Federated Investors, Inc. Reports First Quarter 2009 Earnings (PR Newswire)
Thu, 23 Apr 2009 20:01:00 Etc/GM
- Net bond-fund sales top $1 billion for Q1 2009
- Board declares quarterly dividend of $0.24 per share
PITTSBURGH, April 23 /PRNewswire-FirstCall/ -- Federated Investors, Inc. (NYSE: FII - News), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.34 for the quarter ended March 31, 2009 compared to $0.54 for the same quarter last year. Net income was $35.1 million for Q1 2009 compared to $55.8 million for Q1 2008. During Q1 2009, Federated recorded non-cash impairment charges of $20.1 million or $0.13 per diluted share mainly related to intangible assets associated with certain acquisitions. Federated also recorded $1.5 million or $0.01 per diluted share in additional non-cash share-based compensation expense.
Federated's total managed assets reached a record $409.2 billion at March 31, 2009, up $70.7 billion or 21 percent from $338.5 billion at March 31, 2008 and up $1.9 billion from $407.3 billion reported at Dec. 31, 2008. Asset growth for the quarter was driven by strong net sales of fixed-income products and continued flows into money market funds. Average managed assets for Q1 2009 were $411.7 billion, up $89.7 billion or 28 percent from $322.0 billion reported for Q1 2008 and up $41.9 billion or 11 percent from $369.8 billion reported for Q4 2008.
"As investors increasingly sought fixed-income products, Federated's broad menu of high-quality bond funds experienced substantial growth in the first quarter," said J. Christopher Donahue, president and chief executive officer. "Federated sold $3.2 billion in fixed-income mutual funds during the quarter, netting $1.1 billion in bond assets, marking Federated's best quarter for net fixed-income sales in more than five years."
Federated's board of directors declared a quarterly dividend of $0.24 per share. The dividend is payable on May 15, 2009 to shareholders of record as of May 8, 2009. During Q1 2009, Federated purchased 69,937 shares of Federated class B common stock for $1.1 million.
Money market assets in both funds and separate accounts were $360.1 billion at March 31, 2009, up $82.6 billion or 30 percent from $277.5 billion at March 31, 2008 and up $4.4 billion or 1 percent from $355.7 billion at Dec. 31, 2008. Money market mutual fund assets were $328.8 billion at March 31, 2009, up $86.5 billion or 36 percent from $242.3 billion at March 31, 2008 and up $1.5 billion from $327.3 billion at Dec. 31, 2008.
Federated's fixed-income assets were $25.0 billion at March 31, 2009, up $2.7 billion or 12 percent from $22.3 billion at March 31, 2008 and up $1.5 billion or 6 percent from $23.5 billion at Dec. 31, 2008. Federated had strong net inflows of $1.1 billion into its bond funds during Q1 2009.
Federated's equity assets were $23.4 billion at March 31, 2009, down $14.1 billion or 38 percent from $37.5 billion at March 31, 2008 and down $3.3 billion or 12 percent from $26.7 billion at Dec. 31, 2008 primarily due to market conditions and, to a lesser extent, net outflows.
Financial Summary
Q1 2009 vs. Q1 2008
For Q1 2009, revenue increased to $310.6 million compared to $305.7 million for the same quarter last year. Increases in revenue of $59.9 million from higher average money market managed assets and $7.7 million from higher average equity and fixed-income managed assets due to the Q4 2008 Prudent Bear and Clover Capital acquisitions were partially offset by a $49.0 million decrease from lower remaining average equity managed assets and $9.7 million in fee waivers recorded in Q1 2009 on certain money market funds in order to maintain zero to positive net yields. These fee waivers were offset by a related reduction in marketing and distribution expenses of $4.6 million such that the net impact on operating income was a decrease of $5.1 million. There was also a $2.7 million decrease related to the impact of leap year on Q1 2008 as compared to Q1 2009.
