Attached files
file | filename |
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EX-32.2 - EX-32.2 - JANUS CAPITAL GROUP INC | a09-31229_1ex32d2.htm |
EX-10.1 - EX-10.1 - JANUS CAPITAL GROUP INC | a09-31229_1ex10d1.htm |
EX-31.1 - EX-31.1 - JANUS CAPITAL GROUP INC | a09-31229_1ex31d1.htm |
EX-10.2 - EX-10.2 - JANUS CAPITAL GROUP INC | a09-31229_1ex10d2.htm |
EX-99.1 - EX-99.1 - JANUS CAPITAL GROUP INC | a09-31229_1ex99d1.htm |
EX-31.2 - EX-31.2 - JANUS CAPITAL GROUP INC | a09-31229_1ex31d2.htm |
EX-32.1 - EX-32.1 - JANUS CAPITAL GROUP INC | a09-31229_1ex32d1.htm |
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 |
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For the quarterly period ended September 30, 2009 |
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OR |
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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 |
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43-1804048 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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151 Detroit Street, Denver, Colorado |
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80206 |
(Address of principal executive offices) |
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(Zip Code) |
(303) 333-3863
(Registrants telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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 |
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Accelerated Filer o |
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Non-Accelerated Filer o |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 19, 2009, there were 182,019,449 shares of the Companys common stock, $.01 par value per share, issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JANUS CAPITAL GROUP INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions)
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September 30, |
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December 31, |
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2009 |
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2008 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
236.4 |
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$ |
282.6 |
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Marketable securities |
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100.5 |
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125.3 |
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Accounts receivable |
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113.4 |
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101.1 |
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Income taxes receivable |
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22.9 |
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16.4 |
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Other current assets |
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72.3 |
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58.5 |
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Total current assets |
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545.5 |
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583.9 |
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Other assets: |
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Other assets |
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77.4 |
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60.2 |
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Property and equipment, net |
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50.5 |
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51.1 |
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Intangibles, net |
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1,202.4 |
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1,321.2 |
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Goodwill |
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574.6 |
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1,320.3 |
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||
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Total assets |
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$ |
2,450.4 |
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$ |
3,336.7 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
4.4 |
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$ |
0.5 |
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Accrued compensation and benefits |
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67.4 |
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90.0 |
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Current portion of long-term debt |
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22.0 |
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Other accrued liabilities |
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82.6 |
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44.1 |
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Total current liabilities |
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154.4 |
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156.6 |
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Other liabilities: |
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Long-term debt |
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790.2 |
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1,106.0 |
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Deferred income taxes |
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387.7 |
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388.1 |
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Other liabilities |
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52.3 |
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62.4 |
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Total liabilities |
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1,384.6 |
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1,713.1 |
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Commitments and contingencies |
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Redeemable noncontrolling interests |
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87.5 |
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106.8 |
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STOCKHOLDERS EQUITY |
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Preferred stock |
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Common stock |
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1.8 |
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1.6 |
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Retained earnings |
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967.0 |
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1,510.6 |
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Accumulated other comprehensive loss (income) |
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0.7 |
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(5.3 |
) |
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Total JCG stockholders equity |
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969.5 |
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1,506.9 |
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Noncontrolling interests |
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8.8 |
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9.9 |
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Total stockholders equity |
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978.3 |
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1,516.8 |
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Total liabilities and stockholders equity |
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$ |
2,450.4 |
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$ |
3,336.7 |
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The accompanying notes are an integral part of these consolidated financial statements.
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Millions, Except Per Share Data)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Investment management fees |
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$ |
185.4 |
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$ |
218.9 |
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$ |
482.0 |
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$ |
684.2 |
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Performance fees |
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7.4 |
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8.8 |
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17.3 |
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26.0 |
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Shareowner servicing fees and other |
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34.8 |
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47.7 |
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98.8 |
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150.6 |
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Total |
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227.6 |
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275.4 |
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598.1 |
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860.8 |
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Operating Expenses: |
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Employee compensation and benefits |
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85.7 |
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81.2 |
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214.1 |
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264.6 |
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Long-term incentive compensation |
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19.5 |
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10.7 |
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46.9 |
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35.3 |
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Marketing and advertising |
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6.5 |
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8.0 |
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20.3 |
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24.5 |
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Distribution |
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29.2 |
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36.5 |
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74.7 |
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111.0 |
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Depreciation and amortization |
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8.7 |
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10.1 |
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25.6 |
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30.7 |
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General, administrative and occupancy |
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48.4 |
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35.6 |
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113.0 |
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106.8 |
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Goodwill and intangible asset impairments |
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856.7 |
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Total |
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198.0 |
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182.1 |
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1,351.3 |
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572.9 |
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Operating income (loss) |
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29.6 |
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93.3 |
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(753.2 |
) |
287.9 |
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Interest expense |
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(18.6 |
) |
(18.9 |
) |
(58.2 |
) |
(56.6 |
) |
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Investment gains (losses), net |
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0.9 |
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(32.3 |
) |
(6.0 |
) |
(38.8 |
) |
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Other income, net |
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0.1 |
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1.4 |
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0.5 |
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6.6 |
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Gain on early extinguishment of debt |
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5.8 |
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5.8 |
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Income (loss) before taxes and equity earnings |
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17.8 |
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43.5 |
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(811.1 |
) |
199.1 |
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Income tax provision |
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(6.0 |
) |
(17.2 |
) |
26.5 |
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(65.5 |
) |
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Equity in earnings of unconsolidated affiliate |
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2.5 |
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6.8 |
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Income (loss) from continuing operations |
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11.8 |
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28.8 |
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(784.6 |
) |
140.4 |
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Loss from discontinued operations |
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(0.6 |
) |
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(1.5 |
) |
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Net income (loss) |
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11.8 |
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28.2 |
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(784.6 |
) |
138.9 |
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Noncontrolling interest |
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(3.6 |
) |
(2.8 |
) |
(9.5 |
) |
(9.8 |
) |
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Net income (loss) attributable to JCG |
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$ |
8.2 |
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$ |
25.4 |
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$ |
(794.1 |
) |
$ |
129.1 |
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Basic earnings (loss) per share attributable to JCG common shareholders: |
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Income (loss) from continuing operations |
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$ |
0.05 |
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$ |
0.17 |
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$ |
(4.89 |
) |
$ |
0.82 |
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Loss from discontinued operations |
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|
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(0.01 |
) |
||||
Net income (loss) |
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$ |
0.05 |
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$ |
0.17 |
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$ |
(4.89 |
) |
$ |
0.81 |
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Diluted earnings (loss) per share attributable to JCG common shareholders: |
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||||
Income (loss) from continuing operations |
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$ |
0.05 |
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$ |
0.16 |
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$ |
(4.89 |
) |
$ |
0.80 |
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Loss from discontinued operations |
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|
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(0.01 |
) |
||||
