contracts for differences

 

0.4

 

(0.1

)

 

0.3

 

Interest rate swaps

 

0.2

 

(0.2

)

 

 

Credit default swaps

 

0.1

 

 

 

0.1

 

Options

 

1.8

 

(0.6

)

 

1.2

 

Foreign currency forward contracts

 

0.1

 

(0.1

)

 

 

Total assets

 

$

3.3

 

$

(1.6

)

$

 

$

1.7

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

(1.0

)

$

0.6

 

$

 

$

(0.4

)

Contracts for differences

 

(0.7

)

0.1

 

 

(0.6

)

Interest rate swaps

 

(0.2

)

0.2

 

 

 

Credit default swaps

 

(0.4

)

 

 

(0.4

)

Options

 

(0.6

)

0.6

 

 

 

Foreign currency forward contracts

 

(0.3

)

0.1

 

0.1

 

(0.1

)

Total liabilities

 

$

(3.2

)

$

1.6

 

$

0.1

 

$

(1.5

)

 

15



 

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

 

 

 

December 31, 2016

 

 

 

 

 

Gross amounts

 

 

 

 

 

 

 

 

 

offset by

 

Gross amounts

 

 

 

 

 

 

 

derivative

 

offset by cash

 

 

 

 

 

Gross amounts

 

instruments

 

collateral

 

Net amounts

 

Assets:

 

 

 

 

 

 

 

 

 

Futures

 

$

0.6

 

$

(0.1

)

$

 

$

0.5

 

Contracts for differences

 

0.3

 

(0.1

)

 

0.2

 

Interest rate swaps

 

0.1

 

(0.1

)

 

 

Options

 

3.1

 

(1.2

)

 

1.9

 

Foreign currency forward contracts

 

0.4

 

 

(0.4

)

 

Total assets

 

$

4.5

 

$

(1.5

)

$

(0.4

)

$

2.6

 

Liabilities:

 

 

 

 

 

 

 

 

 

Futures

 

$

(0.1

)

$

0.1

 

$

 

$

 

Contracts for differences

 

(0.1

)

0.1

 

 

 

Interest rate swaps

 

(0.1

)

0.1

 

 

 

Credit default swaps

 

(0.1

)

 

 

(0.1

)

Options

 

(1.2

)

1.2

 

 

 

Foreign currency forward contracts

 

(2.4

)

 

0.3

 

(2.1

)

Total liabilities

 

$

(4.0

)

$

1.5

 

$

0.3

 

$

(2.2

)

 

As of June 30, 2017, certain consolidated seeded investment products sold credit protection through the use of credit default swap contracts. This type of arrangement did not exist as of December 31, 2016. The contracts provide alternative credit risk exposure to individual companies and 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 June 30, 2017, the notional values of the agreements totaled $6.4 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 June 30, 2017, the fair value of the credit default swap contracts selling protection was $0.4 million.

 

Investment Gains (Losses), Net

 

Investment gains (losses), net on JHG’s Condensed Consolidated Statements of Comprehensive Income included the following for the three and six months ended June 30, 2017 and 2016 (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Seeded investment products

 

$

(2.1

)

$

(3.8

)

$

(0.9

)

$

4.3

 

Fair value movements on derivatives

 

1.8

 

(5.2

)

(0.3

)

(7.3

)

Gain on sale of Volantis

 

10.2

 

 

10.2

 

 

Other

 

(0.1

)

0.1

 

(0.1

)

0.9

 

Investment gains (losses), net

 

$

9.8

 

$

(8.9

)

$

8.9

 

$

(2.1

)

 

16



 

On April 1, 2017, the Group completed the sale of its alternative UK small cap team (“Volantis”). Consideration for the sale was a 10% share of the management and performance fees generated by Volantis for a period of three years.  A $10.2 million gain was recognized in investment gains (losses), net on the Condensed Consolidated Statements of Comprehensive Income, representing the net present value of estimated future cash flows.

