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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006 |
|
OR |
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to |
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Commission File Number 001-15253
Janus Capital Group Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 43-1804048 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
151 Detroit Street, Denver, Colorado |
80206 |
|
| (Address of principal executive offices) | (Zip Code) |
(303) 333-3863
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ý | Accelerated Filer o | Non-Accelerated Filer 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 ý
As of October 31, 2006, there were 198,189,642 shares of the Company's common stock, $.01 par value per share, issued and outstanding.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
JANUS CAPITAL GROUP INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions)
| |
September 30, 2006 |
December 31, 2005 |
||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 459.9 | $ | 552.6 | ||||
| Escrow cash | 113.1 | — | ||||||
| Accounts receivable | 136.5 | 145.6 | ||||||
| Investments | 281.3 | 252.2 | ||||||
| Income taxes receivable | 6.4 | 19.0 | ||||||
| Other current assets | 50.1 | 34.3 | ||||||
| Total current assets | 1,047.3 | 1,003.7 | ||||||
| Investments and other assets | 96.8 | 168.5 | ||||||
| Property and equipment (net of accumulated depreciation of $145.8 and $135.2, respectively) | 55.5 | 64.7 | ||||||
| Intangibles, net | 1,320.3 | 1,298.5 | ||||||
| Goodwill | 1,139.8 | 1,093.1 | ||||||
| Total assets | $ | 3,659.7 | $ | 3,628.5 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1.9 | $ | 5.4 | ||||
| Accrued compensation and benefits | 71.5 | 89.6 | ||||||
| Current portion of long-term debt | 113.2 | 114.1 | ||||||
| Other accrued liabilities | 59.8 | 58.7 | ||||||
| Total current liabilities | 246.4 | 267.8 | ||||||
| Other liabilities: | ||||||||
| Long-term debt | 537.2 | 262.2 | ||||||
| Deferred income taxes | 415.0 | 424.1 | ||||||
| Other liabilities | 77.7 | 77.4 | ||||||
| Total liabilities | 1,276.3 | 1,031.5 | ||||||
| Commitments and contingencies | ||||||||
| Minority interest in consolidated subsidiary | 12.3 | 15.8 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock | — | — | ||||||
| Common stock | 2.0 | 2.2 | ||||||
| Retained earnings | 2,359.5 | 2,569.3 | ||||||
| Accumulated other comprehensive income | 9.6 | 9.7 | ||||||
| Total stockholders' equity | 2,371.1 | 2,581.2 | ||||||
| Total liabilities and stockholders' equity | $ | 3,659.7 | $ | 3,628.5 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Millions, Except Per Share Data)
| |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
|||||||||||
| Revenues: | |||||||||||||||
| Investment management fees | $ | 183.5 | $ | 169.5 | $ | 556.1 | $ | 497.1 | |||||||
| Performance fees | 4.0 | 6.7 | 12.5 | 19.5 | |||||||||||
| Shareowner servicing fees and other | 41.5 | 42.2 | 126.0 | 126.5 | |||||||||||
| Printing and fulfillment | 21.1 | 19.1 | 66.2 | 62.7 | |||||||||||
| Total | 250.1 | 237.5 | 760.8 | 705.8 | |||||||||||
| Operating Expenses: | |||||||||||||||
| Employee compensation and benefits | 72.1 | 81.5 | 236.3 | 225.0 | |||||||||||
| Long-term incentive compensation | 17.1 | 18.2 | 62.2 | 55.8 | |||||||||||
| Marketing and advertising | 6.6 | 5.4 | 19.7 | 24.1 | |||||||||||
| Distribution | 26.1 | 25.5 | 80.1 | 78.5 | |||||||||||
| Depreciation and amortization | 9.6 | 10.4 | 30.1 | 33.9 | |||||||||||
| General, administrative and occupancy | 34.2 | 32.1 | 100.7 | 104.8 | |||||||||||
| Cost of printing and fulfillment | 22.6 | 19.6 | 67.5 | 61.6 | |||||||||||
| Restructuring and impairments | 10.5 | — | 10.5 | 5.5 | |||||||||||
| Mutual fund investigation recoveries, net of charges | — | — | (10.0 | ) | (9.3 | ) | |||||||||
| Total | 198.8 | 192.7 | 597.1 | 579.9 | |||||||||||
| Operating Income | 51.3 | 44.8 | 163.7 | 125.9 | |||||||||||
| Interest expense | (8.1 | ) | (7.2 | ) | (22.3 | ) | (21.6 | ) | |||||||
| Other income, net | 8.6 | 7.9 | 25.4 | 28.6 | |||||||||||
| Income before taxes, equity earnings and minority interest | 51.8 | 45.5 | 166.8 | 132.9 | |||||||||||
| Income tax provision | (18.4 | ) | (10.5 | ) | (60.1 | ) | (47.6 | ) | |||||||
| Equity in earnings of unconsolidated affiliate | 1.7 | 1.9 | 5.4 | 5.3 | |||||||||||
| Minority interest in consolidated earnings | (5.6 | ) | (5.2 | ) | (16.2 | ) | (13.6 | ) | |||||||
| Net Income | $ | 29.5 | $ | 31.7 | $ | 95.9 | $ | 77.0 | |||||||
| Earnings per Share: | |||||||||||||||
| Basic | $ | 0.15 | $ | 0.15 | $ | 0.47 | $ | 0.35 | |||||||
| Diluted | $ | 0.15 | $ | 0.15 | $ | 0.46 | $ | 0.35 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
| |
Nine months ended September 30, |
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|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
||||||||
| CASH FLOWS PROVIDED BY (USED FOR): | ||||||||||
| Operating Activities: | ||||||||||
| Net income | $ | 95.9 | $ | 77.0 | ||||||
| Adjustments to net income: | ||||||||||
| Depreciation and amortization | 35.4 | 38.5 | ||||||||
| Deferred income taxes | (8.6 | ) | (14.8 | ) | ||||||
| Minority interest in consolidated earnings | 16.2 | 13.6 | ||||||||
| Restructuring and impairment charges | 10.5 | 5.5 | ||||||||
| Amortization of stock-based compensation | 54.7 | 55.8 | ||||||||