Net income (loss) |
|
$ |
0.05 |
|
$ |
0.16 |
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$ |
(4.89 |
) |
$ |
0.79 |
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Amounts attributable to JCG common shareholders: |
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|
|
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|
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Income (loss) from continuing operations |
|
$ |
8.2 |
|
$ |
26.0 |
|
$ |
(794.1 |
) |
$ |
130.6 |
|
Loss from discontinued operations |
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|
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(0.6 |
) |
|
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(1.5 |
) |
||||
Net income (loss) |
|
$ |
8.2 |
|
$ |
25.4 |
|
$ |
(794.1 |
) |
$ |
129.1 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
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Nine months ended |
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September 30, |
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2009 |
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2008 |
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CASH FLOWS PROVIDED BY (USED FOR): |
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Continuing Operations |
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Operating Activities: |
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Net income (loss) |
|
$ |
(784.6 |
) |
$ |
140.4 |
|
Adjustments to net income: |
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Depreciation and amortization |
|
25.6 |
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30.7 |
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Deferred income taxes |
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(13.7 |
) |
(8.9 |
) |
||
Amortization of stock-based compensation |
|
30.3 |
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25.3 |
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Investment losses, net |
|
6.0 |
|
38.8 |
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Goodwill and intangible asset impairments |
|
856.7 |
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|
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Gain on early extinguishment of debt |
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(5.8 |
) |
|
|
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Payment of deferred commissions, net |
|
(5.7 |
) |
(2.2 |
) |
||
Other, net |
|
5.4 |
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4.4 |
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Changes in working capital items: |
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Accounts receivable |
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(12.1 |
) |
28.4 |
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Other current assets |
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(14.8 |
) |
(26.6 |
) |
||
Accounts payable and accrued compensation payable |
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(18.7 |
) |
(46.3 |
) |
||
Other liabilities |
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12.3 |
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(15.9 |
) |
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Net operating |
|
80.9 |
|
168.1 |
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Investing Activities: |
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Purchase of property and equipment |
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(8.1 |
) |
(14.1 |
) |
||
Acquisitions |
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(1.3 |
) |
(67.7 |
) |
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Purchase of marketable securities |
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(49.2 |
) |
(63.7 |
) |
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Proceeds from sales and maturities of marketable securities |
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55.3 |
|
65.8 |
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Distribution of cash from discontinued operations |
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13.5 |
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Net investing |
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(3.3 |
) |
(66.2 |
) |
||
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Financing Activities: |
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Proceeds from issuance of long-term debt |
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170.0 |
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Debt issuance costs |
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(8.5 |
) |
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Repayment of long-term debt |
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(456.0 |
) |
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Issuance of common stock |
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218.1 |
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Purchase of noncontrolling interests |
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(27.5 |
) |
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Proceeds from stock plans |
|
0.9 |
|
21.5 |
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Excess tax benefit from equity-based compensation |
|
0.4 |
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4.4 |
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Repurchase of common stock |
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(289.8 |
) |
||
Distributions to noncontrolling interest |
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(14.2 |
) |
(14.6 |
) |
||
Principal payments under capital lease obligations |
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(0.5 |
) |
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Dividends paid to shareholders |
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(6.5 |
) |
(6.5 |
) |
||
Net financing |
|
(123.8 |
) |
(285.0 |
) |
||
|
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Cash and Cash Equivalents: |
|
|
|
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Net decrease |
|
(46.2 |
) |
(183.1 |
) |
||
At beginning of period |
|
282.6 |
|
480.7 |
|
||
At end of period |
|
$ |
236.4 |
|
$ |
297.6 |
|
|
|
|
|
|
|
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Discontinued Operations: |
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|
|
|
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Operating activities |
|
$ |
(0.1 |
) |
$ |
(5.0 |
) |
Investing activities |
|
|
|
2.8 |
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||
|
|
|
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Cash and Cash Equivalents: |
|
|
|
|
|
||
Net decrease |
|
(0.1 |
) |
(2.2 |
) |
||
At beginning of period |
|
0.4 |
|
4.3 |
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||
At end of period |
|
$ |
0.3 |
|
$ |
2.1 |
|
|
|
|
|
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Supplemental Cash Flow Information: |
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|
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Cash paid for interest |
|
$ |
47.5 |
|
$ |
44.0 |
|
Cash paid (received) for income taxes |
|
$ |
(0.6 |
) |
$ |
94.1 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
(Amounts in Millions, Except Per Share Data)
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Accumulated |
|
|
|
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|
|||||
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Other |
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Nonredeemable |
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Total |
|
|||||
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Common |
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Retained |
|
Comprehensive |
|
Noncontrolling |
|
Stockholders |
|
|||||
|
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Shares |
|
Stock |
|
Earnings |
|
Income |
|
Interest |
|
Equity |
|
|||||
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|
|||||
Balance at December 31, 2007 |
|
166.3 |
|
$ |
1.7 |
|
$ |
1,717.0 |
|
$ |
4.8 |
|
$ |
|
|
$ |
1,723.5 |
|
Cumulative-effect adjustment for the adoption of a new accounting principle |
|
|
|
|
|
(236.7 |
) |
|
|
7.1 |
|
(229.6 |
) |
|||||
Balance at January 1, 2008 |
|
166.3 |
|
1.7 |
|
1,480.3 |
|
4.8 |
|
7.1 |
|
1,493.9 |
|
|||||
Net income attributable to JCG |
|
|
|
|
|
136.9 |
|
|
|
2.4 |
|
139.3 |
|
|||||
Net unrealized loss on marketable securities |
|
|
|
|
|
|
|
(3.8 |
) |
|
|
(3.8 |
) |
|||||
Amortization of net loss on cash flow hedge |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
|||||
Reclassification for net gains included in net income |
|
|
|
|
|
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
(5.9 |
) |
|
|
(5.9 |
) |
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
129.2 |
|
|||||
Amortization of stock-based compensation |
|
|
|
|
|
29.3 |
|
|
|
2.1 |
|
31.4 |
|
|||||
Issuance and forfeitures of restricted stock awards |
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Tax impact of stock-based compensation |
|
|
|
|
|
3.4 |
|
|
|
|
|
3.4 |
|
|||||
Stock option exercises |
|
1.1 |
|
|
|
21.6 |
|
|
|
|
|
21.6 |
|
|||||
Repurchase of common stock |
|
(11.1 |
) |
(0.1 |
) |
(291.6 |
) |
|
|
|
|
(291.7 |
) |
|||||
Noncontrolling interest in consolidated investment products |
|
|
|
|
|
|
|
|
|
1.1 |
|
1.1 |
|
|||||
Purchase of noncontrolling interests |
|
|
|
|
|
|
|
|
|
(0.3 |
) |
(0.3 |
) |
|||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
(2.5 |
) |
(2.5 |
) |
|||||
Change in value of redeemable noncontrolling interest |
|
|
|
|
|
137.2 |
|
|
|
|
|
137.2 |
|
|||||
Common stock dividends ($0.04 per share) |
|
|
|
|
|
(6.5 |
) |
|
|
|
|
(6.5 |
) |
|||||
Balance at December 31, 2008 |
|
157.9 |
|
1.6 |
|
1,510.6 |
|
(5.3 |
) |
9.9 |
|
1,516.8 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss attributable to JCG |
|
|
|
|
|
(794.1 |
) |
|
|
2.1 |
|
(792.0 |
) |
|||||
Net unrealized gain on marketable securities |
|
|
|
|
|
|
|
4.1 |
|
|
|
4.1 |
|
|||||
Amortization of net loss on cash flow hedge |
|
|
|
|
|
|
|
1.1 |
|
|
|
1.1 |
|
|||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
0.8 |
|
|
|
0.8 |
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(786.0 |
) |
|||||
Common stock issuance |
|
20.9 |
|
0.2 |
|
217.9 |
|
|
|
|
|
218.1 |
|
|||||
Convertible debt issuance |
|
|
|
|
|
26.4 |
|
|
|
|
|
26.4 |
|
|||||
Amortization of stock-based compensation |
|
|
|
|
|
27.2 |
|
|
|
3.3 |
|
30.5 |
|
|||||
Issuance and forfeitures of restricted stock awards |
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Tax impact of stock-based compensation |
|
|
|
|
|
(4.5 |
) |
|
|
|
|
(4.5 |
) |
|||||
Stock option exercises |
|
|
|
|
|
0.9 |
|
|
|
|
|
0.9 |
|
|||||
Noncontrolling interest in consolidated investment products |
|
|
|
|
|
|
|
|
|
(1.2 |
) |
(1.2 |
) |
|||||
Purchase of noncontrolling interests |
|
|
|
|
|
|
|
|
|
(2.3 |
) |
(2.3 |
) |
|||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
(3.0 |
) |
(3.0 |
) |
|||||
Change in value of redeemable noncontrolling interest |
|
|
|
|
|
(10.9 |
) |
|
|
|
|
(10.9 |
) |
|||||
Common stock dividends ($0.04 per share) |
|
|
|
|
|
(6.5 |
) |
|
|
|
|
(6.5 |
) |
|||||
Balance at September 30, 2009 |
|
182.0 |
|
$ |
1.8 |
|
$ |
967.0 |
|
$ |
0.7 |
|
$ |
8.8 |
|
$ |
978.3 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
JANUS CAPITAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of Presentation
In the opinion of Janus Capital Group Inc. (collectively, JCG or the Company) management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (GAAP). All such adjustments are of a normal recurring nature. Such unaudited interim 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, October 22, 2009. These consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2008, as updated for the retrospective application of new accounting guidance related to noncontrolling interests and redeemable noncontrolling interests. The updated 2008 Form 10-K items were filed in a Current Report on Form 8-K on July 14, 2009.
The accompanying consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the consolidated financial statements that are presented in the Companys Annual Report on Form 10-K for the year ended December 31, 2008, as updated for the retrospective application of new guidance related to noncontrolling and redeemable noncontrolling interests.
Note 2 Recent Accounting Guidance
In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to the consolidation of variable interest entities which amends guidance for identifying the primary beneficiary in variable interest entities, requires ongoing assessments for purposes of identifying the primary beneficiary and eliminates the scope exception for qualifying special-purpose entities. This new guidance will be effective for JCGs first quarter 2010. JCG is assessing the impact on its consolidated financial statements.
In June 2009, the FASB issued new guidance which establishes the Accounting Standards Codification (the Codification) and SEC interpretive releases as the sources for authoritative GAAP. The Codification will supersede all existing non-SEC accounting and reporting standards under GAAP effective for JCGs third quarter 2009. The Codification is not intended to change existing GAAP.
Note 3 Acquisition
Each fiscal year through 2012, each of the two founding members of INTECH Investment Management LLC (INTECH) has the option to require JCG to purchase from him an ownership interest of up to approximately 1.5% of INTECH at fair value. On April 30, 2009, the two INTECH founding members exercised their put rights and JCG increased its ownership of INTECH to approximately 92% by purchasing an additional 3% interest for $25.3 million in cash. As a result of the new guidance related to redeemable noncontrolling interests effective January 1, 2009, the additional interest in INTECH resulted in a reduction of redeemable noncontrolling interests on the Consolidated Balance Sheets in an amount equal to the purchase price. No assets will be recognized as a result of the April 2009 acquisition of an additional interest in INTECH or future acquisitions of noncontrolling interests. The pro forma results of operations have not been presented as they would not have been materially different from reported amounts.
5
Note 4 Marketable Securities
JCGs marketable securities at September 30, 2009 and December 31, 2008, are summarized as follows (in millions):
|
|
September 30, 2009 |
|
December 31, 2008 |
|
||||||||||||||||||||
|
|
|
|
Gross |
|
Gross |
|
Estimated |
|
|
|
Gross |
|
Gross |
|
Estimated |
|
||||||||
|
|
Cost |
|
Unrealized |
|
Unrealized |
|
Fair |
|
Cost |
|
Unrealized |
|
Unrealized |
|
Fair |
|
||||||||
|
|
Basis |
|
Gains |
|
Losses |
|
Value |
|
Basis |
|
Gains |
|
Losses |
|
Value |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Trading securities (carried at fair value) |
|
$ |
51.4 |
|
$ |
3.2 |
|
$ |
(6.0 |
) |
$ |
48.6 |
|
$ |
81.9 |
|
$ |
1.0 |
|
$ |
(20.5 |
) |
$ |
62.4 |
|
Available-for-sale securities (carried at fair value) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investments in advised funds |
|
9.5 |
|
2.3 |
|
(0.1 |
) |
11.7 |
|
14.7 |
|
|
|
(4.8 |
) |
9.9 |
|
||||||||
Structured investment vehicle |
|
40.2 |
|
|
|
|
|
40.2 |
|
52.2 |
|
|
|
|
|
52.2 |
|
||||||||
Derivative instruments |
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
0.8 |
|
||||||||
|
|
$ |
101.1 |
|
$ |
5.5 |
|
$ |
(6.1 |
) |
$ |
100.5 |
|
$ |
149.6 |
|
$ |
1.0 |
|
$ |
(25.3 |
) |
$ |
125.3 |
|
JCG periodically adds new investment strategies to its investment product offerings by providing the initial cash investment or seeding of these investment products. Seeded investment products are initially consolidated and the individual securities within the portfolio are accounted for as trading securities. JCG will consolidate such investment products as long as it holds a controlling interest, defined as greater than 50% ownership. Upon deconsolidation, JCG accounts for its investments as available-for-sale securities.
JCG may redeem invested seed capital for a variety of reasons, including when third-party capital invested in the relevant product is sufficient to sustain the given investment strategy. JCG recognized gains of $1.0 million from the redemption of seed capital investments for both the three and nine months ended September 30, 2009. There were no redemptions of seed capital investments for the three months ended September 30, 2008. Gains from the redemption of seed capital investments for the nine months ended September 30, 2008 totaled $1.6 million.
