UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------------------------------
OR
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 001-14818
FEDERATED INVESTORS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1111467
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 412-288-1900
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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ______.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: As of November 3, 1999, the
Registrant had outstanding 6,000 shares of Class A Common Stock and 82,804,150
shares of Class B Common Stock.
<PAGE>
Federated Investors, Inc.
Form 10-Q
For the Three Months and Nine Months Ended
September 30, 1999
Table of Contents
PAGE NO.
Part I. Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
for the Three Months and Nine Months Ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K 18
(b) Reports on Form 8-K 18
Signatures 19
Part I, Item I. Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
FEDERATED INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited) SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -------------------
CURRENT ASSETS:
Cash and cash equivalents $ $
146,975 185,581
Securities available for sale
66,589 13,398
Receivables, net of reserve of $390 and $1,276, respectively
31,981 30,969
Accrued revenues 3,6665
Prepaid expenses
3,037 4,688
Other current assets
487 3,958
------------------ -------------------
Total current assets
254,844 242,260
------------------ -------------------
LONG-TERM ASSETS:
Customer relationships, net of accumulated amortization of $11,701
and $39,571, respectively 10,713 17,743
Goodwill, net of accumulated amortization of $15,450 and $13,762,
respectively 33,419 35,107
Other intangible assets, net of accumulated amortization of $106 and
$3,608, respectively 84 103
Deferred sales commissions, net
292,058 258,593
Property and equipment, net of accumulated depreciation of $44,557
and $42,949, respectively 31,410 21,550
Other long-term assets
17,319 4,664
------------------ -------------------
Total long-term assets
385,003 337,760
------------------ -------------------
Total assets $ $
639,847 580,020
================== ===================
CURRENT LIABILITIES:
Cash overdraft $ $
6,004 5,932
Current portion of long-term debt - recourse
254 239
Accrued expenses
51,966 51,096
Accounts payable
25,951 24,864
Income taxes payable
1,066 2,522
Other current liabilities
2,181 1,675
------------------ -------------------
Total current liabilities
87,422 86,328
------------------ -------------------
LONG-TERM LIABILITIES:
Long-term debt - recourse
98,505 98,698
Long-term debt - nonrecourse
303,590 272,850
Deferred tax liability, net
33,065 29,949
Other long-term liabilities
6,735 2,818
------------------ -------------------
Total long-term liabilities
441,895 404,315
------------------ -------------------
Total liabilities
529,317 490,643
------------------ -------------------
Minority interest
453 671
------------------ -------------------
SHAREHOLDERS' EQUITY :
Common Stock :
Class A, no par value, 20,000 shares
authorized, 6,000 shares issued and outstanding
189 189
Class B, no par value, 900,000,000 shares
authorized, 86,337,000 shares issued
75,202 75,090
Retained earnings
92,514 14,556
Treasury stock, at cost, 3,290,950 and 138,750 shares Class B Common
Stock, respectively (56,393) (23)
Employee restricted stock plan
(1,201) (1,512)
Accumulated other comprehensive income
(234) 406
------------------ -------------------
Total shareholders' equity
110,077 88,706
------------------ -------------------
Total liabilities, minority interest, and $ $
shareholders' equity 639,847 580,020
================== ===================
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED NINE MONTHS ENDED
(dollars in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------
(unaudited) 1999 1998 1999 1998
--------- -------- ---------- -----------
REVENUE:
Investment advisory fees, net-Federated funds $ $ $ $
79,139 69,621 228,255 196,389
Investment advisory fees, net-other 8,147 5,485
3,025 1,834
Administrative service fees, net-Federated funds 60,150 53,682
20,178 18,723
Administrative service fees, net-other 17,080 19,230
6,025 6,347
Other service fees, net-Federated funds 91,381 73,577
31,632 25,934
Other service fees, net-other 17,109 17,741
6,032 5,749
Commission income 3,190 3,140
1,112 998
Interest and dividends 9,964 6,079
3,475 2,520
Gain (loss) on sale of securities available for 851 (169)
sale 83 (210)
Other income 7,516 6,723
1,496 1,552
--------- --------
---------- -----------
Total revenue
152,197 133,068 443,643 381,877
--------- -------- ---------- -----------
OPERATING EXPENSES:
Compensation and related 116,748 111,664
38,803 36,863
Advertising and promotional 40,177 33,619
14,594 12,680