| Realized gain on the sale of investments | (5.7 | ) | (10.4 | ) | ||||||
| Other, net | (0.2 | ) | (2.1 | ) | ||||||
| Changes in working capital items: | ||||||||||
| Accounts receivable | 9.1 | 2.7 | ||||||||
| Other current assets | (1.2 | ) | (2.9 | ) | ||||||
| Accounts payable and accrued compensation payable | (21.6 | ) | (2.1 | ) | ||||||
| Other accrued liabilities | 13.0 | 41.6 | ||||||||
| Net operating | 197.5 | 202.4 | ||||||||
| Investing Activities: | ||||||||||
| Purchase of property and equipment | (10.7 | ) | (16.9 | ) | ||||||
| Acquisitions and payments for business previously acquired | (90.0 | ) | (5.8 | ) | ||||||
| Purchase of investments | (60.7 | ) | (142.4 | ) | ||||||
| Proceeds from sales and maturities of investments | 90.8 | 245.5 | ||||||||
| Escrow deposit | (113.1 | ) | — | |||||||
| Net investing | (183.7 | ) | 80.4 | |||||||
| Financing Activities: | ||||||||||
| Proceeds from issuance of long-term debt | 275.0 | — | ||||||||
| Debt issue costs | (2.1 | ) | — | |||||||
| Proceeds from stock plans | 35.1 | 7.2 | ||||||||
| Excess tax benefit from equity-based compensation | 4.0 | 0.7 | ||||||||
| Repurchase of common stock | (388.4 | ) | (267.7 | ) | ||||||
| Distributions to minority interest | (21.8 | ) | (12.8 | ) | ||||||
| Dividends paid to shareholders | (8.3 | ) | (9.1 | ) | ||||||
| Other, net | — | (2.2 | ) | |||||||
| Net financing | (106.5 | ) | (283.9 | ) | ||||||
| Cash and Cash Equivalents: | ||||||||||
| Net decrease | (92.7 | ) | (1.1 | ) | ||||||
| At beginning of period | 552.6 | 527.1 | ||||||||
| At end of period | $ | 459.9 | $ | 526.0 | ||||||
| Supplemental Cash Flow Information: | ||||||||||
| Cash paid for interest | $ | 22.1 | $ | 16.7 | ||||||
| Cash paid for income taxes | $ | 55.5 | $ | 28.9 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
JANUS CAPITAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(Amounts in Millions, Except Per Share)
| |
Shares |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total Stockholders' Equity |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 2004 | 234.4 | $ | 2.3 | $ | 152.8 | $ | 2,563.7 | $ | 15.7 | $ | 2,734.5 | ||||||||
| Net income | 87.8 | 87.8 | |||||||||||||||||
| Net unrealized gains | 3.6 | 3.6 | |||||||||||||||||
| Reclassification for gains included in net income | (7.7 | ) | (7.7 | ) | |||||||||||||||
| Foreign currency translation adjustment | (1.9 | ) | (1.9 | ) | |||||||||||||||
| Comprehensive income | 81.8 | ||||||||||||||||||
| Amortization of stock-based compensation | 54.9 | 18.7 | 73.6 | ||||||||||||||||
| Issuance and forfeitures of restricted stock awards | 0.9 | 2.3 | 2.3 | ||||||||||||||||
| Tax impact of stock-based compensation | (12.7 | ) | (0.2 | ) | (12.9 | ) | |||||||||||||
| Stock option exercises | 2.2 | 7.4 | 13.8 | 21.2 | |||||||||||||||
| Common stock repurchased | (21.5 | ) | (0.1 | ) | (205.0 | ) | (105.3 | ) | (310.4 | ) | |||||||||
| Change of interest in subsidiary | 0.3 | (0.1 | ) | 0.2 | |||||||||||||||
| Common stock dividends ($0.04 per share) | (9.1 | ) | (9.1 | ) | |||||||||||||||
| Balance at December 31, 2005 | 216.0 | 2.2 | — | 2,569.3 | 9.7 | 2,581.2 | |||||||||||||
| Net income | 95.9 | 95.9 | |||||||||||||||||
| Net unrealized gains | 11.4 | 11.4 | |||||||||||||||||
| Net loss on cash flow hedge | (2.4 | ) | (2.4 | ) | |||||||||||||||
| Reclassification for gains included in net income | (3.6 | ) | (3.6 | ) | |||||||||||||||
| Foreign currency translation adjustment | (5.5 | ) | (5.5 | ) | |||||||||||||||
| Comprehensive income | 95.8 | ||||||||||||||||||
| Amortization of stock-based compensation | 54.1 | 54.1 | |||||||||||||||||
| Issuance and forfeitures of restricted stock awards | 0.3 | — | |||||||||||||||||
| Tax impact of stock-based compensation | 1.3 | 1.3 | |||||||||||||||||
| Stock option exercises | 2.7 | 35.1 | 35.1 | ||||||||||||||||
| Common stock repurchased | (19.7 | ) | (0.2 | ) | (388.2 | ) | (388.4 | ) | |||||||||||
| Change of interest in subsidiary | 0.3 | 0.3 | |||||||||||||||||
| Common stock dividends ($0.04 per share) | (8.3 | ) | (8.3 | ) | |||||||||||||||
| Balance at September 30, 2006 | 199.3 | $ | 2.0 | $ | — | $ | 2,359.5 | $ | 9.6 | $ | 2,371.1 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Janus Capital Group Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1—Basis of Presentation
In the opinion of Janus Capital Group Inc. ("Janus" or the "Company") management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to fairly present the financial position, results of operations and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Such interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
The accompanying consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 2 to the consolidated financial statements that are presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2005. Certain prior period amounts have been reclassified to conform to the current period presentation.
Note 2—New Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 ("FIN 48")", which sets forth a specific recognition threshold and measurement method for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. The effective date of FIN 48 is the Company's fiscal year beginning January 1, 2007. Janus has not completed an assessment of the impact of FIN 48 on its consolidated financial statements.