Investments in seed capital are classified as follows:
Trading Securities
At September 30, 2009, seed capital investments classified as trading securities totaled $48.6 million, representing $29.0 million of securities held in separately managed accounts and $19.6 million of securities held in the portfolios of advised funds consolidated by the Company. Trading securities are carried in JCGs consolidated financial statements at fair value, with changes in value recognized as gains and losses currently in earnings. JCG recognized gains of $6.5 million and $8.5 million in earnings on securities classified as trading for the three and nine months ended September 30, 2009, respectively. These gains were offset by recognized losses of $6.1 million and $8.3 million on hedged seed capital investments for the three and nine months ended September 30, 2009, respectively. Losses of $11.2 million and $19.4 million were recognized in earnings on securities classified as trading for the three and nine month periods ended September 30, 2008, respectively.
Proceeds from the sale of trading securities totaled $12.1 million and $19.0 million for the three and nine months ended September 30, 2009, respectively. Proceeds from the sale of trading securities for the three and nine months ended September 30, 2008 totaled $13.2 million and $23.2 million, respectively.
Available-for-Sale Securities
Investments in Advised Funds
At September 30, 2009, investments in advised funds totaled $11.7 million. Investments in advised funds are carried in JCGs consolidated financial statements at fair value, with changes in value recognized as gains and losses in other comprehensive income. Accumulated gains and losses are reclassified to earnings when the securities are sold. JCG periodically reviews the carrying value of investments in advised funds for impairment by evaluating the nature, duration and extent of any decline in fair value. If the decline in value is determined to be other-than-temporary, the carrying value of the security is written down to fair value through earnings. No impairment charges were recognized during the three months ended September 30, 2009. Other-than-temporary impairment charges of $5.2 million were recognized during the
6
nine months ended September 30, 2009. No impairment charges were recognized during the three and nine months ended September 30, 2008 for investments in advised funds.
Proceeds from the sale of investments in advised funds totaled $3.6 million and $4.4 million for the three and nine months ended September 30, 2009, respectively. There were no proceeds from the sale of investments in advised funds for the three months ended September 30, 2008. Proceeds from the sale of investments in advised funds totaled $6.8 million for the nine months ended September 30, 2008.
Structured Investment Vehicle (SIV)
JCGs SIV investment represents securities originally issued by Stanfield Victoria Funding LLC (Stanfield). During September 2009, Stanfield was restructured whereby security holders were given the option to participate in a new structure, receive their proportionate share of each investment position underlying Stanfield, or auction their position. JCG, along with a majority of Stanfield security holders, elected to participate in the new structure under which each participating security holders proportionate share of positions underlying Stanfield were transferred to VFNC Trust (VFNC) and their Stanfield security interests were exchanged for VFNC security interests. A manager for VFNC is expected to be hired during the fourth quarter 2009.
The VFNC securities are carried in JCGs consolidated financial statements based on JCGs estimate of fair value. JCG recognized impairment charges relating to the original Stanfield securities of $21.0 million and $18.2 million for the years ended December 31, 2008 and 2007, respectively. See Note 6 for further discussion of the fair value of the VFNC securities.
Derivative Instruments
JCG implemented an economic hedge strategy in December 2008 covering the majority of invested seed capital to mitigate a portion of the net income volatility created by the mark-to-market accounting of seed capital investments. The strategy utilizes futures contracts and call options on various market indices to minimize market losses while allowing for limited participation in market gains. These instruments are accounted for at fair value, with changes in fair value reported currently in earnings. Call options outstanding as of December 31, 2008 expired in early 2009 and no additional call options have been purchased in 2009.
Note 5 Intangible Assets and Goodwill
JCGs intangible assets and goodwill are summarized below (in millions):
|
|
December 31, |
|
Impairment |
|
|
|
September 30, |
|
||||
|
|
2008 |
|
Charges |
|
Additions |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
||||
Mutual fund advisory contracts |
|
$ |
943.1 |
|
$ |
(109.7 |
) |
$ |
|
|
$ |
833.4 |
|
Brand name and trademark |
|
270.5 |
|
|
|
|
|
270.5 |
|
||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
||||
Client relationships |
|
162.5 |
|
|
|
|
|
162.5 |
|
||||
Accumulated amortization |
|
(54.9 |
) |
|
|
(9.1 |
) |
(64.0 |
) |
||||
Net intangible assets |
|
$ |
1,321.2 |
|
$ |
(109.7 |
) |
$ |
(9.1 |
) |
$ |
1,202.4 |
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill |
|
$ |
1,320.3 |
|
$ |
(747.0 |
) |
$ |
1.3 |
|
$ |
574.6 |
|
JCG conducts impairment analyses of indefinite-lived intangible assets and goodwill annually as of October 1st or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Indefinite-lived intangible assets represent mutual fund advisory contracts, brand name and trademark. In addition, amortized intangible assets are evaluated for impairment when events or circumstances indicate that the carrying value may not be recoverable. JCGs amortized intangible assets represent client relationships. The October 2008 tests of indefinite-lived intangible assets and goodwill indicated that estimated fair values exceeded their respective book values and no impairment charges were recognized.
In response to significant declines in global markets, JCGs stock price, assets under management and revenues during the fourth quarter 2008, JCG re-evaluated indefinite-lived intangible assets, amortized intangible assets and goodwill for impairment as of December 31, 2008. The results of the assessments as of December 31, 2008, indicated that the estimated fair values of indefinite-lived intangible assets, amortized intangible assets and goodwill continued to exceed book value, requiring no impairment charges.
Based on further declines in global markets, JCGs stock price, assets under management and revenues subsequent to December 31, 2008, JCG revised its operating forecast downward and again evaluated indefinite-lived intangible assets, amortized intangible assets and goodwill for impairment as of March 31, 2009. As a result of these assessments, impairment charges of $109.7 million and $747.0 million were recognized on mutual fund advisory contracts and
7
goodwill, respectively, in the first quarter 2009. The partially impaired assets were originally recognized in 2001 in connection with the contractual obligation to buy out Janus Capital Management LLCs founder.
Note 6 Fair Value Measurements
Measurements of fair value are classified within a hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels:
· Level 1 Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.
· Level 2 Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured.
· Level 3 Valuation inputs are unobservable and significant to the fair value measurement.
The following table presents assets and liabilities carried at fair value as of September 30, 2009 (in millions):
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Trading securities |
|
$ |
37.7 |
|
$ |
10.9 |
|
$ |
|
|
$ |
48.6 |
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
||||
Investments in advised funds |
|
7.5 |
|
4.2 |
|
|
|
11.7 |
|
||||
Structured investment vehicle securities |
|
|
|
|
|
40.2 |
|
40.2 |
|
||||
Total marketable securities |
|
45.2 |
|
15.1 |
|
40.2 |
|
100.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
|
||||
Mutual fund unit award hedge asset |
|
60.5 |
|
|
|
|
|
60.5 |
|
||||
Deferred compensation hedge asset |
|
19.7 |
|
|
|
|
|
19.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total assets carried at fair value |
|
$ |
125.4 |
|
$ |
15.1 |
|
$ |
40.2 |
|
$ |
180.7 |
|
|
|
|
|
|
|
|
|
|
|
||||
Redeemable noncontrolling interests |
|
|
|
|
|
87.5 |
|
87.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities carried at fair value |
|
$ |
|
|
$ |
|
|
$ |
87.5 |
|
$ |
87.5 |
|
JCGs Level 1 and Level 2 fair value measurements consist of exchange-traded equity and debt securities underlying separate accounts and consolidated mutual funds, and shares of unconsolidated mutual funds.
JCGs Level 3 recurring fair value measurements include SIV securities and redeemable noncontrolling interests. Nonrecurring Level 3 fair value measurements include goodwill and mutual fund advisory contracts valued at $574.6 million and $833.4 million, respectively, as of March 31, 2009, the most recent valuation date. Because of the significance of the unobservable inputs in the fair value measurements of these assets and liabilities, such measurements have been classified as Level 3.
The SIV securities were issued by a structured investment vehicle that purchased high grade medium- and long-term fixed-income instruments financed by issuing low-cost, short-term senior debt instruments such as asset-backed commercial paper and asset-backed medium-term notes. To measure fair value, JCG undertook a detailed analysis of the assets underlying the SIV securities and benchmarked those assets against instruments of a similar type with comparable yields, maturities and credit ratings for which quoted market prices are readily available. Discounts have been applied to the quoted market prices of the benchmark instruments to adjust for varying yields, credit ratings or other distinguishing characteristics. The valuation methodology for the SIV securities has been consistently applied since their acquisition in 2007 and subsequent restructuring in 2009.
JCG measured the fair value of the SIV securities as of September 30, 2009, and determined that the valuation was consistent with the previously reported amount of $43.6 million as of June 30, 2009, less subsequent distributions. JCG received distributions totaling $3.4 million in the third quarter 2009, which reduced the carrying value of the SIV securities to $40.2 million.
8
Redeemable noncontrolling interests in INTECH are measured at fair value using a discounted cash flow methodology. Significant inputs to the discounted cash flow analysis include forecasted operating results, discount rate and terminal multiple of cash flows. Redeemable noncontrolling interests in Perkins are measured by a contractual formula intended to yield an amount representative of fair value. See Note 9 for further discussion of redeemable noncontrolling interests.
The changes in carrying value of JCGs recurring Level 3 fair value measurements are as follows (in millions):
|
|
|
|
Redeemable |
|
||
|
|
Stanfield |
|
noncontrolling |
|
||
|
|
securities |
|
interests |
|
||
Carrying value at December 31, 2008 |
|
$ |
52.2 |
|
$ |
106.8 |
|
Distributions |
|
(12.0 |
) |
(11.2 |
) |
||
Current earnings |
|
|
|
6.3 |
|
||
Purchase of noncontrolling interest |
|
|
|
(25.3 |
) |
||
Change in redemption value |
|
|
|
10.9 |
|
||
|
|
|
|
|
|
||
Carrying value at September 30, 2009 |
|
$ |
40.2 |
|
$ |
87.5 |
|
JCG measured the fair value of intangible assets and goodwill using a discounted cash flow methodology in connection with impairment analyses performed as of March 31, 2009. Significant inputs to the discounted cash flow analysis include JCGs forecasted operating results, discount rate and terminal multiple of cash flows. See Note 5 for further discussion of the impairment analyses and the changes in carrying value of goodwill and intangible assets.
