Federated Investors, Inc. Reports Third Quarter 2012 Earnings; Board Declares Cash Dividend Per Share of $1.75 Including $0.24 Quarterly and $1.51 Special Dividend - Equity and fixed-income assets increase $4 billion during Q3 2012 to a record $94 billion

- Assets in strategic-value dividend strategies increase $3.6 billion for YTD 2012 to $13.8 billion

PITTSBURGH, Oct. 25, 2012 /PRNewswire/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.54 for the quarter ended Sept. 30, 2012 as compared to $0.37 for the same quarter last year.  Net income was $55.8 million for Q3 2012 compared to $38.3 million for Q3 2011.  Federated's Q3 2012 financial results include the recognition of insurance proceeds, which reduced pre-tax operating expenses by $17.3 million and increased EPS by $0.11 per share, after tax. Federated reported YTD 2012 EPS of $1.33 compared to $1.09 for the same period in 2011 and net income of  $138.5 million compared to $114.0 million for the same period last year. 

Federated's total managed assets were $364.1 billion at Sept. 30, 2012, up $12.4 billion or 4 percent from $351.7 billion at Sept. 30, 2011 and up $8.2 billion or 2 percent from $355.9 billion reported at June 30, 2012.  Average managed assets for Q3 2012 were $360.9 billion, up $12.1 billion or 3 percent from $348.8 billion reported for Q3 2011 and up $0.3 billion from $360.6 billion reported for Q2 2012.  Net sales of equity and fixed-income funds and separate accounts were $1.9 billion for Q3 2012. 

"Federated continued to see client demand for our dividend-paying equity portfolios with more than $2.5 billion in net sales in those products in the first nine months of the year," said J. Christopher Donahue, president and chief executive officer.  "On the international side, Federated made significant moves to grow our global profile by hiring an executive to lead our new Asia Pacific initiative and expanding our European distribution capabilities through an agreement with Bury Street Capital, a successful European distribution firm based in London."

Federated's board of directors declared a dividend of $1.75 per share. The dividend, which will be paid from Federated's existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.24 quarterly dividend and a $1.51 special dividend.  The dividend is payable on Nov. 15, 2012 to shareholders of record as of Nov. 8, 2012.  The special dividend is expected to decrease EPS for Q4 2012 by approximately $0.04 and for full-year 2012 by approximately $0.02 due to the application of the two-class method of calculating EPS.  During Q3 2012, Federated purchased 152,244 shares of Federated class B common stock for $3.0 million.

"The payment of the November special dividend returns cash to shareholders and is a recognition that Federated's business mix of equity, fixed-income and money market strategies allows the company to continue to succeed in challenging markets," said Thomas R. Donahue, chief financial officer.

Federated's equity assets were $35.4 billion at Sept. 30, 2012, up $7.4 billion or 26 percent from $28.0 billion at Sept. 30, 2011 and up $2.2 billion or 7 percent from $33.2 billion at June 30, 2012.  Top-selling equity funds during Q3 2012 on a net basis were Federated Strategic Value Dividend Fund, Federated International Strategic Value Dividend Fund, Federated Capital Income Fund, Federated Managed Volatility Fund II and Federated Clover Small Value Fund. 


Federated's fixed-income assets were a record $51.4 billion at Sept. 30, 2012, up $8.5 billion or 20 percent from $42.9 billion at Sept. 30, 2011 and up $2.4 billion or 5 percent from $49.0 billion at June 30, 2012.  Fixed-income assets in liquidation portfolios were $7.7 billion at Sept. 30, 2012.  Fixed-income sales were driven by strong net flows into Federated Institutional High Yield Bond Fund, Federated's Capital Preservation Fund, Federated Municipal Ultrashort Fund, Federated Short-Intermediate Duration Municipal Trust and Federated Strategic Income Fund.

Money market assets in both funds and separate accounts were $269.6 billion at Sept. 30, 2012, down $2.1 billion or 1 percent from $271.7 billion at Sept. 30, 2011 and up $4.1 billion or 2 percent from $265.5 billion at June 30, 2012.  Money market mutual fund assets were $244.8 billion at Sept. 30, 2012, down $0.5 billion from $245.3 billion at Sept. 30, 2011 and up $6.2 billion or 3 percent from $238.6 billion at June 30, 2012.  Additionally, Federated announced in July that the commonwealth of Massachusetts had selected the company to manage two pools of assets with more than $9 billion in liquidity and short-term bond assets. Federated is expected to begin managing those assets in early 2013.

Financial Summary

Q3 2012 vs. Q3 2011

Revenue increased by $24.4 million or 11 percent due primarily to a decrease of $19.4 million in voluntary fee waivers related to certain money market funds in order for these funds to maintain positive or zero net yields. The reduction in fee waivers was primarily the result of improved yields available on securities held by money market funds.  In addition, revenue increased due to an increase in average fixed-income and equity assets.  See additional information about voluntary fee waivers in the table at the end of this financial summary. 

