UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017March 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission File Number 001-38103
Janus Henderson Group plc
(Exact name of registrant as specified in its charter)
Jersey, Channel Islands |
| 98-1376360 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
201 Bishopsgate EC2M 3AE |
| N/A |
(Address of principal executive offices) |
| (Zip Code) |
+44 (0) 20 7818 1818
(Registrant’s telephone number, including area code)
Not applicableN/A
(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 ox No xo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer x | Smaller Reporting Company o |
Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of AugustMay 4, 2017,2018, there were 200,406,138 shares of the Group’s common stock, $1.50 par value per share, issued and outstanding.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
JANUS HENDERSON GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions, Except Share Data)
|
| June 30, |
| December 31, |
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| March 31, |
| December 31, |
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|
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 640.0 |
| $ | 279.0 |
|
| $ | 611.4 |
| $ | 760.1 |
|
Investment securities |
| 274.1 |
| 79.6 |
|
| 287.6 |
| 280.4 |
| ||||
Fees and other receivables |
| 346.3 |
| 165.5 |
|
| 339.9 |
| 419.6 |
| ||||
OEIC and unit trust debtors |
| 274.8 |
| 142.1 |
| |||||||||
OEIC and unit trust receivables |
| 244.8 |
| 239.9 |
| |||||||||
Assets of consolidated VIEs: |
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Cash and cash equivalents |
| 43.7 |
| 44.2 |
|
| 54.0 |
| 34.1 |
| ||||
Investment securities |
| 384.4 |
| 313.7 |
|
| 432.2 |
| 419.7 |
| ||||
Other current assets |
| 12.9 |
| 8.1 |
|
| 19.7 |
| 12.9 |
| ||||
Other current assets |
| 85.1 |
| 28.5 |
|
| 62.6 |
| 75.9 |
| ||||
Total current assets |
| 2,061.3 |
| 1,060.7 |
|
| 2,052.2 |
| 2,242.6 |
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Non-current assets: |
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Property, equipment and software, net |
| 76.5 |
| 41.2 |
|
| 69.4 |
| 70.6 |
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Intangible assets, net |
| 3,202.1 |
| 401.3 |
|
| 3,205.6 |
| 3,204.8 |
| ||||
Goodwill |
| 1,474.9 |
| 741.5 |
|
| 1,548.5 |
| 1,533.9 |
| ||||
Retirement benefit asset, net |
| 196.0 |
| 180.2 |
|
| 211.2 |
| 199.3 |
| ||||
Other non-current assets |
| 22.0 |
| 8.5 |
|
| 17.1 |
| 21.5 |
| ||||
Total assets |
| $ | 7,032.8 |
| $ | 2,433.4 |
|
| $ | 7,104.0 |
| $ | 7,272.7 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable and accrued liabilities |
| $ | 330.6 |
| $ | 141.7 |
|
| $ | 290.6 |
| $ | 292.9 |
|
Current portion of accrued compensation, benefits and staff costs |
| 205.1 |
| 147.0 |
|
| 206.4 |
| 398.7 |
| ||||
Current portion of long-term debt |
| 115.4 |
| — |
|
| 9.5 |
| 57.2 |
| ||||
OEIC and unit trust creditors |
| 273.2 |
| 137.9 |
| |||||||||
OEIC and unit trust payables |
| 242.0 |
| 234.8 |
| |||||||||
Liabilities of consolidated VIEs: |
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| ||||
Accounts payable and accrued liabilities |
| 23.9 |
| 26.2 |
|
| 21.8 |
| 21.5 |
| ||||
Total current liabilities |
| 948.2 |
| 452.8 |
|
| 770.3 |
| 1,005.1 |
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Non-current liabilities: |
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Accrued compensation, benefits and staff costs |
| 21.0 |
| 8.7 |
|
| 27.5 |
| 23.0 |
| ||||
Long-term debt |
| 323.5 |
| — |
|
| 321.3 |
| 322.0 |
| ||||
Deferred tax liabilities, net |
| 1,091.8 |
| 70.7 |
|
| 754.3 |
| 752.6 |
| ||||
Retirement benefit obligations, net |
| 6.5 |
| 11.9 |
|
| 4.7 |
| 4.6 |
| ||||
Other non-current liabilities |
| 94.7 |
| 39.0 |
|
| 81.3 |
| 99.6 |
| ||||
Total liabilities |
| 2,485.7 |
| 583.1 |
|
| 1,959.4 |
| 2,206.9 |
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Commitments and contingencies (See Note 13) |
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REDEEMABLE NONCONTROLLING INTERESTS |
| 172.0 |
| 158.0 |
|
| 217.7 |
| 190.3 |
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EQUITY |
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Common stock ($1.50 par and £0.125 par, 480,000,000 and 2,194,910,776 shares authorized; 200,406,138 and 1,131,842,109 shares issued and outstanding, respectively) |
| 300.6 |
| 234.4 |
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Common stock ($1.50 par, 480,000,000 shares authorized and 200,406,138 shares issued and outstanding) |
| 300.6 |
| 300.6 |
| |||||||||
Additional paid-in-capital |
| 3,824.5 |
| 1,237.9 |
|
| 3,786.0 |
| 3,842.9 |
| ||||
Treasury shares (4,115,574 and 38,848,749 shares held, respectively) |
| (157.9 | ) | (155.1 | ) | |||||||||
Treasury shares (5,297,473 and 4,071,284 shares held, respectively) |
| (198.9 | ) | (155.8 | ) | |||||||||
Accumulated other comprehensive loss, net of tax |
| (344.1 | ) | (434.5 | ) |
| (251.4 | ) | (301.8 | ) | ||||
Retained earnings |
| 708.0 |
| 764.8 |
|
| 1,255.9 |
| 1,151.4 |
| ||||
Total shareholders’ equity |
| 4,331.1 |
| 1,647.5 |
|
| 4,892.2 |
| 4,837.3 |
| ||||
Nonredeemable noncontrolling interests |
| 44.0 |
| 44.8 |
|
| 34.7 |
| 38.2 |
| ||||
Total equity |
| 4,375.1 |
| 1,692.3 |
|
| 4,926.9 |
| 4,875.5 |
| ||||
Total liabilities, redeemable noncontrolling interests and equity |
| $ | 7,032.8 |
| $ | 2,433.4 |
|
| $ | 7,104.0 |
| $ | 7,272.7 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
JANUS HENDERSON GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Millions, Except per Share Data)
|
| Three months ended |
| Six months ended |
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| Three months ended |
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| June 30, |
| June 30, |
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| March 31, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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Revenue: |
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Management fees |
| $ | 296.0 |
| $ | 222.9 |
| $ | 493.5 |
| $ | 441.2 |
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| $ | 502.9 |
| $ | 201.0 |
|
Performance fees |
| 57.7 |
| 13.9 |
| 72.5 |
| 28.7 |
|
| (3.9 | ) | 14.8 |
| ||||||
Shareowner servicing fees |
| 9.9 |
| — |
| 9.9 |
| — |
|
| 31.5 |
| — |
| ||||||
Other revenue |
| 21.2 |
| 20.3 |
| 38.4 |
| 41.6 |
|
| 57.2 |
| 17.2 |
| ||||||
Total revenue |
| 384.8 |
| 257.1 |
| 614.3 |
| 511.5 |
|
| 587.7 |
| 233.0 |
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Operating expenses: |
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Employee compensation and benefits |
| 123.6 |
| 67.2 |
| 194.0 |
| 134.6 |
|
| 146.7 |
| 70.4 |
| ||||||
Long-term incentive plans |
| 47.3 |
| 30.2 |
| 63.7 |
| 51.3 |
|
| 40.0 |
| 16.4 |
| ||||||
Distribution expenses |
| 60.7 |
| 57.3 |
| 107.8 |
| 111.9 |
|
| 117.3 |
| 50.6 |
| ||||||
Investment administration |
| 9.7 |
| 12.8 |
| 19.9 |
| 24.5 |
|
| 11.4 |
| 10.2 |
| ||||||
Marketing |
| 10.1 |
| 3.7 |
| 13.3 |
| 7.1 |
|
| 8.5 |
| 3.2 |
| ||||||
General, administrative and occupancy |
| 67.3 |
| 23.9 |
| 92.4 |
| 48.9 |
|
| 72.2 |
| 25.1 |
| ||||||
Depreciation and amortization |
| 9.4 |
| 5.6 |
| 15.7 |
| 11.2 |
|
| 15.4 |
| 6.3 |
| ||||||
Total operating expenses |
| 328.1 |
| 200.7 |
| 506.8 |
| 389.5 |
|
| 411.5 |
| 182.2 |
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Operating income |
| 56.7 |
| 56.4 |
| 107.5 |
| 122.0 |
|
| 176.2 |
| 50.8 |
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Interest expense |
| (2.0 | ) | (1.4 | ) | (3.1 | ) | (5.6 | ) |
| (3.8 | ) | (1.1 | ) | ||||||
Investment gains (losses), net |
| 9.8 |
| (8.9 | ) | 8.9 |
| (2.1 | ) | |||||||||||
Other non-operating expenses, net |
| (2.0 | ) | (3.2 | ) | (0.7 | ) | (2.6 | ) | |||||||||||
Investment losses, net |
| (0.7 | ) | (0.9 | ) | |||||||||||||||
Other non-operating income, net |
| 38.9 |
| 1.3 |
| |||||||||||||||
Income before taxes |
| 62.5 |
| 42.9 |
| 112.6 |
| 111.7 |
|
| 210.6 |
| 50.1 |
| ||||||
Income tax provision |
| (21.0 | ) | (2.7 | ) | (28.5 | ) | (16.9 | ) |
| (47.4 | ) | (7.5 | ) | ||||||
Net income |
| 41.5 |
| 40.2 |
| 84.1 |
| 94.8 |
|
| 163.2 |
| 42.6 |
| ||||||
Net loss attributable to noncontrolling interests |
| 0.2 |
| 6.1 |
| 0.2 |
| 3.0 |
|
| 2.0 |
| — |
| ||||||
Net income attributable to JHG |
| $ | 41.7 |
| $ | 46.3 |
| $ | 84.3 |
| $ | 97.8 |
|
| $ | 165.2 |
| $ | 42.6 |
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Earnings per share attributable to JHG common shareholders: |
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Basic |
| $ | 0.29 |
| $ | 0.42 |
| $ | 0.66 |
| $ | 0.88 |
|
| $ | 0.82 |
| $ | 0.38 |
|
Diluted |
| $ | 0.28 |
| $ | 0.41 |
| $ | 0.64 |
| $ | 0.86 |
|
| $ | 0.82 |
| $ | 0.38 |
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Other comprehensive income (loss), net of tax: |
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Net unrealized gains (losses) on available-for-sale securities |
| $ | — |
| $ | 0.4 |
| $ | (0.4 | ) | $ | (0.5 | ) | |||||||
Foreign currency translation gains (losses) |
| 51.2 |
| (95.5 | ) | 74.5 |
| (134.6 | ) | |||||||||||
Actuarial gains |
| — |
| 0.1 |
| — |
| 0.1 |
| |||||||||||
Other comprehensive income (loss), net of tax |
| 51.2 |
| (95.0 | ) | 74.1 |
| (135.0 | ) | |||||||||||
Other comprehensive loss (income) attributable to noncontrolling interests |
| 15.9 |
| (8.3 | ) | 16.3 |
| (7.2 | ) | |||||||||||
Other comprehensive income (loss) attributable to JHG |
| 67.1 |
| (103.3 | ) | 90.4 |
| (142.2 | ) | |||||||||||
Other comprehensive income, net of tax: |
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Foreign currency translation gains |
| $ | 52.7 |
| $ | 23.3 |
| |||||||||||||
Net unrealized losses on available-for-sale securities |
| — |
| (0.4 | ) | |||||||||||||||
Other comprehensive income, net of tax |
| 52.7 |
| 22.9 |
| |||||||||||||||
Other comprehensive loss attributable to noncontrolling interests |
| 0.2 |
| 0.4 |
| |||||||||||||||
Other comprehensive income attributable to JHG |
| $ | 52.9 |
| $ | 23.3 |
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Total comprehensive income (loss) |
| $ | 92.7 |
| $ | (54.8 | ) | $ | 158.2 |
| $ | (40.2 | ) | |||||||
Total comprehensive loss (income) attributable to noncontrolling interests |
| 16.1 |
| (2.2 | ) | 16.5 |
| (4.2 | ) | |||||||||||
Total comprehensive income (loss) attributable to JHG |
| $ | 108.8 |
| $ | (57.0 | ) | $ | 174.7 |
| $ | (44.4 | ) | |||||||
Total comprehensive income |
| $ | 215.9 |
| $ | 65.5 |
| |||||||||||||
Total comprehensive loss attributable to noncontrolling interests |
| 2.2 |
| 0.4 |
| |||||||||||||||
Total comprehensive income attributable to JHG |
| $ | 218.1 |
| $ | 65.9 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
JANUS HENDERSON GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
|
| Six months ended |
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| Three months ended |
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| June 30, |
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| March 31, |
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| 2017 |
| 2016 |
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| 2018 |
| 2017 |
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CASH FLOWS PROVIDED BY (USED FOR): |
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Operating activities: |
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Net income |
| $ | 84.1 |
| $ | 94.8 |
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| $ | 163.2 |
| $ | 42.6 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
| 15.7 |
| 11.2 |
|
| 15.4 |
| 6.3 |
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Stock-based compensation expense |
| 30.9 |
| 20.2 |
| |||||||||
Losses from equity-method investments |
| — |
| (0.7 | ) | |||||||||
Stock-based compensation plan expense |
| 16.4 |
| 7.9 |
| |||||||||
Losses from equity-method investments, net |
| — |
| 0.2 |
| |||||||||
Investment gains (losses), net |
| (8.9 | ) | 2.1 |
|
| 0.7 |
| — |
| ||||
Impairment of equity-method investment |
| — |
| 3.9 |
| |||||||||
Gain from BNP transaction |
| (23.0 | ) | — |
| |||||||||
Dai-ichi option fair value adjustments |
| (22.8 | ) | — |
| |||||||||
Contributions to pension plans in excess of costs recognized |
| (11.7 | ) | (4.3 | ) |
| (4.6 | ) | 0.8 |
| ||||
Other, net |
| 9.0 |
| 11.9 |
|
| (13.8 | ) | (1.6 | ) | ||||
Changes in operating assets and liabilities: |
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OEIC and unit trust receivables and payables |
| 2.6 |
| (2.0 | ) |
| 2.3 |
| 42.7 |
| ||||
Other assets |
| (107.9 | ) | 11.2 |
|
| 119.5 |
| 7.1 |
| ||||
Other accruals and liabilities |
| 47.8 |
| (64.8 | ) |
| (191.6 | ) | (36.4 | ) | ||||
Net operating activities |
| 61.6 |
| 83.5 |
|
| 61.7 |
| 69.6 |
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Investing activities: |
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Cash acquired from acquisition |
| 417.2 |
| — |
| |||||||||
Proceeds from: |
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Investment securities - VIEs, net |
| 139.9 |
| — |
| |||||||||
Investment securities - seed capital, net |
| 22.9 |
| 5.3 |
| |||||||||
Dividends received from equity-method investments |
| — |
| 0.3 |
| |||||||||
Purchases of: |
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Investment securities - seed capital |
| — |
| (50.2 | ) | |||||||||
Investment securities, net |
| (21.3 | ) | (5.0 | ) | |||||||||
Property, equipment and software |
| (8.4 | ) | (9.6 | ) |
| (6.5 | ) | (2.0 | ) | ||||
Proceeds from BNP transaction, net |
| 36.5 |
| — |
| |||||||||
Investment income received by consolidated funds |
| — |
| 1.5 |
| |||||||||
Net cash paid on settled hedges |
| (7.3 | ) | (16.5 | ) |
| 2.9 |
| (8.7 | ) | ||||
Net investing activities |
| 564.3 |
| (70.7 | ) |
| 11.6 |
| (14.2 | ) | ||||
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Financing activities: |
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Proceeds from settlement of convertible note hedge |
| 59.3 |
| — |
| |||||||||
Settlement of stock warrant |
| (47.8 | ) | — |
| |||||||||
Proceeds from issuance of option |
| 25.7 |
| — |
| |||||||||
Proceeds from stock-based compensation plans |
| 2.1 |
| 8.5 |
|
| 0.2 |
| — |
| ||||
Purchase of common stock for stock-based compensation plans |
| (39.1 | ) | (46.1 | ) |
| (82.7 | ) | (16.5 | ) | ||||
Dividends paid to shareholders |
| (128.6 | ) | (115.9 | ) |
| (63.1 | ) | — |
| ||||
Repayment of long-term borrowings |
| — |
| (215.0 | ) | |||||||||
Repayment of long-term debt |
| (81.6 | ) | — |
| |||||||||
Payment of Contingent consideration |
| (18.8 | ) | — |
| |||||||||
Distributions to noncontrolling interests |
| (0.5 | ) | — |
|
| (0.2 | ) | — |
| ||||
Third-party sales (redemptions) in consolidated seeded investment products, net |
| (148.8 | ) | 40.7 |
|
| 38.4 |
| (8.7 | ) | ||||
Principal payments under capital lease obligations |
| (0.1 | ) | — |
|
| (0.4 | ) | — |
| ||||
Net financing activities |
| (277.8 | ) | (327.8 | ) |
| (208.2 | ) | (25.2 | ) | ||||
|
|
|
|
|
| |||||||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
| ||||
Effect of foreign exchange rate changes |
| 12.4 |
| (19.3 | ) |
| 6.1 |
| 8.2 |
| ||||
Net change |
| 360.5 |
| (334.3 | ) |
| (128.8 | ) | 38.4 |
| ||||
At beginning of period |
| 323.2 |
| 583.7 |
|
| 794.2 |
| 323.2 |
| ||||
At end of period |
| $ | 683.7 |
| $ | 249.4 |
|
| $ | 665.4 |
| $ | 361.6 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
| ||||
Cash paid for interest |
| $ | 0.3 |
| $ | 7.7 |
|
| $ | 7.4 |
| $ | 0.3 |
|
Cash paid for income taxes, net of refunds |
| $ | 25.0 |
| $ | 14.0 |
|
| $ | 26.4 |
| $ | 10.3 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reconciliation of cash and cash equivalents |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 640.0 |
| $ | 204.9 |
|
| $ | 611.4 |
| $ | 327.6 |
|
Cash and cash equivalents held in VIEs |
| $ | 43.7 |
| $ | 44.5 |
| |||||||
Cash and cash equivalents held in consolidated VIEs |
| 54.0 |
| 34.0 |
| |||||||||
Total cash and cash equivalents |
| $ | 683.7 |
| $ | 249.4 |
|
| $ | 665.4 |
| $ | 361.6 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
JANUS HENDERSON GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(Amounts in Millions)
|
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| Accumulated |
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|
| Accumulated |
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| ||||||||||||||
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| Additional |
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| other |
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| Nonredeemable |
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| Additional |
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| other |
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| Nonredeemable |
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|
| Number |
| Common |
| paid-in- |
| Treasury |
| comprehensive |
| Retained |
| noncontrolling |
| Total |
|
| Number |
| Common |
| paid-in- |
| Treasury |
| comprehensive |
| Retained |
| noncontrolling |
| Total |
| ||||||||||||||
|
| of shares |
| stock |
| capital |
| shares |
| loss |
| earnings |
| interests |
| equity |
|
| of shares |
| stock |
| capital |
| shares |
| loss |
| earnings |
| interests |
| equity |
| ||||||||||||||
Balance at December 31, 2015 |
| 1,131.8 |
| $ | 234.4 |
| $ | 1,237.9 |
| $ | (175.3 | ) | $ | (189.6 | ) | $ | 759.5 |
| $ | 44.1 |
| $ | 1,911.0 |
| ||||||||||||||||||||||||
Balance at December 31, 2016 |
| 1,131.8 |
| $ | 234.4 |
| $ | 1,237.9 |
| $ | (155.1 | ) | $ | (434.5 | ) | $ | 764.8 |
| $ | 44.8 |
| $ | 1,692.3 |
| ||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 97.8 |
| (3.0 | ) | 94.8 |
|
| — |
| — |
| — |
| — |
| — |
| 42.6 |
| — |
| 42.6 |
| ||||||||||||||
Other comprehensive income (loss) |
| — |
| — |
| — |
| — |
| (142.2 | ) | — |
| 7.2 |
| (135.0 | ) |
| — |
| — |
| — |
| — |
| 23.3 |
| — |
| (0.4 | ) | 22.9 |
| ||||||||||||||
Purchase of common stock for stock-based compensation plans |
| — |
| — |
| — |
| (16.5 | ) | — |
| — |
| — |
| (16.5 | ) | |||||||||||||||||||||||||||||||
Vesting of stock-based compensation plans |
| — |
| — |
| — |
| 2.4 |
| — |
| (2.4 | ) | — |
| — |
| |||||||||||||||||||||||||||||||
Stock-based compensation plan expense |
| — |
| — |
| — |
| — |
| — |
| 7.9 |
| — |
| 7.9 |
| |||||||||||||||||||||||||||||||
Balance at March 31, 2017 |
| 1,131.8 |
| $ | 234.4 |
| $ | 1,237.9 |
| $ | (169.2 | ) | $ | (411.2 | ) | $ | 812.9 |
| $ | 44.4 |
| $ | 1,749.2 |
| ||||||||||||||||||||||||
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Balance at December 31, 2017 |
| 200.4 |
| $ | 300.6 |
| $ | 3,842.9 |
| $ | (155.8 | ) | $ | (301.8 | ) | $ | 1,151.4 |
| $ | 38.2 |
| $ | 4,875.5 |
| ||||||||||||||||||||||||
Cumulative-effect adjustment |
| — |
| — |
|
|
| — |
| (2.5 | ) | 2.7 |
| — |
| 0.2 |
| |||||||||||||||||||||||||||||||
Balance at December 31, 2017 - Adjusted |
| 200.4 |
| $ | 300.6 |
| $ | 3,842.9 |
| $ | (155.8 | ) | $ | (304.3 | ) | $ | 1,154.1 |
| $ | 38.2 |
| $ | 4,875.7 |
| ||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 165.2 |
| (3.4 | ) | 161.8 |
| |||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| 52.9 |
| — |
| — |
| 52.9 |
| |||||||||||||||||||||||||||||||
Dividends paid to shareholders |
| — |
| — |
| — |
| — |
| — |
| (115.9 | ) | — |
| (115.9 | ) |
| — |
| — |
| — |
| — |
| — |
| (63.1 | ) | — |
| (63.1 | ) | ||||||||||||||
Distributions to noncontrolling interests |
| — |
| — |
| — |
| — |
| — |
| — |
| (0.1 | ) | (0.1 | ) | |||||||||||||||||||||||||||||||
Fair value adjustments to redeemable noncontrolling interests |
| — |
| — |
| — |
| — |
| — |
| (0.3 | ) | — |
| (0.3 | ) | |||||||||||||||||||||||||||||||
Redemptions of convertible debt |
| — |
| — |
| (33.9 | ) | — |
| — |
| — |
| — |
| (33.9 | ) | |||||||||||||||||||||||||||||||
Purchase of common stock for stock-based compensation plans |
| — |
| — |
| — |
| (46.1 | ) | — |
| — |
| — |
| (46.1 | ) |
| — |
| — |
| (37.3 | ) | (45.4 | ) | — |
| — |
| — |
| (82.7 | ) | ||||||||||||||
Vesting of stock-based compensation plans |
| — |
| — |
| — |
| 65.8 |
| — |
| (65.8 | ) | — |
| — |
|
| — |
| — |
| (2.3 | ) | 2.3 |
| — |
| — |
| — |
| — |
| ||||||||||||||
Stock-based compensation plan expense |
| — |
| — |
| — |
| — |
| — |
| 20.2 |
| — |
| 20.2 |
|
| — |
| — |
| 16.4 |
| — |
| — |
| — |
| — |
| 16.4 |
| ||||||||||||||
Proceeds from stock-based compensation plans |
| — |
| — |
| — |
| — |
| — |
| 8.5 |
| — |
| 8.5 |
|
| — |
| — |
| 0.2 |
| — |
| — |
| — |
| — |
| 0.2 |
| ||||||||||||||
Balance at June 30, 2016 |
| 1,131.8 |
| $ | 234.4 |
| $ | 1,237.9 |
| $ | (155.6 | ) | $ | (331.8 | ) | $ | 704.3 |
| $ | 48.3 |
| $ | 1,737.5 |
| ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Balance at December 31, 2016 |
| 1,131.8 |
| $ | 234.4 |
| $ | 1,237.9 |
| $ | (155.1 | ) | $ | (434.5 | ) | $ | 764.8 |
| $ | 44.8 |
| $ | 1,692.3 |
| ||||||||||||||||||||||||
Share consolidation |
| (1,018.6 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 84.3 |
| (0.5 | ) | 83.8 |
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| — |
| — |
| — |
| — |
| 90.4 |
| — |
| (16.3 | ) | 74.1 |
| |||||||||||||||||||||||||||||||
Dividends paid to shareholders |
| — |
| — |
| — |
| — |
| — |
| (128.6 | ) | — |
| (128.6 | ) | |||||||||||||||||||||||||||||||
Distributions to noncontrolling interests |
| — |
| — |
| — |
| — |
| — |
| — |
| (0.5 | ) | (0.5 | ) | |||||||||||||||||||||||||||||||
Derivative instruments acquired on acquisition |
| — |
| — |
| 54.4 |
| — |
| — |
| — |
| — |
| 54.4 |
| |||||||||||||||||||||||||||||||
Noncontrolling interests recognized on acquisition |
| — |
| — |
| — |
| — |
| — |
| — |
| 16.5 |
| 16.5 |
| |||||||||||||||||||||||||||||||
Settlement of derivative instruments |
| — |
| — |
| (11.5 | ) | — |
| — |
| — |
| — |
| (11.5 | ) | |||||||||||||||||||||||||||||||
Purchase of common stock for stock-based compensation plans |
| — |
| — |
| — |
| (39.1 | ) | — |
| — |
| — |
| (39.1 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock |
| 87.2 |
| 130.8 |
| 2,551.2 |
| — |
| — |
| — |
| — |
| 2,682.0 |
| |||||||||||||||||||||||||||||||
Redenomination and reduction of par value of stock |
| — |
| (64.6 | ) | 64.6 |
| — |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||
Acquisition adjustment in relation to unvested awards |
| — |
| — |
| (81.3 | ) | — |
| — |
| — |
| — |
| (81.3 | ) | |||||||||||||||||||||||||||||||
Vesting of stock-based compensation plans |
| — |
| — |
| (13.9 | ) | 36.3 |
| — |
| (22.4 | ) | — |
| — |
| |||||||||||||||||||||||||||||||
Stock-based compensation plan expense |
| — |
| — |
| 21.0 |
| — |
| — |
| 9.9 |
| — |
| 30.9 |
| |||||||||||||||||||||||||||||||
Proceeds from stock-based compensation plans |
| — |
| — |
| 2.1 |
| — |
| — |
| — |
| — |
| 2.1 |
| |||||||||||||||||||||||||||||||
Balance at June 30, 2017 |
| 200.4 |
| $ | 300.6 |
| $ | 3,824.5 |
| $ | (157.9 | ) | $ | (344.1 | ) | $ | 708.0 |
| $ | 44.0 |
| $ | 4,375.1 |
| ||||||||||||||||||||||||
Balance at March 31, 2018 |
| 200.4 |
| $ | 300.6 |
| $ | 3,786.0 |
| $ | (198.9 | ) | $ | (251.4 | ) | $ | 1,255.9 |
| $ | 34.7 |
| $ | 4,926.9 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
JANUS HENDERSON GROUP PLC
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Basis of Presentation and Significant Accounting Policies
Basis of Presentation
In the opinion of the management of Janus Henderson Group plc (“JHG” or “the Group”), previously Henderson Group plc (“Henderson”), the accompanying condensed consolidated financial statements contain all normal recurring adjustments necessary to fairly presentstate the financial position, results of operations and cash flows of JHG in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the annual consolidated financial statements and notes includedpresented in the Henderson annual financial statementsJHG’s Annual Report on Form 10-K for the year ended December 31, 2016, which can be found in JHG’s prospectus dated March 21, 2017, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-216824) (the “Prospectus”).2017. Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying financial statements through the issuance date and are included in the notes to the condensed consolidated financial statements. Certain prior period balances have been reclassified for conformity with current period presentation. There was no impact on the results.