On September 15, 2006, the FASB issued Statement of Financial Accounting Standard No. 157, "Fair Value Measurements" ("SFAS 157"), which establishes a framework for measuring fair value. The effective date of SFAS 157 is the Company's fiscal year beginning January 1, 2008. Janus has not completed an assessment of the impact of SFAS 157 on its consolidated financial statements.
Note 3—Earnings Per Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts the weighted average shares outstanding by the dilutive impact of shares underlying stock options and unvested
6
restricted stock awards. The following is a summary of the earnings per share calculation (in millions, except per share data):
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
|||||||||
| Net income | $ | 29.5 | $ | 31.7 | $ | 95.9 | $ | 77.0 | |||||
| Weighted average common shares outstanding | 201.0 | 216.2 | 205.4 | 221.0 | |||||||||
| Dilutive effect of stock options and unvested restricted stock using the treasury stock method | 1.2 | 1.0 | 1.0 | 0.9 | |||||||||
| Weighted average diluted common shares outstanding | 202.2 | 217.2 | 206.4 | 221.9 | |||||||||
| Basic earnings per share | $ | 0.15 | $ | 0.15 | $ | 0.47 | $ | 0.35 | |||||
| Diluted earnings per share | $ | 0.15 | $ | 0.15 | $ | 0.46 | $ | 0.35 | |||||
| Excluded from calculation: | |||||||||||||
| Stock options | 10.0 | 14.9 | 6.7 | 14.9 | |||||||||
| Unvested restricted stock | — | 3.2 | 1.0 | 3.3 | |||||||||
The stock options and unvested restricted stock excluded are not included in the weighted average diluted shares outstanding calculation as their inclusion would be anti-dilutive.
Note 4—Acquisition
On February 1, 2006, Janus increased its ownership of Enhanced Investment Technologies, LLC ("INTECH") to approximately 82.5% with the purchase of an additional 5% ownership interest from the INTECH founders for $90.0 million in cash. The pro forma results of operations have not been presented as they would not have been materially different from reported amounts.
The preliminary purchase price allocation has resulted in the recognition of $45.3 million of intangible assets and $44.7 million of goodwill. Intangible assets acquired represent customer relationships which are amortized over 12 years.
Note 5—Long-Term Debt
On September 18, 2006, Janus issued $275.0 million of 5.875% senior notes that are due September 15, 2011, and are not callable by Janus or redeemable at the option of the holders prior to maturity. Interest will be paid semiannually on March 15 and September 15. Of the total proceeds, $113.1 million was placed in escrow to pre-fund the repayment of Janus' 7.000% senior notes which mature on November 1, 2006.
On May 2, 2006, Janus entered into a pay-fixed receive-variable interest rate swap (the "Swap") in anticipation of a $272.0 million fixed rate debt issuance with a mandatory termination date of May 4, 2007. The Swap was designated as a cash flow hedge and was designed to hedge the variability in interest payments on the anticipated fixed rate debt as a result of changes in the interest rate between inception of the Swap and the issuance of the debt. On September 18, 2006, the Swap was terminated and Janus incurred a loss of $4.4 million, or $2.7 million net of tax, which has been recorded in other comprehensive income on the consolidated balance sheet and will be amortized to interest expense over the life of the 5.875% senior notes.
Note 6—Asset Impairment Charges
During the third quarter 2006, Janus received notices of termination from two subadvised relationships with current assets under management of approximately $3.2 billion. As a result of the notifications,
7
Janus recognized impairment charges equal to the unamortized value of the intangible asset assigned to the terminated relationships of $10.5 million during the third quarter 2006. The redemptions are expected to occur during the fourth quarter 2006 and the first quarter 2007.
Note 7—Other Income, Net
The components of other income represent investment income and investment gains, net of losses, as follows (in millions):
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
|||||||||
| Investment gains, net of losses | $ | 2.3 | $ | 1.6 | $ | 6.8 | $ | 11.2 | |||||
| Dividend income | 2.7 | 2.7 | 8.1 | 7.4 | |||||||||
| Interest income | 3.6 | 3.6 | 10.5 | 10.0 | |||||||||
| Total | $ | 8.6 | $ | 7.9 | $ | 25.4 | $ | 28.6 | |||||
Note 8—Change In Accounting Estimate
Janus records compensation expense associated with long-term incentive awards based on the amount of awards expected to vest at the end of the stated service period, comprised of the total value of the awards less an estimate for forfeitures. As a result of higher than expected employee departures prior to vesting during the third quarter 2006, Janus revised the estimate of forfeitures related to long-term incentive compensation. The effect of increasing the forfeiture estimate was recorded as a $5.0 million decrease in long-term incentive compensation expense ($3.1 million net of tax) for the three- and nine-month periods ended September 30, 2006.
Note 9—Segment Information
Reportable segments are identified by management based on Janus' organizational structure and the business activities from which it earns revenue. Janus has determined that it has two primary lines of business: investment management and printing and fulfillment. The following is a summary of financial information concerning the segments (in millions):
| |
Three Months Ended September 30, |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
Investment Management |
Printing and Fulfillment |
Consolidated |
|||||||
| 2006: | ||||||||||
| Revenues | $ | 229.0 | $ | 21.1 | $ | 250.1 | ||||
| Net income (loss) | $ | 32.6 | $ | (3.1 | ) | $ | 29.5 | |||
| 2005: | ||||||||||
| Revenues | $ | 218.4 | $ | 19.1 | $ | 237.5 | ||||
| Net income (loss) | $ | 34.4 | $ | (2.7 | ) | $ | 31.7 | |||
8
Nine Months Ended September 30, |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
Investment Management |
Printing and Fulfillment |
Consolidated |
|||||||
| 2006: | ||||||||||
| Revenues | $ | 694.6 | $ | 66.2 | $ | 760.8 | ||||
| Net income (loss) | $ | 103.1 | $ | (7.2 | ) | $ | 95.9 | |||
| 2005: | ||||||||||
| Revenues | $ | 643.1 | $ | 62.7 | $ | 705.8 | ||||
| Net income (loss) | $ | 83.9 | $ | (6.9 | ) | $ | 77.0 | |||
Note 10—Legal Proceedings
Janus is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial condition of Janus. However, an adverse outcome in any of the actions could have a material adverse effect on the financial results of the Company in the period in which it is recorded. In the course of reviewing its legal proceedings during the second quarter 2005, Janus increased its litigation reserves by $7.0 million. Management believes that current legal reserves are adequate to cover probable estimated contingencies with respect to the actions described below.
