- Money market assets increase $78 billion since end of Q3 2007
- Board declares quarterly dividend of $0.24 per share
PITTSBURGH, Oct. 23 /-/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share from continuing operations (EPS) of $0.56 for the quarter ended Sept. 30, 2008 compared to $0.57 for the same quarter last year. Income from continuing operations was $56.2 million for Q3 2008 compared to $57.7 million for Q3 2007.
Federated reported YTD 2008 EPS of $1.66 compared to $1.60 for the same period in 2007, an increase of 4 percent. For the nine months ended Sept. 30, 2008, income from continuing operations was $167.2 million compared to $164.8 million for the same period in 2007.
Federated's total managed assets were $344.0 billion at Sept. 30, 2008, up $67.8 billion or 25 percent from $276.2 billion at Sept. 30, 2007 and up $10.5 billion or 3 percent from the $333.5 billion reported at June 30, 2008. Asset growth was driven by a $77.9 billion increase in money market assets over the last year. Average managed assets for Q3 2008 were $335.1 billion, up $67.5 billion or 25 percent from $267.6 billion reported for Q3 2007 and down $8.2 billion or 2 percent from $343.3 billion reported for Q2 2008.
"Federated's position as an industry leader in high quality money market products benefited our clients and the company during a quarter that saw unprecedented market conditions," said J. Christopher Donahue, president and chief executive officer. "In addition to strong growth in money market products, Federated continued to see solid flows into its bond funds with over $500 million in net sales during the third quarter."
Federated's board of directors declared a quarterly dividend of $0.24 per share. The dividend is payable on Nov. 14, 2008 to shareholders of record as of Nov. 7, 2008. During Q3 2008, Federated paid a special cash dividend of $2.76 per share and a regular quarterly dividend of $0.24 per share, for a total of $3.00 per share or $305.4 million to its shareholders. Federated purchased 73,896 shares of Federated Investors, Inc. class B common stock for $1.5 million during Q3 2008. These transactions were funded with available cash and financing from a $140 million term loan facility entered into during Q3 2008 and borrowings under the company's existing revolving credit facility.
Money market assets in both funds and separate accounts were $287.8 billion at Sept. 30, 2008, up $77.9 billion or 37 percent from $209.9 billion at Sept. 30, 2007 and up $16.7 billion or 6 percent from $271.1 billion at June 30, 2008. Money market mutual fund assets were $259.2 billion at the end of Q3 2008, up $69.2 billion or 36 percent from $190.0 billion at Sept. 30, 2007 and up $18.6 billion or 8 percent from $240.6 billion at June 30, 2008. Federated's government money market funds attracted substantial inflows during the extreme stress of the markets throughout the quarter.
Federated's fixed-income assets were $24.5 billion at Sept. 30, 2008, up $1.8 billion or 8 percent from $22.7 billion at Sept. 30, 2007 and down $0.6 billion or 2 percent from $25.1 billion at June 30, 2008. Federated had inflows of $0.5 billion into its bond funds during the quarter and $1.6 billion during the first nine months of 2008. Federated's top-selling fixed- income mutual funds on a net basis were: Federated Municipal Ultrashort Fund; Federated Government Ultrashort Duration Fund; Federated Total Return Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; and Federated U.S. Government Securities Fund: 2-5 Years.
Federated's equity assets were $31.7 billion at Sept. 30, 2008, down $11.8 billion or 27 percent from $43.5 billion at Sept. 30, 2007 and down $5.6 billion or 15 percent from $37.3 billion at June 30, 2008 due mainly to market depreciation. Federated's top-selling equity mutual funds on a net basis were: Federated Capital Appreciation Fund II, Federated Kaufmann Large Cap Fund, Federated Capital Appreciation Fund, Federated MDT Balanced Fund and Federated MDT Small Cap Growth Fund.
Financial Summary
Q3 2008 vs. Q3 2007
For Q3 2008, revenue increased $19.5 million or 7 percent to $305.9 million compared to $286.4 million for the same quarter last year. The increase in revenue is primarily due to an increase in revenue from average money market managed assets ($42.0 million) and average fixed-income assets ($0.4 million). The increase was partially offset by a decrease in revenue from average equity managed assets ($20.2 million). For Q3 2008, Federated derived 60 percent of its revenue from money market assets, 30 percent from equity assets, 9 percent from fixed-income assets and 1 percent from other products and services.
Operating expenses for Q3 2008 increased $24.5 million or 13 percent to $212.7 million compared to $188.2 million for Q3 2007. The increase in operating expenses was primarily attributable to higher marketing and distribution expenses of $15.9 million primarily from higher average money market managed assets. In addition, compensation and related expenses increased by $8.4 million.
Nonoperating expenses for Q3 2008 decreased $3.4 million or 72 percent to $1.3 million compared to $4.7 million for Q3 2007 primarily due to lower investment losses.