The Group had $9.9 million and $20.2 million of stock-based compensation costs and nil and $8.5 million of proceeds from stock-based compensation plans included in retained earnings during the six-month periods ended June 30, 2017 and June 30, 2016, respectively. Prior to the Group’s Extraordinary General Meeting (“EGM”) on April 26, 2017, the Group’s articles of association did not allow the Group to recognize these items in additional paid-in-capital. A change in the Group’s articles of association was approved at the EGM and from April 26, 2017, all costs in relation to stock-based compensation will be recognized in additional paid-in-capital. The accumulated balance in relation to stock-based compensation plans within retained earnings as of June 30, 2017 and December 31, 2016, was $(105.4) million and $(92.9) million, respectively.
Share Redenomination and Consolidation
On April 26, 2017, Henderson redenominated its ordinary shares from Great British pound (“GBP”) to U.S. dollar (“USD”) resulting in a change in par value from £0.125 to $0.1547 per share. At that time Henderson had 1,131,842,110 shares in issue and as a result the ordinary share nominal capital became $175.1 million. The difference between the revised ordinary share nominal capital balance of $175.1 million and the previously stated ordinary share nominal capital balance of $234.4 million (converted at the historic exchange rate rather than the rate required for the redenomination under Jersey company law) was recognized as a component of additional paid-in-capital. Consequently, the additional paid-in-capital balance was adjusted from $1,237.9 million to $1,297.2 million.
Additionally, in accordance with a special resolution passed by the shareholders on May 3, 2017, the par value of the shares of Henderson was reduced to $0.15 per share from $0.1547 per share and the total ordinary share nominal capital became $169.8 million. In accordance with that resolution, the reduction in the total ordinary share nominal capital of $5.3 million was credited to the additional paid-in-capital account which moved from $1,297.2 million to $1,302.5 million.
On April 26, 2017, the shareholders approved a 10-to-1 share consolidation, which took effect on May 30, 2017. As a result of the share consolidation, the number of shares in issue was reduced by a factor of 10, and the par value of the shares became $1.50.
Merger with Janus Capital Group Inc.
On May 30, 2017, (the “Closing Date”),JHG completed a merger of equals with Janus Capital Group Inc. (“JCG”) and Henderson announced the completion of an all-stock merger of equals (“the Merger”(the “Merger”). JCG isAs a U.S.-based asset manager. The Merger is expected to accelerate the Group’s strategic objectives for growth, diversification and the creation of a global active investment manager. Based on an evaluationresult of the Merger, agreement provisions, Henderson was determined to be the acquirer for accounting purposesJCG and the historical financial statements and notes included herein represent Henderson.its consolidated subsidiaries became subsidiaries of JHG.
Prior to the Merger, Henderson’s functional currency was GBP. After consideration of numerous factors, management concluded that the post-merger functional currency of JHG will be USD.
The Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017, include JCG results from the Closing Date. The Condensed Consolidated Balance Sheet reflects the financial position of JHG at June 30, 2017. See Note 2 - Acquisitions, for more information on the Merger.
Recent Accounting Pronouncements Not Yet Adopted
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new revenue recognition standard. The standard’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. The revenue standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
In March 2016, the FASB issued an amendment to its principal-versus-agent guidance in the FASB’s new revenue standard. The key provisions of the amendment are assessing the nature of the entity’s promise to the customer, identifying the specified goods or services, and applying the control principle and indicators of control. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. In addition, entities are required to adopt the amendment by using the same transition method they used to adopt the new revenue standard.
The Group adopted the new revenue recognition standard, along with the updated principal-versus-agent guidance, effective January 1, 2018, using the retrospective method, which required adjustments to be reflected as of January 1, 2016. In connection with the adoption of this guidance, the Group determined that the new guidance does not change the timing of when the Group recognizes revenue. However, management did conclude that certain distribution and servicing fees earned from its U.S. mutual funds associated with mutual fund transfer agent, accounting, shareholder servicing and participant recordkeeping activities could no longer be reported net of the expenses paid to third-party intermediaries that perform such services. Under the new guidance, the Group is evaluatingdeemed to have control over the effect of adopting this new accounting standard, includingdistribution and servicing activities before they are transferred to the amending Accounting Standards Update (“ASU”),U.S. mutual funds. As such, distribution and is focusedservicing fees collected from the Group’s U.S. mutual funds will be reported separately from distribution and servicing fees paid to third-party intermediaries on the assessmentGroup’s Condensed Consolidated Statements of its mutual fund performance fees and the related applicability of the new guidance. Currently, JHG does not expect a change in accounting treatment for mutual fund performance fees or other operating revenues uponComprehensive Income. The adoption of the new guidance. However,standard increased other revenue and distribution expenses on the Group’s evaluationCondensed Consolidated Statements of Comprehensive Income by $25.8 million during the three months ended March 31, 2018. The adoption of the standard did not have an impact to net income attributable to JHG on the Group’s Condensed Consolidated Statements of Comprehensive Income.
The Group did not have significant distribution and servicing fees and expenses related to U.S. mutual funds prior to its acquisition of Janus Capital Group Inc. on May 30, 2017, and as such, there was not a significant impact of
adopting the new revenue guidance to the Group’s Condensed Consolidated Statements of Comprehensive Income for the quarter ended March 31, 2017.
The Group’s revenue recognition policy, revised as of January 1, 2018, is ongoing and not complete.detailed below.
Financial Instruments
In January 2016, the FASB issued amendments to its financial instruments standard, including changes relating to the accounting for equity investments and the presentation and disclosure requirements for financial instruments. Under the amended guidance, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The amended guidance also requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category (e.g., fair value, amortized cost, lower of cost or market)market value) and form of financial asset (e.g., loans, securities). The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Group is evaluating the effect of adopting this new accounting standard.
In February 2016,On January 1, 2018, the FASB issued a newGroup adopted the financial instruments accounting standard on a modified retrospective basis. The accounting for leases. The new standard representsrequired the Group to reclassify a significant change$2.5 million unrealized gain related to lease accounting and introducesavailable-for-sale securities in accumulated other comprehensive income to retained earnings as a lessee model that brings most leases ontobeginning of period cumulative-effect adjustment. As of January 1, 2018, the balance sheet. The standard also aligns certain of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the new standard addresses other concernsaccumulated comprehensive income related to available-for-sale securities is zero and gains and losses associated with all equity securities are recognized in investment losses, net on the current leases model. The standard is effective for fiscal years beginning after December 15, 2018. The Group is evaluating the effectGroup’s Condensed Consolidated Statements of adopting this new accounting standard.Comprehensive Income.
Retirement Benefit Plans
In March 2016,2017, the FASB issued an amendment to its principal-versus-agentAccounting Standards Update (“ASU”) that requires the bifurcation of net periodic pension costs. The service cost component will be presented with other employee compensation costs in operating income, while the other components of net periodic pension costs will be presented separately outside of operations. The guidance in the FASB’s new revenue standard. The key provisions of the amendment are assessing the nature of the entity’s promise to the customer, identifying the specified goods or services, and applying the control principle and indicators of control. The amendment is effective for annual reporting periods beginning after December 15, 2017, includingand interim periods within those annualthat reporting periods. In addition, entities are requiredperiod. The Group anticipates the impact to adopt the amendment by using the same transition method they used to adopt the new revenue standard. The Group’s principal-versus-agent assessment is focusedbe approximately $5.3 million of other components excluding service costs recognized outside of operating expenses on treatmentan annualized basis.
Statements of distribution fees collected from mutual fund assets and whether such fees should be reported as revenue (1) on a gross basis or (2) on a net basis, where such fees are reduced by distribution fees paid by the Group to intermediaries. The Group’s assessment is ongoing and not complete.Cash Flows
In August 2016, the FASB issued an ASU to clarify guidance on the classification of certain cash receipts and cash payments in the statements of cash flows. The FASB issued the ASU with the intent of reducing diversity in practice regarding eight types of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The Group is evaluatingadoption of the effect of adopting this new accounting standard.standard did not have a material impact on the Consolidated Statements of Cash Flows.
Recent Accounting Pronouncements Not Yet Adopted
Leases
In NovemberFebruary 2016, the FASB issued an ASUa new standard on accounting for leases. The new standard represents a significant change to clarify guidance onlease accounting and introduces a lessee model that brings most leases onto the classification and presentationbalance sheet. The standard also aligns certain of restricted cashthe underlying principles of the new lessor model with those in the statements of cash flows.FASB’s new revenue recognition standard. Furthermore, the new standard addresses other concerns related to
the current leases model. The ASUstandard is effective for annual reporting periodsfiscal years beginning after December 15, 2017, including interim periods within those annual reporting periods.2018. The Group is evaluating the effect of adopting this new accounting standard.
In JanuaryAugust 2017, the FASB issued an ASU that simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test.amends hedge accounting. The ASU requires goodwill impairments to be measured onexpands the basis of the fair value of the reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit.strategies eligible for hedge accounting, changes how companies assess hedge effectiveness and will require new disclosures and presentation. The ASU is effective on January 1, 2019, for annual and interim impairment tests for periods beginning after December 15, 2021. Earlycalendar year-end companies; however, early adoption is allowed for annual and interim impairment tests occurring after January 1, 2017.permitted. The Group is evaluating the effect of adopting this new accounting standard.
Note 2Revenue Recognition Policy — Acquisitions
Merger with JCGUpdated January 1, 2018
OnRevenue is measured and recognized based on the Closing Date, pursuantfive step process outlined in US GAAP. Revenue is determined based on the transaction price negotiated with the customer, net of rebates. Management fees, performance fees, shareowner servicing fees and other revenue are derived from providing professional services to manage investment products.
Management fees are earned over time as services are provided and are generally based upon a percentage of the Agreement and Planmarket value of Merger dated as of October 3, 2016 (the “Merger Agreement”assets under management (“AUM”), by and among JCG, a Delaware corporation, Henderson, a company incorporated in Jersey, and Horizon Orbit Corp., a Delaware corporation and a direct and wholly owned subsidiary of Henderson (“Merger Sub”), Merger Sub merged with and into JCG, with JCG surviving such merger. These fees are calculated as a directpercentage of either the daily, month end or quarter end average asset balance in accordance with contractual agreements.
Performance fees are specified in certain fund and wholly owned subsidiaryclient contracts and are based on investment performance either on an absolute basis or compared to an established index over a specified period of Henderson. Upon closingtime. Performance fees are generated on certain management contracts when performance hurdles or other specified criteria are achieved. Performance fees for all fund ranges and separate accounts are recognized when it is probable that a significant reversal of revenue recognized will not occur in future periods. There are no performance fee contracts where revenue can be clawed back. There are no cumulative revenues recognized that would be reversed if all of the Merger, Hendersonexisting investments became the parent holding company for the combined group and was renamed Janus Henderson Group plc.worthless.
Upon closingManagement fees are primarily received monthly or quarterly while performance fees are usually received monthly, quarterly or annually by the Group, although the frequency of receipt varies between agreements. Management and performance fee revenue not yet received is recognized within fees and other receivables in the Consolidated Balance Sheets.
Shareowner servicing fees are earned for services rendered related to transfer agent and administrative activities performed for investment products. These services are transferred over time and are generally based on upon a percentage of the Merger, holders of JCG common stock received 0.47190 fully paid and non-assessable JHG ordinary shares with a parmarket value of $1.50 per share (the “Ordinary Shares”) for each share of JCG common stock held, plus cash in lieu of any fractional sharesAUM.
Other revenue includes distribution and servicing fees earned from U.S. mutual funds associated with mutual fund transfer agent, accounting, shareholder servicing and participant recordkeeping activities. These services are transferred over time and are generally based on prevailing market prices. Effective immediately prior to the closingupon a percentage of the Merger, Henderson implemented a share consolidationmarket value of ordinary shares at a ratio of one Ordinary Share (or Chess Depositary Interest (“CDI”), as applicable) for every 10 ordinary shares (or CDIs, as applicable) outstanding.AUM.
U.S. Mutual Fund Performance Fees
The fair value of consideration transferredinvestment management fee paid by each U.S. mutual fund subject to JCG common stockholders was $2,600.7 million, representing 87.2 million shares of JHG transferred at a share price of $30.75 eachperformance fee is the base management fee plus or minus a performance fee adjustment as determined by the relative investment performance of the Closing Date, adjusted forfund compared to a post-combination stock-based compensation charge for unvested shares in relationspecified benchmark index. Under the performance based fee structure, the investment advisory fee paid by each fund consists of two components: (1) a base fee calculated by applying the contractual fixed rate of the advisory fee to JCG share plans.the fund’s average daily net assets during the previous month, plus or minus (2) a performance fee adjustment calculated by applying a variable rate of up to 0.15% to the fund’s average daily net assets during the performance measurement period. The performance measurement period begins as a trailing period ranging from 12 to 18 months, and each subsequent month is added to each successive performance measurement period until a 36 month period is achieved. At that point, the measurement period becomes a rolling 36 month period.
The issuanceaddition of JHG shares in connection withperformance fees to all funds without such fees is subject to the Merger was registered underapproval of both a majority of the Securities Actshareholders of 1933, as amended, pursuant to JHG’s registration statement on Form F- 4 (File No. 333- 216824) filed withsuch Funds and the SEC on March 20, 2017 (the “Registration Statement”).Funds’ Independent Board of Trustees.
Preliminary Fair Values of Assets Acquired and Liabilities AssumedPrincipal versus Agent
Preliminary estimates of fair values of the assets acquired and liabilities assumed are based on information available as of the closing of the Merger. The Group is continuingutilizes third party intermediaries to evaluate the underlying inputs and assumptions usedfulfill certain performance obligations in its valuations. Accordingly,revenue agreements. Generally, JHG is deemed to be the principal in these preliminary estimatesarrangements, because the Group controls the investment management and other related services before they are subjecttransferred to change duringcustomers. Such control is evidenced by the measurement period, which is upGroup’s primary responsibility to one year fromcustomers, the closingability to negotiate the third party contract price and select and direct third party service providers, or a combination of these factors. Therefore, distribution and service fee revenues and the Merger.related third party distribution and service expenses are reported on a gross basis.
The preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed is presented in the following table (in millions):
|
| Preliminary |
| |
|
| purchase price |
| |
|
| allocation |
| |
Assets: |
|
|
| |
Cash and cash equivalents |
| $ | 417.2 |
|
Investment securities |
| 270.4 |
| |
Fees and other receivables |
| 133.7 |
| |
Other current assets |
| 119.4 |
| |
Property, equipment and software |
| 32.3 |
| |
Intangible assets |
| 2,785.0 |
| |
Goodwill |
| 697.9 |
| |
Other non-current assets |
| 10.6 |
| |
Liabilities: |
|
|
| |
Long-term debt |
| 481.8 |
| |
Deferred tax liabilities |
| 1,025.6 |
| |
Other current liabilities |
| 243.8 |
| |
Other non-current liabilities |
| 55.2 |
| |
Noncontrolling interests |
| 59.4 |
| |
Net assets acquired |
| $ | 2,600.7 |
|
Goodwill
Goodwill primarily represents the value JHG expects to obtain from growth opportunities and synergies for the combined operations. Goodwill is not deductible for tax purposes.
Intangible Assets
Acquired intangible assets include the value of investment advisory agreements for mutual funds, separate accounts and exchange traded products (“ETPs”). Also included are the values of acquired trademarks, which include trademarks for Janus Capital Management LLC (“Janus”), INTECH Investment Management LLC (“INTECH”), Kapstream Capital Pty Limited (“Kapstream”), Perkins Investment Management LLC (“Perkins”) and VS Holdings Inc. (“VelocityShares”). Preliminary estimates of acquired intangible assets and their related estimated useful lives are presented in the following table (in millions):
|
| Estimated |
| Estimated useful |
| |
|
| fair value |
| life (in years) |
| |
Investment management contracts - mutual funds |
| $ | 2,155.0 |
| Indefinite |
|
Investment management contracts - separate accounts |
| 202.0 |
| 13-22 |
| |
Investment management contracts - exchange traded notes |
| 33.0 |
| 15 |
| |
Investment management contracts - exchange traded funds |
| 14.0 |
| Indefinite |
| |
Trademarks |
| 381.0 |
| Indefinite |
| |
|
| $ | 2,785.0 |
|
|
|
The following table presents movement in intangible assets during the period (in millions):
|
| December 31, 2016 |
| Merger |
| Amortization |
| Foreign currency |
| June 30, 2017 |
| |||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment management agreements |
| $ | 334.8 |
| $ | 2,169.0 |
| $ | — |
| $ | 23.5 |
| $ | 2,527.3 |
|
Trademarks |
| — |
| 381.0 |
| — |
| — |
| 381.0 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Client relationships |
| 126.9 |
| 235.0 |
| — |
| 1.0 |
| 362.9 |
| |||||
Accumulated amortization |
| (60.4 | ) | — |
| (8.7 | ) | — |
| (69.1 | ) | |||||
Net intangible assets |
| $ | 401.3 |
| $ | 2,785.0 |
| $ | (8.7 | ) | $ | 24.5 |
| $ | 3,202.1 |
|
Amortization expense was $5.1 million and $8.7 million for the three and six months ended June 30, 2017, respectively, and $3.7 million and $7.4 million and for the same periods ended June, 2016. Expected future amortization expense is summarized below (in millions):
Year ended December 31, |
| Amount |
| |
2017 (remainder of year) |
| $ | 14.8 |
|
2018 |
| 29.6 |
| |
2019 |
| 29.6 |
| |
2020 |
| 29.6 |
| |
2021 |
| 26.8 |
| |
2022 |
| 18.3 |
| |
Thereafter |
| 144.6 |
| |
Total |
| $ | 293.3 |
|
Debt
Debt was valued using quoted market prices, which are considered fair value Level 2 inputs.
The acquired 0.750% Convertible Senior Notes due 2018 (“2018 Convertible Notes”) may be wholly or partially settled in cash, and thereby the liability and conversion feature components are accounted for separately. The $115.2 million liability component was determined by discounting future contractual cash flows at a 1.9% rate, which is consistent with the estimated market interest rate for similar senior notes with no conversion option. The liability component will accrete up to the face value of $116.6 million, through interest expense, over the
remaining term of the notes. The $42.9 million equity component was determined as the difference between the liability component and the fair value of the notes at the Closing Date.
The 4.875% Senior Notes due 2025 (“2025 Senior Notes”) were recorded at their fair value of $323.7 million at the time of the Merger. The 2025 Senior Notes include unamortized debt premium at June 30, 2017, of $27.9 million, which will be amortized over the remaining life of the notes through interest expense. The unamortized debt premium is recorded as a liability within long-term debt on JHG’s Condensed Consolidated Balance Sheets.
Deferred Tax Liabilities, Net
Deferred income taxes primarily relate to deferred income tax balances acquired from JCG and the deferred tax impact of fair value adjustments of the assets and liabilities acquired from JCG, including intangible assets and long-term debt. Deferred income taxes were provisionally estimated based on statutory tax rates in the jurisdictions of the legal entities where the acquired assets and liabilities are taxed. Tax rates used are continually assessed, and updates to deferred income tax estimates are based on any changes to provisional valuations of the related assets and liabilities and refinement of the effective tax rates, which could result in changes to these provisional values.
Pro Forma Results of Operations
The following table presents summarized unaudited supplemental pro forma operating results as if the Merger had occurred at the beginning of each of the periods presented (in millions). The only material adjustment made was the inclusion of the JCG results for the periods.
|
| Six months ended |
| ||||
|
| June 30, 2017 |
| June 30, 2016 |
| ||
Revenues |
| $ | 1,053.2 |
| $ | 1,011.9 |
|
Net income attributable to JHG |
| $ | 133.4 |
| $ | 174.0 |
|
JCG Results of Operations
Revenue and net income of JCG from the Closing Date through the end of the second quarter 2017 included in JHG’s Condensed Consolidated Statements of Comprehensive Income is presented in the following table (in millions):
|
| Closing Date - |
| |
|
| June 30, 2017 |
| |
Revenues |
| $ | 105.2 |
|
Net income attributable to JCG |
| $ | 15.7 |
|
Options
On the Closing Date of the Merger, JHG granted Dai-ichi Life Holdings Inc. (“Dai-ichi”) 20 tranches of conditional options with each tranche allowing Dai-ichi to purchase 500,000 JHG ordinary shares at a strike price of £29.972 per share (the terms of such options having been adjusted in accordance with the terms of the Dai-ichi option agreement to take account of the effect of the share consolidation). The cash consideration of the options was £19.8 million ($25.7 million). The options can be exercised by Dai-ichi for the period from the Closing Date of the Merger until October 3, 2018.
Contingent Consideration
Acquisitions prior to the Merger included contingent consideration. Refer to Note 5 — Fair Value Measurements for a detailed discussion of the terms of the contingent consideration.
Note 32 — Consolidation
Variable Interest Entities
Consolidated Variable Interest Entities
JHG’s consolidated variable interest entities (“VIEs”) as of June 30, 2017,March 31, 2018, include certain consolidated seeded investment products in which the Group has an investment and acts as the investment manager. The assets of these VIEs are not available to JHG or the creditors of JHG. JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VIEs to use in its operating activities or otherwise. In addition, the investors in these VIEs have no recourse to the credit of the Group.
Consolidated VIE assets and liabilities, presented after intercompany eliminations, at June 30, 2017, and December 31, 2016, are as follows (in millions):
|
| June 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Investment securities |
| $ | 384.4 |
| $ | 313.7 |
|
Cash and cash equivalents |
| 43.7 |
| 44.2 |
| ||
Other current assets |
| 12.9 |
| 8.1 |
| ||
Accounts payable and accrued liabilities |
| (23.9 | ) | (26.2 | ) | ||
Total |
| 417.1 |
| 339.8 |
| ||
Redeemable noncontrolling interests in consolidated VIEs |
| (150.8 | ) | (158.0 | ) | ||
Nonredeemable noncontrolling interests in consolidated VIEs |
| (27.9 | ) | (44.8 | ) | ||
JHG’s net interest in consolidated VIEs |
| $ | 238.4 |
| $ | 137.0 |
|
Unconsolidated Variable Interest Entities
At June 30, 2017,March 31, 2018, and December 31, 2016,2017, JHG’s carrying values of investment securities included on the Condensed Consolidated Balance Sheets pertaining to unconsolidated VIEs was $1.1nil and $6.2 million, and nil, respectively. JHG’s total exposure to unconsolidated VIEs represents the value of its economic ownership interest in the investment securities.
Voting Rights Entities
Consolidated Voting Rights Entities
The following table presents the balances related to consolidated voting rights entities (“VREs”) that were recorded on JHG’s Condensed Consolidated Balance Sheets, including JHG’s net interest in these products (in millions):
|
| June��30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Investment securities |
| $ | 12.7 |
| $ | 5.1 |
|
| $ | 23.5 |
| $ | 18.9 |
|
Cash and cash equivalents |
| 4.9 |
| 5.9 |
| |||||||||
Other current assets |
| 0.6 |
| 0.6 |
| |||||||||
Accounts payable and accrued liabilities |
| (1.7 | ) | (2.2 | ) | |||||||||
Total |
| 27.3 |
| 23.2 |
| |||||||||
Redeemable noncontrolling interests in consolidated VREs |
| (1.4 | ) | — |
|
| (9.9 | ) | (6.6 | ) | ||||
JHG’s net interest in consolidated VREs |
| $ | 11.3 |
| $ | 5.1 |
|
| $ | 17.4 |
| $ | 16.6 |
|
JHG’s total exposure to consolidated VREs represents the value of its economic ownership interest in these seeded investment products. Valuation changes associated with investments held at fair value are reflected in investment gains (losses), net on the Group’s Condensed Consolidated Statements of Comprehensive Income. Valuation changes are partially offset in net loss attributable to noncontrolling interests for the portion not attributable to JHG. Refer to Note 4 — Investment Securities.
JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VREs to use in its operating activities or for any other purpose.
Unconsolidated Voting Rights Entities
At June 30, 2017,March 31, 2018, and December 31, 2016,2017, JHG’s carrying value of investment securities included on the Condensed Consolidated Balance Sheets pertaining to unconsolidated VREs was $52.0$43.0 million and $4.9$50.0 million, respectively. JHG’s total exposure to unconsolidated VREs represents the value of its economic ownership interest in the investment securities.
