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Janus Announces Third Quarter 2008 Results
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Janus Capital Group Inc. (NYSE: JNS) today reported third quarter net income from continuing operations of $26.0 million, or $0.16 per diluted share, compared with net income from continuing operations of $65.6 million, or $0.40 per diluted share, in the second quarter 2008 and $50.8 million, or $0.29 per diluted share, in the third quarter 2007.
Third quarter 2008 results include an impairment charge of $0.08 per share related to the Stanfield Victoria Funding LLC securities and second quarter 2008 results include a tax benefit of $0.06 per share from a legislative change in state taxes. Also included in the third quarter 2008 is a mark-to-market loss on seed capital investments of $0.04 per share compared with a gain of $0.01 per share in the second quarter 2008. The company's operating margin from continuing operations for the third quarter 2008 was 33.9% compared with 34.5% for the second quarter 2008 and 33.7% for the third quarter 2007.
Flows and Assets Under Management
Average assets under management during the third quarter decreased 8.7% to $182.7 billion compared with $200.1Â billion during the second quarter 2008. At September 30, 2008, the company's total assets under management were $160.5 billion compared with $191.8 billion at June 30, 2008.
The decrease in firmwide assets during the third quarter reflects $26.2 billion of net market depreciation / fund performance, long-term net outflows of $1.1Â billion, and money market net outflows of $4.0 billion.
Excluding INTECH, Janus had long-term net outflows during the third quarter this year of $1.3 billion compared with long-term net inflows of $4.8 billion in the previous quarter. INTECH had long-term net inflows of $0.2 billion during both the third and second quarters 2008.
Investment Management
Despite near-term underperformance, Janus' relative long-term investment performance remained strong with approximately 65%, 75% and 83% of Janus' mutual funds in the top half of their Lipper categories on a one-, three- and five-year total-return basis, respectively, as of September 30, 2008.2 In addition, 75% of Janus mutual funds have a 4- or 5-star Overall Morningstar RatingTM at September 30, 2008.3
INTECH's long-term performance remained strong with 83%, 56%, 100% and 100% of strategies outperforming their respective benchmarks over the one-, three-, five- and 10-year periods, as of September 30, 2008.
"I'm pleased that our long-term relative performance has remained strong during these turbulent times," CEO Gary Black said. "I'm also confident that our investments in research and risk management -- and our expanded product lineup and distribution -- will help position Janus for future success.
"In light of the challenging environment, Janus is focused on aligning our expenses with our revenues," Black said. "While we're cutting overall compensation, reducing headcount and scaling back spending, we're also moving forward with our strategic plan."
Financial Discussion
| Financial Highlights | Â | Â | Â | ||||
| (dollars in millions, except per share data or as noted) | |||||||
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| Three Months Ended | |||||||
| September 30, | June 30, | September 30, | |||||
| 2008a
| 2008a
| 2007 | |||||
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| Continuing Operations (Investment Management)
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| Average Assets (in billions) | $ 182.7 | $ 200.1 | $ 193.5 | ||||
| Ending AUM (in billions) | $ 160.5 | $ 191.8 | $ 208.0 | ||||
| Revenues | $ 275.4 | $ 304.2 | $ 284.6 | ||||
| Operating Expenses | $ 182.1 | $ 199.1 | $ 188.8 | ||||
| Operating Income | $ 93.3 | $ 105.1 | $ 95.8 | ||||
| Operating Margin | 33.9% | 34.5% | 33.7% | ||||
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| Net Income | $ 26.0 | $ 65.6 | $ 50.8 | ||||
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| Diluted Earnings per Share | $ 0.16 | $ 0.40 | $ 0.29 | ||||
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| Shares Repurchased (in millions) | 3.0 | 2.6 | 6.5 | ||||
| Cost of Shares Repurchased | $ 71.9 | $ 75.0 | $ 183.5 | ||||
| Average Price | $ 24.33 | $ 28.93 | $ 28.32 | ||||
| Total shares outstanding end of period (in millions) | 157.9 | 160.6 | 170.3 | ||||
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| a Net income and diluted earnings per share for third quarter 2008 include an impairment charge of $21.0 million, or $0.08 per share, related to the Stanfield Victoria Funding LLC securities. Net income and diluted earnings per share for second quarter 2008 include a one-time state income tax benefit of approximately $10.8 million, or $0.06 per share.
