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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2003

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 001-15253

JANUS CAPITAL GROUP INC.

(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 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 August 5, 2003, there were 239,271,115 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 (UNAUDITED)
(Dollars in Millions)

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JANUS CAPITAL GROUP INC.

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

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JANUS CAPITAL GROUP INC.

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

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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 fairly present 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 (“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, 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.

During May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for financial instruments entered into, or modified after, May 31, 2003, and is otherwise effective July 1, 2003. Janus does not have any financial instruments impacted by the provisions of SFAS No. 150, and therefore, the adoption of the statement will not have an impact on Janus’ consolidated financial statements.

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Note 3 — Earnings Per Share

The effect of stock options represent the difference 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 of subsidiaries and affiliates. The following is a summary of the earnings per share calculation (in millions, except per share data):

*

Diluted earnings per share have been adjusted from the amounts originally disclosed in the Quarterly Report on Form 10-Q for the three- and six-month periods ended June 30, 2002. The original diluted earnings per share calculation included all unvested restricted shares of Janus Capital Management LLC (“JCM”). The calculation did not include the impact of the assumed repurchase of shares (using total unamortized restricted stock compensation as the proceeds), pursuant to the treasury stock method defined in SFAS No. 128, “Earnings per Share.” Using the treasury stock method, the decline in fair market value of the JCM shares subsequent to the date of grant resulted in the unvested JCM shares becoming antidilutive.

The following securities have been excluded from the earnings per share computations as their inclusion would be antidilutive:

	•		Stock options that have an exercise price greater than the average market price of Janus’ common stock (for the three-month periods ended June 30, 2003 and 2002, 4.6 million and 3.3 million options, respectively, were excluded and for the six-month periods ended June 30, 2003 and 2002, 8.4 million and 3.1 million options, respectively, were excluded);
	•		1.9 million shares of common stock reserved for issuance upon conversion of the zero-coupon convertible notes due 2031, at June 30, 2003 and 2002; and
	•		9.8 million unvested restricted stock awards that were issued and outstanding, at June 30, 2003.

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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.

Potential DST Transaction. As previously disclosed, Janus and DST have been discussing potential transactions that may result in DST acquiring some or all of the DST shares owned by Janus. Any transaction would have a material impact on Janus’ consolidated financial statements. DST and Janus have not entered into a definitive agreement at this time, and there can be no assurance that DST and Janus will enter into a definitive agreement regarding this transaction.

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 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; 3.7 million shares were vested prior to conversion and 1.8 million shares vested on March 31, 2003. The conversion did not modify any of the existing terms of the stock awards.

Enhanced Investment Technologies, LLC (“INTECH”). In April 2003, Janus exercised its call option to purchase an additional 27.5% of INTECH, increasing Janus’ ownership of INTECH to 78%. The call option was accounted for as a financing arrangement; therefore, the consolidated financial statements of Janus have included INTECH as a 78% majority-owned subsidiary since the initial acquisition in February 2002. No additional goodwill or intangibles were recorded as a result of the exercise of the option.

Perkins, Wolf, McDonnell and Company, LLC (“PWM”). In May 2003, Janus completed the acquisition of a 30% ownership interest in PWM which is being accounted for under the equity method. PWM is the named subadvisor for certain of the Company’s small- and mid-cap value products. The terms of the purchase and summarized financial information have not been presented as they are immaterial to Janus’ consolidated financial statements.

The Berger and JCM transactions resulted in additional goodwill and intangibles of $64.0 million being recorded during the six months ended June 30, 2003. Janus is in the process of finalizing the purchase price allocations.

Note 6 — Goodwill and Intangible Assets

The following is a summary of changes in goodwill for the six-month period ended June 30, 2003 (in millions):

Janus accounts for its investment in DST using the equity method of accounting. Under this method, DST issuances or repurchases of its common stock will result in Janus recording a change of ownership interest adjustment to goodwill.

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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 June 30, 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.

Note 7 — Equity

Annual Dividend. 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. The liability is included in other accrued liabilities on the consolidated balance sheet.

Note 8 — Restructuring Accrual

Janus completed several restructurings during 2002 and 2001 that involved staff reductions and facility closings. The following table summarizes the accrued restructuring liability (included in other liabilities on the consolidated balance sheet) and the activity related to those charges (in millions):