Note 43 — Investment Securities
JHG’s investment securities as of June 30, 2017,March 31, 2018, and December 31, 2016,2017, are summarized as follows (in millions):
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Trading securities: |
|
|
|
|
| |||||||||
Investment securities |
|
|
|
|
| |||||||||
Seeded investment products: |
|
|
|
|
|
|
|
|
|
| ||||
Consolidated VIEs |
| $ | 365.1 |
| $ | 288.0 |
|
| $ | 432.2 |
| $ | 419.7 |
|
Consolidated VREs |
| 12.7 |
| 5.1 |
|
| 23.5 |
| 18.9 |
| ||||
Unconsolidated |
| 43.2 |
| 4.5 |
| |||||||||
Unconsolidated VIEs and VREs |
| 43.0 |
| 56.2 |
| |||||||||
Separate accounts |
| 70.0 |
| — |
|
| 74.8 |
| 75.6 |
| ||||
Pooled investment funds |
| 26.5 |
| — |
|
| 27.0 |
| 27.5 |
| ||||
Total seeded investment products |
| 517.5 |
| 297.6 |
|
| 600.5 |
| 597.9 |
| ||||
Investments related to deferred compensation plans |
| 99.2 |
| 66.5 |
|
| 106.0 |
| 94.0 |
| ||||
Other investments |
| 12.6 |
| 3.1 |
|
| 13.3 |
| 8.2 |
| ||||
Total trading securities |
| 629.3 |
| 367.2 |
| |||||||||
Available-for-sale securities: |
|
|
|
|
| |||||||||
Seeded investment products: |
|
|
|
|
| |||||||||
Consolidated VIEs |
| 19.3 |
| 25.7 |
| |||||||||
Unconsolidated |
| 9.9 |
| 0.4 |
| |||||||||
Total available-for-sale securities |
| 29.2 |
| 26.1 |
| |||||||||
Total investment securities |
| $ | 658.5 |
| $ | 393.3 |
|
| $ | 719.8 |
| $ | 700.1 |
|
Trading Securities
All investment securities as of March 31, 2018 and December 31, 2017, are classified as equity securities. Net unrealized gains (losses) on tradinginvestment securities held as of June 30,March 31, 2018 and 2017, and 2016, are summarized as follows (in millions):
|
| Three months ended |
| Six months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Trading securities held at period end |
| $ | (7.0 | ) | $ | 3.3 |
| $ | (4.5 | ) | $ | 10.2 |
|
Available-for-Sale Securities
The following is a summary of available-for-sale securities as of June 30, 2017, and December 31, 2016 (in millions):
|
|
|
| Gross unrealized |
| Foreign |
|
|
| |||||||
|
|
|
| investment |
| currency |
|
|
| |||||||
|
| Cost |
| Gains |
| Losses |
| translation |
| Fair value |
| |||||
June 30, 2017: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities |
| $ | 24.7 |
| $ | 3.0 |
| $ | — |
| $ | 1.5 |
| $ | 29.2 |
|
December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities |
| $ | 15.1 |
| $ | 3.4 |
| $ | — |
| $ | 7.6 |
| $ | 26.1 |
|
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Investment securities held at period end |
| $ | (7.9 | ) | $ | 2.5 |
|
Derivative Instruments
JHG maintains an economic hedge program that uses derivative instruments to mitigate against market volatility of certain seeded investments by using index and commodity futures (“futures”), index swaps, total return swaps (“TRSs”) and credit default swaps. Certain foreign currency exposures associated with the Group’s seeded investment products are also hedged by using foreign currency forward contracts.
JHG was party to the following derivative instruments as of June 30, 2017,March 31, 2018, and December 31, 20162017 (in millions):
|
| Notional value |
|
| Notional value |
| ||||||||
|
| June 30, 2017 |
| December 31, 2016 |
|
| March 31, 2018 |
| December 31, 2017 |
| ||||
Futures |
| $ | 214.7 |
| $ | 14.7 |
|
| $ | 175.6 |
| $ | 190.6 |
|
Credit default swaps |
| 113.5 |
| — |
|
| 116.0 |
| 117.5 |
| ||||
Index swaps |
| 67.0 |
| 34.2 |
|
| 53.1 |
| 76.7 |
| ||||
Total return swaps |
| 68.1 |
| 59.5 |
|
| 81.7 |
| 70.3 |
| ||||
Foreign currency forward contracts |
| 82.3 |
| 170.1 |
|
| 151.4 |
| 118.8 |
|
The derivative instruments are not designated as hedges for accounting purposes, with the exception of certain foreign currency forward contracts used for net investment hedging. Changes in fair value of the futures, index swaps, TRSs and credit default swaps are recognized in investment gains (losses),losses, net onin JHG’s Condensed Consolidated Statements of Comprehensive Income. Changes in the fair value of the foreign currency forward contracts designated as hedges for accounting purposes are recognized in other comprehensive income, net of tax, onin JHG’s Condensed Consolidated Statements of Comprehensive Income.
The value of the individual derivative contracts are recognized on a gross basis and included in other current assets or accounts payable and accrued liabilities inon the Condensed Consolidated Balance Sheet. The Group has entered into netting arrangements with certain counterparties. The impacts of any potential nettingSheets and are shown below.immaterial individually and in aggregate.
The following tables illustrate the effect of offsetting derivative instruments on JHG’s Condensed Consolidated Balance Sheets as of June 30, 2017, and December 31, 2016 (in millions):
|
| June 30, 2017 |
| ||||||||||
|
|
|
| Gross amounts |
|
|
|
|
| ||||
|
|
|
| offset by |
| Gross amounts |
|
|
| ||||
|
|
|
| derivative |
| offset by cash |
|
|
| ||||
|
| Gross amounts |
| instruments |
| collateral pledged |
| Net amounts |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Futures |
| $ | 5.9 |
| $ | (0.5 | ) | $ | — |
| $ | 5.4 |
|
Total assets |
| $ | 5.9 |
| $ | (0.5 | ) | $ | — |
| $ | 5.4 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Futures |
| $ | (0.5 | ) | $ | 0.5 |
| $ | — |
| $ | — |
|
Index swaps |
| (1.1 | ) | — |
| 1.1 |
| — |
| ||||
Credit default swaps |
| (2.3 | ) | — |
| 1.1 |
| (1.2 | ) | ||||
Foreign currency forward contracts |
| (1.8 | ) | — |
| 1.0 |
| (0.8 | ) | ||||
Total liabilities |
| $ | (5.7 | ) | $ | 0.5 |
| $ | 3.2 |
| $ | (2.0 | ) |
|
| December 31, 2016 |
| ||||||||||
|
|
|
| Gross amounts |
|
|
|
|
| ||||
|
|
|
| offset by |
| Gross amounts |
|
|
| ||||
|
|
|
| derivative |
| offset by cash |
|
|
| ||||
|
| Gross amounts |
| instruments |
| collateral pledged |
| Net amounts |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Total return swaps |
| $ | (1.1 | ) | $ | — |
| $ | 1.1 |
| $ | — |
|
Index swaps |
| (0.8 | ) | — |
| 0.5 |
| (0.3 | ) | ||||
Foreign currency forward contracts |
| (3.2 | ) | — |
| — |
| (3.2 | ) | ||||
Total liabilities |
| $ | (5.1 | ) | $ | — |
| $ | 1.6 |
| $ | (3.5 | ) |
The Group recognized the following net foreign currency translation gains on hedged seed investments denominated in currencies other than the Group’s functional currency and net losses associated with foreign currency forward contracts under net investment hedge accounting for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in millions):
|
| Three months ended |
| Six months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Foreign currency translation |
| $ | 0.1 |
| $ | 8.4 |
| $ | 0.7 |
| $ | 14.4 |
|
Foreign currency forward contracts |
| (0.1 | ) | (8.4 | ) | (0.7 | ) | (14.4 | ) | ||||
Total |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
The foreign currency translation gains and losses on foreign currency forward contracts associated with the net investment hedge are recognized in other comprehensive income, net on JHG’s Condensed Consolidated Statements of Comprehensive Income.
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Foreign currency translation |
| $ | (0.5 | ) | $ | 0.6 |
|
Foreign currency forward contracts |
| 0.5 |
| (0.6 | ) | ||
Total |
| $ | — |
| $ | — |
|
Derivative Instruments in Consolidated Seeded Investment Products
Certain of the Group’s consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within other current assets or accounts payable and accrued liabilities on JHG’s Condensed Consolidated Balance Sheets. Gains and losses on these derivative instruments are classified within investment gains (losses),losses, net onin JHG’s Condensed Consolidated Statements of Comprehensive Income.
JHG’s consolidated seeded investment products were party to the following derivative instruments as of June 30, 2017,March 31, 2018, and December 31, 2016 (in millions):
|
| Notional value |
| ||||
|
| June 30, 2017 |
| December 31, 2016 |
| ||
Futures |
| $ | 164.6 |
| $ | 22.3 |
|
Contracts for differences |
| — |
| 9.2 |
| ||
Credit default swaps |
| 7.4 |
| 1.8 |
| ||
Interest rate swaps |
| 38.1 |
| 8.3 |
| ||
Options |
| 0.2 |
| 184.8 |
| ||
Swaptions |
| 2.4 |
| 1.7 |
| ||
Foreign currency forward contracts |
| 89.1 |
| 120.0 |
| ||
The following table illustrates the effect of offsetting derivative instruments within consolidated seeded investment products on JHG’s Condensed Consolidated Balance Sheets as of June 30, 2017 (in millions):
|
| June 30, 2017 |
| ||||||||||
|
|
|
| Gross amounts |
|
|
|
|
| ||||
|
|
|
| offset by |
| Gross amounts |
|
|
| ||||
|
|
|
| derivative |
| offset by cash |
|
|
| ||||
|
| Gross amounts |
| instruments |
| collateral pledged |
| Net amounts |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Futures |
| $ | 0.7 |
| $ | (0.6 | ) | $ | — |
| $ | 0.1 |
|
Contracts for differences |
| 0.4 |
| (0.1 | ) | — |
| 0.3 |
| ||||
Interest rate swaps |
| 0.2 |
| (0.2 | ) | — |
| — |
| ||||
Credit default swaps |
| 0.1 |
| — |
| — |
| 0.1 |
| ||||
Options |
| 1.8 |
| (0.6 | ) | — |
| 1.2 |
| ||||
Foreign currency forward contracts |
| 0.1 |
| (0.1 | ) | — |
| — |
| ||||
Total assets |
| $ | 3.3 |
| $ | (1.6 | ) | $ | — |
| $ | 1.7 |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Futures |
| $ | (1.0 | ) | $ | 0.6 |
| $ | — |
| $ | (0.4 | ) |
Contracts for differences |
| (0.7 | ) | 0.1 |
| — |
| (0.6 | ) | ||||
Interest rate swaps |
| (0.2 | ) | 0.2 |
| — |
| — |
| ||||
Credit default swaps |
| (0.4 | ) | — |
| — |
| (0.4 | ) | ||||
Options |
| (0.6 | ) | 0.6 |
| — |
| — |
| ||||
Foreign currency forward contracts |
| (0.3 | ) | 0.1 |
| 0.1 |
| (0.1 | ) | ||||
Total liabilities |
| $ | (3.2 | ) | $ | 1.6 |
| $ | 0.1 |
| $ | (1.5 | ) |
The following table illustrates the effect of offsetting derivative instruments within consolidated seeded investment products on JHG’s Condensed Consolidated Balance Sheets as of December 31, 2016 (in millions):
|
| December 31, 2016 |
|
| Notional value |
| ||||||||||||||
|
|
|
| Gross amounts |
|
|
|
|
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||
|
|
|
| offset by |
| Gross amounts |
|
|
| |||||||||||
|
|
|
| derivative |
| offset by cash |
|
|
| |||||||||||
|
| Gross amounts |
| instruments |
| collateral |
| Net amounts |
| |||||||||||
Assets: |
|
|
|
|
|
|
|
|
| |||||||||||
Futures |
| $ | 0.6 |
| $ | (0.1 | ) | $ | — |
| $ | 0.5 |
|
| $ | 428.7 |
| $ | 241.2 |
|
Contracts for differences |
| 0.3 |
| (0.1 | ) | — |
| 0.2 |
|
| 10.7 |
| 10.2 |
| ||||||
Credit default swaps |
| 13.5 |
| 15.0 |
| |||||||||||||||
Total return swaps |
| 4.9 |
| 36.7 |
| |||||||||||||||
Interest rate swaps |
| 0.1 |
| (0.1 | ) | — |
| — |
|
| 28.1 |
| 58.3 |
| ||||||
Options |
| 3.1 |
| (1.2 | ) | — |
| 1.9 |
|
| 224.5 |
| 144.3 |
| ||||||
Swaptions |
| 3.4 |
| 2.7 |
| |||||||||||||||
Foreign currency forward contracts |
| 0.4 |
| — |
| (0.4 | ) | — |
|
| 82.4 |
| 135.9 |
| ||||||
Total assets |
| $ | 4.5 |
| $ | (1.5 | ) | $ | (0.4 | ) | $ | 2.6 |
| |||||||
Liabilities: |
|
|
|
|
|
|
|
|
| |||||||||||
Futures |
| $ | (0.1 | ) | $ | 0.1 |
| $ | — |
| $ | — |
| |||||||
Contracts for differences |
| (0.1 | ) | 0.1 |
| — |
| — |
| |||||||||||
Interest rate swaps |
| (0.1 | ) | 0.1 |
| — |
| — |
| |||||||||||
Credit default swaps |
| (0.1 | ) | — |
| — |
| (0.1 | ) | |||||||||||
Options |
| (1.2 | ) | 1.2 |
| — |
| — |
| |||||||||||
Foreign currency forward contracts |
| (2.4 | ) | — |
| 0.3 |
| (2.1 | ) | |||||||||||
Total liabilities |
| $ | (4.0 | ) | $ | 1.5 |
| $ | 0.3 |
| $ | (2.2 | ) |
As of June 30, 2017,March 31, 2018, certain consolidated seeded investment products sold credit protection through the use of credit default swap contracts. This type of arrangement did not exist as of December 31, 2016. The contracts provide alternative credit risk exposure to individual companies and countries outside of traditional bond markets. The terms of the credit default swap contracts range from one to five years.
As sellers in credit default swap contracts, the consolidated seeded investment products would be required to pay the notional value of a referenced debt obligation to the counterparty in the event of a default on the debt obligation by the issuer. The notional value represents the estimated maximum potential undiscounted amount of future payments required upon the occurrence of a credit default event. As of June 30, 2017,March 31, 2018, the notional values of the agreements totaled $6.4$13.0 million. The credit default swap contracts include recourse provisions that allow for recovery of a certain percentage of amounts paid upon the occurrence of a credit default event. As of June 30, 2017,March 31, 2018, the fair value of the credit default swap contracts selling protection was $0.4$0.1 million.
Investment Gains (Losses),Losses, Net
Investment gains (losses),losses, net onin JHG’s Condensed Consolidated Statements of Comprehensive Income included the following for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in millions):
|
| Three months ended |
| Six months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Seeded investment products |
| $ | (2.1 | ) | $ | (3.8 | ) | $ | (0.9 | ) | $ | 4.3 |
|
Fair value movements on derivatives |
| 1.8 |
| (5.2 | ) | (0.3 | ) | (7.3 | ) | ||||
Gain on sale of Volantis |
| 10.2 |
| — |
| 10.2 |
| — |
| ||||
Other |
| (0.1 | ) | 0.1 |
| (0.1 | ) | 0.9 |
| ||||
Investment gains (losses), net |
| $ | 9.8 |
| $ | (8.9 | ) | $ | 8.9 |
| $ | (2.1 | ) |
On April 1, 2017, the Group completed the sale of its alternative UK small cap team (“Volantis”). Consideration for the sale was a 10% share of the management and performance fees generated by Volantis for a period of three years. A $10.2 million gain was recognized in investment gains (losses), net on the Condensed Consolidated Statements of Comprehensive Income, representing the net present value of estimated future cash flows.
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Seeded investment products |
| $ | (8.0 | ) | $ | 1.2 |
|
Fair value movements on derivatives |
| 7.2 |
| (2.1 | ) | ||
Other |
| 0.1 |
| — |
| ||
Investment losses, net |
| $ | (0.7 | ) | $ | (0.9 | ) |
Cash Flows
Cash flows related to investment securities for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, are summarized as follows (in millions):
|
| Six months ended June 30, |
| ||||||||||
|
| 2017 |
| 2016 |
| ||||||||
|
| Purchases |
| Sales, |
| Purchases |
| Sales, |
| ||||
|
| and |
| settlements and |
| and |
| settlements and |
| ||||
|
| settlements |
| maturities |
| settlements |
| maturities |
| ||||
Trading securities |
| $ | (45.6 | ) | $ | 198.4 |
| $ | (49.5 | ) | $ | — |
|
Available-for-sale securities |
| (0.1 | ) | 10.1 |
| (0.7 | ) | 5.3 |
| ||||
Total cash flows |
| $ | (45.7 | ) | $ | 208.5 |
| $ | (50.2 | ) | $ | 5.3 |
|
|
| Three months ended March 31, |
| ||||||||||
|
| 2018 |
| 2017 |
| ||||||||
|
| Purchases |
| Sales, |
| Purchases |
| Sales, |
| ||||
|
| and |
| settlements and |
| and |
| settlements and |
| ||||
|
| settlements |
| maturities |
| settlements |
| maturities |
| ||||
Investment securities |
| $ | (52.3 | ) | $ | 31.0 |
| $ | (5.1 | ) | $ | 0.1 |
|
Note 54 — Fair Value Measurements
The following table presents assets, liabilities and redeemable noncontrolling interests presented in the financial statements or disclosed in the notes to the financial statements at fair value on a recurring basis as of June 30, 2017March 31, 2018 (in millions):
|
| Fair value measurements using: |
|
|
|
| Fair value measurements using: |
|
|
| ||||||||||||||||
|
| Quoted prices in |
|
|
|
|
|
|
|
| Quoted prices in |
|
|
|
|
|
|
| ||||||||
|
| active markets for |
|
|
|
|
|
|
|
| active markets for |
|
|
|
|
|
|
| ||||||||
|
| identical assets |
| Significant other |
| Significant |
|
|
|
| identical assets |
| Significant other |
| Significant |
|
|
| ||||||||
|
| and liabilities |
| observable inputs |
| unobservable inputs |
|
|
|
| and liabilities |
| observable inputs |
| unobservable inputs |
|
|
| ||||||||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash equivalents |
| $ | 391.1 |
| $ | — |
| $ | — |
| $ | 391.1 |
|
| $ | 133.7 |
| $ | — |
| $ | — |
| $ | 133.7 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consolidated VIEs - trading |
| 204.0 |
| 114.3 |
| 46.8 |
| 365.1 |
| |||||||||||||||||
Other - trading |
| 162.8 |
| 101.4 |
| — |
| 264.2 |
| |||||||||||||||||
Consolidated VIEs - available-for-sale |
| 19.3 |
| — |
| — |
| 19.3 |
| |||||||||||||||||
Other - available-for-sale |
| 9.9 |
| — |
| — |
| 9.9 |
| |||||||||||||||||
Consolidated VIEs |
| 124.1 |
| 270.2 |
| 37.9 |
| 432.2 |
| |||||||||||||||||
Other investment securities |
| 179.0 |
| 108.6 |
| — |
| 287.6 |
| |||||||||||||||||
Total investment securities |
| 396.0 |
| 215.7 |
| 46.8 |
| 658.5 |
|
| 303.1 |
| 378.8 |
| 37.9 |
| 719.8 |
| ||||||||
Seed hedge derivatives |
| 5.9 |
| — |
| — |
| 5.9 |
|
| 5.1 |
| — |
| — |
| 5.1 |
| ||||||||
Derivatives in consolidated seeded investment products |
| 2.7 |
| 2.1 |
| — |
| 4.8 |
|
| 4.5 |
| 5.4 |
| — |
| 9.9 |
| ||||||||
Contingent consideration |
| — |
| — |
| 10.6 |
| 10.6 |
| |||||||||||||||||
Volantis contingent consideration |
| — |
| — |
| 9.3 |
| 9.3 |
| |||||||||||||||||
Total assets |
| $ | 795.7 |
| $ | 217.8 |
| $ | 57.4 |
| $ | 1,070.9 |
|
| $ | 446.4 |
| $ | 384.2 |
| $ | 47.2 |
| $ | 877.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivatives in consolidated seeded investment products |
| $ | 2.2 |
| $ | 2.5 |
| $ | — |
| $ | 4.7 |
|
| $ | 2.1 |
| $ | 6.2 |
| $ | — |
| $ | 8.3 |
|
Financial liabilities in consolidated seeded investment products |
| 11.7 |
| — |
| — |
| 11.7 |
|
| 8.0 |
| — |
| — |
| 8.0 |
| ||||||||
Seed hedge derivatives |
| 5.7 |
| — |
| — |
| 5.7 |
|
| 2.6 |
| 2.2 |
| — |
| 4.8 |
| ||||||||
Current portion of long-term debt(1) |
| — |
| 171.4 |
| — |
| 171.4 |
|
| — |
| 9.6 |
| — |
| 9.6 |
| ||||||||
Long-term debt(1) |
| — |
| 321.1 |
| — |
| 321.1 |
|
| — |
| 312.6 |
| — |
| 312.6 |
| ||||||||
Deferred bonuses |
| — |
| — |
| 50.3 |
| 50.3 |
|
| — |
| — |
| 79.5 |
| 79.5 |
| ||||||||
Contingent consideration |
| — |
| — |
| 76.0 |
| 76.0 |
|
| — |
| — |
| 59.2 |
| 59.2 |
| ||||||||
Dai-ichi option |
| — |
| — |
| 26.9 |
| 26.9 |
| |||||||||||||||||
Dai-ichi options |
| — |
| — |
| 4.3 |
| 4.3 |
| |||||||||||||||||
Total liabilities |
| $ | 19.6 |
| $ | 495.0 |
| $ | 153.2 |
| $ | 667.8 |
|
| $ | 12.7 |
| $ | 330.6 |
| $ | 143.0 |
| $ | 486.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Redeemable noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consolidated seeded investment products |
| $ | — |
| $ | — |
| $ | 152.2 |
| $ | 152.2 |
|
| $ | — |
| $ | — |
| $ | 202.9 |
| $ | 202.9 |
|
INTECH |
| — |
| — |
| 19.8 |
| 19.8 |
| |||||||||||||||||
Intech |
| — |
| — |
| 14.8 |
| 14.8 |
| |||||||||||||||||
Total redeemable noncontrolling interests |
| $ | — |
| $ | — |
| $ | 172.0 |
| $ | 172.0 |
|
| $ | — |
| $ | — |
| $ | 217.7 |
| $ | 217.7 |
|
(1) Carried at amortized cost and disclosed at fair value.
The following table presents assets, liabilities and redeemable noncontrolling interests presented in the financial statements or disclosed in the notes to the financial statements at fair value on a recurring basis as of December 31, 20162017 (in millions):
|
| Fair value measurements using: |
|
|
|
| Fair value measurements using: |
|
|
| ||||||||||||||||
|
| Quoted prices in |
|
|
|
|
|
|
|
| Quoted prices in |
|
|
|
|
|
|
| ||||||||
|
| active markets for |
|
|
|
|
|
|
|
| active markets for |
|
|
|
|
|
|
| ||||||||
|
| identical assets |
| Significant other |
| Significant |
|
|
|
| identical assets |
| Significant other |
| Significant |
|
|
| ||||||||
|
| and liabilities |
| observable inputs |
| unobservable inputs |
|
|
|
| and liabilities |
| observable inputs |
| unobservable inputs |
|
|
| ||||||||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash equivalents |
| $ | 422.5 |
| $ | — |
| $ | — |
| $ | 422.5 |
| |||||||||||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consolidated VIEs - trading |
| $ | 128.2 |
| $ | 117.1 |
| $ | 42.7 |
| $ | 288.0 |
| |||||||||||||
Other - trading |
| 66.1 |
| 13.1 |
| — |
| 79.2 |
| |||||||||||||||||
Consolidated VIEs - available-for-sale |
| 20.3 |
| 5.4 |
| — |
| 25.7 |
| |||||||||||||||||
Other - available-for-sale |
| 0.4 |
| — |
| — |
| 0.4 |
| |||||||||||||||||
Consolidated VIEs |
| 131.0 |
| 251.4 |
| 37.3 |
| 419.7 |
| |||||||||||||||||
Other investment securities |
| 185.7 |
| 94.5 |
| 0.2 |
| 280.4 |
| |||||||||||||||||
Total investment securities |
| 215.0 |
| 135.6 |
| 42.7 |
| 393.3 |
|
| 316.7 |
| 345.9 |
| 37.5 |
| 700.1 |
| ||||||||
Seed hedge derivatives |
| 0.9 |
| — |
| — |
| 0.9 |
| |||||||||||||||||
Derivatives in consolidated seeded investment products |
| 3.4 |
| 0.6 |
| — |
| 4.0 |
|
| 2.9 |
| 3.6 |
| — |
| 6.5 |
| ||||||||
Contingent consideration |
| — |
| — |
| 9.0 |
| 9.0 |
| |||||||||||||||||
Total assets |
| $ | 218.4 |
| $ | 136.2 |
| $ | 42.7 |
| $ | 397.3 |
|
| $ | 743.0 |
| $ | 349.5 |
| $ | 46.5 |
| $ | 1,139.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Derivatives in consolidated seeded investment products |
| $ | 1.3 |
| $ | 2.2 |
| $ | — |
| $ | 3.5 |
|
| $ | 1.8 |
| $ | 2.5 |
| $ | — |
| $ | 4.3 |
|
Financial liabilities in consolidated seeded investment products |
| 16.2 |
| — |
| — |
| 16.2 |
|
| 11.6 |
| — |
| — |
| 11.6 |
| ||||||||
Seed hedge derivatives |
| 5.9 |
| 4.2 |
| — |
| 10.1 |
| |||||||||||||||||
Current portion of long-term debt(1) |
| — |
| 57.3 |
| — |
| 57.3 |
| |||||||||||||||||
Long-term debt(1) |
| — |
| 323.4 |
| — |
| 323.4 |
| |||||||||||||||||
Deferred bonuses |
| — |
| — |
| 64.7 |
| 64.7 |
| |||||||||||||||||
Contingent consideration |
| — |
| — |
| 25.5 |
| 25.5 |
|
| — |
| — |
| 76.6 |
| 76.6 |
| ||||||||
Deferred bonuses |
| — |
| — |
| 42.9 |
| 42.9 |
| |||||||||||||||||
Seed hedge derivatives |
| — |
| 5.1 |
| — |
| 5.1 |
| |||||||||||||||||
Dai-ichi options |
| — |
| — |
| 26.1 |
| 26.1 |
| |||||||||||||||||
Total liabilities |
| $ | 17.5 |
| $ | 7.3 |
| $ | 68.4 |
| $ | 93.2 |
|
| $ | 19.3 |
| $ | 387.4 |
| $ | 167.4 |
| $ | 574.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Redeemable noncontrolling interests: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Consolidated seeded investment products |
| $ | — |
| $ | — |
| $ | 174.9 |
| $ | 174.9 |
| |||||||||||||
Intech |
| — |
| — |
| 15.4 |
| 15.4 |
| |||||||||||||||||
Total redeemable noncontrolling interests |
| $ | — |
| $ | — |
| $ | 158.0 |
| $ | 158.0 |
|
| $ | — |
| $ | — |
| $ | 190.3 |
| $ | 190.3 |
|
Level 1 Fair Value Measurements
JHG’s Level 1 fair value measurements consist mostly of seeded investment products, investments in advised mutual funds, cash equivalents and investments related to deferred compensation plans with quoted market prices in active markets. The fair value level of consolidated seeded investment products is determined by the underlying securities of the product. The fair value level of unconsolidated seeded investment products is determined using the respective net asset value (“NAV”) of each product.