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Third quarter 2008 revenues of $275.4 million decreased 9.5% from the previous quarter due to lower average assets under management driven primarily by declining markets. Operating expenses decreased $17.0 million, or 8.5%, from the previous quarter as a result of lower incentive compensation, asset-based distribution costs and administrative expenses.
Operating margin for the third quarter 2008 remained comparable with the second quarter 2008 and third quarter 2007. However, global markets have declined 20% to 30% through September 30, 2008 and approximately 20% more in October. The continuing deterioration in market conditions and Janus' average assets under management will place pressure on its operating margin and results in the fourth quarter 2008 and into 2009. To align the company's cost structure with the current level of assets under management and revenues, Janus anticipates reducing 2009 fixed and discretionary costs by approximately $40 million to $45 million. The cost savings are expected to be achieved by reducing the workforce approximately 9%, yielding $15 million of annualized savings, and cutting general and administrative expenses by approximately $25 million to $30 million. In connection with the workforce reduction, Janus will incur an estimated severance charge of approximately $7 million in the fourth quarter 2008. In addition, variable compensation and distribution expenses are expected to fluctuate with assets under management and revenues. Janus does not believe that these cost-reduction measures will impede its ability to achieve the company's long-term strategic objectives, including operating margins of approximately 30%.
Non-operating items for the third quarter 2008 include a $21.0 million impairment charge ($13.0 million net of tax, or $0.08 per share) associated with structured investment vehicle securities issued by Stanfield Victoria Funding LLC ("Stanfield"). The impairment charge reflects the impact of the deterioration in market conditions on the value of the securities underlying Stanfield and the establishment of a reserve by the portfolio custodian for litigation and operating expenses. Second quarter 2008 included a one-time $10.8 million, or $0.06 per share, income tax benefit as a result of a legislative change in Colorado state taxes. Also included in non-operating items in third quarter 2008 is a mark-to-market loss of $11.3 million on Janus' seed capital investments compared with a $3.0 million mark-to-market gain in the second quarter 2008.
Capital and Liquidity
At September 30, 2008, Janus had stockholders' equity of $1.6 billion, cash and investments of $466 million and $1.1 billion of outstanding debt. As part of its capital and liquidity management, Janus reduced its outstanding shares by 1.7% during the third quarter by repurchasing 3.0 million shares of its common stock at an average price of $24.33 per share and a total cost of $72 million. Given the current market conditions, Janus is suspending stock buybacks to preserve liquidity.
Third Quarter 2008 Earnings Call Information
Janus will discuss its results during a conference call on Thursday, October 23 at 10 a.m. Eastern Daylight Time. The call-in number will be 877-301-7574. Anyone outside the U.S. or Canada should call 706-643-3623. The slides used during the presentation will be available in the investor relations section of the Janus Capital Group Web site (www.janus.com/ir) approximately one hour prior to the call. For those unable to join the conference call at the scheduled time, an audio replay will be available on www.janus.com/ir.
About Janus Capital Group Inc.
Founded in 1969, Denver-based Janus Capital Group Inc. ("Janus") is a recognized leader of growth and risk-managed investment strategies. Our commitment to deliver for investors is rooted in our research-intensive approach and relentless passion to gain a competitive edge.
At the end of September 2008, Janus managed $160.5 billion in assets for more than four million shareholders, clients and institutions around the globe. Outside the U.S., Janus has offices in London, Tokyo, Hong Kong and Singapore. Janus Capital Group consists of Janus Capital Management LLC and Enhanced Investment Technologies, LLC (INTECH). In addition, Janus Capital Group owns 30% of Perkins, Wolf, McDonnell and Company, LLC.
1 Strong relative performance is not indicative of positive fund returns. Year-to-date absolute performance for most funds is negative. Funds included in the analysis are Janus Retail (JIF), Janus Adviser Series Class S Shares (JAD) and Janus Aspen Series Institutional Shares (JAS). The number of funds in each trust is 26, 22 and 12, respectively. Complete Lipper rankings are based on total returns and are on pages 11 and 12.