Note 7 Debt
Debt at September 30, 2009 and December 31, 2008, consisted of the following (in millions):
|
|
September 30, 2009 |
|
December 31, 2008 |
|
||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||
7.750% Senior Notes due 2009 |
|
$ |
|
|
$ |
|
|
$ |
22.0 |
|
$ |
21.8 |
|
5.875% Senior Notes due 2011 |
|
92.2 |
|
90.7 |
|
275.0 |
|
234.3 |
|
||||
6.250% Senior Notes due 2012 |
|
120.8 |
|
118.4 |
|
299.8 |
|
240.5 |
|
||||
6.119% Senior Notes due 2014 |
|
82.2 |
|
78.9 |
|
82.2 |
|
63.9 |
|
||||
3.250% Convertible Senior Notes due 2014 |
|
127.2 |
|
218.1 |
|
|
|
|
|
||||
6.700% Senior Notes due 2017 |
|
367.8 |
|
351.1 |
|
449.0 |
|
346.9 |
|
||||
Total |
|
790.2 |
|
857.2 |
|
1,128.0 |
|
907.4 |
|
||||
Less: current maturities |
|
|
|
|
|
(22.0 |
) |
(21.8 |
) |
||||
Total long-term debt |
|
$ |
790.2 |
|
$ |
857.2 |
|
$ |
1,106.0 |
|
$ |
885.6 |
|
Fair Value of Debt
The fair value of debt was determined using broker quotes and recent trading activity for each of the notes listed above.
Convertible Senior Notes Offerings
In July 2009, JCG completed an offering of 3.250% convertible senior notes (convertible senior notes). Proceeds, net of issuance costs from the offering, totaled approximately $164.3 million. The convertible senior notes issued in July 2009 pay interest semi-annually on July 15 and January 15 of each year and mature on July 15, 2014, unless earlier converted. The convertible senior notes are convertible under certain circumstances into cash, shares of JCG common stock, or a combination of cash and shares of JCG common stock, at JCGs election. Such a conversion would be at an initial conversion rate of 71.3 shares of JCG common stock per $1,000 principal amount of convertible senior notes, which is equivalent to an initial conversion price of approximately $14.03 per share of common stock, subject to adjustment in certain circumstances. The convertible senior notes are not callable by JCG.
9
Because the convertible senior notes may be wholly or partially settled in cash, the proceeds are required to be bifurcated into debt and equity components. The $125.7 million initial debt component was determined by discounting future contractual cash flows at a 10.0% rate which is consistent with the estimated market rate for similar senior notes with no conversion option. The debt component will accrete up to the face value over the five-year expected term through interest expense. The $44.3 million (or $27.9 million, net of deferred taxes) equity component was determined using the difference between the proceeds and the debt component. The fair value of the convertible notes in the above table is based on the outstanding principal balance while the carrying value represents the outstanding principal balance exclusive of the unamortized discounts.
Tender Offer for Certain Outstanding Senior Notes
On August 13, 2009, the combined proceeds of the July 2009 common stock (See Note 10) and convertible senior notes offering, together with available cash, were used to repurchase $443.3 million aggregate principal amount of the Companys outstanding 2011, 2012 and 2017 senior notes in a tender offer. JCG recognized a $5.8 million net gain on early extinguishment of debt related to the repurchase of these notes. Results of the tender offer were as follows:
|
|
Aggregate |
|
Principal |
|
Tender Offer |
|
Gross Gain |
|
Deferred |
|
Tender Costs |
|
Net Gain / |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5.875% Senior Notes due 2011 |
|
$ |
275.0 |
|
$ |
182.8 |
|
$ |
182.8 |
|
$ |
|
|
$ |
1.8 |
|
$ |
1.0 |
|
$ |
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6.250% Senior Notes due 2012 |
|
300.0 |
|
179.1 |
|
175.5 |
|
3.6 |
|
0.9 |
|
1.0 |
|
1.7 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6.700% Senior Notes due 2017 |
|
450.0 |
|
81.4 |
|
73.3 |
|
8.1 |
|
0.8 |
|
0.4 |
|
6.9 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
1,025.0 |
|
$ |
443.3 |
|
$ |
431.6 |
|
$ |
11.7 |
|
$ |
3.5 |
|
$ |
2.4 |
|
$ |
5.8 |
|
Deferred costs include the write-off of previously capitalized bond discounts, issue costs and a deferred loss on interest rate swap.
Interest Rate Adjustment Covenant
All of JCGs senior notes, excluding the convertible senior notes, are subject to an interest rate adjustment covenant that provides that the interest rate payable will increase by 25 basis points for each level that the Companys debt rating is decreased by Moodys from Baa3 or by S&P from BBB-, up to a maximum increase of 200 basis points. If at any time after the interest has been adjusted upward, either Moodys or S&P increases its rating, then for each level of such increase in the rating, the interest payable will be decreased by 25 basis points, but in no event to a rate less than the interest rate payable on the date of their issuance. The interest rate adjustment covenant will permanently terminate if the Companys debt ratings increase to Baa2 by Moodys and BBB by S&P (or higher), with a stable or positive outlook regardless of any subsequent decrease in the ratings by either or both rating agencies. On February 23, 2009, S&P lowered JCGs credit rating to BB+, which resulted in a 25 basis point increase in the interest rates payable on all of JCGs senior notes, excluding the convertible senior notes.
Credit Facility
On June 12, 2009, JCG and the syndicate of banks amended the existing $350 million Five-Year Competitive Advance and Revolving Credit Facility Agreement (the Credit Facility). Under the amended Credit Facility, the bank syndicates commitment has been decreased to $125 million, any borrowings will be secured by JCGs assets, and the maturity date has been accelerated from June 1, 2012 to December 1, 2010. The covenants under the Credit Facility were amended to allow for a higher leverage ratio and a lower interest coverage ratio. In addition, a minimum assets under management covenant has been included in the amended Credit Facility. At September 30, 2009, JCG was in compliance with all covenants and there were no borrowings under the amended Credit Facility.
Capital Lease Obligations
JCGs capital lease obligations represent leased computer equipment. The carrying value of the obligations at September 30, 2009 total $2.1 million and are included in other accrued liabilities and other liabilities. The related lease terms extend through 2012.
10
Note 8 Income Tax Contingencies
As of September 30, 2009, JCG had $36.8 million of accrued reserves for income tax contingencies, including interest. JCG anticipates that its income tax contingency reserves will decrease by approximately $10 million to $15 million in the next 12 months primarily from the expiration of statute of limitations as well as the resolution of audits.
Note 9 Noncontrolling Interests
JCG adopted the new accounting guidance related to noncontrolling interests and redeemable noncontrolling interests effective January 1, 2009 and retrospectively applied such provisions to reported prior periods. As a result of the new guidance, noncontrolling interests that are not subject to put rights have been reclassified to permanent equity with no change in the measurement principles previously applied to these interests. Redeemable noncontrolling interests remain classified in mezzanine equity and are measured at estimated fair value as of the balance sheet date. Earnings attributable to noncontrolling interests that are and are not subject to put rights have been combined in the Consolidated Statements of Income. Presentation of the noncontrolling interests in the Consolidated Statements of Income has been changed to reflect net income with and without consideration of the noncontrolling interests. Earnings per share continues to be calculated after consideration of the noncontrolling interests.
Noncontrolling Interests that Are Not Subject to Put Rights
Noncontrolling interests that are not subject to put rights consist of third party investors in consolidated investment products, certain INTECH and Perkins interests granted to employees, and undistributed earnings of $5.2 million attributable to such interests. Certain of the INTECH and Perkins interests granted to employees will become subject to put rights upon vesting.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests consist of INTECH and Perkins interests that are currently puttable to JCG or will become puttable at certain future dates and undistributed earnings of $2.7 million attributable to such interests. The recognition of the fair value of the redeemable noncontrolling interests was effected through an increase to redeemable noncontrolling interests and a charge to retained earnings. Future changes in fair value will be recognized as increases or decreases to retained earnings.
INTECH
Each fiscal year through 2012, each of the two INTECH founding members has the option to require JCG to purchase from him an ownership interest of up to approximately 1.5% of INTECH at fair value. At September 30, 2009, the two founders have an aggregate ownership interest of approximately 5% in INTECH. In the event that either INTECH founder does not fully exercise his annual voluntary sale option in a given year, JCG has the option to require the INTECH founder to sell the remaining balance of the option for that year at fair value.
In addition, each founder can require JCG to purchase his INTECH interests when his employment is terminated. The purchase price of the departing founders INTECH interests will be based on fair value. Each founder is entitled to retain approximately 1% of INTECHs shares then outstanding after employment until his death unless he is terminated for cause or leaves voluntarily while not in good standing. An INTECH founder will be deemed to be in good standing if he voluntarily leaves on or after January 1, 2009, after providing 12 months prior notice and cooperation with the transition. Total INTECH interests held by the two founders have an estimated value of approximately $42.2 million as of September 30, 2009.
Interests held by other INTECH employees subject to put rights have an estimated value of approximately $3.2 million as of September 30, 2009.
Perkins
JCG also has the option to acquire the majority of the remaining 22.2% interest of Perkins at fair value on the third, fifth, seventh or each subsequent anniversary of the December 31, 2008 closing (closing). The minority owners of Perkins have the option to require JCG to purchase any or all of their remaining interests on the fourth or sixth anniversary of closing at fair value. The total Perkins minority interest has an estimated value of approximately $39.4 million as of September 30, 2009, based on a contractual formula driven by revenue and investment performance of products managed by Perkins. The formula is intended to yield an amount representative of fair value.
11
Note 10 Common Stock Issuance
In July 2009, JCG issued 20.9 million shares of common stock, par value $0.01, at $11.00 per share in an underwritten common stock offering for net proceeds of approximately $218.1 million.
Note 11 Long-Term Incentive Compensation
JCG granted $73.1 million in long-term incentive awards during the first nine months of 2009, which generally vest and will be recognized ratably over a four-year period, and are not subject to performance-based accelerated vesting. The 2009 awards consisted of $21.6 million of restricted stock (3.7 million shares at a weighted average price of $6.09 per share), $15.1 million of stock options and $36.4 million of mutual fund units.
A total of 6.3 million stock options with a grant date fair value of $2.41 per option were awarded as part of the February 2009 grant. The grant date fair value of stock options was determined using the Black-Scholes model with the following assumptions: expected volatility of 54%, dividend yield of 0.75%, risk-free interest rate of 1.85% and an expected life of five years.