Level 2 Fair Value Measurements
JHG’s Level 2 fair value measurements consist mostly of consolidated seeded investment products and JHG’s long-term debt. The fair value of consolidated seeded investment products is determined by the underlying securities of the product. The fair value of JHG’s long-term debt is determined using broker quotes and recent trading activity, which are considered Level 2 inputs.
Level 3 Fair Value Measurements
Investment Products
As of June 30,March 31, 2018, and December 31, 2017, certain securities within consolidated VIEs were valued using significant unobservable inputs, resulting in Level 3 classification.
Contingent Consideration
Acquisition of Geneva
The consideration payable on the acquisition of Geneva Capital Management LLC (“Geneva”) in 2014 included two contingent tranches of up to $45.0 million and $25.0 million, payable over sixseven years. No fair value adjustment was necessary in the period ended June 30, 2017.March 31, 2018. As of June 30, 2017March 31, 2018, and December 31, 2016, the contingent2017,
the contingent consideration had a fair value of $21.2$19.7 million and $20.3$19.3 million, respectively, and was included in other non-current liabilities on JHG’s Condensed Consolidated Balance Sheets.
The fair value of the Geneva contingent consideration is estimated at each reporting date by forecasting revenue, as defined by the sale and purchase agreement, over the contingency period and by determining whether targets will be met. Significant unobservable inputs used in the valuation are limited to forecast revenues, which factor in expected growth in assets under management (“AUM”)AUM based on performance and industry trends.
Acquisition of Perennial
The consideration payable on the acquisition of Perennial Fixed Interest Partners Pty Ltd and Perennial Growth Management Pty Ltd (together “Perennial”) included contingent consideration payable in 2017 and 2019 if revenues of the Perennial equities business meet certain targets. The total maximum payment over the entireremaining contingent consideration period is $11.5$5.8 million as of June 30, 2017.March 31, 2018. In addition, there is a maximum amount of $37.4$40.3 million payable in two tranches in 2019 and 2020, which have employee service conditions attached (“earn-out”). The earn-out is accrued over the service period as compensation expense and is based on net management fee revenue. Fair value adjustments to the consideration during the three months ended March 31, 2018, resulted in a $0.2 million increase to the liability. As of June 30, 2017,March 31, 2018, and December 31, 2016,2017, the contingent consideration and earn-out had a combined fair value of $7.6$7.1 million and $5.2$7.0 million, respectively, which is included in other non-current liabilities on JHG’s Condensed Consolidated Balance Sheet.Sheets.
The fair value of the Perennial contingent consideration and earn-out is calculated at each reporting date by forecasting Perennial revenues over the contingency period and determining whether the forecasted amounts meet the defined targets. The significant unobservable input used in the valuation is forecasted revenue.
Acquisition of Kapstream
JCG’s acquisition of Kapstream was a two-stage acquisition. The original acquisition of 51% in July 2015 had contingent consideration payable at 18 and 36 months after acquisition if certain Kapstream AUM reachreached defined targets.
The purchase of the remaining 49% had contingent consideration of up to $42.5$43.0 million. Payment of the contingent consideration is subject to all Kapstream products and certain products advised by Janus,the Group, reaching defined revenue targets on the first, second and third anniversaries of January 31, 2017. The contingent consideration will be payable in three equal installments on the anniversary dates and is indexed to the performance of the premier share class of the Kapstream Absolute Return Income Fund. Upon achieving the defined revenue targets, the holders receive the value of the contingent consideration adjusted for gains or losses attributable to the mutual fund to which the contingent consideration is indexed, subject to tax withholding. On January 31, 2018, the first anniversary of the acquisition, Kapstream reached defined revenue targets and the Group paid $15.3 million in February 2018.
No fair value adjustment was necessary during the three months ended March 31, 2018. As of June 30, 2017,March 31, 2018, the aggregate contingent consideration had a fair value of $40.9$29.7 million; $17.3$17.5 million is included in accounts payable and accrued liabilities, and $23.6$12.2 million is included in other non-current liabilities on JHG’s Condensed Consolidated Balance Sheets. As of June 30, 2017,March 31, 2018, the total maximum payment over the remaining contingent consideration period is $47.1$33.1 million. The total maximum payment includes fair value adjustments associated with the consideration, which is indexed to the performance of a certain fund.
The fair value of the Kapstream contingent consideration is calculated at each reporting date by forecasting certain Kapstream AUM or defined revenue over the contingency period and determining whether the forecasted amounts meet the defined targets. Significant unobservable inputs used in the valuation are limited to forecasted Kapstream AUM and performance against defined revenue targets.
Acquisition of VelocityShares
JCG’s acquisition of VelocityShares in 2014 included contingent consideration. The remaining contingent considerationpayment is payable on the third and fourth anniversaries of the acquisition, in amounts up to $8.0 million each. The payments are contingent on certain VelocityShares’ ETPsexchange-traded products (“ETPs”) reaching defined net revenue targets. VelocityShares reached defined net revenue targets in November 2017, and the Group paid $3.6 million in January 2018. As of June 30, 2017,March 31, 2018, the total maximum payment over the remaining contingent consideration period (third and fourth anniversaries of the acquisition) is $16.0 million.(fourth
anniversary of the acquisition) is $8.0 million. Fair value adjustments to the consideration during the three months ended March 31, 2018, resulted in a $0.1 million increase to the liability. As of June 30, 2017,March 31, 2018, the contingent consideration had a fair value of $6.3 million; $5.2$2.7 million, which is included in accounts payable and accrued liabilities, and $1.1 million is included in other non-current liabilities on JHG’s Condensed Consolidated Balance Sheets.
The fair value of the VelocityShares contingent consideration is calculated at each reporting date by forecasting net ETP revenue, as defined by the purchase agreement, over the contingency period and by determining whether net forecasted ETP revenue targets are achieved. Significant unobservable inputs used in the valuation are considered non-public data and limited to forecasted gross revenues and certain expense items, which are deducted from these revenues.
Disposal of Volantis
On April 1, 2017, the Group completed the sale of Volantis. Consideration for the sale was a 10% share of the management and performance fees generated by Volantis for a period of three years.
The fair value of the Volantis contingent consideration is estimated at each reporting date by forecasting revenues over the contingency period of three years. Significant unobservable inputs used in the valuation are limited to forecast revenues, which factor in expected growth in AUM based on performance and industry trends. Increases in forecast revenue increase the fair value of the consideration, while decreases in forecast revenue would decrease the fair value. The forecasted share of revenues is then discounted back to the valuation date using an 11.8% discount rate. As of June 30, 2017,March 31, 2018, the fair value of the Volantis contingent consideration was $10.6$9.3 million.
Deferred Bonuses
Deferred bonuses represent the liabilityliabilities to employees whichover the vesting period that will be settled by investments in JHG products. The significant unobservable inputs are investment designations and vesting periods.
Dai-ichi Options
As of March 31, 2018, the fair value of the options sold to Dai-ichi Life Holdings Inc. (“Dai-ichi”) was $4.3 million. The fair value was determined using a Black-Scholes option pricing model. The Black-Scholes model requires management to estimate certain variables, primarily the volatility of the underlying shares. Changes in the fair value of the options are recognized in other non-operating income, net in JHG’s Condensed Consolidated Statements of Comprehensive Income.
Redeemable Noncontrolling Interests in INTECHIntech
INTECH became a subsidiary of the Group as a result of the Merger. Redeemable noncontrolling interests in INTECHIntech Investment Management LLC (“Intech”) are measured at fair value on a quarterly basis or more frequently if events or circumstances indicate that a material change in the fair value of INTECHIntech has occurred. The fair value of INTECHIntech is determined using a valuation methodology that incorporates observable metrics from publicly traded peer companies as valuation comparables and adjustments related to investment performance and changes in AUM.
Redeemable Noncontrolling Interests in Consolidated Seeded Investment Products
Redeemable noncontrolling interests are measured at fair value. TheTheir fair value of redeemable noncontrolling interests isvalues are primarily driven by the fair value of the investments in consolidated funds. The significant unobservable inputs are investment designations and vesting periods. The fair value of redeemable noncontrolling interests may also fluctuate from period to period based on changes in the Group’s relative ownership percentage of seed investments.
Changes in Fair Value
Changes in fair valuesvalue of JHG’s Level 3 assets for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows (in millions):
|
| Three months ended |
| Six months ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Beginning of period fair value |
| $ | 43.2 |
| $ | 62.5 |
| $ | 42.7 |
| $ | 58.2 |
|
Balance acquired from the Merger |
| 3.0 |
| — |
| 3.0 |
| — |
| ||||
Additions |
| 10.2 |
| 0.4 |
| 10.2 |
| 0.4 |
| ||||
Movements recognized in net income |
| (0.8 | ) | (3.3 | ) | (0.8 | ) | 2.3 |
| ||||
Movements recognized in other comprehensive income |
| 1.8 |
| (7.7 | ) | 2.3 |
| (9.0 | ) | ||||
End of period fair value |
| $ | 57.4 |
| $ | 51.9 |
| $ | 57.4 |
| $ | 51.9 |
|
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Beginning of period fair value |
| $ | 46.5 |
| $ | 42.7 |
|
Additions |
| — |
| — |
| ||
Settlements and transfers to Level 2 |
| (0.4 | ) | — |
| ||
Movements recognized in net income |
| 0.8 |
| — |
| ||
Movements recognized in other comprehensive income |
| 0.3 |
| — |
| ||
Foreign currency translation |
| — |
| 0.5 |
| ||
End of period fair value |
| $ | 47.2 |
| $ | 43.2 |
|
Changes in fair value of JHG’s individual Level 3 liabilities and redeemable noncontrolling interests for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows (in millions):
|
| Three months ended June 30, |
| |||||||||||||||||||
|
| 2017 |
| 2016 |
| |||||||||||||||||
|
| Contingent |
| Deferred |
| Redeemable |
| Dai-ichi option |
| Contingent |
| Deferred |
| Redeemable |
| |||||||
Beginning of period fair value |
| $ | 27.3 |
| $ | 54.5 |
| $ | 146.0 |
| $ | — |
| $ | 20.6 |
| $ | 43.7 |
| $ | 114.2 |
|
Balances acquired from the Merger |
| 45.4 |
| — |
| 42.9 |
| 25.7 |
| — |
| — |
| — |
| |||||||
Additions |
| — |
| — |
| — |
| — |
| 2.9 |
| — |
| — |
| |||||||
Changes in ownership |
| — |
| — |
| 0.3 |
| — |
| — |
| — |
| 16.8 |
| |||||||
Net movement in bonus deferrals |
| — |
| (6.1 | ) | — |
| — |
| — |
| (2.6 | ) | — |
| |||||||
Fair value adjustments |
| 1.8 |
| — |
| 0.3 |
| 1.2 |
| — |
| — |
| — |
| |||||||
Unrealized gains (losses) |
| — |
| — |
| (16.5 | ) | — |
| — |
| — |
| 13.3 |
| |||||||
Amortization of INTECH appreciation rights |
| — |
| — |
| 0.4 |
| — |
| — |
| — |
| — |
| |||||||
Distributions |
| — |
| — |
| (0.1 | ) | — |
| — |
| — |
| — |
| |||||||
Foreign currency translation |
| 1.5 |
| 1.9 |
| (1.3 | ) | — |
| (1.4 | ) | (3.1 | ) | (5.8 | ) | |||||||
End of period fair value |
| $ | 76.0 |
| $ | 50.3 |
| $ | 172.0 |
| $ | 26.9 |
| $ | 22.1 |
| $ | 38.0 |
| $ | 138.5 |
|
|
| Six months ended June 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||||||||||||||||||||||||||||||
|
| Contingent |
| Deferred |
| Redeemable |
| Dai-ichi option |
| Contingent |
| Deferred |
| Redeemable |
|
| Contingent |
| Deferred |
| Dai-ichi |
| Redeemable |
| Contingent |
| Deferred |
| Redeemable |
| ||||||||||||||
Beginning of period fair value |
| $ | 25.5 |
| $ | 42.9 |
| $ | 158.0 |
| $ | — |
| $ | 19.5 |
| $ | 35.7 |
| $ | 82.9 |
|
| $ | 76.6 |
| $ | 64.7 |
| $ | 26.1 |
| $ | 190.3 |
| $ | 25.5 |
| $ | 42.9 |
| $ | 158.0 |
|
Balances acquired from the Merger |
| 45.4 |
| — |
| 42.9 |
| 25.7 |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||
Additions |
| — |
| — |
| — |
| — |
| 4.4 |
| — |
| — |
|
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||||||||||
Changes in ownership |
| — |
| — |
| (5.1 | ) | — |
| — |
| — |
| 44.9 |
|
| — |
| — |
| — |
| 27.1 |
| — |
| — |
| (5.4 | ) | ||||||||||||||
Net movement in bonus deferrals |
| — |
| 5.0 |
| — |
| — |
| — |
| 5.6 |
| — |
|
| — |
| 14.8 |
| — |
| — |
| — |
| 11.1 |
| — |
| ||||||||||||||
Unrealized gains (losses) |
| — |
| — |
| — |
| 1.1 |
| — |
| — |
| (7.3 | ) | |||||||||||||||||||||||||||||
Fair value adjustments |
| 3.3 |
| — |
| 0.3 |
| 1.2 |
| — |
| — |
| — |
|
| 2.0 |
| — |
| (22.8 | ) | 0.4 |
| 1.5 |
| — |
| — |
| ||||||||||||||
Unrealized gains (losses) |
| — |
| — |
| (23.8 | ) | — |
| — |
| — |
| 18.5 |
| |||||||||||||||||||||||||||||
Amortization of INTECH appreciation rights |
| — |
| — |
| 0.4 |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||
Amortization of Intech appreciation rights |
| — |
| — |
| — |
| (0.9 | ) | — |
| — |
| — |
| |||||||||||||||||||||||||||||
Distributions |
| — |
| — |
| (0.1 | ) | — |
| — |
| — |
| — |
|
| (18.8 | ) | — |
| — |
| (0.1 | ) | — |
| — |
| — |
| ||||||||||||||
Foreign currency translation |
| 1.8 |
| 2.4 |
| (0.6 | ) | — |
| (1.8 | ) | (3.3 | ) | (7.8 | ) |
| (0.6 | ) | — |
| 1.0 |
| (0.2 | ) | 0.3 |
| 0.5 |
| 0.7 |
| ||||||||||||||
End of period fair value |
| $ | 76.0 |
| $ | 50.3 |
| $ | 172.0 |
| $ | 26.9 |
| $ | 22.1 |
| $ | 38.0 |
| $ | 138.5 |
|
| $ | 59.2 |
| $ | 79.5 |
| $ | 4.3 |
| $ | 217.7 |
| $ | 27.3 |
| $ | 54.5 |
| $ | 146.0 |
|
Significant Unobservable Inputs
Valuation techniques and significant unobservable inputs used in the valuation of JHG’s material Level 3 asset,assets, the Group’s private equity investment included within consolidated VIEs, as of June 30, 2017,March 31, 2018 and December 31, 2016,2017, were as follows (in millions):
As of June 30, 2017 |
| Fair value |
| Valuation |
| Significant |
| Range (weighted |
| |
Investment securities of consolidated VIEs - trading |
| $ | 43.8 |
| Discounted cash flow |
| Discount rate EBITDA multiple Price-earnings ratio |
| 12%-30% (16.3)% 8.7%-11.0% (9.1)% 17.2%-24.0% (18.4)% |
|
As of March 31, 2018 |
| Fair value |
| Valuation |
| Significant |
| Range (weighted |
| |
Investment securities of consolidated VIEs |
| $ | 37.8 |
| Discounted cash flow |
| Discount rate |
| 12.0% - 15.0% (14.3)% |
|
|
|
|
| EBITDA multiple |
| 11.6 - 15.1 (14.3) |
| |||
|
|
|
|
|
| Price-earnings ratio |
| 22.6 - 61.3 (52.4) |
| |
As of December 31, 2016 |
| Fair value |
| Valuation |
| Significant |
| Range (weighted |
| |
Investment securities of consolidated VIEs - trading |
| $ | 42.7 |
| Discounted cash flow |
| Discount rate EBITDA multiple Price-earnings ratio |
| 12%-30% (16.3)% 8.7%-11.0% (9.1)% 17.2%-24.0% (18.4)% |
|
As of December 31, 2017 |
| Fair value |
| Valuation |
| Significant |
| Range (weighted |
| |
Investment securities of consolidated VIEs |
| $ | 37.3 |
| Discounted cash flow |
| Discount rate |
| 12.0% - 15.0% (14.3)% |
|
|
|
|
| EBITDA multiple |
| 11.6 - 15.1 (14.3) |
| |||
|
|
|
|
|
| Price-earnings ratio |
| 22.6 - 61.3 (52.4) |
| |
Nonrecurring Fair Value Measurements
Nonrecurring Level 3 fair value measurements include goodwill and intangible assets. The Group measures the fair value of goodwill and intangible assets on initial recognition using discounted cash flow analysis that requires
assumptions regarding projected future earnings and discount rates. Because of the significance of the unobservable inputs in the fair value measurements of these assets, such measurements are classified as Level 3. Goodwill and intangible assets were part of the preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed from the Merger. Refer to Note 2 — Acquisitions for additional information.
Transfers Between Fair Value Levels
The underlying securities of funds and separate accounts may trade on a foreign stock exchange. In some cases, the closing price of such securities may be adjusted to capture the effects of any post-closing activity affecting the markets in which they trade. Security prices are adjusted based upon historical impacts for similar post-close activity. These adjustments result in the securities being classified as Level 2 and may also result in movement of securities between Level 1 and Level 2.
Transfers are recognized at the end of each reporting period. Transfers between Level 1 Level 2 and Level 32 classifications for the sixthree months ended June 30, 2017March 31, 2018, are as follows:
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Transfers from Level 1 to Level 2 |
| $ | 42.7 |
| $ | — |
|
Note 5 — Goodwill and 2016, were immaterial.Intangible Assets
The following table presents movements in intangible assets and goodwill during the period (in millions):
|
|
|
|
|
| Foreign |
|
|
|
|
| |||||
|
| December 31, |
|
|
| currency |
|
|
| March 31, |
| |||||
|
| 2017 |
| Amortization |
| translation |
| Disposal |
| 2018 |
| |||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment management agreements |
| $ | 2,543.9 |
| $ | — |
| $ | 8.9 |
| $ | — |
| $ | 2,552.8 |
|
Trademarks |
| 381.2 |
| — |
| (0.1 | ) | — |
| 381.1 |
| |||||
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Client relationships |
| 369.4 |
| — |
| 0.7 |
| — |
| 370.1 |
| |||||
Accumulated amortization |
| (89.7 | ) | (7.4 | ) | (1.3 | ) | — |
| (98.4 | ) | |||||
Net intangible assets |
| $ | 3,204.8 |
| $ | (7.4 | ) | $ | 8.2 |
| $ | — |
| $ | 3,205.6 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill |
| $ | 1,533.9 |
| $ | — |
| $ | 24.1 |
| $ | (9.5 | ) | $ | 1,548.5 |
|
Transaction with BNP Paribas Securities Services
On March 31, 2018, the Group and BNP Paribas Securities Services (“BNP Paribas”) completed a transaction transferring JHG’s back-office (including fund administration and fund accounting), middle-office and custody functions in the U.S. to BNP Paribas. As part of the transaction, more than 100 JHG employees, based in Denver, Colorado, have transitioned to BNP Paribas and BNP Paribas became the fund services provider for JHG’s U.S. regulated mutual funds. Gross consideration of $40.0 million received for the transaction resulted in the recognition of a $23.0 million gain in other non-operating income, net on the Condensed Consolidated Statements of Comprehensive Income. JHG also allocated $9.5 million of goodwill to the transaction which resulted in a $9.5 million goodwill write-off, disclosed in the disposal column in the table above.
Future Amortization
Expected future amortization expense related to client relationships is summarized below (in millions):
Year ended December 31, |
| Amount |
| |
2018 (remainder of year) |
| $ | 22.2 |
|
2019 |
| 29.6 |
| |
2020 |
| 29.6 |
| |
2021 |
| 26.8 |
| |
2022 |
| 18.3 |
| |
Thereafter |
| 145.2 |
| |
Total |
| $ | 271.7 |
|
Note 6 — Debt
Debt as of June 30, 2017,March 31, 2018, and December 31, 2016,2017, consisted of the following (in millions):
|
| June 30, 2017 |
| December 31, 2016 |
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||||||
|
| value |
| value |
| value |
| value |
|
| value |
| value |
| value |
| value |
| ||||||||
4.875% Senior Notes due 2025 |
| $ | 323.5 |
| $ | 321.1 |
| $ | — |
| $ | — |
|
| $ | 321.3 |
| $ | 312.6 |
| $ | 322.0 |
| $ | 323.4 |
|
0.750% Convertible Senior Notes due 2018 |
| 115.4 |
| 171.4 |
| — |
| — |
|
| 9.5 |
| 9.6 |
| 57.2 |
| 57.3 |
| ||||||||
Total debt |
| 438.9 |
| 492.5 |
| — |
| — |
|
| 330.8 |
| 322.2 |
| 379.2 |
| 380.7 |
| ||||||||
Less: Current portion of long-term debt |
| 115.4 |
| 171.4 |
| — |
| — |
|
| 9.5 |
| 9.6 |
| 57.2 |
| 57.3 |
| ||||||||
Total long-term debt |
| $ | 323.5 |
| $ | 321.1 |
| $ | — |
| $ | — |
|
| $ | 321.3 |
| $ | 312.6 |
| $ | 322.0 |
| $ | 323.4 |
|
4.875% Senior Notes Due 2025
AsThe Group’s 4.875% Senior Notes due 2025 (“2025 Senior Notes”) have a result of the Merger, the Group recognized nominalprincipal value of $300.0 million as of 2025 Senior Notes, whichMarch 31, 2018, pay interest at 4.875% semiannually on February 1 and August 1 of each year, and mature on August 1, 2025. The 2025 Senior Notes were recorded at their fair value of $323.7 million at the time of the Merger. The2025.The 2025 Senior Notes include unamortized debt premium, net at June 30, 2017,March 31, 2018, of $27.9$21.3 million, which will be amortized over the remaining life of the notes. The unamortized debt premium is recorded as a liability within long-term debt on JHG’s Condensed Consolidated Balance Sheets. JHG fully and unconditionally guarantees the obligations of JCG in relation to the 2025 Senior Notes.
0.750% Convertible Senior Notes Due 2018
AsThe Group’s 0.750% Convertible Notes due 2018 (“2018 Convertible Notes”) have a result of the Merger, the Group recognized nominalprincipal value of $116.6$9.6 million of 2018 Convertible Notes. The 2018 Convertible Notes had a fair value of $158.1 million at the time of the Merger. The notes may be wholly or partially settled in cash and thereby the liability and conversion feature components of the notes are accounted for separately. The initial $115.2 million liability component was determined by discounting future contractual cash flows at a 1.9% rate, which is consistent with the estimated market interest rate for similar senior notes with no conversion option. The liability component will accrete up to the face value of $116.6 million, through interest expense, over the remaining term of the notes. The $42.9 million equity component was determined as the difference between the liability component and the fair value of the notes at the Merger Closing Date. The fair value as of June 30, 2017, in the table above represents the total fair value of theMarch 31, 2018, Convertible Notes, including the component allocated to equity at the Merger Closing Date.
The 2018 Convertible Notes pay interest at 0.750% semiannually on January 15 and July 15 of each year and mature on July 15, 2018.
As a result The fair value as of March 31, 2018, in the table above represents the fair value of the Merger,liability component. JHG fully and unconditionally guarantees the conversion rateobligations of JCG in relation to the 2018 Convertible Notes was adjusted to 44.47 shares of JHG common stock per $1,000 principal amount of the 2018 Convertible Notes, which is equivalent to a conversion price of approximately $22.49 per share of common stock.Notes.
Holders of the 2018 Convertible Notes may convert the notes during a particular calendar quarter if the last reported sale price of JHG’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding quarter. TheAs of April 1, 2018, the 2018 Convertible Notes may also be converted, regardless of whether or notmet the conversion criteria have been satisfied, forand are convertible during the second quarter 2018 at a periodconversion rate of 35 trading days in advance44.9238 shares of and 35 trading days following the Closing DateJHG common stock per $1,000 principal amount of the Merger. Due2018 Convertible Notes, which is equivalent to this provision associated with the Merger,a conversion price of approximately $22.26 per share of common stock. In addition, the 2018 Convertible Notes are classified as current portionconvertible from April 15, 2018 to July 15, 2018 (maturity date), regardless of long-term debt on JHG’s Condensed Consolidated Balance Sheets. As of August 4, 2017, conversion notices amounting to $32.6 million in principal had been received. JHG intends to settle the conversion notices in cash during the third quarter 2017.criteria.
Upon closingDuring the three months ended March 31, 2018, $47.9 million of principal was redeemed and settled with cash for a total cash outlay of $81.6 million. The difference between the principal redeemed and the cash paid primarily represented the fair value of the Merger, JHG fully and unconditionally guarantee the obligations of JCG in relation to the 2018 Convertible Notes and 2025 Senior Notes.conversion feature.
Convertible Note Hedge and Warrants19
Prior to the Merger, JCG entered into convertible note hedge and warrant transactions. The instruments were intended to reduce the potential for future dilution to shareholders by effectively increasing the initial conversion price of the 2018 Convertible Notes. The convertible note hedge and warrants were terminated in June 2017, and JHG received $59.3 million and paid $47.8 million to settle the contracts. The net proceeds from the settlement were recorded in additional paid-in-capital on the Group’s Condensed Consolidated Balance Sheets.
Credit Facility
At June 30, 2017,March 31, 2018, JHG had a $200 million, unsecured, revolving credit facility (“Credit Facility”) with Bank of America Merrill Lynch International Limited as coordinator, book runner and mandated lead arranger. JHG and its subsidiaries can use the Credit Facility for general corporate purposes. The rate of interest for each interest period is the aggregate of the applicable margin, which is based on JHG’s long-term credit rating and the London Interbank Offered Rate (“LIBOR”), or; the Euro Interbank Offered Rate (“EURIBOR”) in relation to any loan in EUR,euros (“EUR”); or in relation to any loan in AUD,Australian dollars (“AUD”), the benchmark rate for that currency. JHG is required to pay a quarterly commitment fee on any unused portion of the Credit Facility, which is also based on JHG’s long-term credit rating. Under the Credit Facility, the financing leverage ratio cannot exceed 3.0x.3.00x EBITDA. At June 30, 2017,March 31, 2018, JHG was in compliance with all covenants, and there were no borrowings under the Credit Facility at June 30, 2017,March 31, 2018, or during the sixthree months ended June 30, 2017.March 31, 2018. The Credit Facility has a maturity date of the Credit Facility is February 16, 2022.2023.