Q3 2008 vs. Q2 2008
Compared to the prior quarter, revenue decreased by $4.4 million or 1 percent. The revenue decrease was primarily due to a decrease in average equity managed assets ($8.8 million), partially offset by the impact of one additional day in the third quarter ($3.5 million).
Compared to Q2 2008, operating expenses decreased by $6.4 million or 3 percent. Marketing and distribution expenses decreased $3.7 million from Q2 2008 primarily due to lower average money market and equity managed assets. In addition, professional service fees decreased $1.2 million.
Nonoperating expenses increased $1.2 million compared to the prior quarter due mainly to an increase in mark-to-market investment losses and an increase in recourse debt expense.
YTD 2008 vs. YTD 2007
Revenue for the first nine months of 2008 increased $94.5 million or 11 percent to $921.9 million compared to $827.4 million for the same period last year. The increase in revenue is primarily due to an increase in revenue from average money market managed assets ($137.7 million). The increase was partially offset by a decrease in revenue from average equity managed assets ($33.6 million), a decrease due to a change in the mix of average fixed-income managed assets ($1.5 million) and an increase in the amount of fund revenue that was voluntarily waived for competitive reasons ($5.3 million).
For YTD 2008, Federated derived 58 percent of its revenue from money market assets, 31 percent from equity assets, 10 percent from fixed-income assets and 1 percent from other products and services.
Operating expenses for the year-to-date period ended Sept. 30, 2008 increased $90.0 million or 16 percent to $646.5 million compared to $556.5 million for the same period of last year. The increase in operating expenses was attributable to a $66.5 million increase in marketing and distribution expenses related primarily to increased average money market managed assets. Additionally, compensation and related expenses increased $23.1 million.
Nonoperating expenses for YTD 2008 decreased $2.9 million or 71 percent to $1.2 million compared to $4.1 million for the same period in 2007 due to lower investment losses.
Federated will host an earnings conference call at 9 a.m. Eastern on Oct. 24, 2008. Investors are invited to listen to Federated's Q3 earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time for the teleconference. The call may also be accessed in real time on the Internet via the About Us section of FederatedInvestors.com. A replay will be available after 12:30 p.m. and until Oct. 31, 2008 by calling 877-660-6853 (domestic) or 201-612- 7415 (international) and entering codes 286 and 299011.
Federated Investors, Inc. is one of the largest investment managers in the United States, managing $344.0 billion in assets as of Sept. 30, 2008. With 147 mutual funds and a variety of separately managed account options, Federated provides comprehensive investment management to nearly 5,400 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Federated ranks in the top 3 percent of money market fund managers in the industry, the top 8 percent of equity fund managers and the top 9 percent of fixed-income fund managers(1). For more information, visit FederatedInvestors.com.
(1) Strategic Insight, Aug. 31, 2008. Based on assets under management in open-end funds.
Certain statements in this press release, such as those related to asset flows and sales, constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Among other risks and uncertainties is the ability of the company to sustain asset flows and sales and the risk factors discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.
Federated Securities Corp. is distributor of the Federated funds.
Separately managed accounts are made available through Federated Global Investment Management, Corp. Federated Investment Counseling and Federated MDTA LLC, each a registered investment advisor.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
% Change Quarter % Change
Quarter Ended Q3 2007 Ended Q2 2008
Sept. 30, to June 30, to
2008 2007 Q3 2008 2008 Q3 2008
Revenue
Investment advisory fees,
net $194,653 $184,898 5% $198,050 (2)%
Administrative service -
fees, net 54,369 43,808 24 54,435
Other service fees, net 56,007 56,416 (1) 56,714 (1)
Other, net 884 1,286 (31) 1,107 (20)
Total Revenue 305,913 286,408 7 310,306 (1)
Operating Expenses
Compensation and related 60,482 52,139 16 59,022 2
General and administrative
Marketing and
distribution 106,742 90,839 18 110,430 (3)
Professional service
fees 10,259 7,525 36 11,501 (11)
Systems and
communications 5,996 5,753 4 5,998 -
Office and occupancy 5,619 5,335 5 6,336 (11)
Advertising and
promotional 3,787 3,566 6 4,032 (6)
Travel and related 3,228 2,889 12 4,012 (20)
Other 4,409 4,072 8 4,402 -
Total general and
administrative 140,040 119,979 17 146,711 (5)
Amortization of deferred
sales commissions 7,762 11,298 (31) 8,801 (12)