Systems and communications 20,800 19,423
6,991 6,331
Office and occupancy 19,002 20,588
6,304 6,665
Professional service fees 18,463 14,730
5,650 6,023
Travel and related 10,634 9,841
3,485 3,155
Amortization of deferred sales commissions 34,341 22,926
12,456 8,219
Amortization of intangible assets 8,737 11,331
1,668 3,777
Other 4,372 7,194
2,395 1,863
--------- -------- ---------- -----------
Total operating expenses
92,346 85,576 273,274 251,316
--------- -------- ---------- -----------
Operating income
59,851 47,492 170,369 130,561
--------- -------- ---------- -----------
NONOPERATING EXPENSES:
Debt expense - recourse 6,643 6,628
2,212 2,210
Debt expense - nonrecourse 17,012 13,462
5,881 4,967
--------- --------
---------- -----------
Total nonoperating expenses
8,093 7,177 23,655 20,090
--------- -------- ---------- -----------
Income before minority interest and income taxes
51,758 40,315 146,714 110,471
Minority interest 7,628 6,485
2,588 2,277
--------- -------- ---------- -----------
Income before income taxes
49,170 38,038 139,086 103,986
Income tax provision 50,684 38,467
18,006 14,428
--------- -------- ---------- -----------
Net income $ $ $ $
31,164 23,610 88,402 65,519
========= ======== ========== ===========
EARNINGS PER SHARE:
Basic $ 0.38 $ 0.28 $ 1.05 $ 0.78
========= ======== ========== ===========
Diluted $ 0.36 $ 0.27 $ 1.02 $ 0.76
========= ======== ========== ===========
Cash dividends per share $ 0.0420 $ 0.0380 $ 0.1220 $ 0.0968
========= ======== ========== ===========
</TABLE>
PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE ONE-FOR-ONE AND THE
ONE-FOR-TWO STOCK DIVIDENDS PAID IN 1998.
(THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED
(dollars in thousands) SEPTEMBER 30,
-------------------------------
(unaudited) 1999 1998
-------------- ----------------
OPERATING ACTIVITIES:
Net $ 88,402 65,519
income
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Amortization of intangible assets 8,737 11,331
Depreciation and other amortization 5,136 5,978
Amortization of deferred sales commissions 34,341 22,926
Minority interest 7,628 6,485
Gain on disposal of property and equipment (2,973) (59)
Amortization of employee restricted stock and other 423 804
compensation plans
Provision (benefit) for deferred income taxes 3,418 (776)
Net realized (gain) loss on sale of securities available (851) 169
for sale
Deferred sales commissions paid (96,104) (116,797)
Contingent deferred sales charges received 28,298 16,730
Other 12 0
Other changes in assets and liabilities:
Increase in receivables, net (1,012) (2,990)
(Increase) decrease in accrued revenues (2,109) 585
Decrease in prepaid expenses and other current assets 5,122 312
(Increase) decrease in other long-term assets (1,190) 355
Increase in accounts payable and accrued expenses 1,957 20,008
(Decrease) increase in income taxes payable (1,456) 12,226
Increase (decrease) in other current liabilities 578 (201)
Increase (decrease) in other long-term liabilities 4,416 (91)
-------------- ----------------
Net cash provided by operating activities 82,773 42,514
-------------- ----------------
INVESTING ACTIVITIES:
Additions to property and equipment (15,603) (3,618)
Proceeds from disposal of property and equipment 4,007 0
Cash paid for acquisitions 0 (456)
Investment in joint venture (1,398) 0
Purchases of securities available for sale (88,743) (6,155)
Proceeds from redemptions of securities available for sale 24,459 8,992
-------------- ----------------
Net cash used by investing activities (77,278) (1,237)
-------------- ----------------
FINANCING ACTIVITIES:
Distributions to minority interest (7,847) (6,475)
Dividends paid (10,446) (8,201)
Proceeds from issuance of common stock/options 0 47,689
Purchase of treasury stock (56,370) (8)
Proceeds from new borrowings - nonrecourse 93,309 111,026
Payments on debt - recourse (178) (208)
Payments on debt - nonrecourse (62,569) (39,977)
-------------- ----------------
Net cash (used) provided by financing activities (44,101) 103,846
-------------- ----------------
Net (decrease) increase in cash and cash equivalents (38,606) 145,123
Cash and cash equivalents, beginning of period 185,581 22,912
-------------- ----------------
Cash and cash equivalents, end of period $ 146,975 168,035 $
============== ================
</TABLE>
(THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Summary of Significant Accounting Policies
(a) BASIS OF PRESENTATION
The interim consolidated financial statements of Federated Investors,
Inc. (Federated) included herein have been prepared in accordance with
generally accepted accounting principles. In the opinion of management,
the financial statements reflect all adjustments which are of a normal
recurring nature and necessary for a fair statement of the results for
the interim periods presented.