Note 7 — Income Taxes
The Group’s effective tax rates for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows:
|
| Three months ended |
| Six months ended |
| ||||
|
| June 30, |
| June 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Effective tax rate |
| 33.6 | % | 6.3 | % | 25.4 | % | 15.1 | % |
|
| Three months ended |
| ||
|
| March 31, |
| ||
|
| 2018 |
| 2017 |
|
Effective tax rate |
| 22.5 | % | 15.1 | % |
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which made broad and complex changes to the U.S. tax code. Among other things, the Act reduced the U.S. federal corporation tax rate to 21% and implemented a new system of taxation for non-U.S. earnings, including a one-time transition tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries. Other significant changes included U.S. taxes on global intangible low-taxed income (“GILTI”) attributable to foreign subsidiaries and base erosion anti-abuse transactions, and new limitations on the deductibility of interest expense and executive compensation.
As of March 31, 2018, the Group has not completed its accounting for the tax effects of enactment of the Act because all of the necessary information is not currently available, prepared, or analyzed. Therefore, any amounts recorded are estimates and, as permitted by Staff Accounting Bulletin 118 (“SAB 118”), the Group will continue to assess the impacts of the Act and may record additional estimated amounts or adjustments to estimates during the year. The final effects of the Act may differ from our estimates, potentially materially, due to, among other things, changes in interpretations of the Act, analysis of the Act, or any updates or changes to estimates that we have utilized. The Group expects to complete the accounting for these impacts as the analysis is finalized, but in no event later than one year from the enactment date of the Act.
The increase infrom the effective taxstatutory rate for the three and six months ended June 30, 2017, versusMarch 31, 2018, compared to the same periodsperiod in 20162017, is primarily due to the non-tax deductible deal costs in connection with the Merger and the inclusion of JCG, which was not included as of March 31, 2017 and pays taxes in a higher tax rate jurisdiction in the tax calculation of JHG. In addition,U.S. The decrease from the statutory rate for the three and six months ended June 30, 2016, includedMarch 31, 2017 was primarily due to a significant tax benefit relating tofrom the exercisereversal of stock-based compensation.a reserve upon an audit settlement with the U.K. tax authorities.
As of June 30, 2017,March 31, 2018, and December 31, 2016,2017, JHG had $6.5$10.6 million and $2.5$10.2 million respectively, of unrecognized tax benefits held for uncertain tax positions. The increase in the unrecognized tax benefits was primarily a result of the inclusion of a $5.1 million tax reserve acquired in the Merger offset by $1.1 million as a result of settlements with the relevant authorities.positions, respectively. Management estimates that the existing liability for uncertain tax positions could decrease by up to $1.1$0.7 million within the next 12 months, ignoringwithout giving effect to changes due toin foreign currency translation.
Note 8 — Noncontrolling Interests
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests as of June 30, 2017,March 31, 2018, and December 31, 2016,2017, consisted of the following (in millions):
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Consolidated seeded investment products |
| $ | 152.2 |
| $ | 158.0 |
|
| $ | 202.9 |
| $ | 174.9 |
|
INTECH: |
|
|
|
|
| |||||||||
Intech: |
|
|
|
|
| |||||||||
Appreciation rights |
| 17.0 |
| — |
|
| 10.2 |
| 11.0 |
| ||||
Founding member ownership interests |
| 3.9 |
| — |
|
| 4.6 |
| 4.4 |
| ||||
Undistributed earnings |
| (1.1 | ) | — |
| |||||||||
Total redeemable noncontrolling interests |
| $ | 172.0 |
| $ | 158.0 |
|
| $ | 217.7 |
| $ | 190.3 |
|
Consolidated Seeded Investment Products
As of June 30, 2017, and December 31, 2016, redeemable noncontrolling interests of $152.2 million and $158.0 million, respectively, represented noncontrolling interests in consolidated seeded investment products. Noncontrolling interests in consolidated seeded investment products are classified as redeemable noncontrolling interests when there is an obligation to repurchase units at the investor’s request.
Redeemable noncontrolling interests in consolidated seed investment products may fluctuate from period to period and are impacted by changes in JHG’s relative ownership, percentage, changes in the amount of third-party investment in seeded products and volatility in the market value of the seeded products’ underlying securities. Third-party redemption of investments areis redeemed from the respective product’s net assets and cannot be redeemed from the assets of other seeded products or from the assets of JHG.
The following table presents the movement in redeemable noncontrolling interests in consolidated seeded investment products for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in millions):
|
| Three months ended |
| Six months ended |
|
| Three months ended |
| ||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Opening balance |
| $ | 146.0 |
| $ | 114.2 |
| $ | 158.0 |
| $ | 82.9 |
|
| $ | 174.9 |
| $ | 158.0 |
|
Balance acquired from the Merger |
| 23.2 |
| — |
| 23.2 |
| — |
| |||||||||||
Changes in market value |
| (16.2 | ) | 13.3 |
| (23.5 | ) | 18.5 |
|
| 1.1 |
| (7.3 | ) | ||||||
Changes in ownership |
| 0.3 |
| 16.8 |
| (5.1 | ) | 44.9 |
|
| 27.1 |
| (5.4 | ) | ||||||
Foreign currency translation |
| (1.1 | ) | (5.8 | ) | (0.4 | ) | (7.8 | ) |
| (0.2 | ) | 0.7 |
| ||||||
Closing balance |
| $ | 152.2 |
| $ | 138.5 |
| $ | 152.2 |
| $ | 138.5 |
|
| $ | 202.9 |
| $ | 146.0 |
|
Changes in ownership reflect third-party investment in consolidated seeded investment products, additional seed capital investment or seed capital redemptions.
INTECHIntech
INTECH became a subsidiary of the Group as a result of the Merger. INTECHIntech ownership interests held by a founding member had an estimated fair value of $3.9$4.6 million as of June 30, 2017,March 31, 2018, representing an approximate 1.1% ownership of INTECH.Intech. This founding member is entitled to retain his remaining INTECHIntech interests until his death and has the option to require JHG to purchase from him, his ownership interests of INTECHIntech at fair value.
INTECHIntech appreciation rights are being amortized on a graded vesting method over the respective vesting period. The appreciation rights are exercisable upon termination of employment from INTECHIntech to the extent vested. Upon exercise, the appreciation rights are settled in INTECHIntech equity.
Nonredeemable Noncontrolling Interests
Nonredeemable noncontrolling interests as of June 30, 2017,March 31, 2018, and December 31, 2016,2017, are as follows (in millions):
|
| June 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Nonredeemable noncontrolling interests in: |
|
|
|
|
| ||
Seed capital investments |
| $ | 27.9 |
| $ | 44.8 |
|
INTECH |
| 16.1 |
| — |
| ||
Total nonredeemable noncontrolling interests |
| $ | 44.0 |
| $ | 44.8 |
|
Net loss attributable to nonredeemable noncontrolling interests for the three and six months ended June 30, 2017, was $0.5 million and $0.5 million, respectively, and $6.1 million and $3.0 million, respectively, during the same periods in 2016.
|
| March 31, |
| December 31, |
| ||
|
| 2018 |
| 2017 |
| ||
Nonredeemable noncontrolling interests in: |
|
|
|
|
| ||
Seed capital investments |
| $ | 21.3 |
| $ | 24.9 |
|
Intech |
| 13.4 |
| 13.3 |
| ||
Total nonredeemable noncontrolling interests |
| $ | 34.7 |
| $ | 38.2 |
|
Note 9 — Long-Term Incentive and Employee Compensation
The Group granted $57.9 million and $58.3$110.1 million in long-term incentive awards during the three and six months ended June 30, 2017, respectively,March 31, 2018, which generally vest and will be recognized on a graded vesting method over a three-three or four-yearfour year period. In addition,The shares underlying certain 2018 grants were purchased on the open market during the three months ended March 31, 2018 at a cost of $81.0 million.
During the three months ended March 31, 2018, the Group issued 4.4recorded a $12.1 million shares of replacement awardsbonus adjustment related to employees on the Closing Datepaying more of the Merger.
Long-term incentive2017 bonus in stock versus cash. The adjustment favorably impacted the employee compensation expense for the three and six months ended June 30, 2017, was $47.3 million and $63.7 million, respectively, and $30.2 million and $51.3 million, respectively, during the same periods in 2016.benefits line on JHG’s Condensed Consolidated Statements of Comprehensive Income.
Note 10 — Retirement Benefit Plans
The Group operates defined contribution retirement benefit plans and defined benefit pension plans.
The main defined benefit pension plan sponsored by the Group is the defined benefit section of the Henderson Group Pension Scheme (“HGPS”).
Net Periodic Benefit Credit
The components of net periodic benefit credit in respect of defined benefit plans for the three-three months ended March 31, 2018 and six-month periods ended June 30, 2017, and 2016, include the following (in millions):
|
| Three months ended |
| Six months ended |
|
| Three months ended |
| ||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Service cost |
| $ | (0.3 | ) | $ | (0.4 | ) | $ | (0.6 | ) | $ | (0.7 | ) |
| $ | (0.3 | ) | $ | (0.3 | ) |
Interest cost |
| (5.3 | ) | (6.1 | ) | (10.5 | ) | (12.2 | ) |
| (4.8 | ) | (5.2 | ) | ||||||
Expected return on plan assets |
| 6.0 |
| 6.5 |
| 11.9 |
| 13.0 |
|
| 6.1 |
| 5.9 |
| ||||||
Net periodic benefit credit |
| $ | 0.4 |
| $ | — |
| $ | 0.8 |
| $ | 0.1 |
|
| $ | 1.0 |
| $ | 0.4 |
|
Note 11 — Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss, net of tax, for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows (in millions):
|
| Three months ended June 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||||||||||||||||||||||||||||||||||||
|
| Available- |
|
|
| Retirement |
|
|
| Available- |
|
|
| Retirement |
|
|
|
|
|
| Available- |
| Retirement |
|
|
|
|
| Available- |
| Retirement |
|
|
| ||||||||||||||||
|
| for-sale |
| Foreign |
| benefit |
|
|
| for-sale |
| Foreign |
| benefit |
|
|
|
| Foreign |
| for-sale |
| benefit |
|
|
| Foreign |
| for-sale |
| benefit |
|
|
| ||||||||||||||||
|
| securities |
| currency |
| asset, net |
| Total |
| securities |
| currency |
| asset, net |
| Total |
|
| currency |
| securities |
| asset, net |
| Total |
| currency |
| securities |
| asset, net |
| Total |
| ||||||||||||||||
Beginning balance |
| $ | 4.3 |
| $ | (447.6 | ) | $ | 32.1 |
| $ | (411.2 | ) | $ | 4.2 |
| $ | (249.8 | ) | $ | 17.1 |
| $ | (228.5 | ) |
| $ | (325.3 | ) | $ | 2.5 |
| $ | 21.0 |
| $ | (301.8 | ) | $ | (471.3 | ) | $ | 4.7 |
| $ | 32.1 |
| $ | (434.5 | ) |
Total other comprehensive income (loss) |
| — |
| 51.2 |
| — |
| 51.2 |
| 0.4 |
| (95.5 | ) | 0.1 |
| (95.0 | ) | |||||||||||||||||||||||||||||||||
Less: Other comprehensive loss (income) attributable to noncontrolling interests |
| — |
| 15.9 |
| — |
| 15.9 |
| — |
| (8.3 | ) | — |
| (8.3 | ) | |||||||||||||||||||||||||||||||||
Cumulative-effect adjustment |
| — |
| (2.5 | ) | — |
| (2.5 | ) | — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Adjusted beginning balance |
| (325.3 | ) | — |
| 21.0 |
| (304.3 | ) | (471.3 | ) | 4.7 |
| 32.1 |
| (434.5 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| 52.7 |
| — |
| — |
| 52.7 |
| 23.3 |
| (0.4 | ) | — |
| 22.9 |
| |||||||||||||||||||||||||||||||||
Less: other comprehensive income attributable to noncontrolling interests |
| 0.2 |
| — |
| — |
| 0.2 |
| 0.4 |
| — |
| — |
| 0.4 |
| |||||||||||||||||||||||||||||||||
Ending balance |
| $ | 4.3 |
| $ | (380.5 | ) | $ | 32.1 |
| $ | (344.1 | ) | $ | 4.6 |
| $ | (353.6 | ) | $ | 17.2 |
| $ | (331.8 | ) |
| $ | (272.4 | ) | $ | — |
| $ | 21.0 |
| $ | (251.4 | ) | $ | (447.6 | ) | $ | 4.3 |
| $ | 32.1 |
| $ | (411.2 | ) |
|
| Six months ended June 30, |
| ||||||||||||||||||||||
|
| 2017 |
| 2016 |
| ||||||||||||||||||||
|
| Available- |
|
|
| Retirement |
|
|
| Available- |
|
|
| Retirement |
|
|
| ||||||||
|
| for-sale |
| Foreign |
| benefit |
|
|
| for-sale |
| Foreign |
| benefit |
|
|
| ||||||||
|
| securities |
| currency |
| asset, net |
| Total |
| securities |
| currency |
| asset, net |
| Total |
| ||||||||
Beginning balance |
| $ | 4.7 |
| $ | (471.3 | ) | $ | 32.1 |
| $ | (434.5 | ) | $ | 5.1 |
| $ | (211.8 | ) | $ | 17.1 |
| $ | (189.6 | ) |
Total other comprehensive income (loss) |
| (0.4 | ) | 74.5 |
| — |
| 74.1 |
| (0.5 | ) | (134.6 | ) | 0.1 |
| (135.0 | ) | ||||||||
Less: Other comprehensive loss (income) attributable to noncontrolling interests |
| — |
| 16.3 |
| — |
| 16.3 |
| — |
| (7.2 | ) | — |
| (7.2 | ) | ||||||||
Ending balance |
| $ | 4.3 |
| $ | (380.5 | ) | $ | 32.1 |
| $ | (344.1 | ) | $ | 4.6 |
| $ | (353.6 | ) | $ | 17.2 |
| $ | (331.8 | ) |
On January 1, 2018, the Group adopted the financial instruments accounting standard on a modified retrospective basis. The accounting standard required the Group to reclassify a $2.5 million unrealized gain related to available-for-sale securities in accumulated other comprehensive income to retained earnings as a beginning of period cumulative-effect adjustment. As of January 1, 2018, the balance in accumulated comprehensive income related to available-for-sale securities is zero, and gains and losses associated with all equity securities are recognized in investment losses, net on the Group’s Condensed Consolidated Statements of Comprehensive Income.
The components of other comprehensive income, (loss), net of tax for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows (in millions):
|
| Three months ended June 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| ||||||||||||||
|
| Pre-tax |
| Tax |
| Net |
| Pre-tax |
| Tax |
| Net |
| ||||||
|
| amount |
| benefit |
| amount |
| amount |
| benefit |
| amount |
| ||||||
Net unrealized gains on available-for-sale securities |
| $ | — |
| $ | — |
| $ | — |
| $ | 0.4 |
| $ | — |
| $ | 0.4 |
|
Foreign currency translation adjustments |
| 51.2 |
| — |
| 51.2 |
| (95.6 | ) | 0.1 |
| (95.5 | ) | ||||||
Retirement benefit asset, net |
| — |
| — |
| — |
| 0.1 |
| — |
| 0.1 |
| ||||||
Total other comprehensive income (loss) |
| $ | 51.2 |
| $ | — |
| $ | 51.2 |
| $ | (95.1 | ) | $ | 0.1 |
| $ | (95.0 | ) |
|
| Six months ended June 30, |
|
| Three months ended March 31, |
| ||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||||||||||||||||||||||||
|
| Pre-tax |
| Tax |
| Net |
| Pre-tax |
| Tax |
| Net |
|
| Pre-tax |
| Tax |
| Net |
| Pre-tax |
| Tax |
| Net |
| ||||||||||||
|
| amount |
| benefit |
| amount |
| amount |
| benefit |
| amount |
|
| amount |
| benefit |
| amount |
| amount |
| benefit |
| amount |
| ||||||||||||
Foreign currency translation adjustments |
| $ | 52.7 |
| $ | — |
| $ | 52.7 |
| $ | 23.3 |
| $ | — |
| $ | 23.3 |
| |||||||||||||||||||
Net unrealized losses on available-for-sale securities |
| $ | (0.4 | ) | $ | — |
| $ | (0.4 | ) | $ | (0.5 | ) | $ | — |
| $ | (0.5 | ) |
| — |
| — |
| — |
| (0.4 | ) | — |
| (0.4 | ) | ||||||
Foreign currency translation adjustments |
| 74.5 |
| — |
| 74.5 |
| (134.7 | ) | 0.1 |
| (134.6 | ) | |||||||||||||||||||||||||
Retirement benefit asset, net |
| — |
| — |
| — |
| 0.1 |
| — |
| 0.1 |
| |||||||||||||||||||||||||
Total other comprehensive income (loss) |
| $ | 74.1 |
| $ | — |
| $ | 74.1 |
| $ | (135.1 | ) | $ | 0.1 |
| $ | (135.0 | ) | |||||||||||||||||||
Total other comprehensive income |
| $ | 52.7 |
| $ | — |
| $ | 52.7 |
| $ | 22.9 |
| $ | — |
| $ | 22.9 |
|
Note 12 — Earnings and Dividends Per Share
Earnings Per Share
The following is a summary of the earnings per share calculation for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in millions, except per share data):
|
| Three months ended |
| Six months ended |
|
| Three months ended |
| ||||||||||||
|
| June 30, |
| June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Net income attributable to JHG |
| $ | 41.7 |
| $ | 46.3 |
| $ | 84.3 |
| $ | 97.8 |
|
| $ | 165.2 |
| $ | 42.6 |
|
Less: Allocation of earnings to participating stock-based awards |
| 1.1 |
| 0.9 |
| 2.0 |
| 2.3 |
|
| (4.2 | ) | (0.9 | ) | ||||||
Net income attributable to JHG common shareholders |
| $ | 40.6 |
| $ | 45.4 |
| $ | 82.3 |
| $ | 95.5 |
|
| $ | 161.0 |
| $ | 41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Weighted-average common shares outstanding - basic |
| 140.2 |
| 109.3 |
| 124.6 |
| 108.9 |
|
| 195.9 |
| 109.2 |
| ||||||
Dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2018 Convertible Notes |
| 1.6 |
| — |
| 1.6 |
| — |
| |||||||||||
Non-participating stock-based awards |
| 2.0 |
| 0.9 |
| 1.9 |
| 2.4 |
|
| 1.0 |
| 1.4 |
| ||||||
Weighted-average common shares outstanding - diluted |
| 143.8 |
| 110.2 |
| 128.1 |
| 111.3 |
|
| 196.9 |
| 110.6 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings per share |
| $ | 0.29 |
| $ | 0.42 |
| $ | 0.66 |
| $ | 0.88 |
| |||||||
Diluted earnings per share (two class) |
| $ | 0.28 |
| $ | 0.41 |
| $ | 0.64 |
| $ | 0.86 |
| |||||||
Basic |
| $ | 0.82 |
| $ | 0.38 |
| |||||||||||||
Diluted (two class) |
| $ | 0.82 |
| $ | 0.38 |
|
The March 31, 2017 share numbers in the table above have been updated to reflect the share consolidation on April 26, 2017. ReferThe potential dilutive effect of redemptions of the Group’s 2018 Convertible Notes has been excluded from the calculations above. Redemptions to Note 1 — Basis of Presentation, for additional information ondate have been settled wholly in cash, and the share consolidation.Group has the ability and intent to settle future redemptions wholly in cash.
The following unvested nonparticipating stock awardsinstruments are anti-dilutive and have not been included in the weighted-average diluted shares outstanding calculation (in millions):
|
| Three months ended |
| Six months ended |
| ||||
|
| June 30, |
| June 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Unvested nonparticipating stock awards |
| 2.3 |
| — |
| 1.7 |
| — |
|
|
| Three months ended |
| ||
|
| March 31, |
| ||
|
| 2018 |
| 2017 |
|
Unvested nonparticipating stock awards |
| 0.4 |
| 0.8 |
|
Dai-ichi options |
| 10.0 |
| — |
|
Dividends Per Share
The payment of cash dividends is within the discretion of JHG’s Board of Directors and depends on many factors, including, but not limited to, the Group’s results of operations, financial condition, capital requirements, and general business conditions and legal requirements. From the Closing date, the Group anticipates declaring dividends quarterly in US dollars; prior to this the Group declared dividends in GBP on a semi-annual basis, with an extraordinary first quarter 2017 dividend declared on April 19, 2017.
The following is a summary of cash dividends paid forduring the three and six months ended June 30, 2017 and 2016, in GBP:March 31, 2018:
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Dividends paid per share |
| £ | 0.0915 |
| £ | 0.0720 |
| £ | 0.0915 |
| £ | 0.0720 |
|
Dividend |
| Date |
| Dividends paid |
| Date |
| ||
per share |
| declared |
| (in US$ millions) |
| paid |
| ||
$ | 0.32 |
| February 5, 2018 |
| $ | 63.1 |
| March 2, 2018 |
|
On August 7, 2017,May 8, 2018, JHG’s Board of Directors declared a cash dividend of $0.32$0.36 per share. The quarterly dividend will be paid on SeptemberJune 1, 2017,2018, to shareholders of record at the close of business on August 18, 2017.May 21, 2018.
Note 13 — Commitments and Contingencies
Commitments and contingencies may arise in the normal course of business. As of June 30, 2017,March 31, 2018, there were no material changes in the commitments and contingencies as reported in Henderson’s annual consolidated financial statements and notes included inJHG’s Annual Report on Form 10-K for the Prospectus, except as noted below. The rental commitments disclosed in the table below are in addition to the commitments disclosed in the Prospectus.year ended December 31, 2017.
Operating and Capital Leases
As of June 30, 2017, future minimum rental commitments under non-cancelable operating and capital leases (in addition to the amounts reported in the Prospectus), are as follows (in millions):
Year ended December 31, |
| Amount |
| |
2017 |
| $ | 8.4 |
|
2018 |
| 15.2 |
| |
2019 |
| 11.9 |
| |
2020 |
| 9.5 |
| |
2021 |
| 8.4 |
| |
Thereafter |
| 27.5 |
| |
Total |
| $ | 80.9 |
|
Litigation and Other Regulatory Matters
JHG is periodically involved in various legal proceedings and other regulatory matters. Although there can be no assurances, based
Richard Pease v. Henderson Administration Limited
The outcome of a court case involving an ex-employee concluded in the first quarter 2018. The case related to the fees the Group should receive after a fund was transferred to an ex-employee and the ex-employee’s entitlement to deferred and forfeited remuneration. The judgment given in the case resulted in the Group recognizing a $12.2 million charge in general, administrative and occupancy on information currently available, management believes that it is probableJHG’s Condensed Consolidated Statements of Comprehensive Income after the judge held that the ultimate outcome of matters that are pending or threatened will not have a material effect on JHG’s consolidated financial statements.ex-employee’s contract gave him an entitlement to deferred and forfeited remuneration. The amount also represents legal costs relating to the case. The Group is considering whether to appeal the judgment.
Eisenberg v. Credit Suisse AG and Janus Index, Halbert v. Credit Suisse AG and Janus Index and Qui v. Credit Suisse AG and Janus Index
28On March 15, 2018, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York against Janus Index & Calculation Services LLC (“Janus Index”), a subsidiary of the Group, on behalf of a proposed class consisting of investors who purchased VelocityShares Daily Inverse VIX Short-Term ETN (Ticker: XIV) between January 29, 2018 and February 5, 2018 (Eisenberg v. Credit Suisse AG and Janus Index). Credit Suisse, the issuer of the XIV notes, is also named as a defendant in the lawsuit. The plaintiffs allege Credit Suisse and Janus Index disseminated and/or approved materially false and misleading intraday indicative values for XIV, causing inflated values of XIV at market close on February 5, 2018. On April 17, 2018, a second lawsuit was filed against Janus Index and Credit Suisse in the United States District Court of the Northern District of Alabama by certain investors in XIV (Halbert v. Credit Suisse AG and Janus Index). On May 4, 2018, a third lawsuit was filed in the United States District Court for the Southern District of New York against Credit Suisse and Janus Index. The Halbert and Qui allegations generally mirror the Eisenberg complaint, although the Halbert claim is not a class action lawsuit.
The Group believes the claims in these lawsuits are without merit and is strongly defending the actions.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Janus Henderson Group plc
We have reviewed the accompanying condensed consolidated balance sheetsheets of Janus Henderson Group plc and its subsidiaries as of 30 June 2017,31 March 2018, and the related condensed consolidated statements of comprehensive income, for the three-month and six-month periods ended 30 June 2017 and 30 June 2016 and the condensed consolidated statements of cash flows and condensed consolidated statements of changes in equity for the six monththree-month periods ended 30 June 201731 March 2018 and 30 June 2016. This31 March 2017. These interim financial information isstatements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). and in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), or in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), and in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of 31 December 2016,2017, and the related consolidated statement of changes in equity, the consolidated statement of comprehensive income and the consolidated statement of cash flows for the year then ended (not presented herein), and in our report dated 2827 February 2017,2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of 31 December 2016,2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
This report is intended solely for the information and use of the Directors of Janus Henderson Group plc and is not intended to be and should not be used by anyone other than these specified parties.
/s/ PricewaterhouseCoopers LLP
London, UK
8 August 20179 May 2018
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF JANUS HENDERSON GROUP PLC
FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of Janus Henderson Group plc (the “Company”) and its consolidated subsidiaries (collectively, the “Group” or “JHG”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and future results could differ materially from historical performance. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate”, “forecast”, “seeks”, “targets”, “outlook” and similar words and expressions and future or conditional verbs such as “will”, “should”, “would”, “may”, “could” and variations or negatives of these words, 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, uncertainties, assumptions and factors specified in the Company’s prospectus dated March 21,Group’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC pursuant to Rule 454(b) under the Securities Act of 1933, as amended (File No. 333-216824) (the “Prospectus”) and this Quarterly Report on Form 10-Q included under headings such as “Risk Factors” and, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations of Janus Henderson Group plc”, and “Quantitative and Qualitative Disclosures about Market Risk”, 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. In particular, any discussion of potential merger synergies is forward looking and uncertain. Forward-looking statements by their nature address matters that are, to different degrees, subject to numerous assumptions and known and unknown risks and uncertainties, which change over time and 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. The Company does not assume any duty and does not undertake to update forward-looking statements, to report events or to report the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise, should circumstances change, nor does the Company intend to do so, except as otherwise required by securities and other applicable laws and regulations.