Market Timing Litigation
Following the market timing investigations by the New York Attorney General ("NYAG") and the Securities and Exchange Commission, Janus and certain affiliates were named as defendants in a consolidated lawsuit in the U.S. District Court in Baltimore, Maryland (Case Number MDL No. 1586, 04-MD-15863). Five amended complaints were filed in these coordinated proceedings, including (i) claims by a putative class of Janus fund investors asserting claims on behalf of the investor class, (ii) derivative claims by investors in the Janus funds ostensibly on behalf of the Janus funds, (iii) claims on behalf of participants in the Janus 401(k) plan, (iv) claims brought on behalf of shareholders of Janus on a derivative basis against Janus' Board of Directors and (v) claims by a putative class of Janus shareholders asserting claims on behalf of the shareholders.
On August 25, 2005, the court entered orders dismissing most of the claims asserted against the Company and its affiliates by fund investors (actions (i) and (ii) described above), except certain claims under Section 10(b) of the Securities Exchange Act of 1934 and under Section 36(b) of the Investment Company Act of 1940. On June 2, 2006, the plaintiffs asserting claims on behalf of Janus corporate shareholders (action (v) above) filed an amended complaint which asserts similar claims to the initial complaint. On August 15, 2006, the court in the 401(k) plan class action that was refiled as Wangberger v. Janus Capital Group Inc., et al., 05 CV-02711, D. Maryland (action (iii) described above) dismissed the action with prejudice, but the plaintiff recently appealed the dismissal to the United States Court of Appeals for the Fourth Circuit. As a result of the above events, the Company, Janus Capital Management LLC ("JCM"), the Advisory Committee of the Janus 401(k) plan, and the current or former directors of Janus are the remaining defendants, in some capacity, in one or more of the actions described in the preceding paragraph.
The Attorney General's Office for the State of West Virginia has filed a voluntary dismissal of the previously disclosed civil action brought under the West Virginia Consumer Credit and Protection. As previously disclosed, the Auditor of the State of West Virginia, in his capacity as securities commissioner, has initiated administrative proceedings against many of the defendants in the market timing cases (including Janus) and seeks disgorgement and other monetary relief based on similar market timing allegations. Janus and other similarly situated defendants continue to challenge the statutory authority to bring such an action.
9
Excessive Fee Litigation
JCM is a defendant in a consolidated lawsuit challenging the investment advisory fees charged by JCM to certain funds managed by JCM (Sins, et al. v. Janus Capital Management LLC, 04-WM-1647 (D. Colo.)). The action was filed by fund investors asserting breach of fiduciary duty under Section 36(b) of the Investment Company Act of 1940. The plaintiffs seek declaratory and injunctive relief and an unspecified amount of damages. Most discovery has been completed. The trial is scheduled to commence on May 21, 2007.
IPO Antitrust Litigation
In 2001, a Janus subsidiary was named as a defendant in a class action suit alleging that certain underwriting firms and institutional investors violated antitrust laws in connection with initial public offerings (Pfeiffer v. Credit Suisse First Boston, No. 01 Civ. 2014 (S.D.N.Y.)). The U.S. District Court dismissed the plaintiff's antitrust claims in November 2003; however, in 2005, the U.S. Court of Appeals for the Second Circuit vacated that decision and remanded it for further proceedings. In March 2006, the defendants, including the Janus subsidiary, filed a petition for a writ of certiorari with the United States Supreme Court to review the U.S. Court of Appeal's decision.
Management believes that the claims made in the civil actions described above have little or no merit and intends to defend against them.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Janus Capital Group Inc. ("Janus" or the "Company") may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate" or "continue," and similar expressions or variations. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward- looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in our filings with the Securities and Exchange Commission, including those in Part I, Item 1A, Risk Factors, and elsewhere in Janus' Annual Report on Form 10-K for the year ended December 31, 2005. Janus cautions readers to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date on which such statements are made. Janus undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Available Information
Copies of Janus' filings with the Securities and Exchange Commission ("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 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Janus 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 Janus' website (http://ir.janus.com) or by contacting Janus at (303) 691-3905. The contents of Janus' website are not incorporated herein for any purpose.
Janus' Officer Code of Ethics for Principal Executive Officer and Senior Financial Officers (including its chief executive officer, chief financial officer and controller) (the "Officer Code"); Corporate Code of Business Conduct and Ethics for all employees; corporate governance guidelines; and the charters of key committees of the board of directors (including the Audit, Compensation, and Nominating and Corporate Governance committees) are available on its website (http://ir.janus.com/governance.cfm), and printed copies are available to any shareholder upon request by calling Janus at (303) 691-3905. Any future amendments to or waivers of the Officer Code will be posted to the Janus website.
Results of Operations
Overview
Janus Capital Group Inc. ("Janus" or the "Company") derives substantially all of its revenue and net income from its Investment Management segment, which provides investment management and administrative services to mutual funds, separate accounts and institutional clients in both domestic and international markets. Janus provides investment advisory services through its primary subsidiaries, Janus Capital Management LLC ("JCM") and Enhanced Investment Technologies, LLC ("INTECH").
11
The Company also owns a printing and fulfillment business (the "Printing and Fulfillment segment"), which does not contribute significantly to revenue or net income.