Fee waivers to produce positive or zero net yields may increase and such increases could be significant. The specific level of these waivers will be determined by a variety of factors including market yield levels for money market investments, asset levels within money market funds, changes in the mix of money market assets by type of fund, changes in the expense levels of money market funds and the willingness of the fund adviser to sustain these waivers.
For Q1 2009, Federated derived 71 percent of its revenue from money market assets, 19 percent from equity assets, 9 percent from fixed-income assets and 1 percent from other products and services.
Operating expenses for Q1 2009 increased $35.9 million or 17 percent to $250.6 million compared to $214.7 million for Q1 2008. The increase was primarily attributable to a $16.0 million impairment charge related primarily to significant Q1 2009 market declines in the level of managed assets underlying certain customer relationship intangible assets acquired in connection with two acquisitions. Marketing and distribution expenses increased by $14.7 million primarily from higher average money market managed assets partially offset by lower equity assets and the aforementioned reduction associated with maintaining zero to positive net yields. In Q1 2009, there was also a $3.7 million fixed asset impairment charge reflected in the line item other and a $1.5 million adjustment to share-based compensation expense reflected in compensation and related.
Nonoperating expenses for Q1 2009 increased $2.2 million compared to Q1 2008 primarily due to a $1.4 million decrease in investment income due to lower average investment balances and yields, a $1.0 million increase in recourse debt expense and a $0.4 million impairment charge in Q1 2009 on seed investments in new products.
Q1 2009 vs. Q4 2008
Compared to the prior quarter, revenue increased by $8.9 million or 3 percent. Increases in revenue of $24.0 million from higher average money market managed assets and $5.4 million from higher average equity and fixed-income managed assets due to the Q4 2008 Prudent Bear and Clover Capital acquisitions were partially offset by an $8.5 million decrease from lower remaining average equity managed assets. In addition, there was an increase of $6.3 million in fee waivers on certain money market funds in order to maintain zero to positive net yields. The increase in fee waivers was offset by a related increase to the reduction in marketing and distribution expenses of $2.7 million such that the net impact on operating income was a decrease of $3.6 million. There was also a $6.9 million decrease due to two fewer days in Q1 2009 as compared to Q4 2008.
Compared to Q4 2008, operating expenses increased by $34.6 million or 16 percent. The increase in operating expenses was attributable to four significant items: first, a $16.0 million impairment charge related primarily to significant Q1 2009 market declines in the level of managed assets underlying certain customer relationship intangible assets acquired in connection with two acquisitions; second, a $10.0 million increase in compensation and related expenses primarily related to a $5.1 million increase to amounts accrued for incentive compensation plans including those related to the recent Prudent Bear and Clover Capital acquisitions, a $2.3 million increase in payroll tax and employee benefit expenses primarily due to Q1 seasonality and a $2.0 million increase in share-based compensation primarily related to a $1.5 million adjustment recorded in Q1 2009; third, a $6.8 million increase in marketing and distribution expenses primarily from higher average money market managed assets partially offset by the aforementioned increased reduction associated with maintaining zero to positive net yields and the impact of two fewer days in Q1 2009 as compared to Q4 2008; and finally, a $3.7 million fixed asset impairment charge reflected in other.
Nonoperating expenses decreased $1.3 million compared to the prior quarter due mainly to a $0.9 million reduction in investment losses, a component of which was a $0.4 million impairment charge in Q1 2009 on seed investments in new products and a $0.4 million decrease in recourse debt expense.
Federated's level of business activity and financial results are dependent upon many factors including market conditions, investment performance and investor behavior. These factors and others including asset levels, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers and expenses can impact Federated's activity levels and financial results significantly. Risk factors and uncertainties that can influence Federated's financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.
Federated will host an earnings conference call at 9 a.m. Eastern on Friday, April 24, 2009. Investors are invited to listen to Federated's 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 May 1, 2009 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 308797.
Federated Investors, Inc. is one of the largest investment managers in the United States, managing $409.2 billion in assets as of March 31, 2009. With 158 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 2 percent of money market fund managers in the industry, the top 6 percent of fixed-income fund managers and the top 7 percent of equity fund managers(1). For more information, visit FederatedInvestors.com.
