UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

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.

(Exact name of registrant as specified in its charter)

(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 x               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.

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

As of October 24, 2007, there were 170,466,879 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)

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JANUS CAPITAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in Millions, Except Per Share Data)

Note:  (1) Prior periods have been reclassified to separately present the results of continuing and discontinued operations. See Note 4.

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)

Note:  (1) Prior periods have been reclassified to separately present the results of continuing and discontinued operations.  See Note 4.

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, Except Per Share Data)

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. (“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, 2006.

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, 2006, except as discussed in Note 4 and Note 5.

Note 2 – 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 common share adjusts the weighted average shares outstanding by the dilutive impact of shares underlying stock options and unvested restricted stock awards.  The following is a summary of the earnings per share calculation (in millions, except per share data):

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The following stock options and unvested restricted stock are anti-dilutive and have not been included in the weighted average diluted shares outstanding calculation:

Note 3 – Acquisition

On March 30, 2007, Janus increased its ownership of Enhanced Investment Technologies, LLC (“INTECH”) to approximately 86.5% with the purchase of an additional 4% ownership interest in INTECH for $81.0 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 purchase price allocation resulted in the recognition of $31.7 million of intangible assets and $49.3 million of goodwill.  Intangible assets acquired represent customer relationships which are amortized over 12 years.

Note 4 – Discontinued Operations

During the third quarter 2007, Janus initiated a plan to dispose of Rapid Solutions Group (“RSG”), previously reported as the Printing and Fulfillment segment, as a result of RSG’s difficulty in growing the business and Janus’ desire to focus on its core investment management business.

Janus assessed the fair value of RSG less estimated disposal costs and concluded that as a result of an inability to grow revenues combined with the possible loss of key contracts due to the expected sale, the carrying value of RSG had been impaired.  The fair value of RSG was estimated using market information for comparable transactions within the commercial printing industry combined with RSG’s historical operating data.  Based on this methodology, a $36.0 million impairment charge (net of a $1.6 million tax benefit) was recorded to write-down the carrying value of RSG to the estimated fair market value less costs to sell.  The impairment charge was allocated as follows; $33.6 million to goodwill (for which no tax benefit has been recorded), $1.4 million to property and equipment, and $1.0 million of intangible assets from the expected loss of certain client contracts. 

Summarized operating results of RSG are as follows:

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The carrying amounts of the significant classes of assets and liabilities related to discontinued operations are as follows:

In connection with the classification as discontinued operations, RSG’s intangibles and assets will no longer be subject to depreciation or amortization.

Note 5 – Adoption of New Accounting Principle

Janus adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007, which sets forth a specific method for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return.  As a result of the implementation of FIN 48, Janus reduced its tax contingencies liability by $29.3 million, which had previously been accounted for under the provisions of Statement of Financial Accounting Standard No. 5, “Accounting for Contingencies.”  The reduction in the liability and the related change in deferred taxes were accounted for as an increase to retained earnings on January 1, 2007.  The tax contingencies liability has been recorded in other long-term liabilities. A reconciliation of the beginning and ending liability is as follows (in millions):

A deferred tax asset of $11.4 million has been recorded associated with the tax contingencies liability.  If the tax contingencies liability and related deferred tax asset are reversed in future periods, the effective tax rate would be favorably impacted by $20.2 million. 

Tax returns filed in previous years are subject to audit by various federal, state and international taxing authorities and as a result of such audits, additional tax assessments may be proposed.  As of September 30, 2007, the majority of tax years from 1996 and forward remain subject to audit.  Based on information currently available, Janus management does not anticipate any material changes in the liability within the next twelve months.

Taxing authorities generally charge interest and penalties in the event that a tax position taken is subsequently reversed upon examination.  Janus has accrued interest on its uncertain tax provisions based on the rates specified by the applicable taxing authorities and has recorded the interest as a component of the tax provision.  At September 30, 2007, $9.8 million of accrued interest is included in the liability for tax contingencies.  Any potential penalties associated with a tax contingency will also be included as a component of the tax provision in the period

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in which the assessment of a penalty becomes likely.  Janus does not believe that it is subject to any penalties related to its tax contingencies and therefore, has not accrued a liability for tax penalties.