AVAILABLE INFORMATION
Copies of JHG’s filings with the SEC can be obtained from the SEC’s 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 (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.
JHG 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 JHG’s website (www.janushenderson.com) or by contacting JHG at +44 (0)207 818 5310. The contents of JHG’s website are not incorporated herein for any purpose.
JHG’s Officer Code of Ethics for the Principal Executive Officers and Senior Financial Officers (including its Co-Chief Executive Officers, Chief Financial Officer and Chief Accounting Officer) (the “Officer Code”); Corporate Code of Business Conduct for all employees; corporate governance guidelines; and the charters of key committees of the Board of Directors (including the Audit, Compensation, and Nominating and Governance committees) are available on the Investor Relations section of JHG’s website (www.janushenderson.com). Any future amendments to or waivers of the Officer Code will be posted to the Investor Relations section of JHG’s website.
Business Overview
JHG is an independent global asset manager, specializing in active investment across all major asset classes andclasses. JHG actively manages a broad range of investment products for institutional and retail investors across five capabilities: Equities, Quantitative Equities, Fixed Income, Multi AssetMulti-Asset and Alternatives.
On the Closing Date, JCG and HendersonMay 30, 2017, JHG completed a merger of equals.equals with JCG (the “Merger”). As a result of the Merger, JCG and its consolidated subsidiaries became subsidiaries of Henderson which was renamed to Janus Henderson Group plc. For purposes of this section, each reference to the “Group” or “JHG” refers to Janus Henderson Group plc and its consolidated subsidiaries.JHG.
Segment Considerations
JHG is a global asset manager and manages a range of investment products, operating across various product lines, distribution channels and geographic regions. However, information is reported to the chief operating decision-makers, the Co-Chief Executive Officers (“Co-CEOs”), on an aggregated basis. Strategic and financial management decisions are determined centrally by the Co-CEOs and, on this basis, the Group operates as a single segment investment management business.
Revenue
Revenue primarily consists of management fees and performance fees. Management fees are generally based upon a percentage of the market value of AUMassets under management (“AUM”) and are calculated using either the daily, month endmonth-end or quarter endquarter-end average asset balance in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on the Group’s operating results. Additionally, AUM may outperform or underperform the financial markets and therefore may fluctuate in varying degrees from that of the general market.
Performance fees are specified in certain fund and client contracts and are based on investment performance either on an absolute basis or compared to an established index over a specified period of time. This is often subject to a hurdle rate. Performance fees are recognized at the end of the contractual period (typically monthly, quarterly or annually) if the stated performance criteria are achieved. Certain fund and client contracts allow for negative performance fees where there is underperformance against the relevant index.
SECONDFIRST QUARTER 2018 SUMMARY
First Quarter 2018 Highlights
·Strong investment performance across all time periods, with 79%, 68% and 84% of AUM outperforming benchmarks on a one-, three-, and five-year basis, respectively, as of March 31, 2018.
·Increase of AUM to $371.9 billion, up 0.3% from the year ended 2017, SUMMARYsupported by favorable foreign currency translation and markets, partially offset by net outflows.
·First quarter 2018 diluted earnings per share of $0.82, or $0.71 on an adjusted basis. Refer to the Non-GAAP Financial Measures section for information on adjusted non-GAAP figures.
·Exceeded $90 million run rate cost synergies ahead of end-of-May target.
·First quarter 2018 dividend of $0.36 per share, an increase of $0.04, or 13%, increase from the fourth quarter 2017 dividend.
Financial Summary
Results are reported on a GAAP basis. Adjusted non-GAAP figures are presented in the Non-GAAP Financial Measures section.
InRevenue for the secondfirst quarter of 2017, JHG achieved operating income2018 was $587.7 million, an increase of $56.7$354.7 million, which is flat compared toor 152%, from the secondfirst quarter of 2016. JCG contributed $22.7 million to operating income in June 2017 and there were increased performance fees (excluding JCG) of $41.3 million. This was primarily offset by $51.6 million of deal and integration expenses (excluding JCG).
Revenue in the second quarter of 2017 was $384.8 million, up 50% from the second quarter of 2016.2017. This increase was driven primarily by JCG revenues of $105.2$326.6 million for June 2017 in addition to an increase in performance feesthe first quarter of 2018. Average AUM (excluding JCG) increased by 19% and positively affected management fees during the first
quarter of $41.3 million.2018 compared to the same period in 2017. These increases are partially offset by lower average management fee margins and lower performance fees.
Total operating expenses infor the secondfirst quarter of 20172018 were $411.5 million, an increase of $328.1$229.3 million, increased by 63%or 126%, compared to the operating expenses in the secondfirst quarter of 2016. Total deal and integration costs of $78.52017. JCG operations contributed $219.4 million were recognizedto operating expenses in the period and JCG contributed $82.6first quarter of 2018. The remaining increase is due to a number of non-significant items discussed in Results of Operations.
Operating income for the first quarter of 2018, was $176.2 million, an increase of operating expenses, which included $26.9$125.4 million, or 247%, compared to the first quarter of the deal and integration costs in June 2017. As the Group has been focused on the Merger, spending in other areas has been lower than usual and it is expected that the adjustedThe Group’s operating margin is likely to bewas 30.0% in the high thirtiesfirst quarter of 2018 compared to 21.8% in the third and fourth quarters.first quarter of 2017. JCG operations contributed $107.2 million to operating income in the first quarter of 2018.
Net income attributable to JHG decreased by 10% to $41.7 million in the secondfirst quarter of 20172018 was $165.2 million, an increase of $122.6 million, or 288%, compared to the same period in 2016, reflecting2017. JCG whichoperations contributed $15.7$90.7 million and an increaseto net income attributable to JHG in performance fee crystallizations for the three month period ended June 30, 2017 offset by deal and integration costsfirst quarter of $51.6 million2018. Other non-operating income, net (excluding JCG). increased $16.1 million from the first quarter 2017, primarily due to a gain recognized from the BNP Paribas transaction.
The Group’s ordinary dividend in respect of the secondfirst quarter of 20172018 totaled $0.32$0.36 per share.
Investment Performance of Assets Under Management
In the second quarter of 2017, investment performance improved significantly. On a three year basis, 71% of assets outperformed the relevant benchmark, demonstrating the Group’s ability to deliver exceptional long-term investment performance for clients. On a one year basis, performance improved, with 69% of assets outperforming.
One year performance was weakest in the Quantitative Equities capability due to a period of underperformance in the second half of 2016.
The following table is a summary of investment performance as of June 30, 2017:March 31, 2018:
Percentage of assets under management outperforming benchmark |
| 1 year |
| 3 years |
| 5 years |
|
| 1 year |
| 3 years |
| 5 years |
|
Equities |
| 68 | % | 77 | % | 84 | % |
| 68 | % | 59 | % | 76 | % |
Fixed Income |
| 93 | % | 92 | % | 91 | % |
| 96 | % | 96 | % | 97 | % |
Quantitative Equities |
| 6 | % | 48 | % | 91 | % |
| 91 | % | 46 | % | 88 | % |
Multi Asset |
| 97 | % | 21 | % | 100 | % | |||||||
Multi-Asset |
| 83 | % | 87 | % | 90 | % | |||||||
Alternatives |
| 97 | % | 67 | % | 100 | % |
| 95 | % | 76 | % | 100 | % |
Total |
| 69 | % | 71 | % | 89 | % | |||||||
Total Group |
| 79 | % | 68 | % | 84 | % |
Assets Under Management
The Group’s AUM as of June 30, 2017March 31, 2018, was $344.9$371.9 billion, an increase of $220.2$1.1 billion, or 177%0.3%, from December 31, 2016, driven primarily by net acquisitions of $205.8 billion representing JCG’s AUM of $206.5 billion offset by disposals of $0.7 billion. Positive market movements in the period contributed $8.8 billion and the weakening of the USD resulted in favorable FX movements of $6.5 billion. This has been partially offset by net outflows of $0.8 billion, which includes flows from JCG from the Closing Date.
Group AUM increased $216.0 billion or 167% since March 31, 2017, driven primarily by net acquisitions of $205.8 billion during the period. Positive market andfavorable foreign exchange movements added $4.1of $3.2 billion due to the weakening of the U.S. dollar (“USD”) and $4.7positive market movements of $0.6 billion, respectively, as well aspartially offset by net sales in the periodredemptions of $1.4 billion which includes flows from JCG from the Closing Date.$2.7 billion.
InJHG’s non-USD AUM is primarily denominated in Great British Pound (“GBP”), euro (“EUR”) and Australian Dollar (“AUD”). During the period,first quarter of 2018, the USD weakened against all major currencies.the GBP and EUR and strengthened against the AUD. As of June 30, 2017,March 31, 2018, approximately 37%36% of the Group’s AUM was non-USD denominated,non USD-denominated, resulting in a net favorable currency effect, particularly in products exposed to GBP.
JHG’s exchange traded notes (“ETNs”) are not included within the AUM as JHG is not the named adviser or subadviser to ETNs. ETN assets totaled $3.1$2.3 billion as of June 30, 2017.March 31, 2018.
(1) Includes JCG performance
Asset and flows by capability for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (includes JCG activity from the Closing Date) are as follows (in millions)billions):
(In $ millions) |
| Closing |
| Sales |
| Redemptions(2) |
| Net Sales |
| Markets |
| FX(3) |
| Acquisitions & |
| Closing |
|
By capability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| 63,614 |
| 12,194 |
| (12,175 | ) | 19 |
| 7,205 |
| 2,854 |
| 99,683 |
| 173,375 |
|
Fixed Income |
| 34,695 |
| 6,699 |
| (5,762 | ) | 937 |
| 775 |
| 2,197 |
| 38,631 |
| 77,235 |
|
Quantitative Equities |
| — |
| 161 |
| (1,676 | ) | (1,515 | ) | 51 |
| 28 |
| 47,991 |
| 46,555 |
|
Multi Asset |
| 8,958 |
| 831 |
| (1,280 | ) | (449 | ) | 413 |
| 463 |
| 19,990 |
| 29,375 |
|
Alternatives |
| 17,473 |
| 3,674 |
| (3,498 | ) | 176 |
| 328 |
| 912 |
| (500 | ) | 18,389 |
|
TOTAL |
| 124,740 |
| 23,559 |
| (24,391 | ) | (832 | ) | 8,772 |
| 6,454 |
| 205,795 |
| 344,929 |
|
(In $ millions) |
| Closing |
| Sales |
| Redemptions(2) |
| Net Sales |
| Markets |
| FX(3) |
| Acquisitions & |
| Closing |
|
By capability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| 66,205 |
| 8,301 |
| (6,401 | ) | 1,900 |
| 3,515 |
| 2,072 |
| 99,683 |
| 173,375 |
|
Fixed Income |
| 36,366 |
| 3,659 |
| (3,200 | ) | 459 |
| 279 |
| 1,500 |
| 38,631 |
| 77,235 |
|
Quantitative Equities |
| — |
| 161 |
| (1,676 | ) | (1,515 | ) | 51 |
| 28 |
| 47,991 |
| 46,555 |
|
Multi Asset |
| 9,114 |
| 724 |
| (984 | ) | (260 | ) | 176 |
| 355 |
| 19,990 |
| 29,375 |
|
Alternatives |
| 17,263 |
| 2,326 |
| (1,504 | ) | 822 |
| 109 |
| 695 |
| (500 | ) | 18,389 |
|
TOTAL |
| 128,948 |
| 15,171 |
| (13,765 | ) | 1,406 |
| 4,130 |
| 4,650 |
| 205,795 |
| 344,929 |
|
(In $ millions) |
| Closing |
| Sales |
| Redemptions(2) |
| Net Sales |
| Markets |
| FX(3) |
| Acquisitions & |
| Closing |
|
By capability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| 68,558 |
| 7,030 |
| (9,964 | ) | (2,934 | ) | (2,103 | ) | (1,680 | ) | — |
| 61,841 |
|
Fixed Income |
| 36,549 |
| 5,582 |
| (5,074 | ) | 508 |
| 1,933 |
| (2,207 | ) | — |
| 36,783 |
|
Alternatives |
| 20,110 |
| 5,044 |
| (4,948 | ) | 96 |
| (235 | ) | (893 | ) | — |
| 19,078 |
|
Multi Asset |
| 10,360 |
| 326 |
| (816 | ) | (490 | ) | 424 |
| (948 | ) | — |
| 9,346 |
|
TOTAL |
| 135,577 |
| 17,982 |
| (20,802 | ) | (2,820 | ) | 19 |
| (5,728 | ) | — |
| 127,048 |
|
(In $ millions) |
| Closing |
| Sales |
| Redemptions(2) |
| Net Sales |
| Markets |
| FX(3) |
| Acquisitions & |
| Closing |
|
By capability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
| 65,637 |
| 3,423 |
| (5,277 | ) | (1,854 | ) | 98 |
| (2,040 | ) | — |
| 61,841 |
|
Fixed Income |
| 36,884 |
| 3,179 |
| (2,261 | ) | 918 |
| 1,087 |
| (2,106 | ) | — |
| 36,783 |
|
Alternatives |
| 20,741 |
| 2,151 |
| (2,793 | ) | (642 | ) | (96 | ) | (925 | ) | — |
| 19,078 |
|
Multi Asset |
| 10,018 |
| 178 |
| (460 | ) | (282 | ) | 301 |
| (691 | ) | — |
| 9,346 |
|
TOTAL |
| 133,280 |
| 8,931 |
| (10,791 | ) | (1,860 | ) | 1,390 |
| (5,762 | ) | — |
| 127,048 |
|
(1)AUM as of December 31, 2016 and 2015 and as of March 31, 2016 and 2017, has been reclassified between capabilities following the completion of the Merger.
(2)Redemptions include the impact of client transfers which could cause a positive balance on occasion.
(3)FX reflects movements in AUM resulting from changes in foreign currency rates as non-USD denominated AUM is translated into USD.
By capability |
| Closing |
| Sales |
| Redemptions(1) |
| Net sales |
| Markets |
| FX(2) |
| Closing |
| |||||||
Equities |
| $ | 189.7 |
| $ | 9.9 |
| $ | (11.7 | ) | $ | (1.8 | ) | $ | 1.4 |
| $ | 1.4 |
| $ | 190.7 |
|
Fixed Income |
| 80.1 |
| 5.3 |
| (5.6 | ) | (0.3 | ) | (0.6 | ) | 0.8 |
| 80.0 |
| |||||||
Quantitative Equities |
| 49.9 |
| 1.7 |
| (1.4 | ) | 0.3 |
| 0.1 |
| 0.1 |
| 50.4 |
| |||||||
Multi-Asset |
| 31.6 |
| 1.3 |
| (1.2 | ) | 0.1 |
| (0.3 | ) | 0.4 |
| 31.8 |
| |||||||
Alternatives |
| 19.5 |
| 1.5 |
| (2.5 | ) | (1.0 | ) | — |
| 0.5 |
| 19.0 |
| |||||||
TOTAL |
| $ | 370.8 |
| $ | 19.7 |
| $ | (22.4 | ) | $ | (2.7 | ) | $ | 0.6 |
| $ | 3.2 |
| $ | 371.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
By capability |
| Closing |
| Sales |
| Redemptions(1) |
| Net sales |
| Markets |
| FX(2) |
| Closing |
| |||||||
Equities |
| $ | 63.6 |
| $ | 4.0 |
| $ | (5.7 | ) | $ | (1.7 | ) | $ | 3.5 |
| $ | 0.8 |
| $ | 66.2 |
|
Fixed Income |
| 34.7 |
| 3.0 |
| (2.6 | ) | 0.4 |
| 0.6 |
| 0.7 |
| 36.4 |
| |||||||
Multi-Asset |
| 9.0 |
| 0.1 |
| (0.3 | ) | (0.2 | ) | 0.2 |
| 0.1 |
| 9.1 |
| |||||||
Alternatives |
| 17.4 |
| 1.3 |
| (2.0 | ) | (0.7 | ) | 0.3 |
| 0.2 |
| 17.2 |
| |||||||
TOTAL |
| $ | 124.7 |
| $ | 8.4 |
| $ | (10.6 | ) | $ | (2.2 | ) | $ | 4.6 |
| $ | 1.8 |
| $ | 128.9 |
|
Closing Assets Under Management
The following table presents the closing AUM, split by client type and client location, as of June 30, 2017March 31, 2018 (in millions)billions):
(In $ millions) |
| Closing |
| |||||
By client type |
|
|
|
| Closing AUM |
| ||
Intermediary |
| $ | 150,314 |
|
| $ | 164.2 |
|
Institutional |
| 135,699 |
|
| 145.5 |
| ||
Self Directed |
| 58,916 |
| |||||
TOTAL |
| $ | 344,929 |
| ||||
Self-Directed |
| 62.2 |
| |||||
Total |
| $ | 371.9 |
|
(In $ millions) |
| Closing |
| |||||
By client location |
|
|
|
| Closing AUM |
| ||
Americas |
| $ | 182,682 |
|
| $ | 194.0 |
|
EMEA |
| 109,819 |
|
| 119.2 |
| ||
Asia Pacific |
| 52,428 |
| |||||
TOTAL |
| $ | 344,929 |
| ||||
Asia-Pacific |
| 58.7 |
| |||||
Total |
| $ | 371.9 |
|
(1) Redemptions include the impact of client transfers which could cause a positive balance on occasion.
(2) FX reflects movements in AUM resulting from changes in foreign currency rates as non-USD denominated AUM is translated into USD.
(3) AUM as of December 31, 2016 and as of March 31, 2017, has been reclassified between capabilities following the completion of the Merger.
Valuation of Assets Under Management
The fair value of AUM is based on the value of the underlying cash and investment securities of the funds, trusts and segregated mandates. A significant proportion of these securities are listed or quoted on a recognized securities exchange or market and are regularly traded thereon; these investments are valued based on unadjusted quoted market prices. Investments including, but not limited to, over-the-counterover the counter derivative contracts, which(which are dealt in or through a clearing firm, exchangefirm), exchanges or financial institutioninstitutions will be valued by reference to the most recent official settlement price quoted by the appointed market vendor and in the event no price is available from this source, a broker quotation may be used. Physical property held is valued monthly by a specialist independent appraiser.
When a readily ascertainable market value does not exist for an investment, the fair value is calculated based on the expected cash flows of its underlying net asset base, taking into account applicable discount rates and other factors. JudgementJudgment is used to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. AThe Fair Value Pricing Committee is responsible for determining or approving these unquoted prices, which are reported to those charged with governance of the funds and trusts. For funds that invest in markets that are closed at their valuation point, an assessment is made daily to determine whether a fair value pricing adjustment is required to the fund’s valuation. This may be due to significant market movements in other correlated open markets, scheduled market closures or unscheduled market closures as a result of natural disaster or government intervention.
Third partyFor certain funds, third-party administrators hold a key role in the collection and validation of prices used in the valuation of the securities. Daily price validation is completed using techniques such as day on day tolerance movements, invariant prices, excessive movement checks and intra vendor tolerance checks. The JHG Data Management Team performs oversight of this process and completes annual due diligence on the processes of third parties.third-parties.
In other cases, the Group performs a number of procedures to validate the pricing received from third-party providers. For actively traded equity securities, prices are received daily from both a primary and secondary vendor. For fixed income securities, prices are received daily from a primary vendor and weekly from a secondary vendor. Prices from the primary and secondary vendors are compared to identify any discrepancies. In the event of a discrepancy, a price challenge may be issued to both vendors. Securities with significant day to day price changes require additional research, which may include a review of all news pertaining to the issue and issuer and any corporate actions. All fixed income prices are reviewed by JHG’s fixed income trading desk to incorporate market activity information available to JHG’s traders. In the event the traders have received price indications from market makers for a particular issue, this information is transmitted to the pricing vendors.
JHG leverages the expertise of its fund management teams across the business to cross invest assets and create value for its clients. Where cross investment occurs, assets and flows are identified and the duplication is removed.
Financial Condition
The merger of JCG and Henderson had a significant impact on the Financial Condition of the Group. In exchange for 87.2 million shares of JCG common stock, the Group assumed net assets of $2,600.7 million. Refer to Part I, Item 1., Note 2 – Acquisitions of this Form 10-Q for further information on net assets assumed.
Results of Operations
Revenue
|
| Three months ended |
| |||||||||||||||||
|
| Three months ended June 30, |
| Six months ended June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Revenue (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Management fees |
| $ | 296.0 |
| $ | 222.9 |
| $ | 493.5 |
| $ | 441.2 |
|
| $ | 502.9 |
| $ | 201.0 |
|
Performance fees |
| 57.7 |
| 13.9 |
| 72.5 |
| 28.7 |
|
| (3.9 | ) | 14.8 |
| ||||||
Shareowner servicing fees |
| 9.9 |
| — |
| 9.9 |
| — |
|
| 31.5 |
| — |
| ||||||
Other revenue |
| 21.2 |
| 20.3 |
| 38.4 |
| 41.6 |
|
| 57.2 |
| 17.2 |
| ||||||
Total revenue |
| $ | 384.8 |
| $ | 257.1 |
| $ | 614.3 |
| $ | 511.5 |
|
| $ | 587.7 |
| $ | 233.0 |
|
Management fees
Management fees increased by $73.1$301.9 million, or 33% in150%, during the three months ended June 30, 2017,March 31, 2018, compared to the same period in 20162017, with one monththe inclusion of JCG management fees of $86.7$261.9 million beingas the largest driver. Adverse FXFavorable markets and foreign currency translation movements reducedincreased management fees by $9.2$18.0 million partially offsettingand $20.7 million, respectively, during the increase from JCG. Average AUM (excluding the impact of JCG) increased 3%quarter ended March 31, 2018, compared to the same period in 2016. However,the prior year. These increases are partially offset by lower average margins, which decreased 14%, with 8% of this decrease from the addition of one month of JCG fees, and the remaining decreasemanagement fees. Lower margins are primarily from a change in product mix, (i.e.primarily from a switch in share classes as a result of the Retail Distribution Review (“RDR”) within Europe to a lower fee share class, which increases the visibility to the underlying client on the fees retained by Intermediaries) which isand are partially offset by a decrease in distribution expenses.
Management fees increased by $52.3 million or 12% in the six months ended June 30, 2017, compared to the same period in 2016 with one month of JCG management fees of $86.7 million being the primary drive of the increase. FX translation adversely impacted management fees due to unfavourable movements in exchange rates following the UK European Union referendum vote which had a $28.1 million adverse impact. Average AUM increased compared to the same period in 2016 primarily due to one month of JCG AUM. Excluding the impact of JCG, average AUM was up 1% compared to the same period in the prior year. A change in product mix and an increase in institutional AUM have decreased management fee margins by $3.8 million.
Performance fees
Performance fees are derived across a number of product ranges, including both pooled funds and segregated mandates.ranges. Pooled fund and segregated mandate performance fees are recognized on a quarterly or annual basis, while mutual fund performance fees are recognized on a monthly basis. Performance fees by product type consisted of the following for the three months ended March 31, 2018 and six month periods ended June 30, 2017 and 2016 (in millions):
|
| Three months ended |
| |||||||||||||||||
|
| Three months ended June 30, |
| Six months ended June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Performance fees (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SICAVs |
| $ | 29.6 |
| $ | 1.8 |
| $ | 38.0 |
| $ | 9.6 |
|
| $ | 1.0 |
| $ | 8.4 |
|
UK OEICs & Unit Trusts |
| 13.7 |
| 4.2 |
| 16.9 |
| 8.0 |
|
| — |
| 3.2 |
| ||||||
Offshore Absolute Return |
| 2.0 |
| 2.1 |
| 4.0 |
| 4.2 |
|
| 0.4 |
| 2.0 |
| ||||||
Segregated Mandates |
| 1.5 |
| 3.4 |
| 2.4 |
| 3.6 |
|
| 2.5 |
| 0.9 |
| ||||||
Private Accounts |
| 4.9 |
| — |
| 4.9 |
| — |
| |||||||||||
Investment Trusts |
| 8.4 |
| 1.9 |
| 8.4 |
| 1.9 |
|
| — |
| — |
| ||||||
Mutual Funds |
| (2.4 | ) | — |
| (2.4 | ) | — |
|
| (7.8 | ) | — |
| ||||||
Other |
| — |
| 0.5 |
| 0.3 |
| 1.4 |
|
| — |
| 0.3 |
| ||||||
Total performance fees |
| $ | 57.7 |
| $ | 13.9 |
| $ | 72.5 |
| $ | 28.7 |
|
| $ | (3.9 | ) | $ | 14.8 |
|
For the three and six months ended June 30, 2017March 31, 2018, performance fees increased $43.8decreased $18.7 million, or 126%, compared to the same period in 2017. The decrease for 2016,the three months ended March 31, 2018, compared to the same period in 2017, was primarily due to higher Société d’Investissement À Capital Variable (“SICAV”) fees. Key funds driving the increase included thea decrease in SICAV and UK Absolute Return SICAV fund, Pan European Smaller Companies and Pan European Alpha. UK Open Ended Investment Companies (“OEICs”)OEICs and Unit Trusts also increased in the period primarily due to the UK Absolute Return OEIC. Key contributions to this number were in relation to annual performance fee crystallizations, so these fees would not be expected to repeat in the third or fourth quarterfees. The inclusion of 2017. An additional $2.5 million ofJCG net performance fees werealso contributed by JCG.$4.5 million to the decrease.
Shareowner servicing fees
Shareowner servicing fees is primarily comprisedcomposed of mutual fund servicing fees. The activity in the three and six month periodsthree-month period ended June 30, 2017March 31, 2018, relates to JCG.
Operating expenses
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Operating expenses (in millions): |
|
|
|
|
|
|
|
|
| ||||
Employee compensation and benefits |
| $ | 123.6 |
| $ | 67.2 |
| $ | 194.0 |
| $ | 134.6 |
|
Long-term incentive plans |
| 47.3 |
| 30.2 |
| 63.7 |
| 51.3 |
| ||||
Distribution expenses |
| 60.7 |
| 57.3 |
| 107.8 |
| 111.9 |
| ||||
Investment administration |
| 9.7 |
| 12.8 |
| 19.9 |
| 24.5 |
| ||||
Marketing |
| 10.1 |
| 3.7 |
| 13.3 |
| 7.1 |
| ||||
General, administrative and occupancy |
| 67.3 |
| 23.9 |
| 92.4 |
| 48.9 |
| ||||
Depreciation and amortization |
| 9.4 |
| 5.6 |
| 15.7 |
| 11.2 |
| ||||
Total operating expenses |
| $ | 328.1 |
| $ | 200.7 |
| $ | 506.8 |
| $ | 389.5 |
|
Other revenue
Other revenue increased by $40.0 million during the three months ended March 31, 2018, compared to the same period in 2016. JCG was the largest driver, contributing $37.7 million to the three-month period ended March 31, 2018. Included in the $37.7 million JCG amount is a $25.8 million increase as a result of gross presentation of distribution and servicing fees due to the adoption of the new revenue recognition standard. This increase is offset by an equivalent increase in distribution expenses.