During Q3 2012, Federated derived 52 percent of its revenue from equity and fixed-income assets (31 percent from equity assets and 21 percent from fixed-income assets), 47 percent from money market assets and 1 percent from other products and services.

Operating expenses increased $1.4 million or 1 percent primarily as a result of an increase in distribution expense related primarily to reduced fee waivers and increased compensation and related expense. These increases were offset by the aforementioned recognition of insurance proceeds recorded as a reduction to professional service fees.

Q3 2012 vs. Q2 2012

Revenue increased by $6.3 million or 3 percent primarily due to one additional day in the quarter, an increase in average fixed-income and equity assets and a decrease in the aforementioned voluntary fee waivers due mainly to improved yields available on securities held by money market funds.  

Operating expenses decreased by $14.7 million or 9 percent primarily related to the aforementioned recognition of insurance proceeds.

YTD 2012 vs. YTD 2011

Revenue for the first nine months of 2012 increased by $22.2 million, or 3 percent compared to the first nine months of 2011.  The increase in revenue was primarily related to an increase in average fixed-income assets and decrease in the aforementioned voluntary fee waivers primarily as a result of improved yields available on securities held by money market funds partially offset by higher average money market fund assets.  These revenue increases were partially offset by a decrease due to a change in the mix of average equity assets. 

For the first nine months of 2012, Federated derived 52 percent of its revenue from equity and fixed-income assets (31 percent from equity assets and 21 percent from fixed-income assets), 47 percent from money market assets and 1 percent from other products and services.

Operating expenses for the first nine months of 2012 decreased by $11.6 million or 2 percent compared to the same period last year.  The decrease primarily reflects lower professional service fees due to the aforementioned recognition of insurance proceeds and nonrecurring legal expenses incurred in Q1 2011. This decrease was partially offset by increases in distribution and compensation and related expenses. 

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.

Fee waivers to maintain positive or zero net yields could vary significantly in the future as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, available yields on instruments held by the money market funds, actions by the Federal Reserve, the U.S. Department of the Treasury and other governmental entities, changes in expenses of the money market funds, changes in the mix of money market customer assets, Federated's willingness to continue the fee waivers and changes in the extent to which the impact of the waivers is shared by third parties.

 

Money Market Fund Yield Waiver Impact






(in millions)
















Quarter Ended

Change
Q3 2011 to Q3 2012


Quarter Ended

Change
Q2 2012 to Q3 2012


Nine Months Ended

Change
YTD 2011 to YTD 2012

(Decrease)/Increase

Sept. 30, 2012

Sept. 30, 2011


June 30, 2012


Sept. 30, 2012

Sept. 30, 2011

Investment advisory fees

$

(41.2)


$

(57.2)


$

16.0



$

(43.0)


$

1.8



$

(137.2)


$

(142.8)


$

5.6


Other service fees

(28.3)


(31.7)


3.4



(27.3)


(1.0)



(83.0)


(88.9)


5.9


Total Revenue

$

(69.5)


$

(88.9)


$

19.4



$

(70.3)


$

0.8



$

(220.2)


$

(231.7)


$

11.5


Distribution expense

(52.9)


(63.2)


10.3



(53.1)


0.2



(163.6)


(170.5)


6.9


Operating income

$

(16.6)


$

(25.7)


$

9.1



$

(17.2)


$

0.6



$

(56.6)


$

(61.2)


$

4.6


Noncontrolling interest

(0.3)


(2.5)


2.2



0.0


(0.3)



(0.9)


(5.5)


4.6


Pre-tax impact

$

(16.3)


$

(23.2)


$

6.9



$

(17.2)


$

0.9



$

(55.7)


$

(55.7)


$

0.0


Federated will host an earnings conference call at 9 a.m. Eastern on Oct. 26, 2012.  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.  The call may also be accessed in real time on the Internet via the About Federated section of FederatedInvestors.com.  A replay will be available after 12:30 p.m. and through Nov. 2, 2012 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering access code 401060.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $364.1 billion in assets as of Sept. 30, 2012.  With 136 funds and a variety of separately managed account options, Federated provides comprehensive investment management to approximately 4,700 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 7 percent of equity fund managers and the top 7 percent of fixed-income fund managers1.  For more information, visit FederatedInvestors.com.