2 Strong relative performance is not indicative of positive fund returns. Year-to-date absolute performance for most funds is negative. Funds included in the analysis are JIF, JAD and JAS. The number of funds in each trust is 26, 22 and 12, respectively. Complete Lipper rankings are based on total returns and are on pages 11 and 12.
3 Funds included in the Morningstar analysis were JIF, JAD and JAS with at least a three-year history. Morningstar rankings are based on risk-adjusted returns. Complete Morningstar ratings are on pages 13-15.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus containing this and other information, please call Janus at 800-525-3713 or download the file from www.janus.com. Read it carefully before you invest or send money.
Data presented reflects past performance, which is no guarantee of future results. Rankings referenced exclude money markets.
Funds distributed by Janus Distributors LLC (10/08).
This press release includes statements concerning potential future events involving Janus Capital Group Inc. that could differ materially from the events that actually occur. The differences could be caused by a number of factors including those factors identified in Janus' Annual Report on Form 10-K for the year ended December 31, 2007 and the company's Quarterly Report on Form 10-Q for period ended September 30, 2008, on file with the Securities and Exchange Commission (Commission file no. 001-15253), including those that appear under headings such as "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Many of these factors are beyond the control of the Company and its management. Any forward-looking statements contained in this release are as of the date on which such statements were made. The Company assumes no duty to update them, even if experience, unexpected events, or future changes make it clear that any projected results expressed or implied therein will not be realized.
| JANUS CAPITAL GROUP INC.
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| UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | |||||||||
| (dollars in millions, except per share data or as noted) | |||||||||
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| Three Months Ended | |||||||||
| September 30, | June 30, | September 30, | |||||||
| 2008 | 2008 | 2007 | |||||||
| Investment Management Revenues:
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| Investment management fees | $ 218.9 | $ 239.8 | $ 228.5 | ||||||
| Performance fees | 8.8 | 11.6 | 5.1 | ||||||
| Shareowner servicing fees and other | 47.7 | Â | 52.8 | Â | 51.0 | Â | |||
| Total | 275.4 | Â | 304.2 | Â | 284.6 | Â | |||
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| Investment Management Operating Expenses: | |||||||||
| Employee compensation and benefits | 81.2 | 91.6 | 91.1 | ||||||
| Long-term incentive compensation | 10.7 | 12.5 | 13.8 | ||||||
| Marketing and advertising | 8.0 | 8.7 | 6.5 | ||||||
| Distribution | 36.5 | 38.2 | 35.4 | ||||||
| Depreciation and amortization | 10.1 | 10.7 | 8.9 | ||||||
| General, administrative and occupancy | 35.6 | Â | 37.4 | Â | 33.1 | Â | |||
| Total | 182.1 | Â | 199.1 | Â | 188.8 | Â | |||
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| Investment Management Operating Income | 93.3 | 105.1 | 95.8 | ||||||
| Â | |||||||||
| Interest expense | (18.9 | ) | (18.8 | ) | (18.9 | ) | |||
| Investment gains (losses), net | (32.3 | ) | 3.0 | 0.5 | |||||
| Other income, net | 1.4 | 1.0 | 8.4 | ||||||
| Income tax provision | (17.2 | ) | (23.8 | ) | (32.0 | ) | |||
| Equity in earnings of unconsolidated affiliate | 2.5 | 2.3 | 1.9 | ||||||
| Minority interest in consolidated earnings | (2.8 | ) | (3.2 | ) | (4.9 | ) | |||
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| Income from Continuing Operations | 26.0 | 65.6 | 50.8 | ||||||
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| Income (loss) from Discontinued Operations | (0.6 | ) | 0.7 | (38.6 | ) | ||||
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| Net income | $ 25.4 | Â | $ 66.3 | Â | $ 12.2 | Â | |||
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| Diluted weighted average shares outstanding (in millions) | 159.6 | 162.4 | 173.9 | ||||||
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| Diluted earnings per share: | |||||||||
| Continuing operations | $ 0.16 | $ 0.40 | $ 0.29 | ||||||
| Discontinued operations | - | Â | - | Â | (0.22 | ) | |||
| Diluted earnings per share | $ 0.16 | Â | $ 0.41 | Â | $ 0.07 | Â | |||
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| Average Assets Under Management (in billions) | $ 182.7 | $ 200.1 | $ 193.5 | ||||||