Operating Expenses
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Operating expenses (in millions): |
|
|
|
|
| ||
Employee compensation and benefits |
| $ | 146.7 |
| $ | 70.4 |
|
Long-term incentive plans |
| 40.0 |
| 16.4 |
| ||
Distribution expenses |
| 117.3 |
| 50.6 |
| ||
Investment administration |
| 11.4 |
| 10.2 |
| ||
Marketing |
| 8.5 |
| 3.2 |
| ||
General, administrative and occupancy |
| 72.2 |
| 25.1 |
| ||
Depreciation and amortization |
| 15.4 |
| 6.3 |
| ||
Total operating expenses |
| $ | 411.5 |
| $ | 182.2 |
|
Employee compensation and benefits
During the three and six month periodsthree-month period ended June 30, 2017,March 31, 2018, employee compensation and benefits increased $56.4$76.3 million and $59.4 million respectively, compared to the equivalent periods in 2016.2017. This increase was primarily driven by the inclusion of JCG, which contributed $32.7$79.6 million to the three-month period ended March 31, 2018. In addition, a $12.1 million bonus adjustment, related to paying more of the 2017 bonus in stock versus cash, favorably impacted the period from the Closing Date. There was also an increase in relation to dealthree months ended March 31, 2018 while foreign currency translation and integration costs of $12.1$8.4 million and $14.1$2.9 million, forrespectively, had an adverse effect on the three and six month periodsquarter ended June 30, 2017, respectively.March 31, 2018.
Long-term incentive plans
Long-term incentive plans increased by $17.1$23.6 million and $12.4 million induring the three and six month periodsthree-month period ended June 30, 2017, respectively,March 31, 2018, compared to the equivalent periodsperiod in 2016.2017. The increases wereincrease was primarily driven by JCG, which contributed $19.5$20.9 million in the three and six month periods. In addition, deal and integration coststhree-month period ended March 31, 2018. Foreign currency translation of $3.7$2.0 million and $4.0 million forhad an adverse impact on the three and six month periodsthree-month period ended June 30, 2017, respectively, contributed to the year on year variance. These increases were offset by favorable changes in exchange rates of $2.9 million and $6.2 million for the three and six month periods ended June 30, 2017, respectively. Management anticipate that the compensation to revenue ratio, on an adjusted basis, for the second half of 2017 to be in the mid forties.March 31, 2018.
Distribution expenses
Distribution expenses are paid to financial intermediaries for the distribution of JHG’s retail investment products and are typically calculated based on the amount of the intermediary sourced AUM. For the three monththree-month period ended June 30, 2017,March 31, 2018, distribution expenses increased by $3.4 million and for the six month period ended June 30, 2017, distribution expenses decreased$66.7 million. The increase was primarily driven by $4.1 million. JCG, which contributed $13.3$75.7 million in the period fromthree-month period. Included in the Closing Date, which was$75.7 million JCG amount is a $25.8 million increase due to the adoption of the new revenue recognition standard. The increase due to the adoption of the new revenue recognition standard is offset by an equivalent increase in other revenue. These increases are partially offset by favorable changesa switch in exchange rates of $1.6 million and $4.4 million for the three and six month periods ended June 30, 2017, respectively, together with a decreaseshare classes as a result of the UK OEIC and SICAV product mix.RDR within Europe to a lower fee share class as discussed in management fees section.
Investment administration
Investment administration costs forexpenses, which represent back-office operations, increased $1.2 million during the three and six month periodsthree-month period ended June 30, 2017, decreased by $3.1 million and $4.6 million, respectively,March 31, 2018, compared to the equivalent periodssame period in 2016. This2017. The increase was primarily due to favorable changes in exchange ratesunfavorable foreign currency translation of $1.2 million and $3.0 million for the three and six month periodsthree-month period ended June 30, 2017, respectively.March 31, 2018.
Marketing
Marketing expenses for the three and six month periodsthree-month period ended June 30, 2017, haveMarch 31, 2018, increased by $6.4$5.3 million and $6.2 million, respectively, compared to the equivalent periodssame period in 2016. Expenses in relation2017. The increase was primarily driven by JCG which contributed $4.8 million to the Merger, primarily fund proxy costs, contributed $5.2 million and $5.4 million of costs for the three and six month periodsthree-month period ended June 30, 2017, respectively.March 31, 2018.
General, administrative and occupancy
General, administrative and occupancy expenses increased by $43.4 million and $43.5$47.1 million during the three and six month periodsthree-month period ended June 30, 2017, respectively,March 31, 2018, compared to the same periodsperiod in 2016. Deal2017. The increase was primarily driven by JCG, which contributed $29.5 million to the three-month period ended March 31, 2018. The outcome of a court case adversely impacted general, administrative and integrationoccupancy by $12.2 million during the quarter ended March 31, 2018. Research costs related to the Merger, including legalMarkets in Financial Instruments Directive II (“MiFID II”) and advisory fees, contributed $36.6 million and $42.9foreign currency translation of $6.6 million in total, also adversely impacted the three and six month periodsmonths ended June 30, 2017, respectively. JCG contributed $7.2 millionMarch 31, 2018, compared to the same period in the period from the Closing Date. These increases were partially offset by favorable changes in exchange rates of $2.4 million and $6.1 million for the three and six month periods ended June 30, 2017, respectively, together with a $6.9 million credit in relation to a sales tax refund dating from April 2013.prior year.
Depreciation and amortization
Depreciation and amortization expenseexpenses increased by $3.8 million and $4.5$9.1 million for the three and six month periodsthree-month period ended June 30, 2017, respectively,March 31, 2018, compared to the equivalent periodssame period in 2016.2017. This increase was primarily due to additional depreciation and amortization of $3.4 millionintangibles recognized in June as a result of the merger with JCG.Merger.
Non-operating income and expenses
|
| Three months ended |
| |||||||||||||||||
|
| Three months ended June 30, |
| Six months ended June 30, |
|
| March 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||||
Non-operating income and expenses (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| $ | (2.0 | ) | $ | (1.4 | ) | $ | (3.1 | ) | $ | (5.6 | ) |
| $ | (3.8 | ) | $ | (1.1 | ) |
Investment gains (losses), net |
| $ | 9.8 |
| $ | (8.9 | ) | $ | 8.9 |
| $ | (2.1 | ) | |||||||
Other non-operating expenses, net |
| $ | (2.0 | ) | $ | (3.2 | ) | $ | (0.7 | ) | $ | (2.6 | ) | |||||||
Investment losses, net |
| $ | (0.7 | ) | $ | (0.9 | ) | |||||||||||||
Other non-operating income, net |
| $ | 38.9 |
| $ | 1.3 |
|
Interest expense
Interest expense increased by $0.6$2.7 million for the three monththree-month period ended June 30, 2017 and decreased by $2.5 million for the six month period ended June 30, 2017,March 31, 2018, compared to the equivalent periodsperiod in 2016.2017. The decrease relating to the six month period wasincrease is primarily due to $3.6 millionthe inclusion of interest expense recognized in the six month period ended June 30, 2016 in relation to0.750% Convertible Senior Notes due 2018 (the “2018 Convertible Notes”) and the Group’s loan notes, which was repaid in March 2016. JCG contributed interest expense4.875% Senior Notes due 2025 (“2025 Senior Notes”) as a result of $1.8 million in June 2017.the Merger.
Investment gains (losses),losses, net
The components of investment gains (losses),losses, net for the three months ended March 31, 2018 and six month periods ended June 30, 2017, and 2016,are as follows (in millions) were as follows::
|
| Three months ended |
| Six months ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Investment gains (losses), net (in millions): |
|
|
|
|
|
|
|
|
| ||||
Loss on investment securities and derivatives |
| $ | (0.3 | ) | $ | (9.0 | ) | $ | (1.2 | ) | $ | (3.0 | ) |
Gain on sale of Volantis |
| 10.2 |
| — |
| 10.2 |
| — |
| ||||
Other investment income |
| (0.1 | ) | 0.1 |
| (0.1 | ) | 0.9 |
| ||||
Investment gains (losses), net |
| $ | 9.8 |
| $ | (8.9 | ) | $ | 8.9 |
| $ | (2.1 | ) |
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Investment losses, net (in millions): |
|
|
|
|
| ||
Losses on investment securities and derivatives, net |
| $ | (0.8 | ) | $ | (1.0 | ) |
Other |
| 0.1 |
| 0.1 |
| ||
Investment losses, net |
| $ | (0.7 | ) | $ | (0.9 | ) |
Investment gains (losses),Other non-operating income, net
Other non-operating income, net increased by $18.7$37.6 million and $11.0 million in the three and six month periods ended June 30, 2017, respectively, compared to the equivalent periods in 2016. These increases were primarily due to the sale of Volantis which resulted in the recognition of a gain of $10.2 million induring the three months ended June 30, 2017, together with one month of investment gains contributed by JCG of $0.8 million and lower losses in respect of investment securities and derivatives in eachMarch 31, 2018, compared to the same period in 2017 comparedprimarily due to a $23.0 million gain recognized during the equivalent periodthree months ended March 31, 2018 on the disposal of the Group’s back-office, middle-office and custody functions in 2016.the U.S.
Fair value adjustments related to the Dai-ichi option also contributed to the increase. The fair value of the Dai-ichi options decreased $22.8 million during the three-month period ended March 31, 2018, primarily due to a decrease in JHG’s stock price and time decay. Foreign currency translation partially offset these increases due to the GBP strengthening against the USD.
Other non-operating expense, netIncome tax provision
The components of other non-operating expense, net for the three and six month periods ended June 30, 2017 and 2016, (in millions), were as follows:
|
| Three months ended |
| Six months ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Other non-operating expenses, net (in millions): |
|
|
|
|
|
|
|
|
| ||||
Loss from equity method investments |
| $ | — |
| $ | (3.3 | ) | $ | — |
| $ | (3.3 | ) |
Foreign exchange (losses) gains |
| (0.7 | ) | — |
| 0.3 |
| — |
| ||||
Fair value movements on option agreement |
| (1.2 | ) | — |
| (1.2 | ) | — |
| ||||
Interest income |
| (0.1 | ) | 0.1 |
| 0.2 |
| 0.7 |
| ||||
Total other non-operating expenses, net |
| $ | (2.0 | ) | $ | (3.2 | ) | $ | (0.7 | ) | $ | (2.6 | ) |
The loss from equity method investments was nil for the three and six month periods ended June 30, 2017, compared to a loss of $3.3 million for the three and six month periods ended June 30, 2016. This was primarily due to an impairment of an equity method investment in the three months ended June 30, 2016.
The fair value loss on the option agreement of $1.2 million in the three months ended June 30, 2017, represents fair value adjustments on the Dai-ichi options issued as part of the Merger Agreement with JCG.
Income Tax Provision
The Company’sGroup’s effective tax rates for the three and six months ended June 30,March 31, 2018 and 2017, and 2016, are as follows:
|
| Three months ended |
| Six months ended |
| ||||
|
| June 30, |
| June 30, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Effective tax rate |
| 33.6 | % | 6.3 | % | 25.4 | % | 15.1 | % |
|
| Three months ended |
| ||
|
| March 31, |
| ||
|
| 2018 |
| 2017 |
|
Effective tax rate |
| 22.5 | % | 15.1 | % |
The increase infrom the effective taxstatutory rate for the three and six month periodsmonths ended June 30, 2017 versusMarch 31, 2018, compared to the same periodsperiod in 20162017, is primarily due to the non-tax deductible deal costs in connection with the Merger and the inclusion of JCG, which was not included as of March 31, 2017 and pays taxes in a higher tax rate jurisdiction in the tax calculation of JHG. In addition,U.S. The decrease from the statutory rate for the three and six months ended June 30, 2016 includedMarch 31, 2017 was primarily due to a significant tax benefit relating tofrom the exercisereversal of stock based compensation.a reserve upon an audit settlement with the U.K. tax authorities.
Non-GAAP Financial Measures
JHG reports its financial results in accordance with GAAP. However, in the opinion of JHG management, the profitability of the Group and its ongoing operations is best evaluated using additional non-GAAP financial measures. Management uses these performance measures to evaluate the business, and adjusted values are consistent with internal management reporting.
Pro forma JHG results
The table below reflects the pro forma combined results for the three months ended June 30, 2017, as though the Merger had taken place on April 1, 2017 (in millions).
|
| Three months ended June 30, 2017 |
| |||||||
|
| Statutory |
| JCG April & |
| Pro Forma |
| |||
Revenue: |
|
|
|
|
|
|
| |||
Management fees |
| $ | 296.0 |
| $ | 158.3 |
| $ | 454.3 |
|
Performance fees |
| 57.7 |
| (5.4 | ) | 52.3 |
| |||
Shareowner servicing fees |
| 9.9 |
| 19.6 |
| 29.5 |
| |||
Other revenue |
| 21.2 |
| 8.8 |
| 30.0 |
| |||
Total revenue |
| 384.8 |
| 181.3 |
| 566.1 |
| |||
Operating expenses: |
|
|
|
|
|
|
| |||
Employee compensation and benefits |
| 123.6 |
| 62.1 |
| 185.7 |
| |||
Long-term incentive plans |
| 47.3 |
| 13.9 |
| 61.2 |
| |||
Distribution expenses |
| 60.7 |
| 23.2 |
| 83.9 |
| |||
Investment administration |
| 9.7 |
| — |
| 9.7 |
| |||
Marketing |
| 10.1 |
| 13.1 |
| 23.2 |
| |||
General, administrative and occupancy |
| 67.3 |
| 31.4 |
| 98.7 |
| |||
Depreciation and amortization |
| 9.4 |
| 5.8 |
| 15.2 |
| |||
Total operating expenses |
| 328.1 |
| 149.5 |
| 477.6 |
| |||
Operating income |
| 56.7 |
| 31.8 |
| 88.5 |
| |||
Interest expense |
| (2.0 | ) | (3.1 | ) | (5.1 | ) | |||
Investment gains, net |
| 9.8 |
| 0.1 |
| 9.9 |
| |||
Other non-operating (expense) income |
| (2.0 | ) | 0.4 |
| (1.6 | ) | |||
Income before taxes |
| 62.5 |
| 29.2 |
| 91.7 |
| |||
Income tax provision |
| (21.0 | ) | (10.7 | ) | (31.7 | ) | |||
Net income |
| 41.5 |
| 18.5 |
| 60.0 |
| |||
Net loss (income) attributable to noncontrolling interests |
| 0.2 |
| (1.2 | ) | (1.0 | ) | |||
Net income attributable to JHG |
| $ | 41.7 |
| $ | 17.3 |
| $ | 59.0 |
|
Alternative performance measures — pro forma basis
The following is a reconciliation of pro forma revenue, pro forma operating income, pro forma net income attributable to JHG and pro forma diluted earnings per share to pro forma adjusted revenue, pro forma adjusted operating income, pro forma adjusted net income attributable to JHG and pro forma adjusted diluted earnings per share based on the combined results of JCG and JHG on a pro forma basis for the three monththree-month period ended June 30, 2017:March 31, 2018 (in millions, except per share and operating margin data):
|
| Three months ended June |
| |
|
| (dollars in millions, except |
| |
Reconciliation of pro forma revenue to pro forma adjusted revenue |
|
|
| |
Pro forma revenue |
| $ | 566.1 |
|
Distribution expenses(1) |
| (83.9 | ) | |
Adjusted pro forma revenue |
| $ | 482.2 |
|
|
|
|
| |
Reconciliation of pro forma operating income to pro forma adjusted operating income |
|
|
| |
Pro forma operating income |
| $ | 88.5 |
|
Employee compensation and benefits(2) |
| 25.4 |
| |
Long-term incentive plans(2) |
| 13.2 |
| |
Marketing(2) |
| 14.4 |
| |
Depreciation and amortization(3) |
| 7.8 |
| |
General, administration and occupancy(2) |
| 50.2 |
| |
Adjusted pro forma operating income |
| $ | 199.5 |
|
|
|
|
| |
Pro forma operating margin(7) |
| 15.6 | % | |
Pro forma adjusted operating margin(8) |
| 41.4 | % | |
|
|
|
| |
Reconciliation of pro forma net income attributable to JHG to pro forma adjusted net income attributable to JHG |
|
|
| |
Pro forma net income attributable to JHG |
| $ | 59.0 |
|
Employee compensation and benefits(2) |
| 25.4 |
| |
Long-term incentive plans(2) |
| 13.2 |
| |
Marketing(2) |
| 14.4 |
| |
Depreciation and amortization(3) |
| 7.8 |
| |
General, administration and occupancy(2) |
| 50.2 |
| |
Investment gains(5) |
| (10.2 | ) | |
Interest expense(4) |
| 0.7 |
| |
Other non-operating expense, net(4) |
| 2.6 |
| |
Income tax provision(6) |
| (23.3 | ) | |
Pro forma adjusted net income attributable to JHG |
| 139.8 |
| |
Less: allocation of earnings to participating stock-based awards |
| (4.0 | ) | |
Pro forma adjusted net income attributable to JHG common shareholders |
| $ | 135.8 |
|
|
|
|
| |
Weighted-average diluted common shares outstanding — diluted (two class) |
| 200.0 |
| |
Pro forma diluted earnings per share (two class)(9) |
| $ | 0.29 |
|
Pro forma adjusted diluted earnings per share (two class)(10) |
| $ | 0.68 |
|
|
|
|
|
|
| Three months ended |
| |
Reconciliation of revenue to adjusted revenue |
|
|
| |
Revenue |
| $ | 587.7 |
|
Distribution expenses(1) |
| (117.3 | ) | |
Adjusted revenue |
| $ | 470.4 |
|
|
|
|
| |
Reconciliation of operating income to adjusted operating income |
|
|
| |
Operating income |
| $ | 176.2 |
|
Employee compensation and benefits(2) |
| 2.9 |
| |
Long-term incentive plans(2) |
| 0.1 |
| |
Marketing(2) |
| 0.1 |
| |
General, administrative and occupancy(2) |
| 2.1 |
| |
Depreciation and amortization(3) |
| 7.4 |
| |
Adjusted operating income |
| $ | 188.8 |
|
|
|
|
| |
Operating margin(4) |
| 30.0 | % | |
Adjusted operating margin(5) |
| 40.1 | % | |
|
|
|
| |
Reconciliation of net income attributable to JHG to adjusted net income attributable to JHG |
|
|
| |
Net income attributable to JHG |
| $ | 165.2 |
|
Employee compensation and benefits(2) |
| 2.9 |
| |
Long-term incentive plans(2) |
| 0.1 |
| |
Marketing(2) |
| 0.1 |
| |
General, administrative and occupancy(2) |
| 2.1 |
| |
Depreciation and amortization(3) |
| 7.4 |
| |
Interest expense(6) |
| 0.7 |
| |
Other non-operating income (expenses), net(6) |
| (44.8 | ) | |
Income tax provision(7) |
| 9.9 |
| |
Adjusted net income attributable to JHG |
| 143.6 |
| |
Less: allocation of earnings to participating stock-based awards |
| (3.6 | ) | |
Adjusted net income attributable to JHG common shareholders |
| $ | 140.0 |
|
|
|
|
| |
Weighted-average common shares outstanding - diluted (two class) |
| 196.9 |
| |
Diluted earnings per share (two class)(8) |
| $ | 0.82 |
|
Adjusted diluted earnings per share (two class)(9) |
| $ | 0.71 |
|
(1) Distribution expenses are paid to financial intermediaries for the distribution of JHG’s investment products. JHG management believes that the deduction of third-party distribution, service and advisory expenses from revenue in the computation of net revenue reflects the nature of these expenses as
revenue-sharing activities, as these costs are passed through to external parties that perform functions on behalf of, and distribute, the Group’s managed AUM.
(2) Adjustments primarily represent deal and integration costs in relation to the Merger. The costs represent severance costs, legal costs and consulting fees. JHG Managementmanagement believes these costs do not represent the ongoing operations of the Group.
(3) Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries and businesses. Such contracts are recognized at the net present value of the expected future cash flows arising from the contracts at the date of acquisition. For segregated mandate contracts, the intangible asset is amortized on a straight-line basis over the expected life of the contracts. JHG Managementmanagement believes these non-cash and acquisition relatedacquisition-related costs do not represent the ongoing operations of the Group.
(4) Operating margin is operating income divided by revenue.
(5) Adjusted operating margin is adjusted operating income divided by adjusted revenue.
(6) Adjustments primarily represent the gain on the sale of JHG’s back-office (including fund administration and fund accounting), middle-office and custody functions in the U.S. to BNP Paribas, fair value movements on options issued to Dai-ichi and deferred consideration costs associated with acquisitions prior to the Merger. JHG Managementmanagement believes these costs do not represent the ongoing operations of the Group.
(5) Adjustment relates to the gain recognized on disposal of Volantis on April 1, 2017. JHG Management believes this gain does not represent the ongoing operations of the Group.
(6) (7) The tax impact of the adjustments areis calculated based on the U.S. or foreign statutory tax rate as they relate to each adjustment. Certain adjustments are either not taxable or not tax deductible.tax-deductible.
(7) Pro forma operating income divided by pro forma revenue.
(8) Pro forma adjusted operating income divided by pro forma adjusted revenue.
(9) Pro formaDiluted earnings per share is net income attributable to JHG common shareholders divided by weighted-average diluted common shares outstanding.
(10) Pro forma(9) Adjusted diluted earnings per share is adjusted net income attributable to JHG common shareholders divided by weighted-average diluted common shares outstanding.
Quarterly analysis
The following provides analysis of the Group’s adjusted revenue and adjusted operating expense for the three-month period ended March 31, 2018, as compared to pro forma adjusted revenue and adjusted operating expense for the three-month period ended March 31, 2017 (in millions). Pro forma adjusted figures for the first quarter of 2017 assume the Merger had occurred on January 1, 2017.
|
| Three months ended |
| Pro forma |
| ||
Adjusted revenue |
| $ | 470.4 |
| $ | 406.0 |
|
Adjusted operating expense |
| $ | 281.6 |
| $ | 262.4 |
|
Adjusted revenue increased $64.4 million, or 16%, due largely to higher AUM. Adjusted operating expenses increased $19.2 million, or 7%, due to increased general, administrative and occupancy due to $12.2 million associated with the outcome of a court case and research costs related to MiFID II. There were no other significant movements contributing to the variances.
The following is a reconciliation of revenue and operating expense to adjusted revenue and adjusted operating expense for the three months ended March 31, 2018 and 2017 (in millions):
|
| Three months ended |
| Pro forma |
| ||
Reconciliation of revenue to adjusted revenue |
|
|
|
|
| ||
Revenue |
| $ | 587.7 |
| $ | 513.4 |
|
Distribution expenses(1) |
| (117.3 | ) | (107.4 | ) | ||
Adjusted revenue |
| $ | 470.4 |
| $ | 406.0 |
|
|
|
|
|
|
| ||
Reconciliation of operating expense to adjusted operating expense |
|
|
|
|
| ||
Operating expense |
| $ | 411.5 |
| $ | 407.5 |
|
Employee compensation and benefits(2) |
| (2.9 | ) | (3.6 | ) | ||
Long-term incentive plans(2) |
| (0.1 | ) | — |
| ||
Distribution expenses(1) |
| (117.3 | ) | (107.4 | ) | ||
Marketing(2) |
| (0.1 | ) | (14.5 | ) | ||
General, administrative and occupancy(2) |
| (2.1 | ) | (12.0 | ) | ||
Depreciation and amortization(3) |
| (7.4 | ) | (7.6 | ) | ||
Adjusted operating expense |
| $ | 281.6 |
| $ | 262.4 |
|
(1) Distribution expenses are paid to financial intermediaries for the distribution of JHG’s investment products. JHG management believes that the deduction of third-party distribution, service and advisory expenses from revenue in the computation of net revenue reflects the nature of these expenses as revenue-sharing activities, as these costs are passed through to external parties that perform functions on behalf of, and distribute, the Group’s managed AUM.
(2) Adjustments primarily represent deal and integration costs in relation to the Merger. The costs primarily represent severance costs, legal costs and consulting fees. JHG management believes these costs do not represent the ongoing operations of the Group.
(3) Investment management contracts have been identified as a separately identifiable intangible asset arising on the acquisition of subsidiaries and businesses. Such contracts are recognized at the net present value of the expected future cash flows arising from the contracts at the date of acquisition. For segregated mandate contracts, the intangible asset is amortized on a straight-line basis over the expected life of the contracts. JHG management believes these non-cash and acquisition-related costs do not represent the ongoing operations of the Group.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
JHG’s capital structure, together with available cash balances, cash flows generated from operations, and further capital and credit market activities, if necessary, should provide the Group with sufficient resources to meet present and future cash needs, including operating and other obligations as they fall due and anticipated future capital requirements.
The following table summarizes key balance sheet data relating to JHG’s liquidity and capital resources as of March 31, 2018, and December 31, 2017 (in millions):
|
| March 31, |
| December 31, |
| ||
|
| 2018 |
| 2017 |
| ||
Cash and cash equivalents held by the Group |
| $ | 606.5 |
| $ | 754.2 |
|
Fees and other receivables |
| $ | 339.9 |
| $ | 419.6 |
|
Investment securities held by the Group |
| $ | 287.6 |
| $ | 280.4 |
|
Debt |
| $ | 330.8 |
| $ | 379.2 |
|
Cash and cash equivalents consist primarily of cash at banks and in money market funds. Cash and cash equivalents and investment securities held by consolidated VIEs and VREs are not available for general corporate purposes and have been excluded from the table above.
Investment securities held by the Group represents seeded investment products (exclusive of consolidated VIEs and VREs), investments related to deferred compensation plans and other less significant investments.
The Group believes that existing cash and cash from operations should be sufficient to satisfy its short-term capital requirements. Expected short-term uses of cash include ordinary operating expenditures, seed capital investments, 2018 Convertible Notes principal, interest and redemption payments, dividend payments, income tax payments, contingent consideration payments, defined benefit pension plan contributions and integration costs in relation to the Merger. JHG may also use available cash for other general corporate purposes and acquisitions.