1 Strategic Insight, Aug. 31, 2012.  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 adviser.

Certain statements in this press release, such as those related to the level of fee waivers incurred by the company, product demand and asset flows, growth opportunities, and expected impact of the dividend to EPS, 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 product demand and asset flows or achieve new growth opportunities, 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


(in thousands, except per share data)







Quarter Ended

% Change Q3 2011 to Q3 2012

Quarter Ended

% Change

Q2 2012

 to Q3 2012


Sept. 30, 2012

Sept. 30, 2011

June 30, 2012

Revenue






Investment advisory fees, net

$

160,306


$

139,399


15

%

$

154,367


4

%

Administrative service fees, net

55,879


54,928


2


54,986


2


Other service fees, net

21,421


19,008


13


22,007


(3)


Other, net

862


713


21


772


12


Total Revenue

238,468


214,048


11


232,132


3








Operating Expenses






Compensation and related

65,131


57,930


12


65,215


0


Distribution

64,146


54,440


18


62,328


3


Professional service fees

(7,864)


9,437


(183)


9,932


(179)


Systems and communications

6,532


5,825


12


6,773


(4)


Office and occupancy

6,108


6,202


(2)


6,119


0


Advertising and promotional

3,559


3,887


(8)


3,316


7


Travel and related

2,913


2,809


4


3,336


(13)


Intangible asset related

799


1,263


(37)


822


(3)


Other

7,111


5,244


36


5,271


35


Total Operating Expenses

148,435


147,037


1


163,112


(9)


Operating Income

90,033


67,011


34


69,020


30








Nonoperating Income (Expenses)






Investment income (loss), net

3,706


(1,271)


392


2,272


63


Debt expense

(3,534)


(3,972)


(11)


(3,690)


(4)


Other, net

(29)


(83)


(65)


(128)


(77)


Total Nonoperating Income (Expenses), net

143


(5,326)


103


(1,546)


109


Income before income taxes

90,176


61,685


46


67,474


34


Income tax provision

31,983


23,165


38


24,401


31


Net income including noncontrolling interest in subsidiaries

58,193


38,520


51


43,073


35


Less: Net income attributable to the noncontrolling interest in subsidiaries

2,420


200


1,110


2,663


(9)


Net Income

$

55,773


$

38,320


46

%

$

40,410


38

%







Amounts Attributable to Federated






Earnings Per Share1






Basic and Diluted

$

0.54


$

0.37


46

%

$

0.39


38

%

Weighted-average shares outstanding






Basic and diluted

100,417


100,684



100,347



Dividends declared per share

$

0.24


$

0.24



$

0.24















1) Unvested share-based payment awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in the computation of earnings per share under the "two-class method." As such, total net income of $2.0 million, $1.2 million and $1.5 million available to unvested restricted shares for the quarterly periods ended Sept. 30, 2012, Sept. 30, 2011 and June 30, 2012, respectively, was excluded from the computation of earnings per share.

 

Unaudited Condensed Consolidated Statements of Income



(in thousands, except per share data)





Nine Months Ended

% Change


Sept. 30, 2012

Sept. 30, 2011

Revenue




Investment advisory fees, net

$

464,020


$

448,115


4

%

Administrative service fees, net

168,157


163,527


3


Other service fees, net

66,084


65,136


1


Other, net

2,620


1,930


36


Total Revenue

700,881


678,708


3






Operating Expenses




Compensation and related

194,411


184,819


5


Distribution

188,168


176,930


6


Systems and communications

19,615


17,131


15


Office and occupancy

18,479


18,436


0


Professional service fees

12,376


44,171


(72)


Advertising and promotional

9,802


9,889


(1)


Travel and related

9,000


8,501


6


Intangible asset related

1,642


6,672


(75)


Other

17,988


16,565


9


Total Operating Expenses

471,481


483,114


(2)


Operating Income

229,400


195,594


17






Nonoperating Income (Expenses)




Investment income, net

9,325


3,721


151


Debt expense

(10,935)


(13,187)


(17)


Other, net

(195)


(192)


2


Total Nonoperating Expenses, net

(1,805)


(9,658)


(81)


Income before income taxes

227,595


185,936


22


Income tax provision

81,922


69,477


18


Net income including noncontrolling interest in subsidiaries

145,673


116,459


25


Less: Net income attributable to the noncontrolling interest in subsidiaries

7,165


2,495


187


Net Income

$

138,508


$

113,964


22

%





Amounts Attributable to Federated




Earnings Per Share1




Basic and Diluted

$

1.33


$

1.09


22

%

Weighted-average shares outstanding




Basic

100,292


100,725



Diluted

100,292


100,756



Dividends declared per share

$

0.72


$

0.72











1) Unvested share-based payment awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in the computation of earnings per share under the "two-class method." As such, total net income of $5.0 million and $3.7 million available to unvested restricted shares for the nine months ended Sept. 30, 2012 and Sept. 30, 2011, respectively, was excluded from the computation of earnings per share.

 

Unaudited Condensed Consolidated Balance Sheets



(in thousands)

Sept. 30, 2012

Dec. 31, 2011

Assets



Cash and other investments

$

367,777


$

322,317


Other current assets

46,282


44,194


Intangible assets, net and goodwill

725,268


720,926


Other long-term assets

65,659


63,419


Total Assets

$

1,204,986


$

1,150,856





Liabilities and Equity



Current liabilities

$

166,270


$

178,486


Long-term debt

286,875


318,750


Other long-term liabilities

128,362


110,437


Equity excluding treasury stock

1,393,607


1,315,664


Treasury stock

(770,128)


(772,481)


Total Liabilities and Equity

$

1,204,986


$

1,150,856