Amortization of
intangible assets 4,369 4,763 (8) 4,559 (4)
Total Operating
Expenses 212,653 188,179 13 219,093 (3)
Operating Income 93,260 98,229 (5) 91,213 2
Nonoperating Income
(Expenses)
Investment income (loss),
net 190 (2,975) 106 897 (79)
Debt expense--recourse (757) (93) 714 (108) 601
Debt expense--nonrecourse (622) (1,205) (48) (737) (16)
Other, net (152) (444) (66) (155) (2)
Total Nonoperating
Expenses, net (1,341) (4,717) (72) (103) 1,202
Minority interest 2,455 1,470 67 2,020 22
Income from continuing
operations before income
taxes 89,464 92,042 (3) 89,090 -
Income tax provision 33,253 34,315 (3) 33,873 (2)
Income from continuing
operations 56,211 57,727 (3) 55,217 2
Discontinued operations,
net of tax - - - 2,808 (100)
Net Income $56,211 $57,727 (3)% $58,025 (3)%
Earnings Per Share-Basic
Income from continuing
operations $0.57 $0.57 -% $0.56 2%
Income from discontinued
operations - - - 0.03 (100)
Net income* $0.57 $0.57 -% $0.58 (2)%
Earnings Per Share-Diluted
Income from continuing
operations $0.56 $0.57 (2)% $0.55 2%
Income from discontinued
operations - - - 0.03 (100)
Net income $0.56 $0.57 (2)% $0.58 (3)%
Weighted-average shares
outstanding
Basic 99,367 100,433 99,347
Diluted 100,442 102,095 100,848
Dividends declared per
share $3.00 $0.21 $0.24
*May not sum due to rounding.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
Nine Months Ended Sept. 30 %
2008 2007 Change
Revenue
Investment advisory fees, net $587,697 $531,457 11%
Administrative service fees, net 160,384 124,307 29
Other service fees, net 170,438 167,281 2
Other, net 3,393 4,307 (21)
Total Revenue 921,912 827,352 11
Operating Expenses
Compensation and related 180,967 157,876 15
General and administrative
Marketing and distribution 324,799 258,329 26
Professional service fees 30,356 24,473 24
Office and occupancy 18,067 16,175 12
Systems and communications 17,927 17,466 3
Advertising and promotional 11,495 10,703 7
Travel and related 10,166 9,332 9
Other 13,121 11,583 13
Total general and administrative 425,931 348,061 22
Amortization of deferred sales
commissions 25,923 35,631 (27)
Amortization of intangible assets 13,673 14,889 (8)
Total Operating Expenses 646,494 556,457 16
Operating Income 275,418 270,895 2
Nonoperating Income (Expenses)
Investment income, net 2,365 675 250
Debt expense--recourse (961) (274) 251
Debt expense--nonrecourse (2,232) (4,062) (45)
Other, net (356) (440) (19)
Total Nonoperating Expenses, net (1,184) (4,101) (71)
Minority interest 5,861 4,245 38
Income from continuing operations
before income taxes 268,373 262,549 2
Income tax provision 101,126 97,781 3
Income from continuing operations 167,247 164,768 2
Discontinued operations, net of tax 2,808 - -
Net Income $170,055 $164,768 3%
Earnings Per Share-Basic
Income from continuing operations $1.68 $1.63 3%
Income from discontinued
operations 0.03 - -
Net Income $1.71 $1.63 5%
Earnings Per Share-Diluted
Income from continuing operations $1.66 $1.60 4%
Income from discontinued
operations 0.03 - -
Net Income* $1.68 $1.60 5%
Weighted-average shares
outstanding
Basic 99,508 101,222
Diluted 101,028 102,927
Dividends declared per share $3.45 $0.60
*May not sum due to rounding.
Unaudited Condensed Consolidated Balance Sheets
(in thousands) Sept. 30, Dec. 31,
2008 2007
Assets
Cash and other short-term investments $59,995 $146,271
Other current assets 62,656 60,020
Intangible assets, net and goodwill 576,978 534,603
Deferred sales commissions, net 36,960 64,227
Other long-term assets 38,726 35,850
Total Assets $775,315 $840,971
Liabilities, Minority Interest and Shareholders'
Equity
Current liabilities $175,807 $164,571
Long-term debt(recourse 129,500 71
Long-term debt(nonrecourse 36,882 62,701
Other long-term liabilities and minority
interest 43,332 39,613
Shareholders' equity excluding treasury stock 1,203,090 1,367,963
Treasury stock (813,296) (793,948)
Total Liabilities, Minority Interest and
Shareholders' Equity $775,315 $840,971
Changes in Equity and Fixed-Income Fund Managed Assets
(in millions)
Quarter Ended Nine Months Ended
Sept. 30 Sept. 30, June 30, Sept. 30,
2008 2007 2008 2008 2007
Equity Funds
Beginning assets $25,569 $30,026 $25,880 $29,145 $28,666
Sales 1,060 1,269 1,347 4,009 4,140
Redemptions (2,031) (1,959) (1,529) (5,453) (5,771)
Net redemptions (971) (690) (182) (1,444) (1,631)
Net exchanges (68) (20) (18) (163) (53)
Acquisition related 0 366 42 42 366
Other* (2,947) 413 (153) (5,997) 2,747
Ending assets $21,583 $30,095 $25,569 $21,583 $30,095
Fixed-Income Funds
Beginning assets $19,065 $17,769 $18,339 $17,943 $18,113
Sales 2,354 1,191 2,337 6,509 3,671
Redemptions (1,826) (1,445) (1,530) (4,911) (4,339)
Net sales
(redemptions) 528 (254) 807 1,598 (668)
Net exchanges 26 (6) 1 80 (9)
Other* (483) 266 (82) (485) 339
Ending assets $19,136 $17,775 $19,065 $19,136 $17,775
* Includes changes in the market value of securities held by the funds, reinvested dividends and distributions and net investment income.