Regulatory Capital
JHG is subject to regulatory oversight by the SEC, the Financial Industry Regulatory Authority (“FINRA”), the U.S. Commodity Futures Trading Commission, the Financial Conduct Authority (“FCA”) and other international regulatory bodies. The Group ensures it is compliant with its regulatory obligations at all times. The Group’s main capital requirement relates to the FCA supervisedFCA-supervised regulatory group (a sub-group of JHG), comprising Henderson Group Holdings Asset Management Limited, all of its subsidiaries and Janus Capital International Limited (“JCIL”), that are subject to the FCA consolidated capital requirements.. JCIL is included on the basis of an Article 134 relationship under the Banking Consolidation Directive. The combined capital requirement is £270.7£275.3 million ($351.6385.7 million), resulting in capital above the regulatory group’s regulatory requirement of £7.0£44.1 million ($9.161.8 million) as of June 30, 2017,March 31, 2018, based upon internal calculations and excluding unaudited current periodyear profits. Capital requirements in other jurisdictions are not significant.
Short-Term Liquidity and Capital Resources
The following table summarizes key balance sheet data relating to JHG’s liquidity and capital resources as of June 30, 2017 and December 31, 2016 (in millions):
|
| June 30, |
| December 31, |
| ||
Cash and cash equivalents held by the Group |
| $ | 640.0 |
| $ | 279.0 |
|
Fees and other receivables |
| 346.3 |
| 165.5 |
| ||
Investment securities held by the Group |
| 274.1 |
| 79.6 |
| ||
Debt (including current portion) |
| $ | 438.9 |
| $ | — |
|
Cash and cash equivalents consist primarily of cash at banks. Cash and cash equivalents and investment securities held by consolidated VIEs are not available for general corporate purposes and have been excluded from the table above.
The Group believes that existing cash and cash from operations should be sufficient to satisfy its short-term capital requirements. Expected short-term uses of cash include ordinary operating expenditures, seed capital investments, principal, interest and conversion payments related to the 2018 Convertible Notes, dividend payments, income tax payments and integration costs in relation to the Merger. JHG may also use available cash for other general corporate purposes and acquisitions.
Convertible Notes
Upon closing of the Merger, JHG fully and unconditionally guaranteed the obligations of JCG under its 2018 Convertible Notes.
The 2018 Convertible Notes, which pay interest at 0.750% semiannually on January 15 and July 15 of each year and mature on July 15, 2018.
Holders of the 2018 Convertible Notes may convert the notes during a particular calendar quarter if the last reported sale price of JHG’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding quarter. As a result of the Merger,April 1, 2018, the 2018 Convertible Notes could be converted, regardless of whether or notmet the conversion criteria were satisfied, forand are convertible during the second quarter 2018 at a periodconversion rate of 35 trading days in advance and 35 trading days following the Merger Closing Date. As the note holders had the option to convert as44.9238 shares of June 30, 2017,JHG common stock per $1,000 principal amount of the 2018 Convertible Notes, were classified as current under current portionwhich is equivalent to a conversion price of long-term debt onapproximately $22.26 per share of common stock. In addition, the Group’s Consolidated Balance Sheets as2018 Convertible Notes are convertible from April 15, 2018 to July 15, 2018 (maturity date), regardless of June 30, 2017. As of August 4, 2017,the conversion notices amounting to $32.6criteria.
During the three months ended March 31, 2018, $47.9 million of principal had been received. JHG intends to settle these conversion notices inwas redeemed and settled with cash during the third quarterfor a total cash outlay of 2017.$81.6 million.
Options Sold to Dai-ichi
OnAs of March 31, 2018, the Closing Date of the Merger, JHG granted Dai-ichi 20 tranches of conditional options with each tranche allowing Dai-ichi to purchase 500,000 JHG ordinary shares at a strike price of £29.972 per share (the terms of such options having been adjusted in accordance with the terms of the Dai-ichi option agreement to take account of the effect of the share consolidation). The cash considerationfair value of the options sold to Dai-ichi was £19.8 million ($25.7 million).$4.3 million. The options can be exercised by Dai-ichi forfair value was determined using a Black-Scholes option pricing model. The Black-Scholes model requires management to estimate certain variables, primarily the period from the Closing Datevolatility of the Merger untilunderlying shares. Changes in the fair value of the options are recognized in other non-operating income, net in JHG’s Condensed Consolidated Statements of Comprehensive Income. The exercise period of the options extends to October 3, 2018.
Common Stock Repurchases
ThereSome of the Group’s executives and employees receive rights over JHG ordinary shares as part of their remuneration arrangements and employee entitlements. These entitlements may be satisfied either by the transfer of existing ordinary shares acquired on-market or by the issue of ordinary shares. See Part 2, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Common Stock Purchases.
At the Annual General Meeting held on May 3, 2018, shareholders authorized JHG to make on-market purchases of up to 10% of the issued share capital of the Group. The Group did not make any on-market or off-market share purchases during the three months ended March 31, 2018 in connection with any share buyback program and as of the date of this report, there were no share repurchases during the six month period ended June 30, 2017current on-market or the year ended December 31, 2016. The Group has no commitments to repurchase additional capital stock. Any future repurchasesoff-market buybacks of ordinary shares, Chess Depository Interests (“CDIs”) or Depository Interests (“DIs”) will depend upon prevailing market conditions, the Group’s liquidity requirements, contractual and legal restrictions, and other factors.securities.
Dividends
The payment of cash dividends is within the discretion of the JHG ManagementGroup’s Board of Directors and depends on many factors, including, but not limited to, the Group’s results of operations, financial condition, capital requirements, general business
conditions and legal requirements. From the Closing Date, the Group intends to declare dividends quarterly in USD. Prior to this the Group declared dividends in GBP on a semi-annual basis, with an extraordinary first quarter 2017 dividend declared on April 19, 2017.
Dividends declared and paid during the sixthree months ended June 30, 2017, representing the final 2016 and extraordinary first quarter 2017 dividends respectively were:March 31, 2018, were as follows:
Dividend |
| Date declared |
| Dividends paid |
| Date paid |
| |
0.0730 |
| February 9, 2017 |
| $ | 102.6 |
| May 19, 2017 |
|
0.0185 |
| April 19, 2017 |
| $ | 26.0 |
| May 19, 2017 |
|
Dividend |
| Date |
| Dividends paid |
| Date |
| ||
per share |
| declared |
| (in US$ millions) |
| paid |
| ||
$ | 0.32 |
| February 5, 2018 |
| $ | 63.1 |
| March 2, 2018 |
|
On August 7, 2017,May 8, 2018, JHG’s Board of Directors declared a regular quarterly cash dividend of $0.32$0.36 per share. The quarterly dividend will be paid on SeptemberJune 1, 2017,2018, to shareholders of record at the close of business on August 18, 2017.May 21, 2018.
Long-Term Liquidity and Capital Resources
Expected long-term commitments as of June 30, 2017,March 31, 2018, include principal and interest payments related to the 2025 Senior Notes, operating and capital lease payments, defined benefit pension plan contributions, Perkins and INTECHIntech senior profits interests awards, INTECHIntech appreciation rights and phantom interests, INTECHIntech non-controlling interests and contingent consideration related to the acquisitions of Geneva, Perennial, VelocityShares and Kapstream. JHG expects to fund its long-term commitments with existing cash, cash generated from operations or by accessing capital and credit markets as necessary.
2025 Senior Notes
Upon closing of the Merger, JHG fully and unconditionally guaranteed JCG’s obligations under its 2025 Senior Notes. There areThe 2025 Senior Notes have a principal amount of $300.0 million, of Senior Notes due 2025 in issue, which pay interest at 4.875% semiannually on February 1 and August 1 of each year, and mature on August 1, 2025.
Perkins Senior Profits Interests Awards
Perkins became a wholly owned subsidiary of the Group as a result of the Merger.
On November 18, 2013, Perkins granted senior profits interests awards designed to retain and incentivize key employees to grow the business. These awards fully vest on December 31, 2018, with the holders entitled to a total of 10% of Perkins’ annual taxable income. The entitlement to a percentage of Perkins’ annual taxable income over the vesting period is tiered and starts at 2% in 2015 and increases 2% each year thereafter until reaching 10% in 2019 after fully vesting on December 31, 2018. In addition, these awards have a formula-driven terminal value based on Perkins’ revenue. JHG can call and terminate any or all of the awards on December 31, 2018, and each year thereafter. Holders of such interests can require JHG to purchase the interests in exchange for the then-applicable formula price on December 31, 2018. The senior profits interests awards are also subject to termination at premiums or discounts to the formula at the option of JHG or certain employees, as applicable, upon certain corporate or employment-related events affecting Perkins or certain employees.
INTECHIntech
INTECH became a subsidiary of the Group as a result of the Merger.
INTECHIntech ownership interests held by a founding member, representing approximately 1.1% aggregate ownership of INTECH,Intech, provide this founding member with an entitlement to retain theirhis remaining INTECHIntech interest until theirhis death and provide the option to require JHG to purchase the ownership interests of INTECHIntech at fair value.
INTECHIntech has granted long-term incentive awards to retain and incentivize employees. The awards consist of appreciation rights, profits interests and phantom interests, and are designed to give recipients an equity-like stake in INTECH.Intech. The grant date fair value of the appreciation rights is being amortized on a graded basis over the 10-year vesting period. The awards are exercisable upon termination of employment from INTECHIntech to the extent
vested. The profits interests and phantom interests awards entitle recipients to 9.21%9.07% of INTECH’sIntech’s pre-incentive profits.
Contingent Consideration
The total maximum contingent amount payable related to Perennial and Geneva over the entire contingent period is $46.1 million and $70.4 million, respectively, as of March 31, 2018. For additional details of the contingent consideration in relation to the acquisition of Perennial and Geneva, please refer to the Group’s Prospectus.Note 4 — Fair Value Measurements.
As a result of the Merger, theThe Group is also committed to contingent consideration payments in respect of the historic JCG acquisitions of Kapstream and VelocityShares made by JCG.VelocityShares.
The outstanding Kapstream contingent cash consideration in respect ofto the initial acquisition of a 51% controlling interest is payable in Junethe third quarter of 2018 if certain Kapstream AUM reach defined targets. As of June 30, 2017,March 31, 2018, the total maximum payment remaining is $4.0 million.
On January 31, 2017, JCG acquired the remaining 49% voting interest in Kapstream. The transaction included contingent consideration payable in the form of mutual fund share awards.up to $43.0 million. The awardscontingent consideration will be payable in three equal installments of $14.3 million on the first, second and third anniversary dates of the acquisition if certain revenue targets are reached and are indexed to the performance of the premier share class of the Kapstream Absolute Return Income Fund. On January 31, 2018, the first anniversary of the acquisition, Kapstream reached defined revenue targets, and the Group paid $15.3 million in February 2018.
Outstanding contingent cash payments in relation to the historic acquisition of VelocityShares are contingent on certain VelocityShares’ ETPs reaching defined net revenue targets on the third and fourth anniversaries of the acquisition (in November 2017 and November 2018, respectively). These maximumVelocityShares ETPs reached defined net revenue targets in November 2017, the third anniversary of the acquisition, and the Group paid contingent payments are for $8.0consideration of $3.6 million each.in January 2018. As of June 30, 2017,March 31, 2018, the totalremaining maximum payment overfor the remainingfourth and final contingent consideration period (third and fourth anniversaries of the acquisition)payment is $16.0$8.0 million.
Defined benefit pension planBenefit Pension Plan
The Group’s latest triennial valuation of its defined benefit pension plan has resulted in a deficit on a technical provision’s basis of $37.7£29.0 million (£29.0($40.6 million). The Group has agreed with the trustees of the plan to make contributions of $10.9£8.4 million (£8.4($11.8 million) per year for four years beginning in 2017 to recover the deficit.
The Group believes that it will have sufficient resources to satisfy its long-term liquidity requirements.
Off-Balance Sheet Arrangements
The contractual obligations relating toOther than certain operating lease agreements, outlined in Note 18—Commitments and Contingencies, on the Consolidated Financial Statements can be found in the Prospectus of Henderson Group plc for the year ended December 31, 2016 and the JCG contractual obligations outlined in Note 13—Commitments and Contingencies, of the Group’s 10-Q for the quarter ended June 30, 2017. The GroupJHG is not party to any off-balance sheet arrangements that may provide, or require the Group to provide, financing, liquidity, market or credit risk support that is not reflected in the Group’s Consolidated Financial Statements.JHG’s consolidated financial statements.
Other Sources of Liquidity
On February 10, 2016,At March 31, 2018, JHG had a Group subsidiary entered into a one year$200 million unsecured, revolving credit facility for £30.0 million to ensure that the Group had sufficient access to liquidity following repayment of the 2016 Senior Notes. On February 3, 2017, the Group subsidiary renewed this facility for an additional one year period. This facility terminated on May 30, 2017, on completion of the Merger. There were no amounts drawn down under the facility during its term and the subsidiary was in compliance with all covenants relating to the facility throughout, which included maintaining minimum equity of £150.0 million within the subsidiary and ensuring external borrowings did not exceed 30% of the subsidiary’s net worth.
On February 16, 2017, the Group entered into a five-year, $200.0 million unsecured, multi-currency revolving credit facility (“the JHGCredit Facility”), with Bank of America Merrill Lynch International Limited as agent.coordinator, book runner and mandated lead arranger. The JHGCredit Facility includes an option for JHG to request an increase to the overall amount of the JHGCredit Facility of up to an additional $50.0 million. The JHGCredit Facility has a maturity date of February 16, 2022, with two one yearone-year extension
options whichthat can be exercised at the discretion of JHG with the lender’s consent on the first and second anniversary of the date of the agreement, respectively. The revised maturity date of the Credit Facility is February 16, 2023.
The JHGCredit Facility became effective on the Merger Closing Date and may be used for general corporate purposes. The JHGCredit Facility bears interest on borrowings outstanding at the relevant interbank offer rate plus a spread, which is based on JCG’s credit rating provided that if, following closing of the Merger, JHG obtains two or more credit ratings, then the credit rating in respect of JHG shall then be the relevant credit rating for the purposes of determining applicable margin.spread.
The JHGCredit Facility contains a financial covenant with respect to leverage. The financing leverage ratio cannot exceed 3.00x EBITDA. At the latest practicable date before the date of this report, JHG was in compliance with all covenants and there were no borrowings under the JHGCredit Facility.
Cash Flows
A summary of cash flow data for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016 is as follows (in millions):
|
| Three months ended |
| |||||||||||
|
| Six months ended |
|
| March 31, |
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Cash flows provided by (used for): |
|
|
|
|
|
|
|
|
|
| ||||
Operating activities |
| $ | 61.6 |
| $ | 83.5 |
|
| $ | 61.7 |
| $ | 69.6 |
|
Investing activities |
| 564.3 |
| (70.7 | ) |
| 11.6 |
| (14.2 | ) | ||||
Financing activities |
| (277.8 | ) | (327.8 | ) |
| (208.2 | ) | (25.2 | ) | ||||
Effect of foreign exchange rate changes on cash and cash equivalents |
| 12.4 |
| (19.3 | ) |
| 6.1 |
| 8.2 |
| ||||
Net change in cash and cash equivalents |
| 360.5 |
| (334.3 | ) |
| (128.8 | ) | 38.4 |
| ||||
Cash and cash equivalents at beginning of period |
| 323.2 |
| 583.7 |
| |||||||||
Cash and cash equivalents at end of period |
| $ | 683.7 |
| $ | 249.4 |
| |||||||
Cash balance at beginning of period |
| 794.2 |
| 323.2 |
| |||||||||
Cash balance at end of period |
| $ | 665.4 |
| $ | 361.6 |
|
Operating Activities
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. OperatingFirst quarter cash flows include the receipt of management fees and performance fees, offset by the payment of operating expenses and income taxes. Operating cash flows have decreased from $83.5 million in the six months ended June 30, 2016, to $61.6 million in the six months ended June 30, 2017, primarilyoperations are seasonally low due to changes in working capital items in the period including the payment of deal and integration costs in relation to the Merger.annual bonus payments.
Investing Activities
Cash provided by (used for) investing activities for the sixthree months ended June 30,March 31, 2018 and 2017, and June 30, 2016, is as follows (in millions):
|
| Six months ended |
| ||||
|
| 2017 |
| 2016 |
| ||
Proceeds from disposal of investment securities-seed capital, net |
| $ | 22.9 |
| $ | 5.3 |
|
Proceeds from disposal of investment securities - VIEs, net |
| 139.9 |
| — |
| ||
Cash acquired from acquisition |
| 417.2 |
| — |
| ||
Dividends received from equity-method investments |
| — |
| 0.3 |
| ||
Net cash paid on settled hedges |
| (7.3 | ) | (16.5 | ) | ||
Purchases of: |
|
|
|
|
| ||
—investment securities-seed capital |
| — |
| (50.2 | ) | ||
—other purchases |
| (8.4 | ) | (9.6 | ) | ||
Cash provided by (used for) investing activities |
| $ | 564.3 |
| $ | (70.7 | ) |
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Purchases and sales of investment securities, net |
| $ | (21.3 | ) | $ | (5.0 | ) |
Purchase of property, equipment and software |
| (6.5 | ) | (2.0 | ) | ||
Proceeds from BNP transaction |
| 36.5 |
| — |
| ||
Investment income received by consolidated funds |
|
|
| 1.5 |
| ||
Net cash received (paid) on settled hedges |
| 2.9 |
| (8.7 | ) | ||
Cash provided by (used for) investing activities |
| $ | 11.6 |
| $ | (14.2 | ) |
Cash inflows from investing activities were $564.3$11.6 million during the sixthree months ended June 30, 2017 (six months ended June 30, 2016: cash outflows of $70.7 million)March 31, 2018, primarily due to proceeds received from the Group acquiring cashBNP transaction partially offset by purchases of $417.2 million in respect of the Merger on May 30, 2017, together with the Group receiving proceeds from disposal of investments within consolidated VIEs of $139.9 million.investment securities.
Financing Activities
Cash used for financing activities for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, is as follows (in millions):
|
| Six months ended |
| ||||
|
| 2017 |
| 2016 |
| ||
Dividends paid to shareholders |
| $ | (128.6 | ) | $ | (115.9 | ) |
Repayment of long-term borrowings |
| — |
| (215.0 | ) | ||
Third party sales (redemptions) in consolidated seeded investment products |
| (148.8 | ) | 40.7 |
| ||
Purchase of common stock for stock-based compensation plans |
| (39.1 | ) | (46.1) |
| ||
Proceeds from issuance of option |
| 25.7 |
| — |
| ||
Proceeds from settlement of convertible note hedge |
| 59.3 |
| — |
| ||
Settlement of stock warrant |
| (47.8 | ) | — |
| ||
Other financing activities |
| 1.5 |
| 8.5 |
| ||
Cash used for financing activities |
| $ | (277.8 | ) | $ | (327.8 | ) |
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2018 |
| 2017 |
| ||
Dividends paid to shareholders |
| $ | (63.1 | ) | $ | — |
|
Repayment of long-term debt |
| (81.6 | ) | — |
| ||
Third-party sales (redemptions) in consolidated seeded investment products, net |
| 38.4 |
| (8.7 | ) | ||
Purchase of common stock for stock-based compensation plans |
| (82.7 | ) | (16.5 | ) | ||
Contingent consideration |
| (18.8 | ) | — |
| ||
Other financing activities |
| (0.4 | ) | — |
| ||
Cash used for financing activities |
| $ | (208.2 | ) | $ | (25.2 | ) |
Cash outflows from financing activities were $277.8$208.2 million in the sixthree months ended June 30, 2017 (six months ended June 30, 2016: $327.8 million)March 31, 2018 primarily reflecting the purchase of common stock for stock-based compensation plans, repayment of a portion of the 2018 Convertible Notes, dividends paid of $128.6$63.1 million, payment of contingent consideration associated with Kapstream and VelocityShares of $18.8 million and third partythird-party redemptions from consolidated seed investments of $148.8$38.4 million.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
A significant portion ofThe Group has had no material changes in its exposures to market risks from that previously reported in the Group’s revenue and expenses are denominated in currencies other than USD resulting in exposure toAnnual Report on Form 10-K for the consolidated financial statements. Currency exposure is primarily due to non-USD AUM and non-USD operations, which cause variability in revenue and operating expenses.year ended December 31, 2017.
Item 4.Controls and Procedures
As of June 30, 2017,March 31, 2018, JHG’s 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). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Group in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Group’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures are designed by the Group 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. Richard M. Weil, Co-Chief Executive Officer, Andrew J. Formica, Co-Chief Executive Officer, and Roger Thompson, Executive Vice President and Chief Financial Officer, reviewed and participated in management’s evaluation of the disclosure controls and procedures. Based on this evaluation, Mr. Weil, Mr. Formica and Mr. Thompson concluded that as of the date of their evaluation, JHG’s disclosure controls and procedures were effective.
There has been no change in JHG’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the secondfirst quarter 20172018 that has materially affected, or is reasonably likely to materially affect, JHG’s internal controlscontrol over financial reporting.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings
See Part I, Item 1. Financial Statements, Note 13 — Commitments and Contingencies.
Item 1A.Risk Factors
The CompanyGroup has had no material changes in its risk factors from those previously reported in the Registration StatementGroup’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Common Stock Purchases
Some of the Group’s executives and employees receive rights over JHG ordinary shares as part of their remuneration arrangements and employee entitlements. These entitlements may be satisfied either by the transfer of existing ordinary shares acquired on-market or by the issue of ordinary shares. The following table presents JHG ordinary shares purchased on-market by month during the three months ended March 31, 2018 in satisfaction of employee awards and entitlements.
|
|
|
|
|
| Total number of |
| Approximate dollar value of |
| |
|
| Total number |
| Average |
| shares purchased as |
| shares that may yet |
| |
|
| of shares |
| price paid |
| part of publicly |
| be purchased under the |
| |
Period |
| purchased |
| per share |
| announced program |
| programs (end of month) |
| |
January |
| 5,783 |
| $ | 41.0 |
| — |
| — |
|
February |
| 1,130,501 |
| 35.74 |
| — |
| — |
| |
March |
| 1,196,671 |
| 34.37 |
| — |
| — |
| |
Total |
| 2,332,955 |
| $ | 35.05 |
| — |
|
|
|
At the Annual General Meeting held on May 3, 2018, shareholders authorized JHG to make on-market purchases of up to 10% of the issued share capital of the Group. The Group did not make any on-market or off-market share purchases during the three months ended March 31, 2018 in connection with any share buyback program and as of the date of this report, there were no current on-market or off-market buybacks of the Group’s securities.
Items 2, 3, 4 and 4.5.
Not applicable.
Item 5. Chief Operating and Strategy Officer Departure
On August 8, 2017, JHG announced that Jennifer McPeek, JHG’s Chief Operating and Strategy Officer, has announced her intention to leave JHG to pursue personal projects. Ms. McPeek has been an outstanding contributor to JCG as Chief Financial Officer and for JHG as Chief Operating and Strategy Officer. Ms. McPeek will remain with the company until October 31, 2017.
Item 6.Exhibits
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31.1 |
| Certification of Richard M. Weil, Co-Chief Executive Officer of Registrant |
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31.2 |
| Certification of Andrew J. Formica, Co-Chief Executive |
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31.3 |
| Certification of Roger Thompson, |
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32.1 |
| Certification of Richard M. Weil, Co-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 |
|
|
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32.2 |
| Certification of Andrew J. Formica, Co-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 |
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32.3 |
| Certification of Roger Thompson, |
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101.INS |
| XBRL Insurance Document |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
JANUS HENDERSON GROUP plc
INDEX TO EXHIBITS
Exhibit |
| Document |
| Regulation S-K |
|
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|
|
|
31.1 |
| Certification of Richard M. Weil, Co-Chief Executive Officer of Registrant |
| 31 |
|
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31.2 |
| Certification of Andrew J. Formica, Co-Chief Executive Officer of Registrant |
| 31 |
|
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31.3 |
| Certification of Roger Thompson, Chief Financial Officer of Registrant |
| 31 |
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32.1 |
|
| 32 | |
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32.2 |
|
| 32 | |
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32.3 |
|
| 32 | |
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101.INS |
| XBRL Insurance Document |
| 101 |
|
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
| 101 |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
| 101 |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
| 101 |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
| 101 |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
| 101 |
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: August 8, 2017May 9, 2018
Janus Henderson Group plc | |
|
|
/s/ Richard M. Weil |
|
Richard M. Weil, |
|
Director and Co-Chief Executive Officer |
|
(Co-Principal Executive Officer) | |
| |
|
|
/s/ Andrew J. Formica |
|
Andrew J. Formica, |
|
Director and Co-Chief Executive Officer |
|
(Co-Principal Executive Officer) |
|
|
|
/s/ Roger Thompson |
|
Roger Thompson, | |
|
|
Chief Financial Officer |
|
(Principal Financial Officer) | |
| |
|
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/s/ Brennan A. Hughes |
|
Brennan A. Hughes, |
|
Senior Vice President, |
|
Chief Accounting Officer and Treasurer |
|
(Principal Accounting Officer) |
|
JANUS HENDERSON GROUP INC.
INDEX TO EXHIBITS
Exhibit |
| Document |
| Regulation S-K |
|
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10.7 |
| Janus Henderson Group plc Fourth Amended and Restated Mutual Fund Share Investment Plan, effective May 30, 2017 is attached to this Form 10-Q as Exhibit 10.7 |
| 10 |
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10.8 |
| Janus Henderson Group plc Amended and Restated 2013 Management Incentive Compensation Plan, effective January 1, 2013 is attached to this Form 10-Q as Exhibit 10.8 |
| 10 |
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10.9 |
| Janus Henderson Group plc Second Amended and Restated Income Deferral Program, effective May 30, 2017 is attached to this Form 10-Q as Exhibit 10.9 |
| 10 |
|
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10.10 |
| Janus Henderson Group plc Fourth Amended and Restated Director Deferred Fee Plan, effective May 30, 2017 is attached to this Form 10-Q as Exhibit 10.10 |
| 10 |
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15.1 |
| Letter regarding unaudited interim financial information is attached to this Form 10-Q as Exhibit 15.1 |
| 15 |
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31.1 |
| Certification of Richard M. Weil, Co-Chief Executive Officer of Registrant |
| 31 |
|
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31.2 |
| Certification of Andrew J. Formica, Co-Chief Executive Officer of Registrant |
| 31 |
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31.3 |
| Certification of Roger Thompson, Executive Vice President and Chief Financial Officer of Registrant |
| 31 |
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32.1 |
| Certification of Richard M. Weil, Co-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 |
|
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32.2 |
| Certification of Andrew J. Formica, Co-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 |
|
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32.3 |
| Certification of Roger Thompson, 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 |
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101.INS |
| XBRL Insurance Document |
| 101 |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
| 101 |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
| 101 |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
| 101 |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
| 101 |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
| 101 |