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results will differ
from such estimates and such differences may be material to the
financial statements.
These financial statements should be read in conjunction with
Federated's Annual Report on Form 10-K for the year ended December 31,
1998. Certain items previously reported have been reclassified to
conform with the current year's presentation.
(b) RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), requires that
all derivatives, including hedges, be recorded at fair value and that
all changes in the fair value or cash flow of both the hedge and the
hedged item be recognized in earnings in the same period.
SFAS 133 is effective for years beginning after June 15, 2000. Federated
intends to adopt SFAS 133 effective
January 1, 2001, and does not expect this adoption to have a significant
effect on earnings or the financial position of Federated based on the current
minimal use of derivatives.
(2) Securitization of B Share Assets and Nonrecourse Debt
Federated sells the rights to the future revenue streams associated
with the 12b-1fees, shareholder service fees and contingent deferred
sales charges (CDSCs) of the Class B Shares of various mutual funds it
manages on a continuous basis. For accounting purposes, transactions
executed under the agreement are reflected as financings and nonrecourse
debt has been recorded at interest rates based on current market
conditions at the time of the financings.
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(2) Securitization of B Share Assets and Nonrecourse Debt, Continued
The following tables summarize the changes in both the deferred sales
commissions and nonrecourse debt related to this agreement:
Nine Months Ended
September 30, 1999
--------------------
(IN THOUSANDS)
Deferred B Share Sales Commissions:
Financed balance at December 31, $ 249,580
1998
B Share sales commissions financed 91,081
CDSCs collected (27,298)
Amortization (31,190)
--------------------
Financed balance at September 30, $ 282,173
1999
====================
Nonrecourse Debt:
Balance at December 31, 1998 $ 272,850
Additional financings 93,309
Payments of nonrecourse debt (62,569)
--------------------
Balance at September 30, 1999 $ 303,590
====================
<TABLE>
<CAPTION>
Below is the activity of the nonrecourse debt tranches:
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Interest Balance Additional Balance
Tranche Rate 12/31/98 Financings 9/30/99
Payments
- ------------------------------- ------------- ----------- ---------- ---------- ----------
1997-1 Class 7.44% $ 74,251 $ $ 16,293 $ 57,958
A....................................................... -
1997-1 Class 9.80% 9,700 9,700
B.................................................. - -
Financings 10/97 through 6.68% - 188,899 93,309 46,276 235,932
9/99............................. 7.60%
=========== ========== ========== ==========
$ 272,850 $ 93,309 $ 62,569 $ 303,590
=========== ========== ========== ==========
</TABLE>
(3) Long-Term Debt - Recourse
Federated's long-term debt - recourse consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest September 30, December 31,
Rate 1999 1998
----------- -------------- -------------
(IN THOUSANDS)
Recourse Debt:
Senior Secured Note Purchase 7.96% $ 98,000 $ 98,000
Agreement
Capitalized leases 7.1%-8.5% 759 937
-------------- -------------
Total recourse debt 98,759 98,937
Less current portion 254 239
--------------
============== =============
Total long-term debt - recourse $ 98,505 $ 98,698
============== =============
</TABLE>
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(4) Common Stock
(a) Dividends
Federated's Senior Secured Credit Agreement allows dividends in an
amount not to exceed $20 million plus 50% of any net income (less 100%
of any loss) of Federated less any stock repurchase payments during the
period from January 1, 1998 to and including the date of payment. The
Senior Secured Note Purchase Agreement allows dividends to an amount of
$5 million plus 50% of any net income (less 100% of any loss) of
Federated during the period from January 1, 1996 to and including the
date of payment. Cash dividends of $0.038, $0.042, and $0.042 per share
or approximately $3.3 million, $3.6 million, and $3.6 million were paid
in the first, second, and third quarters of 1999, respectively, to
holders of common shares. Additionally, on October 19, 1999, the board
of directors declared a dividend of $0.042 per share to be paid on
November 15, 1999, to shareholders of record as of November 1, 1999.