Changes in Equity and Fixed-Income Separate Account Assets*
(in millions)
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, June 30, Sept. 30,
2008 2007 2008 2008 2007
Equity Separate Accounts
Beginning assets $11,712 $13,318 $11,638 $13,017 $12,228
Net customer flows** (426) (126) 209 (621) 296
Other** (1,218) 230 (135) (2,328) 898
Ending assets $10,068 $13,422 $11,712 $10,068 $13,422
Fixed-Income Separate
Accounts
Beginning assets $6,007 $5,201 $5,077 $4,881 $4,789
Net customer flows** (372) (370) 1,076 763 (80)
Other** (256) 146 (146) (265) 268
Ending assets $5,379 $4,977 $6,007 $5,379 $4,977
* Includes separately managed accounts, institutional accounts and sub- advised funds (both variable annuity and other) and other managed products.
**For certain accounts, Net customer flows are calculated as the remaining difference between beginning and ending assets after the calculation of Other. Other includes the approximate effect of changes in the market value of securities held in the portfolios, reinvested dividends and distributions and net investment income.
(in millions)
MANAGED ASSETS Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
By Asset Class
Equity $31,651 $37,281 $37,518 $42,162 $43,517
Fixed-income 24,515 25,072 23,416 22,824 22,752
Money market 287,836 271,131 277,527 236,630 209,908
Total Managed
Assets $344,002 $333,484 $338,461 $301,616 $276,177
By Market*
Wealth Management &
Trust $173,284 $162,991 $162,865 $143,881 $127,854
Broker/Dealer 120,014 116,840 119,268 114,854 108,872
Global Institutional 37,374 40,408 43,976 30,830 29,242
Other 13,330 13,245 12,352 12,051 10,209
Total Managed
Assets $344,002 $333,484 $338,461 $301,616 $276,177
By Product Type
Mutual Funds:
Equity $21,583 $25,569 $25,880 $29,145 $30,095
Fixed-income 19,136 19,065 18,339 17,943 17,775
Money market 259,172 240,646 242,280 215,003 190,011
Total Fund Assets $299,891 $285,280 $286,499 $262,091 $237,881
Separate Accounts:
Equity $10,068 $11,712 $11,638 $13,017 $13,422
Fixed-income 5,379 6,007 5,077 4,881 4,977
Money market 28,664 30,485 35,247 21,627 19,897
Total Separate
Accounts $44,111 $48,204 $51,962 $39,525 $38,296
Total Managed
Assets $344,002 $333,484 $338,461 $301,616 $276,177
AVERAGE MANAGED ASSETS Quarter Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
By Asset Class
Equity $35,136 $38,974 $38,471 $42,890 $42,731
Fixed-income 25,087 24,525 23,220 22,969 22,680
Money market 274,840 279,776 260,306 224,285 202,141
Total Avg. Assets $335,063 $343,275 $321,997 $290,144 $267,552
By Product Type
Mutual Funds:
Equity $24,180 $26,762 $26,696 $29,741 $29,570
Fixed-income 19,347 18,672 18,186 17,893 17,701
Money market 245,304 246,868 231,719 203,957 181,808
Total Avg. Fund
Assets $288,831 $292,302 $276,601 $251,591 $229,079
Separate Accounts:
Equity $10,956 $12,212 $11,775 $13,149 $13,161
Fixed-income 5,740 5,853 5,034 5,076 4,979
Money market 29,536 32,908 28,587 20,328 20,333
Total Avg. Separate
Accts. $46,232 $50,973 $45,396 $38,553 $38,473
Total Avg. Assets $335,063 $343,275 $321,997 $290,144 $267,552
ADMINISTERED ASSETS Quarter Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
Period End $8,723 $8,886 $9,921 $9,565 $19,312
Average $8,889 $9,781 $9,694 $16,125 $18,378
*Federated's market definitions changed as of April 1, 2008. The insurance channel had been included in the Broker/Dealer market and is now included in the Global Institutional market. Previous periods were adjusted to reflect the change.
