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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number 001-15253

(303) 333-3863

Not applicable

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 such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of April 24, 2003, there were 239,288,696 shares of the Company’s common stock, $.01 par value per share, issued and outstanding.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

JANUS CAPITAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)

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

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Millions, Except Per Share Data)

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

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)

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

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Amounts in Millions)

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

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JANUS CAPITAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

In the opinion of Janus Capital Group Inc. (the “Company” or “Janus”) management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the financial position and results of operations 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. 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, 2002.

The accompanying consolidated financial statements have been prepared consistently 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, 2002. Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2 — Recent Accounting Pronouncements

The adoption of Financial Accounting Standard Board (“FASB”) Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and FASB Interpretation No. 46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” in the first quarter 2003 did not have an impact on Janus’ results of operations, financial position or cash flows.

Note 3 — Earnings Per Share

The effect of stock options and shares under the Employee Stock Purchase Plan (“ESPP”) represent the differences between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation. The adjustment to the numerator of the Company’s diluted earnings per share computation includes potentially dilutive securities at subsidiaries and affiliates. The following is a summary of the earnings per share calculation (in millions, except per share data):

For the three month periods ended March 31, 2003 and 2002, the weighted average number of options to purchase 5.0 million and 2.9 million shares of Janus common stock, respectively, were excluded from the

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computation of diluted earnings per share because the exercise prices were greater than the average market prices of the common shares. The diluted earnings per share computations for the three months ended March 31, 2003 and 2002 exclude 1.9 million and 16.0 million shares of common stock, respectively, reserved for issuance upon conversion of the zero-coupon convertible notes due 2031, because the conversion would be antidilutive.

At March 31, 2003, Janus had approximately 10.8 million unvested restricted stock awards that were issued and outstanding. These shares are not included in the weighted average outstanding shares as they would be antidilutive under the treasury stock method.

Note 4 — Investment in DST Systems, Inc.

Janus accounts for its investment in DST Systems, Inc. (“DST”) using the equity method of accounting. The Company’s investment in DST, together with certain condensed DST financial information, is summarized as follows (in millions):

*     Based on DST’s closing price on the New York Stock Exchange.

Note 5 — Acquisitions

Berger Financial Group LLC (“Berger”) Minority. In February 2003, Janus purchased 100% of the outstanding Berger minority LLC interests. The purchase was executed with a combination of cash and Janus common stock. The terms of the purchase have not been presented as they are immaterial to the consolidated financial statements of Janus.

Janus Capital Management LLC (“JCM”) Awards. On March 12, 2003, JCM became a wholly owned subsidiary of Janus through the conversion of all outstanding employee-held shares of JCM into shares of Janus common stock.

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The conversion was completed to simplify Janus’ corporate structure and more closely align interests of the Janus employees with those of shareholders.

A special committee of independent members of Janus’ Board of Directors approved a conversion ratio of 20.1 shares of Janus common stock for each JCM share. The conversion ratio was based on the fair market value of each equity instrument at the date of conversion. The conversion resulted in the issuance of approximately 15.6 million shares of Janus common stock, of which 3.7 million were vested at the date of conversion and an additional 1.8 million shares vested on March 31, 2003. The conversion did not modify any of the existing terms of the stock awards.

The acquisition of Berger shares and the conversion of vested JCM shares resulted in additional goodwill and intangibles of $64.0 million. Janus is in the process of finalizing the purchase price allocation for the Berger and JCM share acquisitions.

Note 6 — Goodwill and Intangible Assets

The following is a summary of changes in goodwill (in millions):

		Janus accounts for its investment in DST using the equity method of accounting. Under this method, DST issuances or repurchases of its own common stock will result in Janus recording a change of ownership interest adjustment to goodwill.
		The following is a summary of identified intangible assets (in millions):

Client relationships are amortized over their estimated lives of 7 to 25 years using the straight-line method. The weighted average amortization period for client relationships at March 31, 2003 was 16.0 years and at December 31, 2002 was 16.2 years. Amortization expense is expected to be $7.5 million per year over the next five years.

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Note 7 — Restructuring Accrual

Janus completed several restructurings during 2002 and 2001 which involved the reduction of staff and the closure of facilities. The following table summarizes the accrued restructuring liability (included in other liabilities in the consolidated balance sheet) and the activity related to those charges (in millions):

Note 8 — Stock Options

Janus accounts for stock options and ESPP rights granted to employees and non-employee directors using the intrinsic value method. No stock-based employee compensation cost is reflected in net income for the value of stock options and ESPP grants, as all such instruments had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if Janus had applied the fair value method of accounting to stock options and ESPP rights (in millions, except per share data):

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Note 9 — Segment Information

For purposes of segment reporting, Janus has two segments: Investment Management, representing businesses that derive the majority of their revenues and income from providing investment management services under investment advisory agreements, and DST, composed of the Company’s equity investment in DST. Prior to January 1, 2003, the DST segment also included holding company activities and other immaterial operations. On January 1, 2003, Janus completed a corporate reorganization that resulted in the transfer of management responsibilities from its former parent company, Stilwell Financial Inc., to Janus. As Janus is now both the operating company and the manager of the overall business, its segment reporting has been revised. The Investment Management segment now includes investment advisory services, corporate-level activities and other insignificant operations. Prior year amounts have been reclassified to conform to the new presentation.