(1) Strategic Insight, March 31, 2009. Based on assets under management in open-end funds.
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.
Certain statements in this press release, such as those related to the level of fee waivers incurred by the company, asset flows, and asset and revenue levels, constitute or may 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. Other risks and uncertainties include the ability of the company to predict the level of fee waivers in future quarters, which could vary significantly depending on a variety of factors identified above, and include the ability of the company to sustain asset flows, and asset and revenue levels, which could vary significantly depending on market conditions, investment performance and investor behavior. Other risks and uncertainties also include 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.
Unaudited Condensed Consolidated Statements of Income(1)
(in thousands, except per share data)
% Change Quarter % Change
Q1 2008 Ended Q4 2008
Quarter Ended March 31, to Q1 Dec. 31, to Q1
2009 2008 2009 2008 2009
Revenue
Investment advisory fees,
net $190,469 $194,995 (2)% $187,684 1%
Administrative service
fees, net 67,646 51,580 31 61,669 10
Other service fees, net 51,332 57,716 (11) 50,889 1
Other, net 1,196 1,402 (15) 1,526 (22)
Total Revenue 310,643 305,693 2 301,768 3
Operating Expenses
Compensation and related 66,227 61,463 8 56,219 18
General and administrative
Marketing and
distribution 122,306 107,626 14 115,518 6
Professional service fees 10,007 8,598 16 9,945 1
Office and occupancy 6,666 6,111 9 6,276 6
Systems and
communications 6,428 5,933 8 5,721 12
Advertising and
promotional 2,650 3,676 (28) 3,323 (20)
Travel and related 2,443 2,925 (16) 3,883 (37)
Other 8,264 4,311 92 4,958 67
Total general and
administrative 158,764 139,180 14 149,624 6
Amortization of deferred
sales commissions 4,873 9,361 (48) 5,453 (11)
Intangible asset
amortization and
impairment 20,730 4,745 337 4,715 340
Total Operating Expenses 250,594 214,749 17 216,011 16
Operating Income 60,049 90,944 (34) 85,757 (30)
Nonoperating Income (Expenses)
Investment (loss) income,
net (402) 1,278 (131) (1,115) (64)
Debt expense--recourse (1,112) (96) 1,058 (1,464) (24)
Debt expense--nonrecourse (432) (872) (50) (518) (17)
Other, net 20 (49) (141) (100) (120)
Total Nonoperating
(Expenses) Income, net (1,926) 261 (838) (3,197) (40)
Income before income
taxes 58,123 91,205 (36) 82,560 (30)
Income tax provision 20,654 34,000 (39) 27,041 (24)
Net Income 37,469 57,205 (35) 55,519 (33)
Less: Net income
attributable to the
noncontrolling interest
in subsidiaries 2,334 1,386 68 1,256 86
Net income attributable
to Federated $35,135 $55,819 (37)% $54,263 (35)%
Earnings Per Share(2)
Net income attributable
to Federated common
shareholders - Basic $0.34 $0.55 (38)% $0.53 (36)%
Net income attributable
to Federated common
shareholders - Diluted $0.34 $0.54 (37)% $0.53 (36)%
Weighted-average shares
outstanding
Basic 99,927 99,812 99,891
Diluted 100,035 101,137 100,025
Dividends declared per
share $0.24 $0.21 $0.24
1) On Jan. 1, 2009, Federated adopted Statement of Financial Accounting
Standards No. 160, "Noncontrolling Interests in Consolidated Financial
Statements - an amendment of ARB No. 51." Its provisions require that
minority interest be renamed noncontrolling interest and that companies
present a consolidated net income that includes the amount attributable
to noncontrolling interests for all periods presented.