In the event of an overpayment of income taxes, taxing authorities generally pay interest from the date of the overpayment through the date on which an amended return is filed.  Janus records interest income from taxing authorities as a component of the tax provision. 

Note 6 – Long-Term Debt

On June 14, 2007, Janus issued $300.0 million of 6.250% Senior Notes due June 15, 2012, and $450.0 million of 6.700% Senior Notes due June 15, 2017 (collectively the “2007 senior notes”).  Interest will be paid semiannually on June 15 and December 15 of each year, beginning December 15, 2007.   The proceeds from the June 14, 2007 issuances were $748.4 million.  On June 26, 2007, approximately $160.0 million of the total proceeds were used to repay the 7.875% Senior Notes due 2032 plus accrued and unpaid interest as of the redemption date.  The remaining proceeds may be used for possible future acquisitions, the repurchase of Janus’ common stock, and/or general corporate purposes.

Note 7 – Long-Term Incentive Compensation

Janus generally grants annual long-term incentive awards in February of each year.  The February 2007 grant totaled $61.0 million and consisted of $21.7 million of restricted stock (0.9 million shares at $21.01 per share), $12.8 million of stock options and $26.5 million of mutual fund units and will be recognized over a four-year period, subject to accelerated vesting if certain financial performance criteria are achieved.  Additional long-term incentive awards granted during 2007 include $3.4 million of restricted stock which will generally be recognized over a four-year period and are not subject to acceleration.

A total of 1.8 million options with a grant date fair value of $7.02 per option were awarded as part of the 2007 annual grant.  The grant date fair value of stock options was determined using the Black-Scholes model with the following assumptions: expected volatility of 28%, dividend yield of 0.22%, risk-free interest rate of 4.86% and an expected life of five years.

Note 8 – Other Income, Net

The components of other income represent investment income and investment gains, net of losses, as follows (in millions):

Note 9 – 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.  As of September 30, 2007, Janus has no litigation reserves as management believes that the remaining claims made in the civil actions described below have little or no merit and intends to defend against them.

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Market Timing Litigation

Following the market timing investigations by the New York Attorney General (“NYAG”) and the SEC, 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 (Marini, et al. v. Janus Investment Fund, et al., U.S. District Court, District of Maryland, Case No. 04-CV-00497);  (ii) derivative claims by investors in the Janus funds ostensibly on behalf of the Janus funds (Steinberg et al. v. Janus Capital Management, LLC et al., U.S. District Court, District of Maryland, Case No. 04-CV-00518); (iii) claims on behalf of participants in the Janus 401(k) plan (Wangberger v. Janus Capital Group Inc., 401(k) Advisory Committee, et al., U.S. District Court, District of Maryland, Case No. JFM-05-2711); (iv) claims brought on behalf of shareholders of Janus on a derivative basis against Janus’ Board of Directors (Chasen v. Whiston, et al., U.S. District Court, District of Maryland, Case No. 04-MD-00855); and (v) claims by a putative class of Janus shareholders asserting claims on behalf of the shareholders (Wiggins, et al. v. Janus Capital Group Inc., et al., U.S. District Court, District of Maryland, Case No. 04-CV-00818).

In August 2005, the U.S. District Court entered orders dismissing most of the claims asserted against the Company and its affiliates by fund investors in the Marini and Steinberg cases 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.  The U.S. District Court also entered an order dismissing all claims in the Wiggins lawsuit.  Plaintiffs have appealed that dismissal.  In August 2006, the U.S. District Court in the Wangberger 401(k) plan class action dismissed the action with prejudice, and the plaintiff appealed the dismissal to the U.S. Court of Appeals for the Fourth Circuit.  Finally, the U.S. District Court also dismissed the Chasen lawsuit against Janus’ Board of Directors without leave to amend, ruling that the plaintiff had failed to make a pre-suit demand on the Board of Directors as required by applicable state law. The time to appeal this dismissal has expired.  As a result of the above events, the Company and Janus Capital Management LLC (“JCM”) are the remaining defendants, in some capacity, in one or more of the actions described in the preceding paragraph. 