In addition to the awards above, Perkins granted $5.0 million of interests that vest ratably over four years. The grant represents 2.8% of total Perkins interests. INTECH granted $5.5 million of interests which generally vest over 10 years. This grant represents less than 1.0% of total INTECH interests.
Note 12 Other Income, Net
The components of other income are as follows (in millions):
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Dividend income |
|
$ |
|
|
$ |
0.4 |
|
$ |
0.4 |
|
$ |
1.2 |
|
Interest income |
|
|
|
1.2 |
|
0.2 |
|
5.1 |
|
||||
Translation gains and losses, net |
|
|
|
|
|
(1.0 |
) |
|
|
||||
Other, net |
|
0.1 |
|
(0.2 |
) |
0.9 |
|
0.3 |
|
||||
Total |
|
$ |
0.1 |
|
$ |
1.4 |
|
$ |
0.5 |
|
$ |
6.6 |
|
12
Note 13 Earnings Per Share
Basic earnings per common share is calculated by dividing net income attributable to JCG common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjusts the weighted average shares outstanding by the dilutive impact of shares underlying stock options and unvested restricted stock awards. The following is a summary of the earnings per share calculation (in millions, except per share data):
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Amounts attributable to JCG common shareholders: |
|
|
|
|
|
|
|
|
|
||||
Income (loss) from continuing operations |
|
$ |
8.2 |
|
$ |
26.0 |
|
$ |
(794.1 |
) |
$ |
130.6 |
|
Loss from discontinued operations |
|
|
|
(0.6 |
) |
|
|
(1.5 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
8.2 |
|
$ |
25.4 |
|
$ |
(794.1 |
) |
$ |
129.1 |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share attributable to JCG common shareholders: |
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
173.6 |
|
157.1 |
|
162.5 |
|
160.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from continuing operations |
|
$ |
0.05 |
|
$ |
0.17 |
|
$ |
(4.89 |
) |
$ |
0.82 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
(0.01 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
0.05 |
|
$ |
0.17 |
|
$ |
(4.89 |
) |
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share attributable to JCG common shareholders: |
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
173.6 |
|
157.1 |
|
162.5 |
|
160.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options and unvested restricted stock using the treasury stock method |
|
3.0 |
|
2.5 |
|
|
|
2.4 |
|
||||
Weighted average diluted common shares outstanding |
|
176.6 |
|
159.6 |
|
162.5 |
|
162.4 |
|
||||
Income (loss) from continuing operations |
|
$ |
0.05 |
|
$ |
0.16 |
|
$ |
(4.89 |
) |
$ |
0.80 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
(0.01 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings (loss) per share |
|
$ |
0.05 |
|
$ |
0.16 |
|
$ |
(4.89 |
) |
$ |
0.79 |
|
The following stock options and unvested restricted stock are anti-dilutive and have not been included in the weighted average diluted shares outstanding calculation (in millions):
|
|
Three months ended |
|
Nine months ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Stock options |
|
11.1 |
|
4.0 |
|
17.1 |
|
3.6 |
|
Unvested restricted stock |
|
1.1 |
|
|
|
4.4 |
|
0.1 |
|
As a result of JCGs net loss for the nine months ended September 30, 2009, all stock options and unvested restricted stock are anti-dilutive.
13
Note 14 Legal Proceedings
JCG is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on information currently available, management believes that it is probable that the ultimate outcome of each of the actions described below will not have a material adverse effect on JCGs consolidated financial condition. However, an adverse outcome in any of the actions could have a material adverse effect on the Companys financial position or results of operations for the period in which it is recorded. For the nine months ended September 30, 2009, JCG recorded charges totaling $31.4 million related to a judgment and legal settlements of other matters. JCG has established a $2.0 million litigation reserve for the remaining claims described below. Management believes the remaining claims have little or no merit and intends to defend against them.
Market Timing Litigation
Following the market timing investigations by the New York Attorney General (NYAG) and the SEC in 2003, JCG and certain affiliates were named as defendants in a consolidated lawsuit in the U.S. District Court in Baltimore, Maryland (Case No. MDL No. 1586, 04-MD-15863). Five amended complaints were originally filed in these coordinated proceedings, two of which were previously dismissed with the remaining still relevant, including: (i) derivative claims by investors in the Janus funds ostensibly on behalf of the Janus funds (Steinberg et al. v. Janus Capital Management, LLC et al., U.S. District Court, District of Maryland, Case No. 04-CV-00518); (ii) claims on behalf of participants in the JCG 401(k) plan (Wangberger v. Janus Capital Group Inc., 401(k) Advisory Committee, et al., U.S. District Court, District of Maryland, Case No. JFM-05-2711); and (iii) claims by a putative class of JCG shareholders asserting claims on behalf of the shareholders (Wiggins, et al. v. Janus Capital Group Inc., et al., U.S. District Court, District of Maryland, Case No. 04-CV-00818).
In August 2005, the U.S. District Court entered orders dismissing most of the claims asserted against the Company and its affiliates by fund investors in the Steinberg case described above, except certain claims under Section 36(b) of the Investment Company Act of 1940. In July 2009, Janus filed its motion for summary judgment to resolve the remainder of the Section 36(b) claims in the Steinberg case. The Court has not yet ruled the motion. In the Wiggins matter, the U.S. District Court also entered an order dismissing all claims in the Wiggins lawsuit. Plaintiffs, however, appealed that dismissal to the U.S. Court of Appeals for the Fourth Circuit. In May 2009, the Fourth Circuit reversed the order of dismissal and remanded the case back to the U.S. District Court for further proceedings. In August 2006, the U.S. District Court in the Wangberger 401(k) plan class action dismissed the action with prejudice, and the plaintiff appealed the dismissal to the U.S. Court of Appeals for the Fourth Circuit. In June 2008, the Fourth Circuit reversed the U.S. District Courts order of dismissal and remanded the case to the U.S. District Court for further proceedings. However, in July 2009, a Stipulation of Dismissal was filed, which dismissed the case with prejudice. As a result of the above events, the Company and Janus are the remaining defendants, in some capacity, in one or more of the actions described in the preceding paragraph.
The Auditor of the State of West Virginia, in his capacity as securities commissioner, initiated administrative proceedings against many of the defendants in the market timing cases (including JCG) and seeks disgorgement and other monetary relief based on similar market timing allegations (In the Matter of Janus Capital Group Inc. et al., Before the Securities Commissioner, State of West Virginia, Summary Order No. 05-1320). In September 2006, JCG filed its answer to the Auditors summary order instituting proceedings, as well as a Motion to Discharge Order to Show Cause. On July 31, 2009, Janus filed a Notice that Matter is Deemed Concluded. At this time, no further proceedings are scheduled in this matter.
14
Miscellaneous Proceedings
During 2007, two former portfolio managers filed suit against a JCG subsidiary alleging that it implemented certain changes to their compensation arrangements in violation of prior agreements (Edward Keely v. Janus Management Holdings Corporation, Denver District Court, Case No. 2007 CV 7366 and Tom Malley v. Janus Management Holdings Corporation, Denver District Court, Case No. 2007 CV 10719). These complaints allege some or all of the following claims, in addition to other allegations: (1) breach of contract; (2) willful and wanton breach of contract; (3) breach of good faith and fair dealing; and (4) estoppel. JCG answered the complaints, denying any liability and challenging the merits of Mr. Keelys and Mr. Malleys allegations. After a four day trial in the Keely matter, on May 8, 2009, the jury found in favor of Mr. Keely. The Court entered judgment in Mr. Keelys favor for $4.8 million in damages plus pre- and post- trial interest, attorneys fees and damage enhancements under the Colorado Wage Act totaling $2.2 million, which Janus satisfied in full. Following the Keely judgment, the above described Malley matter and additional similar claims made by former employees were resolved during the third quarter 2009 for a total of $22.2 million, of which $20.5 million was expensed in the third quarter 2009. JCG is not aware of any additional claims by former employees of a similar nature.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by or that otherwise include the words believes, expects, anticipates, intends, projects, estimates, plans, may increase, may fluctuate, forecast and similar expressions or future or conditional verbs such as will, should, would, may and could are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements. These statements are based on the beliefs and assumptions of Company management based on information currently available to management.
Various risks, uncertainties, assumptions and factors that could cause future results to differ materially from those expressed by the forward-looking statements included in this Quarterly Report on Form 10-Q include, but are not limited to, risks associated with the appointment of a CEO and JCGs ability to identify a permanent CEO and resulting potential disruptions to the Company and its business, and other risks, uncertainties, assumptions and factors specified in the Companys Annual Report on Form 10-K for the year ended December 31, 2008 included under headings such as Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations, and in the Prospectus Supplements, dated July 17, 2009, to the Registration Statement of Form S-3 (Registration No. 333-145310) and in other filings and furnishings made by the Company with the SEC from time to time. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. Many of these factors are beyond the control of the Company and its management. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this Quarterly Report on Form 10-Q. Except for the Companys ongoing obligations to disclose material information under the federal securities laws, the Company undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law.
AVAILABLE INFORMATION
Copies of Janus Capital Group Inc.s (collectively, JCG or the Company) filings with the Securities and Exchange Commission (SEC) can be obtained from the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information can be obtained about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
JCG makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments thereto as soon as reasonably practical after such filing has been made with the SEC. Reports may be obtained through the Investor Relations section of JCGs website (http://ir.janus.com) or by contacting JCG at (888) 834-2536. The contents of JCGs website are not incorporated herein for any purpose.
JCGs Officer Code of Ethics for Principal Executive Officer and Senior Financial Officers (including its chief executive officer and chief financial officer) (the Officer Code); Corporate Code of Business Conduct and Ethics for all employees; corporate governance guidelines; and the charters of key committees of the Board of Directors (including the Audit, Compensation, Nominating and Corporate Governance, and Planning and Strategy committees) are available on its website (http://ir.janus.com/documents.cfm), and printed copies are available to any shareholder upon request by calling JCG at (888) 834-2536. Any future amendments to or waivers of the Officer Code will be posted to the Investor Relations section of JCGs website.
16
RESULTS OF OPERATIONS
Overview
JCG provides investment management and administrative services to mutual funds, separate accounts and institutional clients in both domestic and international markets through its primary subsidiaries, Janus Capital Management LLC (Janus), INTECH Investment Management LLC (INTECH) and Perkins Investment Management LLC (Perkins).