2) On Jan. 1, 2009, Federated adopted Financial Accounting Standards Board
Staff Position Emerging Issues Task Force No. 03-6-1 "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities." Under this standard, unvested share-based payment awards
that receive non-forfeitable dividend rights are considered participating
securities and are now required to be included in the computation of
earnings per share under the "two-class method." As a result current and
prior periods have been adjusted to reflect this new standard.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
March 31, Dec. 31,
2009 2008
Assets
Cash and other short-term investments $71,225 $58,647
Other current assets 54,329 58,185
Deferred sales commissions, net 25,561 30,261
Intangible assets, net and goodwill 643,086 657,321
Other long-term assets 40,157 42,196
Total Assets $834,358 $846,610
Liabilities and Equity
Current liabilities $212,789 $217,838
Long-term debtrecourse 120,750 126,000
Long-term debtnonrecourse 25,450 30,497
Other long-term liabilities 33,357 47,705
Equity excluding treasury stock(1) 1,235,406 1,229,051
Treasury stock (793,394) (804,481)
Total Liabilities and Equity $834,358 $846,610
1) Noncontrolling or minority interest was previously included in
other long-term liabilities, but is now included in Equity
excluding treasury stock. On Jan. 1, 2009, Federated adopted
Statement of Financial Accounting Standards No. 160,
"Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51." Its provisions require that minority
interest be renamed noncontrolling interest and companies present
it as a component of equity for all periods presented.
Changes in Equity and Fixed-Income Fund Managed Assets
(in millions)
Quarter Ended
March 31, Dec. 31, March 31,
2009 2008 2008
Equity Funds
Beginning assets $17,562 $21,583 $29,145
Sales 1,325 1,031 1,602
Redemptions (1,591) (1,752) (1,893)
Net redemptions (266) (721) (291)
Net exchanges (75) (103) (77)
Acquisition related 0 1,149 0
Other(1) (1,319) (4,346) (2,897)
Ending assets $15,902 $17,562 $25,880
Fixed-Income Funds
Beginning assets $19,321 $19,136 $17,943
Sales 3,151 2,172 1,818
Redemptions (2,010) (2,331) (1,555)
Net sales (redemptions) 1,141 (159) 263
Net exchanges 42 13 53
Acquisition related 0 658 0
Other(1) 248 (327) 80
Ending assets $20,752 $19,321 $18,339
1) 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(2)
(in millions)
Quarter Ended
March 31, Dec. 31, March 31,
2009 2008 2008
Equity Separate Accounts
Beginning assets $9,099 $10,068 $13,017
Net customer flows(3) (561) (754) (404)
Acquisition related 0 1,537 0
Other(3) (1,029) (1,752) (975)
Ending assets $7,509 $9,099 $11,638
Fixed-Income Separate Accounts
Beginning assets $4,165 $3,602 $3,754
Net customer flows(3) 7 180 71
Acquisition related 0 444 0
Other(3) 47 (61) 162
Ending assets $4,219 $4,165 $3,987
2) Includes separately managed accounts, institutional accounts and
sub-advised funds (both variable annuity and other) and other managed
products . Flows for liquidation portfolios have been removed from Changes
in Equity and Fixed-Income Separate Account Assets and are detailed on the
following page.
3) 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.
Changes in Liquidation Portfolios(1)
(in millions)
Quarter Ended
March 31, Dec. 31, March 31,
2009 2008 2008
Liquidation Portfolios
Beginning assets $1,505 $1,777 $1,127
Net customer flows(2) (802) (205) (11)
Other(2) (3) (67) (26)
Ending assets $700 $1,505 $1,090
1) For Q1 2009, Federated is presenting flows for liquidation portfolios
separately. Liquidation portfolios include portfolios of distressed
fixed-income securities and liquidating collateralized debt obligation
(CDO) products. In the distressed security category, Federated has been
retained by a third party to manage these assets through an orderly
liquidation process that will generally occur over a multi-year period.
In the case of liquidating CDOs, the CDO structure has unwound earlier
than expected due to events of default related to certain distressed
securities in the portfolio. The new category was established because the
assets and related cash flows from these portfolios are significantly
different than those of traditional separate account mandates.