After the payment of the dividend on November 15, 1999, and stock
repurchase payments through November 3, 1999, approximately $26.0
million is available to pay dividends under the more restrictive of the
two debt covenant limitations.
(b) Employee Stock Purchase Plan
In July 1998, Federated established an Employee Stock Purchase Plan
which allows employees to purchase a maximum of 500,000 shares of Class
B common stock. Employees may contribute up to 10% of their salary to
purchase shares of Federated's Class B common stock on a quarterly basis
at the market price. The shares under the plan may be newly issued
shares, treasury shares or shares purchased on the open market. As of
September 30, 1999, 12,636 shares have been purchased by employees in
this plan.
(c) Stock Repurchase Program
On January 26, 1999, the board of directors approved a share
repurchase program authorizing Federated to purchase up to $20.0 million
of Federated Class B common stock over the next 12 months in open market
transactions. On July 20, 1999, a second share repurchase program was
approved by the board of directors authorizing Federated to purchase an
additional five million shares of Federated Class B common stock in open
market and private transactions over the next 12 months. The programs
authorize executive management to determine the timing and the amount of
shares for each purchase. The stock will be held in treasury for
employee benefit plans, potential acquisitions and other corporate
activities. As of September 30, 1999, Federated had purchased 3,107,200
shares of Class B common stock for approximately $56.4 million. Of this
amount, Federated has expended the total allowable amount under the
first program of $20.0 million with the purchase of 1,184,653 shares of
Class B common stock and has repurchased an additional 1,922,547 shares
of Class B common stock for $36.4 million under the second program. From
October 1, 1999, to November 3, 1999, an additional 151,900 shares of
Class B common stock have been repurchased under the second program for
$2.5 million.
<PAGE>
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(5) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income $ 31,164 $ 23,610 $ 88,402 $ 65,519
========= ========= ========= =========
Denominator:
Basic weighted-average shares outstanding 83,069 85,183 84,156 83,850
Dilutive potential shares from stock-based 2,573 2,512 2,558 2,380
compensation
--------- --------- --------- ---------
Diluted weighted-average shares outstanding 85,642 87,695 86,714 86,230
========= ========= ========= =========
Basic earnings per share $ 0.38 $ 0.28 $ 1.05 $ 0.78
========= ========= ========= =========
Diluted earnings per share $ 0.36 $ 0.27 $ 1.02 $ 0.76
========= ========= ========= =========
</TABLE>
(6) Comprehensive Income
Comprehensive income was $31.2 million and $23.7 million for the
three-month periods ended
September 30, 1999 and 1998, respectively, and $87.8 million and $65.6
million for the nine-month periods ended September 30, 1999 and 1998,
respectively.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
<CAPTION>
HIGHLIGHTS
SELECTED OPERATING DATA Three Months Ended Nine Months Ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE September 30, September 30,
DATA)
<S> <C> <C> <C> <C>
--------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
Revenue $ 152,197 $ 133,068 $ 443,643 $ 381,877
Operating expenses 92,346 85,576 273,274 251,316
----------- ----------- ---------- ----------
Operating income 59,851 47,492 170,369 130,561
Nonoperating expenses and minority interest 10,681 9,454 31,283 26,575
----------- ----------- ---------- ----------
Income before income taxes 49,170 38,038 139,086 103,986
Income tax provision 18,006 14,428 50,684 38,467
=========== =========== ========== ==========
Net income $ 31,164 $ 23,610 $ 88,402 $ 65,519
=========== =========== ========== ==========
Operating margin percentage 39.3% 35.7% 38.4% 34.2%
Earnings per share - basic $ 0.38 $ 0.28 $ 1.05 $ 0.78
Earnings per share -diluted $ 0.36 $ 0.27 $ 1.02 $ 0.76
</TABLE>
<TABLE>
<CAPTION>
MANAGED AND ADMINISTERED ASSETS AT PERIOD END
(IN MILLIONS) September 30, %
---------------------------
1999 1998 Change
----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Money market funds $ 77,006 $ 71,228 8.1%
Equity funds 17,289 13,267 30.3%
Fixed income funds 16,414 16,089 2.0%
Separate accounts 4,504 2,323 93.9%
=========== ===========
Total Managed Assets $ 115,213 $ 102,907 12.0%
=========== ===========