Revenues are generally based upon a percentage of the market value of assets under management and are calculated as a percentage of the daily average asset balance in accordance with contractual agreements with the Company's mutual funds, subadvised relationships and separate accounts (collectively referred to herein as "products" or "investment products"). Assets under management primarily consist of domestic and international equity and debt securities. Accordingly, fluctuations in the financial markets, relative investment performance, sales and redemptions of investment products, and changes in the composition of assets under management are all factors that have a direct effect on Janus' operating results.
Highlights for the current quarter include:
- •
- As
of September 30, 2006, approximately 64%, 78% and 77% of the funds in the Company's primary fund family, Janus Investment Fund ("JIF"), were in the top half of
their Lipper categories on a one-, three- and five-year total return basis, respectively.
- •
- Janus
earned net income of $29.5 million, or $0.15 per diluted share.
- •
- Janus
completed a $275.0 million debt offering on September 18, 2006.
- •
- Janus repurchased 7.7 million shares of its common stock at a total price of $138.1 million under its second $500 million stock repurchase authorization.
INVESTMENT MANAGEMENT SEGMENT
Assets Under Management and Flows
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
||||||||||
| |
(in billions) |
(in billions) |
||||||||||||
| Beginning of period assets | $ | 153.4 | $ | 130.3 | $ | 148.5 | $ | 139.0 | ||||||
| Sales | 6.5 | 8.5 | 26.4 | 21.7 | ||||||||||
| Redemptions | (6.6 | ) | (6.8 | ) | (23.4 | ) | (24.0 | ) | ||||||
| Long-term net flows* | (0.1 | ) | 1.7 | 3.0 | (2.3 | ) | ||||||||
| Net money market flows | 0.3 | 0.4 | 0.7 | (3.7 | ) | |||||||||
| Disposition | — | — | — | (0.2 | ) | |||||||||
| Market/fund performance | 4.7 | 7.0 | 6.1 | 6.6 | ||||||||||
| End of period assets | $ | 158.3 | $ | 139.4 | $ | 158.3 | $ | 139.4 | ||||||
| Average assets under management | $ | 153.2 | $ | 135.0 | $ | 153.9 | $ | 132.7 | ||||||
- *
- Excludes money market products. Sales and redemptions of money market funds are presented net on a separate line due to the short-term nature of the investments.
Average assets under management increased 13.5% and 16.0% for the three- and nine-month periods ended September 30, 2006, respectively, as compared to the same periods in 2005. The increase in average assets under management is a result of appreciation from fund performance and market fluctuations and continued positive net fund inflows.
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Results of Operations
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
|||||||||||
| |
(in millions) |
(in millions) |
|||||||||||||
| Revenues: | |||||||||||||||
| Investment management fees | $ | 183.5 | $ | 169.5 | $ | 556.1 | $ | 497.1 | |||||||
| Performance fees | 4.0 | 6.7 | 12.5 | 19.5 | |||||||||||
| Shareowner servicing fees and other | 41.5 | 42.2 | 126.0 | 126.5 | |||||||||||
| Total | 229.0 | 218.4 | 694.6 | 643.1 | |||||||||||
| Operating Expenses: | |||||||||||||||
| Employee compensation and benefits | 70.7 | 80.1 | 232.3 | 220.8 | |||||||||||
| Long-term incentive compensation | 17.0 | 18.1 | 62.0 | 55.6 | |||||||||||
| Marketing and advertising | 6.6 | 5.4 | 19.7 | 24.1 | |||||||||||
| Distribution | 26.1 | 25.5 | 80.1 | 78.5 | |||||||||||
| Depreciation and amortization | 7.6 | 8.4 | 24.2 | 28.0 | |||||||||||
| General, administrative and occupancy | 33.5 | 31.4 | 98.6 | 102.1 | |||||||||||
| Restructuring and impairments | 10.5 | — | 10.5 | 5.5 | |||||||||||
| Mutual fund investigation recoveries, net of charges | — | — | (10.0 | ) | (9.3 | ) | |||||||||
| Total | 172.0 | 168.9 | 517.4 | 505.3 | |||||||||||
| Operating Income | 57.0 | 49.5 | 177.2 | 137.8 | |||||||||||
| Operating margin | 24.9 | % | 22.7 | % | 25.5 | % | 21.4 | % | |||||||
| Interest expense | (8.1 | ) | (7.2 | ) | (22.3 | ) | (21.6 | ) | |||||||
| Other income, net | 8.0 | 7.5 | 23.7 | 27.6 | |||||||||||
| Income before taxes, equity earnings and minority interest | 56.9 | 49.8 | 178.6 | 143.8 | |||||||||||
| Income tax provision | (20.4 | ) | (12.1 | ) | (64.7 | ) | (51.6 | ) | |||||||
| Equity in earnings of unconsolidated affiliate | 1.7 | 1.9 | 5.4 | 5.3 | |||||||||||
| Minority interest in consolidated earnings | (5.6 | ) | (5.2 | ) | (16.2 | ) | (13.6 | ) | |||||||
| Net Income | $ | 32.6 | $ | 34.4 | $ | 103.1 | $ | 83.9 | |||||||
Three Months Ended September 30, 2006, Compared with Three Months Ended September 30, 2005
Revenues
Investment management fees increased $14.0 million, or 8.3%, as a result of a 13.5% increase in average assets under management partially offset by a higher proportion of lower yielding INTECH products.
Performance fees are earned on certain INTECH institutional accounts and are based on the performance of each account as compared to the established benchmark and are recognized at the end of the performance period, if the established performance criteria are achieved. The decline in performance fees is primarily the result of one account converting from performance-based fees to a fixed management fee schedule during the fourth quarter 2005.
Shareowner servicing fees and other revenue remained consistent quarter to quarter as a decrease in distribution fees was offset by an increase in administration fees. Distribution fees are primarily based on average assets in certain share classes of Janus' offshore fund series, which declined 23.9% quarter to quarter. Administration fees are based on average money market assets under management which increased over the comparable period in the prior year.