2) 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. For Dec. 31, 2008
($52) million was reclassified from Other to Net customer flows.
(in millions)
March 31, Dec. 31, Sept. 30, June 30, March 31,
MANAGED ASSETS 2009 2008 2008 2008 2008
By Asset Class
--------------
Equity $23,411 $26,661 $31,651 $37,281 $37,518
Fixed-income 24,971 23,486 22,738 22,989 22,326
Money market 360,127 355,658 287,836 271,131 277,527
Liquidation
portfolios(1) 700 1,505 1,777 2,083 1,090
Total Managed Assets $409,209 $407,310 $344,002 $333,484 $338,461
By Market*
----------
Wealth Management & Trust $235,250 $233,444 $173,284 $162,991 $162,865
Broker/Dealer 117,476 121,073 120,014 116,840 119,268
Global Institutional 45,247 41,453 37,374 40,408 43,976
Other 11,236 11,340 13,330 13,245 12,352
Total Managed Assets $409,209 $407,310 $344,002 $333,484 $338,461
By Product Type
---------------
Mutual Funds:
Equity $15,902 $17,562 $21,583 $25,569 $25,880
Fixed-income 20,752 19,321 19,136 19,065 18,339
Money market 328,780 327,267 259,172 240,646 242,280
Total Fund Assets $365,434 $364,150 $299,891 $285,280 $286,499
Separate Accounts:
Equity $7,509 $9,099 $10,068 $11,712 $11,638
Fixed-income 4,219 4,165 3,602 3,924 3,987
Money market 31,347 28,391 28,664 30,485 35,247
Total Separate Accounts $43,075 $41,655 $42,334 $46,121 $50,872
Total Liquidation
Portfolios(1) $700 $1,505 $1,777 $2,083 $1,090
Total Managed Assets $409,209 $407,310 $344,002 $333,484 $338,461
Quarter Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
AVERAGE MANAGED ASSETS 2009 2008 2008 2008 2008
By Asset Class
--------------
Equity $24,219 $24,870 $35,136 $38,974 $38,471
Fixed-income 24,218 22,546 23,143 22,709 22,111
Money market 362,269 320,684 274,840 279,776 260,306
Liquidation
portfolios(1) 975 1,650 1,944 1,816 1,109
Total Avg. Assets $411,681 $369,750 $335,063 $343,275 $321,997
By Product Type
---------------
Mutual Funds:
Equity $16,240 $16,904 $24,180 $26,762 $26,696
Fixed-income 20,009 18,674 19,347 18,672 18,186
Money market 330,294 293,428 245,304 246,868 231,719
Total Avg. Fund Assets $366,543 $329,006 $288,831 $292,302 $276,601
Separate Accounts:
Equity $7,979 $7,966 $10,956 $12,212 $11,775
Fixed-income 4,209 3,872 3,796 4,037 3,925
Money market 31,975 27,256 29,536 32,908 28,587
Total Avg. Separate
Accts. $44,163 $39,094 $44,288 $49,157 $44,287
Total Avg. Liquidation
Portfolios(1) $975 $1,650 $1,944 $1,816 $1,109
Total Avg. Assets $411,681 $369,750 $335,063 $343,275 $321,997
Quarter Ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
2009 2008 2008 2008 2008
ADMINISTERED ASSETS
Period End $7,476 $8,373 $8,723 $8,886 $9,921
Average $8,236 $9,142 $8,889 $9,781 $9,694
1) Federated added liquidation portfolios as an asset category
beginning in Q1 2009. Liquidation portfolios include portfolios of
distressed fixed-income securities and liquidating collateralized
debt obligation (CDO) products. In the distressed security
category, Federated has been retained by a third party to manage
these assets through an orderly liquidation process that will
generally occur over a multi-year period. In the case of
liquidating CDOs, the CDO structure has unwound earlier than
expected due to events of default related to certain distressed
securities in the portfolio. The new category was established
because the assets and related cash flows from these portfolios are
significantly different than those of traditional separate account
mandates.
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