Revenues are generally based upon a percentage of the market value of assets under management and are calculated as a percentage of the daily average asset balance in accordance with contractual agreements with the Companys mutual funds, separate accounts and subadvised relationships (collectively referred to herein as investment products). Certain investment products are also subject to performance fees which vary based on their relative performance as compared to a benchmark index and the level of assets subject to such fees. Assets under management primarily consist of domestic and international equity and debt securities. Accordingly, fluctuations in domestic and international financial markets, relative investment performance, sales and redemptions of investment products, and changes in the composition of assets under management are all factors that have a direct effect on JCGs operating results.
INVESTMENT MANAGEMENT OPERATIONS (CONTINUING OPERATIONS)
Third Quarter 2009 Summary
Market conditions improved during the third quarter 2009, leading to an increase in ending assets under management of $19.2 billion, or 14.5%, from June 30, 2009, and higher revenues. Third quarter 2009 includes legal settlements totaling $20.5 million, $12.1 million of severance associated with the former Chief Executive Officer (CEO) and a $5.8 million net gain from the extinguishment of debt.
Investment Performance
Investment products are generally evaluated based on their investment performance relative to other investment products with similar disciplines and strategies. Janus and Perkins relative investment performance is strong across all time periods while INTECHs short- and intermediate-term performance continues to be weak.
· Relative long-term investment performance remained strong with approximately 79%, 88% and 86% of JCGs mutual funds in the top half of their Lipper categories on a one-, three- and five-year total return basis, respectively, as of September 30, 2009. (See Exhibit 99.1 for complete Lipper rankings.)
· The Perkins Mid Cap Value and Small Cap Value funds ranked in the top 19% and 9% of their respective Lipper peer groups across the one-, three- and five-year periods, as of September 30, 2009.
· INTECHs relative performance continued to be weak in the short- and intermediate-term, with 0%, 44% and 63% of product strategies outperforming their respective benchmarks over the one-, three- and five-year periods ended September 30, 2009.
Assets Under Management and Flows
Valuation
The value of assets under management is derived from the cash and investment securities underlying JCGs investment products. Investment security values are determined using unadjusted or adjusted quoted market prices and independent third-party price quotes in active markets. For debt securities with maturities of 60 days or less, the amortized cost method is used to determine the value. Securities for which market prices are not readily available or are considered unreliable are internally valued using appropriate methodologies for each security type or by engaging third-party specialists. Despite recent economic events and increased market volatility, the value of the majority of the securities underlying JCGs investment products continues to be derived from readily available and reliable market price quotations.
The pricing policies for mutual funds advised by JCGs subsidiaries (the Funds) are established by the Funds Independent Board of Trustees and are designed to test and validate fair value measurements. Responsibility for pricing securities held within separate and subadvised accounts may be delegated by the separate or subadvised client to JCG or another party.
17
Total Company Assets and Flows
Total Company assets under management at September 30, 2009 decreased $8.7 billion, or 5.4%, from the end of the third quarter 2008. The decrease was primarily driven by adverse market conditions in the fourth quarter 2008 and first quarter 2009, partially offset by improving market conditions thereafter.
INTECH outflows for the three and nine months ended September 30, 2009 are primarily attributable to the relative underperformance of certain key investment strategies. Continued underperformance may lead to additional INTECH outflows.
The following table presents the components of JCGs assets under management (in billions):
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Beginning of period assets |
|
$ |
132.6 |
|
$ |
191.8 |
|
$ |
123.5 |
|
$ |
206.7 |
|
Long-term sales |
|
|
|
|
|
|
|
|
|
||||
Janus |
|
5.9 |
|
6.6 |
|
15.0 |
|
25.0 |
|
||||
INTECH |
|
1.1 |
|
6.2 |
|
3.6 |
|
10.5 |
|
||||
Perkins |
|
1.6 |
|
1.9 |
|
4.4 |
|
4.7 |
|
||||
Long-term redemptions |
|
|
|
|
|
|
|
|
|
||||
Janus |
|
(4.6 |
) |
(8.5 |
) |
(12.7 |
) |
(23.9 |
) |
||||
INTECH |
|
(3.6 |
) |
(6.0 |
) |
(6.8 |
) |
(11.2 |
) |
||||
Perkins |
|
(1.0 |
) |
(1.3 |
) |
(2.7 |
) |
(2.7 |
) |
||||
Long-term net flows * |
|
|
|
|
|
|
|
|
|
||||
Janus |
|
1.3 |
|
(1.9 |
) |
2.3 |
|
1.1 |
|
||||
INTECH |
|
(2.5 |
) |
0.2 |
|
(3.2 |
) |
(0.7 |
) |
||||
Perkins |
|
0.6 |
|
0.6 |
|
1.7 |
|
2.0 |
|
||||
Total long-term net flows |
|
(0.6 |
) |
(1.1 |
) |
0.8 |
|
2.4 |
|
||||
Net money market flows |
|
(0.2 |
) |
(4.0 |
) |
(6.1 |
) |
(5.0 |
) |
||||
Market / fund performance |
|
20.0 |
|
(26.2 |
) |
33.6 |
|
(43.6 |
) |
||||
End of period assets |
|
$ |
151.8 |
|
$ |
160.5 |
|
$ |
151.8 |
|
$ |
160.5 |
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Long-term net flows by distribution channel |
|
|
|
|
|
|
|
|
|
||||
Retail intermediary |
|
$ |
1.7 |
|
$ |
(1.2 |
) |
$ |
3.7 |
|
$ |
2.9 |
|
Institutional |
|
(2.8 |
) |
0.4 |
|
(3.1 |
) |
(1.9 |
) |
||||
International |
|
0.5 |
|
(0.3 |
) |
0.2 |
|
1.4 |
|
||||
Total |
|
$ |
(0.6 |
) |
$ |
(1.1 |
) |
$ |
0.8 |
|
$ |
2.4 |
|
|
|
|
|
|
|
|
|
|
|
||||
Average assets under management |
|
|
|
|
|
|
|
|
|
||||
Janus |
|
$ |
82.9 |
|
$ |
100.9 |
|
$ |
71.9 |
|
$ |
105.9 |
|
INTECH |
|
46.1 |
|
59.5 |
|
42.6 |
|
62.5 |
|
||||
Perkins |
|
12.2 |
|
11.3 |
|
10.3 |
|
10.7 |
|
||||
Money market |
|
1.9 |
|
11.0 |
|
2.8 |
|
11.7 |
|
||||
Total |
|
$ |
143.1 |
|
$ |
182.7 |
|
$ |
127.6 |
|
$ |
190.8 |
|
* Excludes money market flows. Sales and redemptions of money market funds are presented net on a separate line due to the short-term nature of the investments.
18
Assets and Flows by Investment Discipline
JCG, through its primary subsidiaries, offers investment products based on a diversified set of investment disciplines. Janus offers growth/blend and global/international equity, as well as fixed income, alternative and money market investment products. INTECH offers mathematical based investment products and Perkins offers value disciplined investments. Assets and flows by investment discipline are as follows (in billions):
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Growth/Blend |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
56.4 |
|
$ |
81.8 |
|
$ |
49.5 |
|
$ |
83.5 |
|
Sales |
|
3.4 |
|
5.5 |
|
9.1 |
|
20.3 |
|
||||
Redemptions |
|
3.4 |
|
6.0 |
|
9.4 |
|
16.3 |
|
||||
Net sales (redemptions) |
|
|
|
(0.5 |
) |
(0.3 |
) |
4.0 |
|
||||
Market / fund performance |
|
8.7 |
|
(15.0 |
) |
15.9 |
|
(21.3 |
) |
||||
End of period assets |
|
$ |
65.1 |
|
$ |
66.2 |
|
$ |
65.1 |
|
$ |
66.2 |
|
|
|
|
|
|
|
|
|
|
|
||||
Global/International |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
14.7 |
|
$ |
21.0 |
|
$ |
10.9 |
|
$ |
24.9 |
|
Sales |
|
1.2 |
|
0.8 |
|
2.9 |
|
2.9 |
|
||||
Redemptions |
|
0.7 |
|
1.8 |
|
1.8 |
|
4.5 |
|
||||
Net sales (redemptions) |
|
0.5 |
|
(1.0 |
) |
1.1 |
|
(1.6 |
) |
||||
Market / fund performance |
|
3.0 |
|
(4.3 |
) |
6.2 |
|
(7.6 |
) |
||||
End of period assets |
|
$ |
18.2 |
|
$ |
15.7 |
|
$ |
18.2 |
|
$ |
15.7 |
|
|
|
|
|
|
|
|
|
|
|
||||
Mathematical |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
43.8 |
|
$ |
61.3 |
|
$ |
42.4 |
|
$ |
69.7 |
|
Sales |
|
1.1 |
|
6.2 |
|
3.6 |
|
10.5 |
|
||||
Redemptions |
|
3.6 |
|
6.0 |
|
6.8 |
|
11.2 |
|
||||
Net sales (redemptions) |
|
(2.5 |
) |
0.2 |
|
(3.2 |
) |
(0.7 |
) |
||||
Market / fund performance |
|
6.0 |
|
(6.0 |
) |
8.1 |
|
(13.4 |
) |
||||
End of period assets |
|
$ |
47.3 |
|
$ |
55.6 |
|
47.3 |
|
$ |
55.6 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed Income |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
4.4 |
|
$ |
3.7 |
|
$ |
3.2 |
|
$ |
4.9 |
|
Sales |
|
1.3 |
|
0.3 |
|
3.0 |
|
1.0 |
|
||||
Redemptions |
|
0.4 |
|
0.4 |
|
1.2 |
|
2.5 |
|
||||
Net sales (redemptions) |
|
0.9 |
|
(0.1 |
) |
1.8 |
|
(1.5 |
) |
||||
Market / fund performance |
|
0.3 |
|
(0.1 |
) |
0.6 |
|
|
|
||||
End of period assets |
|
$ |
5.6 |
|
$ |
3.4 |
|
5.6 |
|
$ |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Alternatives |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
0.3 |
|
$ |
1.2 |
|
$ |
0.5 |
|
$ |
0.8 |
|
Sales |
|
|
|
|
|
|
|
0.8 |
|
||||
Redemptions |
|
0.1 |
|
0.3 |
|
0.3 |
|
0.6 |
|
||||
Net sales (redemptions) |
|
(0.1 |
) |
(0.3 |
) |
(0.3 |
) |
0.2 |
|
||||
Market / fund performance |
|
0.1 |
|
(0.2 |
) |
0.1 |
|
(0.2 |
) |
||||
End of period assets |
|
$ |
0.3 |
|
$ |
0.8 |
|
0.3 |
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Value |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
11.0 |
|
$ |
10.9 |
|
$ |
9.1 |
|
$ |
10.1 |
|
Sales |
|
1.6 |
|
1.9 |
|
4.4 |
|
4.7 |
|
||||
Redemptions |
|
1.0 |
|
1.3 |
|
2.7 |
|
2.7 |
|
||||
Net sales |
|
0.6 |
|
0.6 |
|
1.7 |
|
2.0 |
|
||||
Market / fund performance |
|
1.9 |
|
(0.6 |
) |
2.7 |
|
(1.1 |
) |
||||
End of period assets |
|
$ |
13.5 |
|
$ |
10.9 |
|
13.5 |
|
$ |
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money Market |
|
|
|
|
|
|
|
|
|
||||
Beginning of period assets |
|
$ |
2.0 |
|
$ |
11.8 |
|
$ |
7.9 |
|
$ |
12.8 |
|
Sales |
|
0.2 |
|
28.1 |
|
3.4 |
|
76.1 |
|
||||
Redemptions |
|
0.4 |
|
32.1 |
|
9.5 |
|
80.9 |
|
||||
Net redemptions |
|
(0.2 |
) |
(4.0 |
) |
(6.1 |
) |
(5.0 |
) |
||||
Market / fund performance |
|
|
|
|
|
|
|
|
|
||||
End of period assets |
|
$ |
1.8 |
|
$ |
7.9 |
|
1.8 |
|
$ |
7.9 |
|
19
Results of Investment Management Operations
Three Months Ended September 30, 2009, Compared with Three Months Ended September 30, 2008
Revenues
Investment management fees decreased $33.5 million, or 15.3%, primarily as a result of the 21.7% decrease in average assets under management. Revenue declined at a lower rate than average assets under management as a result of a decrease in lower yielding money market assets and the impact of the consolidation of Perkins beginning January 1, 2009. The equity method of accounting was used for Perkins prior to December 31, 2008, as JCG had significant influence but did not have the ability to exercise control. The decline in money market assets reflects JCGs previously announced plan to exit its institutional money market business by April 30, 2009.