13
Expenses
Employee compensation and benefits decreased from the same period last year, principally due to $6.7 million in severance charges incurred during the third quarter 2005 and a decrease in incentive compensation for investment and sales personnel in the current quarter. Incentive compensation for investment personnel declined as a result of an overall reduction in variable compensation combined with an increase in the amount of compensation to be received in the form of long-term incentive awards (to be granted in 2007) in consideration for lower cash compensation. Sales incentive compensation declined as a result of lower fund sales.
Long-term incentive compensation was consistent quarter to quarter as a result of an increase of $4.6 million attributable to the 2006 annual companywide grant and an estimate of accelerated vesting for the 2005 and 2006 awards based on anticipated 2006 financial performance offset by a change in estimated forfeitures. During the third quarter 2006, the estimate of forfeitures was adjusted to reflect higher than expected employee departures. The current quarter expense reflects a $5.0 million decrease which represents the cumulative current and prior impact of revising the forfeiture estimate. The future impact on existing awards of revising the forfeiture estimate is not material.
Marketing and advertising increased $1.2 million or 22.2%, as a result of costs associated with the proposed merger of the Janus Olympus and Janus Orion funds.
General, administrative and occupancy expenses increased $2.1 million primarily as a result of increased legal costs.
Restructuring and impairment charges for the three months ended September 30, 2006, represent the loss of certain subadvised relationships. At September 30, 2006, assets under management associated with the lost subadvised relationships were approximately $3.2 billion and are expected to be redeemed during the fourth quarter 2006 ($2.3 billion) and the first quarter 2007 ($0.9 billion).
The company's effective tax rate for the three months ended September 30, 2005, was impacted by the reversal of $5.0 million of tax reserves related to the resolution of certain outstanding tax matters.
Nine Months Ended September 30, 2006, Compared with Nine Months Ended September 30, 2005
Revenues
Investment management fees increased $59.0 million, or 11.9%, as a result of a 16.0% increase in average assets under management partially offset by a higher proportion of lower yielding INTECH products.
Performance fees declined $7.0 million as a result of one account converting from performance-based fees to a fixed management fee schedule during the fourth quarter 2005.
Shareowner servicing fees and other revenue remained consistent period to period as an increase in shareholder servicing fees was offset by a decline in distribution fee revenue. Shareowner servicing fees are based on a percentage of JIF average assets under management which increased 4.1% over the comparable prior year period.
Expenses
Employee compensation and benefits increased $11.5 million from the same period last year due to higher incentive compensation driven by improved relative investment performance and increased fund sales, partially offset by a decrease in severance charges.
Long-term incentive compensation increased $6.4 million as a result of the 2006 annual companywide grant and an estimate of accelerated vesting for the 2005 and 2006 awards based on anticipated 2006 financial performance partially offset by the impact of revising estimated forfeitures. Grants made
14
during the nine months ended September 30, 2006, consisted of mutual fund units, restricted stock and stock options, which totaled $21.3 million, $16.9 million and $11.1 million, respectively, and will be recognized over a weighted average period of 4.0 years, assuming no acceleration of vesting. These awards are subject to accelerated vesting if certain performance criteria are achieved.
Marketing and advertising expenses decreased $4.4 million as a result of a change in marketing strategy in the second half of 2005 from mass market television advertising to more targeted print advertising.
Depreciation and amortization decreased $3.8 million as a result of a decline in the amortization of deferred commissions of approximately $6.4 million, partially offset by an increase in intangible amortization related to the February 2006 acquisition of an additional 5% interest in INTECH.
Mutual fund investigation recoveries for the nine-month period ended September 30, 2006, represent an insurance recovery related to legal expenses incurred in prior periods. For the nine months ended September 30, 2005, mutual fund investigation recoveries represent an insurance recovery of $14.4 million, net of $5.1 million of expenses directly associated with the SEC and New York Attorney General's settlement orders and ongoing civil litigation.
The decrease in other income is primarily attributable to prior period net investment gains of $11.2 million compared to current year net investment gains of $6.8 million.
PRINTING AND FULFILLMENT SEGMENT
Business Overview
Rapid Solutions Group ("RSG"), the operating business of the Printing and Fulfillment segment, provides clients with digital and offset printing and fulfillment services. The digital operation focuses on providing clients with communication solutions using leading-edge print-on-demand technology and software applications that support the process of improving the effectiveness of customer communication through personalization and customization. The offset printing operations provide customers with full-service graphics and design solutions through prepress services and high-speed, high-quality offset printing, including direct marketing packages, brochures, preprinted base stock and collateral pieces.
Results of Operations
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2006 |
2005 |
2006 |
2005 |
||||||||||
| |
(in millions) |
(in millions) |
||||||||||||
| Printing and fulfillment revenue | $ | 16.4 | $ | 15.9 | $ | 52.5 | $ | 51.4 | ||||||
| Out-of-pocket reimbursements | 4.7 | 3.2 | 13.7 | 11.3 | ||||||||||
| Total revenue | 21.1 | 19.1 | 66.2 | 62.7 | ||||||||||
| Cost of printing and fulfillment | 17.9 | 16.4 | 53.8 | 50.3 | ||||||||||
| Out-of-pocket expenses | 4.7 | 3.2 | 13.7 | 11.3 | ||||||||||
| Selling, general and administrative expenses | 2.2 | 2.2 | 6.3 | 7.1 | ||||||||||
| Depreciation and amortization | 2.0 | 2.0 | 5.9 | 5.9 | ||||||||||
| Operating loss | (5.7 | ) | (4.7 | ) | (13.5 | ) | (11.9 | ) | ||||||
| Operating margin | (27 | )% | (25 | )% | (20 | )% | (19 | )% | ||||||
| Other income, net | 0.6 | 0.4 | 1.7 | 1.0 | ||||||||||
| Tax benefit | 2.0 | 1.6 | 4.6 | 4.0 | ||||||||||
| Net loss | $ | (3.1 | ) | $ | (2.7 | ) | $ | (7.2 | ) | $ | (6.9 | ) | ||
15
Print volumes and revenue from fulfillment, digital printing and offset printing were comparable to the prior year. Operating expenses increased and margins decreased as a result of higher outsourced production costs in the current year. Out-of-pocket reimbursements represent postage and mailing expenses incurred by RSG on behalf of its customers and generally vary from period to period.