 

Cash Flows

 

Cash flows related to investment securities for the six months ended June 30, 2017 and 2016, are summarized as follows (in millions):

 

 

 

Six months ended June 30,

 

 

 

2017

 

2016

 

 

 

Purchases

 

Sales,

 

Purchases

 

Sales,

 

 

 

and

 

settlements and

 

and

 

settlements and

 

 

 

settlements

 

maturities

 

settlements

 

maturities

 

Trading securities

 

$

(45.6

)

$

198.4

 

$

(49.5

)

$

 

Available-for-sale securities

 

(0.1

)

10.1

 

(0.7

)

5.3

 

Total cash flows

 

$

(45.7

)

$

208.5

 

$

(50.2

)

$

5.3

 

 

Note 5 — 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 June 30, 2017 (in millions):

 

 

 

Fair value measurements using:

 

 

 

 

 

Quoted prices in

 

 

 

 

 

 

 

 

 

active markets for

 

 

 

 

 

 

 

 

 

identical assets

 

Significant other

 

Significant

 

 

 

 

 

and liabilities

 

observable inputs

 

unobservable inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

391.1

 

$

 

$

 

$

391.1

 

Investment securities:

 

 

 

 

 

 

 

 

 

Consolidated VIEs - trading

 

204.0

 

114.3

 

46.8

 

365.1

 

Other - trading

 

162.8

 

101.4

 

 

264.2

 

Consolidated VIEs - available-for-sale

 

19.3

 

 

 

19.3

 

Other - available-for-sale

 

9.9

 

 

 

9.9

 

Total investment securities

 

396.0

 

215.7

 

46.8

 

658.5

 

Seed hedge derivatives

 

5.9

 

 

 

5.9

 

Derivatives in consolidated seeded investment products

 

2.7

 

2.1

 

 

4.8

 

Contingent consideration

 

 

 

10.6

 

10.6

 

Total assets

 

$

795.7

 

$

217.8

 

$

57.4

 

$

1,070.9

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives in consolidated seeded investment products

 

$

2.2

 

$

2.5

 

$

 

$

4.7

 

Financial liabilities in consolidated seeded investment products

 

11.7

 

 

 

11.7

 

Seed hedge derivatives

 

5.7

 

 

 

5.7

 

Current portion of long-term debt(1)

 

 

171.4

 

 

171.4

 

Long-term debt(1)

 

 

321.1

 

 

321.1

 

Deferred bonuses

 

 

 

50.3

 

50.3

 

Contingent consideration

 

 

 

76.0

 

76.0

 

Dai-ichi option

 

 

 

26.9

 

26.9

 

Total liabilities

 

$

19.6

 

$

495.0

 

$

153.2

 

$

667.8

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests:

 

 

 

 

 

 

 

 

 

Consolidated seeded investment products

 

$

 

$

 

$

152.2

 

$

152.2

 

INTECH

 

 

 

19.8

 

19.8

 

Total redeemable noncontrolling interests

 

$

 

$

 

$

172.0

 

$

172.0

 

 


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

 

17



 

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, 2016 (in millions):

 

 

 

Fair value measurements using:

 

 

 

 

 

Quoted prices in

 

 

 

 

 

 

 

 

 

active markets for

 

 

 

 

 

 

 

 

 

identical assets

 

Significant other

 

Significant

 

 

 

 

 

and liabilities

 

observable inputs

 

unobservable inputs

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

Consolidated VIEs - trading

 

$

128.2

 

$

117.1

 

$

42.7

 

$

288.0

 

Other - trading

 

66.1

 

13.1

 

 

79.2

 

Consolidated VIEs - available-for-sale

 

20.3

 

5.4

 

 

25.7

 

Other - available-for-sale

 

0.4

 

 

 

0.4

 

Total investment securities

 

215.0

 

135.6

 

42.7

 

393.3

 

Derivatives in consolidated seeded investment products

 

3.4

 

0.6

 

 

4.0