Performance fee revenue is derived from certain mutual funds and separate accounts. The $1.4 million decrease in performance fee revenue was primarily due to a decline of $4.2 million on INTECH private accounts as a result of investment underperformance, partially offset by a $3.2 million increase in fees earned on mutual funds from improved performance.
Shareowner servicing fees and other revenue declined $12.9 million, or 27.0%, over the comparable prior year period primarily as a result of a decrease in transfer agent fees and money market administration fees. Transfer agent fees are based on average assets under management in Janus retail share class, excluding money market assets, which decreased 19.2% over the comparable prior year period. Money market administration fees declined as a result of lower money market assets from exiting the institutional money market business.
Expenses
Employee compensation and benefits increased $4.5 million, or 5.5%, principally due to severance charges and the consolidation of Perkins, partially offset by a decline in investment team incentive compensation, base salaries and the company-wide bonus accrual. Severance charges of $6.8 million were incurred from the departure of the former CEO. The investment team incentive compensation plan is linked to individual performance, but also ties the aggregate level of compensation to revenue, which declined over the comparable prior year period. Base salaries and the company-wide bonus accrual decreased as a result of the reduction in workforce in the fourth quarter 2008 and lower anticipated 2009 operating results.
Long-term incentive compensation increased $8.8 million, or 82.2%, primarily from the $5.3 million departure-related acceleration of the former CEOs awards and from new awards granted in 2009, partially offset by the vesting of previous awards.
Distribution expense decreased $7.3 million, or 20.0%, as a result of a similar decline in assets under management subject to third-party concessions. Distribution fees are calculated based on a contractual percentage of the market value of assets under management distributed through third-party intermediaries.
General, administrative and occupancy expense increased $12.8 million, or 36.0%, primarily as a result of legal settlements totaling $20.5 million, which were paid during the third quarter 2009, partially offset by the impact of cost reduction measures implemented in the fourth quarter 2008.
JCG recognized a $5.8 million net gain on early extinguishment of debt as a result of the retirement of $443.3 million of outstanding debt. The extinguishment of debt, combined with the July convertible bond issuance of $170.0 million, is expected to result in lower annual interest expense of approximately $16 million.
Mark-to-market gains on trading securities for the three months ended September 30, 2009, were largely offset by losses generated by a hedging strategy implemented in late 2008. Net investment losses for the three months ended September 30, 2008 include a $21.0 million impairment charge on securities originally issued by Stanfield Victoria Funding LLC (Stanfield) and $11.3 million of mark-to-market adjustments on consolidated investment products.
During September 2009, Stanfield was restructured whereby security holders were given the option to participate in a new structure, receive their proportionate share of each investment position underlying Stanfield, or auction their position. JCG, along with a majority of Stanfield security holders, elected to participate in the new structure under which
20
each participating security holders proportionate share of positions underlying Stanfield were transferred to VFNC Trust (VFNC) and their Stanfield security interests were exchanged for VFNC security interests. A manager for VFNC is expected to be hired during the fourth quarter 2009.
Nine Months Ended September 30, 2009, Compared with Nine Months Ended September 30, 2008
Revenues
Investment management fees decreased $202.2 million, or 29.6%, primarily as a result of the 33.1% decrease in average assets under management and a decline in lower yielding money market assets, partially offset by the impact of the consolidation of Perkins.
Performance fee revenue decreased $8.7 million, or 33.5%, primarily as a result of lower performance fees on separate accounts as a result of a decline in short-term relative investment performance and one separate account reaching its one-year anniversary in the second quarter 2008 on which the first contractual performance fee was recognized for the previous 12 months.
Shareowner servicing fees and other revenue decreased $51.8 million, or 34.4%, primarily as a result of a decrease in transfer agent fees and money market administration fees. Transfer agent fees declined over the comparable prior period as a result a 34.3% decline in average assets under management in Janus retail share class. Money market administration fees decreased as a result of exiting the institutional money market business in second quarter 2009.
Expenses
Employee compensation and benefits decreased $50.5 million, or 19.1%, primarily from lower incentive compensation. Investment team compensation and sales commissions declined as result of lower revenues and sales, respectively. The annual company-wide bonus accrual decreased as a result of anticipated lower 2009 operating results.
Long-term incentive compensation increased $11.6 million, or 32.9%, as a result of new awards granted in 2009 and the departure-related acceleration of the former CEOs awards, partially offset by the vesting of previous awards. Long-term incentive awards granted in 2009 totaled $83.6 million and will be recognized ratably over four years. Awards granted in 2009 are not subject to performance-based acceleration.
Marketing and advertising expenses decreased $4.2 million, or 17.1%, primarily due to cost reduction measures implemented in the fourth quarter 2008, partially offset by $3.8 million of costs associated with JCGs merging of two of its domestic mutual fund trusts effective July 6, 2009. An additional $1.0 million to $2.0 million of merger related costs is expected to be incurred in fourth quarter 2009.
Distribution expense decreased $36.3 million, or 32.7%, from a similar decline in assets under management subject to third-party concessions.
Depreciation and amortization expenses decreased $5.1 million, or 16.6%, primarily as a result of lower amortization of deferred commissions from a decline in sales of Janus Investment Fund C shares.
General, administrative and occupancy expense increased $6.2 million, or 5.8%, primarily as a result of an unfavorable judgment and settlements of other matters totaling $31.4 million, partially offset by cost reduction measures implemented in the fourth quarter 2008.
Goodwill and intangible asset impairment charges of $747.0 million and $109.7 million, respectively, were recognized as of March 31, 2009. JCG revised its operating forecast downward as a result of continued deterioration in global market conditions, assets under management and revenues during the first quarter 2009. These conditions combined with JCGs market capitalization remaining below net book value caused management to reassess goodwill and all intangible assets for impairment as of March 31, 2009. Based on these assessments, JCG partially impaired goodwill and mutual fund advisory contracts associated with the 2001 contractual obligation to buy out Janus founder. The goodwill impairment charge is not deductible for income tax purposes. A tax benefit of $40.6 million was recognized as a result of the impairment of mutual fund advisory contracts.
Mark-to-market gains on trading securities for the nine months ended September 30, 2009, were largely offset by losses generated by a hedging strategy implemented in late 2008. Net investment losses of $38.8 million for the nine months ended September 30, 2008 include a $21.0 million impairment charge on the Stanfield securities and $19.4 million of mark-to-market losses, net of $1.6 million of realized gains.
21
Other income, net, decreased $6.1 million, or 92.4%, from a decline in interest and dividend income earned on corporate cash and investments.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
A summary of cash flow data from continuing operations for the nine-months ended September 30, 2009 and 2008 is as follows (in millions):
|
|
2009 |
|
2008 |
|
||
Cash flows provided by (used for): |
|
|
|
|
|
||
Operating activities |
|
$ |
80.9 |
|
$ |
168.1 |
|
Investing activities |
|
(3.3 |
) |
(66.2 |
) |
||
Financing activities |
|
(123.8 |
) |
(285.0 |
) |
||
Net change in cash and cash equivalents |
|
(46.2 |
) |
(183.1 |
) |
||
Balance beginning of period |
|
282.6 |
|
480.7 |
|
||
Balance end of period |
|
$ |
236.4 |
|
$ |
297.6 |
|
On an annual basis, JCGs cash flow from operations historically has been positive and sufficient to fund ordinary operations and capital requirements. Fluctuations in operating cash flows are attributable to changes in net income and working capital items, which can vary from period to period based on the amount and timing of cash receipts and payments. The decline in cash flow from operations from the comparable prior year period was driven by lower revenues as a result of the decline in average assets under management.
Cash used for investing activities for the nine months ended September 30, 2009, primarily represents proceeds of $6.1 million for the net sale of investments, offset by $8.1 million for the purchase of property and equipment. Purchases and sales of investments are related to seed capital as well as hedging and vesting of mutual fund share awards. Cash used for investing activities for the comparable prior year period primarily represents $67.7 million for the purchase of an additional 3% interest in INTECH. Based on the implementation of new guidance related to noncontrolling interests and redeemable noncontrolling interests, the acquisitions of noncontrolling interests are classified as financing activities on the 2009 Consolidated Statements of Cash Flows.
Cash used for financing activities for the nine months ended September 30, 2009, primarily represents the repayment of $456.0 million of long-term debt, partially offset by the issuance of $218.1 million and $170.0 million of common stock and debt, respectively. Cash used for financing activities for the comparable prior year period primarily represents stock buybacks of $289.8 million.