Liquidity and Capital Resources
Cash Flows
A summary of consolidated cash flow data for the nine-month periods ended September 30, 2006 and 2005 is as follows (in millions):
| |
2006 |
2005 |
||||||
|---|---|---|---|---|---|---|---|---|
| Cash flows provided by (used for): | ||||||||
| Operating activities | $ | 197.5 | $ | 202.4 | ||||
| Investing activities | (183.7 | ) | 80.4 | |||||
| Financing activities | (106.5 | ) | (283.9 | ) | ||||
| Net change in cash and cash equivalents | (92.7 | ) | (1.1 | ) | ||||
| Balance beginning of period | 552.6 | 527.1 | ||||||
| Balance end of period | $ | 459.9 | $ | 526.0 | ||||
Janus' cash flow from operations historically has been positive and sufficient to fund ordinary operations and capital requirements. Cash provided by operating activities for the nine months ended September 30, 2006, was consistent with the comparable prior year period as a result of higher net income offset by changes in working capital items, which can vary from period to period based on the timing of cash receipts and payments.
Cash used for investing activities for the nine months ended September 30, 2006, includes $90.0 million for the purchase of an additional 5% interest in INTECH and $113.1 million of cash escrowed for the repayment of debt. The cash provided by investing activities for the comparable prior year period primarily represents the net sale and maturities of investments.
Cash used for financing activities for the nine months ended September 30, 2006, primarily represents stock buybacks of $388.4 million partially offset by proceeds from the $275.0 million debt issuance. The cash used by financing activities for the comparable prior year period primarily represents stock buybacks of $267.7 million.
Other Sources of Liquidity
Credit Facility
Janus has a $200 million Three-Year Competitive Advance and Revolving Credit Facility Agreement ("Credit Facility") with a syndicate of banks. The Credit Facility contains a number of financial covenants such as a specified financing leverage ratio, minimum net worth and interest coverage ratio. At September 30, 2006, there were no borrowings under the Credit Facility.
Shelf Registration
The Company has effective a Shelf Registration Statement ("Shelf Registration") with the SEC, under which Janus could issue up to $800 million in aggregate issue price of Janus' common stock, preferred stock and debt securities. At September 30, 2006, $325 million of securities were available for issuance under the Shelf Registration, subject to the covenant limitations pursuant to the Credit Facility.
16
Debt
On September 18, 2006, Janus issued $275.0 million of 5.875% senior notes that are due September 15, 2011, and are not callable by Janus or redeemable at the option of the holders prior to maturity. Interest will be paid semiannually on March 15 and September 15. Of the total proceeds, $113.1 million was placed in escrow to pre-fund the repayment of Janus' 7.000% senior notes which mature on November 1, 2006. The remaining balance of the proceeds may be used to call all or a portion of the 7.875% public income notes or for general corporate purposes. The 7.875% public income notes are callable on or after April 5, 2007.
On May 2, 2006, Janus entered into a pay-fixed receive-variable interest rate swap (the "Swap") in anticipation of a $272.0 million fixed rate debt issuance with a mandatory termination date of May 4, 2007. The Swap was designated as a cash flow hedge and was designed to hedge the variability in interest payments on the anticipated fixed rate debt as a result of changes in the interest rate between inception of the Swap and the issuance of the debt. On September 18, 2006, the Swap was terminated and Janus incurred a loss of $4.4 million, or $2.7 million net of tax, which has been recorded as a component of other comprehensive income on the consolidated balance sheet and will be amortized to interest expense over the life of the 5.875% senior notes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has had no significant changes in its exposure to market risks from that previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
Item 4. Controls and Procedures
Janus' management evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2006. Disclosure controls and procedures are the controls and other procedures that the Company designed to ensure that it records, processes, summarizes and reports in a timely manner the information it must disclose in reports that it files with or submits to the SEC. Gary Black, Chief Executive Officer and Chief Investment Officer, and David Martin, Executive Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Black and Martin concluded that as of the date of their evaluation, Janus' disclosure controls and procedures were effective.
There has been no change in Janus' internal controls over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2006, that has materially affected, or is reasonably likely to materially affect, Janus' internal controls over financial reporting.
17
Item 1. Legal Proceedings
See Part I, Item 1. Financial Statements, Note 10—Legal Proceedings.
Item 1A. Risk Factors
The Company has had no significant changes in its risk factors from that previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 6, 2006, Janus' Board of Directors authorized the repurchase of up to an additional $500 million of Janus common stock with no expiration date, to take effect when the prior authorization was fully utilized, which occurred on March 17, 2006. During the first nine months of 2006, Janus repurchased 18.7 million shares at an aggregate cost of $368.0 million under the current and previous authorizations. The Company cautions that there are no assurances that any future repurchases will actually occur.
In addition to this program, for the nine months ended September 30, 2006, Janus repurchased 548,903 shares from employees as a part of a share withholding program (established under Rule 10b5-1 of the Securities Exchange Act of 1934) to satisfy employees' income tax liabilities attributable to the vesting of restricted stock awards, and 397,205 shares were surrendered to Janus related to the exercise of stock options.
| Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid Per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (End of Month) |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| January | 599,193 | $ | 20.90 | 450,000 | $ | 114 million | |||||
| February | 3,154,321 | $ | 21.83 | 3,043,000 | $ | 48 million | |||||
| March | 2,679,586 | $ | 22.19 | 2,221,600 | $ | 499 million | |||||
| April | 1,721,464 | $ | 20.47 | 1,657,900 | $ | 465 million | |||||
| May | 3,758,953 | $ | 19.37 | 3,676,700 | $ | 394 million | |||||
| June | 81,791 | $ | 17.92 | — | $ | 394 million | |||||
| July | 397,100 | $ | 16.56 | 397,100 | $ | 387 million | |||||
| August | 4,003,200 | $ | 17.00 | 4,003,200 | $ | 319 million | |||||
| September | 3,285,100 | $ | 19.32 | 3,285,100 | $ | 256 million | |||||
| Total | 19,680,708 | $ | 19.74 | 18,734,600 | |||||||
Item 5. Other Information
Item 1.01 Entry into a Material Definitive Agreement
On November 6, 2006, the Compensation Committee (the "Committee") of the Board of Directors of Janus approved the performance metrics for variable cash compensation and long-term incentive awards for certain officers of the Company's subsidiary, Janus Capital Management LLC, who are now considered to be potential named executive officers in next year's proxy statement. A description of the compensation plan and these performance metrics will be further detailed in the proxy statement for the Company's 2007 annual meeting (expected to be filed with the Securities and Exchange Commission in late March 2007). For the fourth quarter 2006, the performance metrics established by the Committee will consist of the following performance measures: the performance of the funds and portfolios managed by such officers, the Company's adjusted operating margin, and/or the Company's
18
adjusted return on equity. The Committee reserves the right to pay discretionary bonuses or long-term incentive awards based on subjective considerations or extraordinary performance during the year.
Item 7.01 Regulation FD Disclosure
On November 6, 2006, Janus appointed two portfolio managers, Jonathan Coleman and Gibson Smith, as the company's co-chief investment officers ("CIOs"). Messrs. Coleman and Smith will be in charge of the equity, fixed income and money-markets groups and oversee the investment process, including Janus' portfolio management, research, investment risk and trading. The new roles, which are effective immediately, will not change the co-CIOs' portfolio management responsibilities.
Item 6. Exhibits
| 10.1 | Janus Capital Group Inc. Employee Stock Purchase Plan, as Amended and Restated, Effective October 23, 2006, is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 | |
10.2 |
Summary cover letter of employment agreement by and between the Company and Jonathan Coleman dated December 29, 2004, is attached to this Form 10-Q as Exhibit 10.2 |
|
10.3 |
Summary cover letter of employment agreement by and between the Company and Richard Gibson Smith dated December 29, 2004, is attached to this Form 10-Q as Exhibit 10.3 |
|
10.4 |
Letter Severance Agreement by and between the Company and Jonathan Coleman dated December 29, 2004, is attached to this From 10-Q as Exhibit 10.4 |
|
10.5 |
Letter Severance Agreement by and between the Company and Richard Gibson Smith dated December 29, 2004, is attached to this From 10-Q as Exhibit 10.5 |
|
10.6 |
Change in Control Agreement by and between the Company and Jonathan Coleman dated January 1, 2005, is attached to this Form 10-Q as Exhibit 10.6 |
|
10.7 |
Change in Control Agreement by and between the Company and Richard Gibson Smith dated January 1, 2005, is attached to this Form 10-Q as Exhibit 10.7 |
|
31.1 |
Certification of Gary D. Black, Chief Executive Officer and Chief Investment Officer of Registrant |
|
31.2 |
Certification of David R. Martin, Executive Vice President and Chief Financial Officer of Registrant |
|
32.1 |
Certification of Gary D. Black, Chief Executive Officer and Chief Investment Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
Certification of David R. Martin, Executive Vice President and Chief Financial Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
99.1 |
Lipper Rankings |
19
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: November 6, 2006
| Janus Capital Group Inc. | ||
/s/ GARY D. BLACK Gary D. Black, Chief Executive Officer and Chief Investment Officer |
||
/s/ DAVID R. MARTIN David R. Martin, Executive Vice President and Chief Financial Officer |
||
/s/ GREGORY A. FROST Gregory A. Frost, Senior Vice President and Controller (Principal Accounting Officer) |
20
JANUS CAPITAL GROUP INC.
INDEX TO EXHIBITS
| Exhibit No. |
Document |
Regulation S-K Item 601 (b) Exhibit No. |
||
|---|---|---|---|---|
| 10.1 | Janus Capital Group Inc. Employee Stock Purchase Plan, as Amended and Restated Effective October 23, 2006, is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 | 10 | ||
10.2 |
Summary cover letter of employment agreement by and between the Company and Jonathan Coleman dated December 29, 2004, is attached to this Form 10-Q as Exhibit 10.2 |
10 |
||
10.3 |
Summary cover letter of employment agreement by and between the Company and Richard Gibson Smith dated December 29, 2004, is attached to this Form 10-Q as Exhibit 10.3 |
10 |
||
10.4 |
Letter Severance Agreement by and between the Company and Jonathan Coleman dated December 29, 2004, is attached to this From 10-Q as Exhibit 10.4 |
10 |
||
10.5 |
Letter Severance Agreement by and between the Company and Richard Gibson Smith dated December 29, 2004, is attached to this From 10-Q as Exhibit 10.5 |
10 |
||
10.6 |
Change in Control Agreement by and between the Company and Jonathan Coleman dated January 1, 2005, is attached to this Form 10-Q as Exhibit 10.6 |
10 |
||
10.7 |
Change in Control Agreement by and between the Company and Richard Gibson Smith dated January 1, 2005, is attached to this Form 10-Q as Exhibit 10.7 |
10 |
||
31.1 |
Certification of Gary D. Black, Chief Executive Officer and Chief Investment Officer of Registrant |
31 |
||
31.2 |
Certification of David R. Martin, Executive Vice President and Chief Financial Officer of Registrant |
31 |
||
32.1 |
Certification of Gary D. Black, Chief Executive Officer and Chief Investment Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32 |
||
32.2 |
Certification of David R. Martin, Executive Vice President and Chief Financial Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32 |
||
99.1 |
Lipper Rankings |
99 |
JANUS CAPITAL GROUP INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in Millions)
JANUS CAPITAL GROUP INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in Millions, Except Per Share Data)
JANUS CAPITAL GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Millions)
JANUS CAPITAL GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Amounts in Millions, Except Per Share)
Janus Capital Group Inc. Notes to Consolidated Financial Statements (Unaudited)
SIGNATURES
JANUS CAPITAL GROUP INC. INDEX TO EXHIBITS