As previously disclosed, the Auditor of the State of West Virginia, in his capacity as securities commissioner, 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 (In the Matter of Janus Capital Group Inc. et al., Before the Securities Commissioner, State of West Virginia, Summary Order No. 05-1320).  In September 2006, Janus filed its answer to the Auditor’s summary order instituting proceedings, and requested a hearing.  A hearing was held in June 2007, during which the parties were ordered to submit a scheduling order.  In addition to a recently filed Motion to Discharge Order to Show Cause, Janus continues to challenge the statutory authority of the Auditor to bring such an action.

Excessive Fee Litigation

JCM was a defendant in a consolidated lawsuit challenging the investment advisory fees charged by JCM to certain funds managed by JCM (Walter Sins, et al. v. Janus Capital Management, LLC, U.S. District Court, District of Colorado, Case No. 04-CV-01647-WDM-MEH; Michael Fleisher, et al. v. Janus Capital Management LLC, 04-CV-02395-MSK-CBS) (collectively, “Excessive Fee Litigation”).  The Excessive Fee Litigation was filed by fund investors asserting breach of fiduciary duty under Section 36(b) of the Investment Company Act of 1940.  The parties entered into a Stipulation of Dismissal and the Court dismissed the matter in May 2007.

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IPO Antitrust Litigation

In 2001, a Janus subsidiary was named as a defendant in a class action suit filed in the U.S. District Court for the Southern District of New York.  (Pfeiffer v. Credit Suisse First Boston, U.S. District Court, Southern District of New York, Case No. 01-CV-2014).  The suit alleges that certain underwriting firms and institutional investors violated antitrust laws in connection with initial public offerings. The U.S. District Court dismissed the plaintiff’s antitrust claims in November 2003.  In September 2005, the U.S. Court of Appeals for the Second Circuit vacated the U.S. District Court’s decision to dismiss the claims and remanded the case for further proceedings.  In March 2006, the defendants, including the Janus subsidiary, filed a Petition for a Writ of Certiorari with the U.S. Supreme Court to review the U.S. Court of Appeal’s decision.  The U.S. Supreme Court granted the Petition for a Writ of Certiorari and heard arguments on the matter in March 2007.  In June 2007, the U.S. Supreme Court ruled in favor of the defendants, including the Janus subsidiary, holding that “the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in this case.”

Miscellaneous Proceedings

On July 31, 2007, Edward Keely, a former portfolio manager, filed suit against a Janus subsidiary, alleging that it implemented certain changes to his compensation arrangement in violation of prior agreements between him and the Company (Edward Keely v. Janus Management Holdings Corporation, Denver District Court, Case No. 2007 CV 7366).  Janus answered the complaint on August 28, 2007, denying any liability and challenging the merits of Mr. Keely’s allegations.  Trial is scheduled to commence in June 2008.

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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, 2006, and in Part II, Item 1A, Risk Factors, in this Form 10-Q .  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 derives substantially all of its revenue and net income from its Investment Management operations, 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” or “Janus ex-INTECH”) and Enhanced Investment Technologies, LLC (“INTECH”).  The Company also owns a printing and fulfillment business (the “Printing and Fulfillment operations”).  In September 2007, Janus committed to a plan to pursue the sale of the Printing and Fulfillment operations and accordingly, it has been reported as discontinued operations.

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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, separate accounts and subadvised relationships (collectively referred to herein as “products” or “investment products”).  Certain investment products are also subject to performance fees which vary based on their relative performance as compared to a benchmark index and the level of assets subject to such fees.  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.

INVESTMENT MANAGEMENT OPERATIONS

Highlights for the current quarter include:

•                  Janus ex-INTECH net flows were positive for the second consecutive quarter.

•                  As of September 30, 2007, approximately 89%, 73% and 67% 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.

•                  Net income from continuing operations was $50.8 million, or $0.29 per diluted share.

•                  Janus repurchased 6.5 million shares of its common stock at a total price of $183.5 million.

Assets Under Management and Flows