The following is a summary of financial information concerning the segments (in millions):

Note 10 — Subsequent Events

In April 2003, Janus exercised its call option to purchase an additional 27.4% of Enhanced Investment Technologies, LLC (INTECH) on or about June 2, 2003 from the principals of INTECH. The call option is accounted for as a financing arrangement, and the consolidated financial statements for the quarter ended March 31, 2003 include INTECH as a 78% majority owned subsidiary.

In May 2003, Janus’ Board of Directors declared an annual dividend of $0.04 per share payable July 31, 2003 to stockholders of record on July 15, 2003.

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. may make other written and oral communications from time to time that contain such statements. Forward-looking statements, including statements as to industry trends, future expectations of the Company and other matters that do not relate strictly to historical facts, 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,” “estimate,” or “continue” and similar expressions or variations, and 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 Part I, Item 1, Business, under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2002. Janus cautions readers to carefully consider such factors. Further, such forward-looking statements speak only as

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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.

General

Janus’ principal business is to provide investment advisory, distribution and administrative services to individual and institutional investors, primarily through mutual funds in both domestic and international markets. Revenues are largely dependent on the total value and composition of assets under management, which include domestic and international equity and debt securities. Accordingly, fluctuations in the financial markets and in the composition of assets under management impact revenues and operating results. Assets under management are affected by new money investments or redemptions and by market appreciation or depreciation. Factors that impact the level of net fund sales or redemptions include relative fund performance, marketing efforts, and introduction and market reception of new products. Market appreciation and depreciation reflect fluctuations in investment values.

Janus’ significant subsidiaries and equity investment at March 31, 2003, include:

	•		Janus Capital Management LLC (“JCM”) (wholly owned subsidiary). JCM’s investment management contracts include the Janus Investment Fund, the Janus Aspen Series, the Janus Adviser Series, the Janus World Funds Plc, and subadvised and private accounts.
	•		Bay Isle Financial LLC (“Bay Isle”) (wholly owned subsidiary). Bay Isle is an investment manager of primarily institutional accounts through a value style approach.
	•		Enhanced Investment Technologies, LLC (“INTECH”) (approximately 78% owned subsidiary). INTECH provides investment management services using a proprietary mathematical investment process for institutional and private clients.
	•		DST Systems, Inc (“DST”) (approximately 33% ownership, accounted for under the equity method). DST offers information processing and software services and products through three operating segments: financial services, output solutions and customer management. Additionally, DST holds certain investments in equity securities, financial interests and real estate holdings.

Significant Developments and Transactions

JCM Restricted Stock Awards. On March 12, 2003, JCM became a wholly owned subsidiary through the conversion of all outstanding employee-held shares of JCM into shares of Janus common stock. The conversion was completed to simplify Janus’ corporate structure and more closely align interests of employees with those of shareholders.

A special committee of independent members of Janus’ Board of Directors approved a conversion ratio of 20.1 shares of Janus common stock for each JCM share. The conversion ratio was based on the fair market value of each equity instrument at the date of conversion. The conversion resulted in the issuance of approximately 15.6 million shares of Janus common stock, of which 3.7 million were vested at the time of conversion and an additional 1.8 million shares vested on March 31, 2003. The conversion did not modify any of the terms of the awards.

Berger Financial Group LLC (“Berger”) Minority. In February 2003, Janus purchased 100% of the outstanding Berger minority LLC interests. The purchase was executed with a combination of cash and Janus common stock.

Company Reorganization. On January 1, 2003, in response to the changing market environment, the Company reorganized its operations with the goal of eliminating redundant management teams, investment capabilities and infrastructure, and adopted a new business model that better capitalizes on the well-known Janus brand and leverages JCM’s existing and extensive global distribution relationships and network (the “Reorganization”).

Recent Accounting Pronouncements

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The adoption of FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and FASB Interpretation No. 46 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” in the first quarter 2003 did not have an impact on Janus’ results of operations, financial position or cash flows.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2003, Compared with the Three Months Ended March 31, 2002

Net Income. Janus had net income of $38.6 million, or $0.17 per diluted share, in the first quarter of 2003 compared to $97.2 million, or $0.42 per diluted share, in the first quarter of 2002. The decrease in earnings was attributable to lower assets under management, primarily caused by the decline in the equity markets.

Assets Under Management/Revenue. Assets under management totaled $132.7 billion at March 31, 2003, a 4.1% decline from assets of $138.4 billion at December 31, 2002. Assets under management in the first quarter of 2003 were negatively impacted by $3.0 billion of market depreciation. In addition to market declines, Janus also experienced $2.7 billion of net outflows during the quarter, resulting from net outflows of $2.8 billion and $0.7 billion in the growth equity and money market disciplines, respectively, offset by net inflows of $0.8 billion in Janus’ other investment disciplines.

Assets under management were as follows (in billions):