Common Stock and Convertible Senior Notes Offerings, and Tender Offer for Certain Outstanding Senior Notes
In July 2009, JCG completed concurrent common stock and 3.250% convertible senior notes offerings (convertible senior notes). Proceeds, net of issuance costs from the common stock and convertible senior notes offerings totaled approximately $218.1 million and $164.3 million, respectively.
The convertible senior notes issued in July 2009 pay interest semi-annually on July 15 and January 15 of each year and mature on July 15, 2014, unless earlier converted. The convertible senior notes are convertible under certain circumstances into cash, shares of JCG common stock, or a combination of cash and shares of JCG common stock, at JCGs election. Such a conversion would be at an initial conversion rate of 71.3 shares of JCG common stock per $1,000 principal amount of convertible senior notes, which is equivalent to an initial conversion price of approximately $14.03 per share of common stock, subject to adjustment in certain circumstances. The convertible senior notes are not callable by JCG.
22
Because the convertible senior notes may be wholly or partially settled in cash, the proceeds are required to be bifurcated into debt and equity components. The estimated $125.7 million debt component was determined by discounting future contractual cash flows at a 10.0% rate which is consistent with the estimated market rate for similar senior notes with no conversion option. The debt component will accrete up to the face value over the five-year expected term through interest expense. The $44.3 million (or $27.9 million, net of deferred taxes) equity component was determined using the difference between the proceeds and the debt component. The fair value of the convertible senior notes in the above table is based on the outstanding principal balance while the carrying value represents the outstanding principal balance exclusive of the unamortized discounts.
On August 13, 2009, the combined proceeds of the common stock and convertible senior notes offerings, together with available cash, were used to repurchase $443.3 million aggregate principal amount of the Companys outstanding 2011, 2012 and 2017 senior notes in a tender offer. JCG recognized a $5.8 million net gain on early extinguishment of debt related to the tender of these notes. Results of the tender offer are as follows:
|
|
Aggregate |
|
Principal |
|
Tender Offer |
|
Gross Gain |
|
Deferred |
|
Tender Costs |
|
Net Gain / |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
5.875% Senior Notes due 2011 |
|
$ |
275.0 |
|
$ |
182.8 |
|
$ |
182.8 |
|
$ |
|
|
$ |
1.8 |
|
$ |
1.0 |
|
$ |
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6.250% Senior Notes due 2012 |
|
300.0 |
|
179.1 |
|
175.5 |
|
3.6 |
|
0.9 |
|
1.0 |
|
1.7 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
6.700% Senior Notes due 2017 |
|
450.0 |
|
81.4 |
|
73.3 |
|
8.1 |
|
0.8 |
|
0.4 |
|
6.9 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
1,025.0 |
|
$ |
443.3 |
|
$ |
431.6 |
|
$ |
11.7 |
|
$ |
3.5 |
|
$ |
2.4 |
|
$ |
5.8 |
|
Deferred costs include the write-off of previously capitalized bond discounts, issue costs and a deferred loss on interest rate swap.
Interest Rate Adjustment Covenant
All of JCGs senior notes, excluding the convertible senior notes, are subject to an interest rate adjustment covenant that provides that the interest rate payable will increase by 25 basis points for each level that the Companys debt rating is decreased by Moodys from Baa3 or by S&P from BBB-, up to a maximum increase of 200 basis points. If at any time after the interest has been adjusted upward, either Moodys or S&P increases its rating, then for each level of such increase in the rating, the interest payable will be decreased by 25 basis points, but in no event to a rate less than the interest rate payable on the date of their issuance. The interest rate adjustment covenant will permanently terminate if the Companys debt ratings increase to Baa2 by Moodys and BBB by S&P (or higher), with a stable or positive outlook regardless of any subsequent decrease in the ratings by either or both rating agencies. On February 23, 2009, S&P lowered JCGs credit rating to BB+, which resulted in a 25 basis point increase in the interest rates payable on all of JCGs senior notes, excluding the convertible senior notes.
Other Sources of Liquidity
Shelf Registration
The Company has effective a Shelf Registration Statement with the SEC under which JCG registered the July 2009 common stock and convertible senior notes offerings. JCGs effective Shelf Registration allows it to register the sale of an indeterminate amount of preferred stock and additional common stock and debt securities.
Credit Facility
On June 12, 2009, JCG and the syndicate of banks amended the existing $350 million Five-Year Competitive Advance and Revolving Credit Facility Agreement (the Credit Facility). Under the amended Credit Facility, the bank syndicates commitment has been decreased to $125 million, any borrowings will be secured by JCGs assets, and the maturity date has been accelerated from June 1, 2012 to December 1, 2010. The covenants under the Credit Facility were amended to allow for a higher leverage ratio and a lower interest coverage ratio. In addition, a minimum assets under management covenant has been included in the amended Credit Facility. At September 30, 2009, JCG was in compliance with all covenants and there were no borrowings under the amended Credit Facility.
23
The covenants and the calculation of the ratios, as defined in the amended Credit Facility, are as follows (in millions):
|
|
Last Four |
|
|
|
|
Quarters Ended |
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(786.3 |
) |
Add back: |
|
|
|
|
Gain on early extinguishment of debt |
|
(5.8 |
) |
|
Tender costs |
|
20.0 |
|
|
Goodwill and intangible asset impairment charges |
|
856.7 |
|
|
Interest expense |
|
77.1 |
|
|
Income tax provision |
|
(35.2 |
) |
|
Depreciation and amortization |
|
35.1 |
|
|
Non-cash amortization of long-term incentive compensation |
|
55.1 |
|
|
Unrealized gains or losses on investments |
|
8.5 |
|
|
Other nonrecurring cash charges |
|
38.7 |
|
|
Cash paid for deferred commissions and mutual fund share awards |
|
(41.0 |
) |
|
Adjusted EBITDA |
|
$ |
222.9 |
|
|
|
|
|
|
Debt (including capital leases and letters of credit) |
|
$ |
797.0 |
|
|
|
|
|
|
Leverage Ratio (Debt divided by Adjusted EBITDA) |
|
3.58 |
|
|
Cannot exceed 8.00 |
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio (Adjusted EBITDA divided by Last Four Quarters Interest Expense) |
|
2.9 |
|
|
Must equal or exceed 2.0 |
|
|
|
|
|
|
|
|
|
Minimum long-term assets under management (in billions) |
|
$ |
150.0 |
|
Must exceed $80.0 billion |
|
|
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has had no material changes in its exposure to market risks from that previously reported in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
Item 4. Controls and Procedures
JCGs management evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2009. Disclosure controls and procedures are the controls and other procedures that the Company designed to ensure that it records, processes, summarizes and reports in a timely manner the information it must disclose in reports that it files with or submits to the SEC. Timothy K. Armour, Chief Executive Officer, and Gregory A. Frost, Executive Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Armour and Frost concluded that as of the date of their evaluation, JCGs disclosure controls and procedures were effective.
There has been no change in JCGs internal controls over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, JCGs internal controls over financial reporting.
24
PART II OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1. Financial Statements, Note 14 Legal Proceedings.
Item 1A. Risk Factors
The Company has had no material changes in its risk factors from those previously reported in the Companys Annual Report on Form 10-K for the year ended December 31, 2008 and Prospectus Supplements dated July 17, 2009, to the Registration Statement on Form S-3 (Registration No. 333-143510).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 22, 2008, the Board of Directors authorized a fifth $500 million stock repurchase program to take effect when the current authorization is utilized. Given the current market conditions, JCG suspended stock buybacks in the fourth quarter 2008 to preserve liquidity. The amount that may yet be repurchased under the current authorizations as of September 30, 2009 is $521 million. There were no share repurchases for the nine months ended September 30, 2009 under the current authorization or from employees as part of the share withholding program (established under Rule 10b5-1 of the Securities Exchange Act of 1934). JCG no longer purchases shares from employees under Rule 10b5-1. Tax withholdings on vesting employee stock-based compensation are satisfied by employees selling shares on the open market.
25
Item 6. Exhibits
10.1 |
|
Term Sheet setting forth the terms of employment of Timothy K. Armour |
|
|
|
10.2 |
|
$125 million Competitive Advance and Revolving Credit Facility Agreement, dated as of June 12, 2009, with Citibank, N.A., as administrative agent and swingline lender and JPMorgan Chase Bank, N.A., as syndication agent for the lenders |
|
|
|
31.1 |
|
Certification of Timothy K. Armour, Chief Executive Officer of Registrant |
|
|
|
31.2 |
|
Certification of Gregory A. Frost, Executive Vice President and Chief Financial Officer of Registrant |
|
|
|
32.1 |
|
Certification of Timothy K. Armour, Chief Executive Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2 |
|
Certification of Gregory A. Frost, Executive Vice President and Chief Financial Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
99.1 |
|
Lipper Rankings |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 22, 2009 |
||
|
||
|
||
|
Janus Capital Group Inc. |
|
|
|
|
|
|
|
|
/s/ Timothy K. Armour |
|
|
Timothy K. Armour, |
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
/s/ Gregory A. Frost |
|
|
Gregory A. Frost, |
|
|
Executive Vice President and |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer and |
|
|
Principal Accounting Officer) |
|
27
JANUS CAPITAL GROUP INC.
INDEX TO EXHIBITS
Exhibit |
|
Document |
|
Regulation S-K |
|
|
|
|
|
10.1 |
|
Term Sheet setting forth the terms of employment of Timothy K. Armour |
|
10 |
|
|
|
|
|
10.2 |
|
$125 million Competitive Advance and Revolving Credit Facility Agreement, dated as of June 12, 2009, with Citibank, N.A., as administrative agent and swingline lender and JPMorgan Chase Bank, N.A., as syndication agent for the lenders |
|
10 |
|
|
|
|
|
31.1 |
|
Certification of Timothy K. Armour, Chief Executive Officer of Registrant |
|
31 |
|
|
|
|
|
31.2 |
|
Certification of Gregory A. Frost, Executive Vice President and Chief Financial Officer of Registrant |
|
31 |
|
|
|
|
|
32.1 |
|
Certification of Timothy K. Armour, Chief Executive Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32 |
|
|
|
|
|
32.2 |
|
Certification of Gregory A. Frost, Executive Vice President and Chief Financial Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32 |
|
|
|
|
|
99.1 |
|
Lipper Rankings |
|
99 |