Total Administered Assets $ 37,445 $ 54,574 -31.4%
=========== ===========
AVERAGE MANAGED AND ADMINISTERED ASSETS Three Months Ended Nine Months Ended
(IN MILLIONS) September 30, % September 30, %
--------------------------- --------------------------
1999 1998 Change 1999 1998 Change
----------- ----------- -------- ---------- ---------- --------
Money market funds $ 77,748 $ 69,864 11.3% $ 78,526 $ 66,711 17.7%
Equity funds 17,965 13,918 29.1% 17,052 13,560 25.8%
Fixed income funds 16,669 15,931 4.6% 16,806 15,708 7.0%
Separate accounts 4,511 2,300 96.1% 3,975 2,309 72.2%
=========== =========== ========== ==========
Total average Managed Assets $ 116,893 $ 102,013 14.6% $ 116,359 $ 98,288 18.4%
=========== =========== ========== ==========
Total average Administered $ 36,824 $ 54,772 -32.8% $ 33,616 $ 53,043 -36.6%
Assets
=========== =========== ========== ==========
</TABLE>
COMPONENTS OF CHANGES IN EQUITY AND FIXED INCOME FUND MANAGED
ASSETS
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
--------------------------- ---------------------------
EQUITY 1999 1998 1999 1998
- -------
FUNDS
---------- ----------- ----------- ----------
Beginning assets $ 18,199 $ 14,561 $ 15,503 $ 11,710
---------- ----------- ----------- ----------
Sales 1,504 1,193 4,408 3,986
Redemptions (1,275) (932) (3,280) (2,274)
---------- ----------- ----------- ----------
229 261 1,128 1,712
Net sales
Net 17 0 96 (18)
exchanges
Other* (1,156) (1,555) 562 (137)
========== =========== =========== ==========
Ending $ 17,289 $ 13,267 $ 17,289 $ 13,267
assets
========== =========== =========== ==========
FIXED INCOME FUNDS
Beginning assets $ 16,725 $ 15,816 $ 16,437 $ 15,067
---------- ----------- ----------- ----------
Sales 1,282 1,525 4,703 4,506
Redemptions (1,456) (1,265) (4,411) (3,466)
---------- ----------- ----------- ----------
Net (174) 260 292 1,040
(redemptions)/sales
Net 39 14 136 (243)
exchanges
Other* (176) (1) (451) 225
========== =========== =========== ==========
Ending $ 16,414 $ 16,089 $ 16,414 $ 16,089
assets
========== =========== =========== ==========
</TABLE>
* INCLUDES CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY THE FUNDS,
REINVESTED DIVIDENDS AND DISTRIBUTIONS, AND NET INVESTMENT INCOME.
In preparing the discussion and analysis below, Federated has presumed
that the readers of the interim financial information have read or have
access to Federated's discussion and analysis of financial condition and
results of operations contained in Federated's Annual Report on Form
10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME. Net income for the three months ended September 30, 1999
was $31.2 million or $0.36 per diluted share as compared to $23.6
million or $0.27 per diluted share for the same period in 1998. This
increase primarily reflects increased revenue generated from higher
levels of average managed assets.
REVENUE. Total revenue increased $19.1 million, or 14.4%, to $152.2
million for the third quarter 1999 from $133.1 million for the same
period in 1998. Revenue from managed assets was $135.1 million for the
third quarter 1999, an increase of $18.0 million, or 15.3%, over the
third quarter 1998, due principally to the 14.6% increase in average
managed assets. Revenue from managed assets increased at a higher rate
than the rate of average managed asset growth due to the composition of
assets. The increase in average managed assets from $102.0 billion for
the third quarter 1998 to $116.9 billion for the third quarter 1999
included increases of 29.1%, 11.3%, 4.6%, and 96.1% in equity funds,
money market funds, fixed income funds, and separate accounts,
respectively, with equity funds earning the highest fees per invested
dollar. The large percentage increase in separate
<PAGE>
accounts is predominantly due to the assets associated with the newly
formed joint venture in Germany and the collateralized bond obligation
(CBO) transaction which Federated entered into in the second quarter
1999. Interest and dividends increased by $1.0 million or 37.9% over the
prior year third quarter as a result of higher levels of invested cash
resulting from cash generated from normal business activities.
OPERATING EXPENSES. Total operating expenses were $92.3 million for the
third quarter 1999 as compared to $85.6 million for the third quarter
1998, an increase of $6.7 million or 7.9%. More than 60% of the increase
is attributable to increases in variable expenses due to continued sales
and the resultant growth in assets under management. As a result,
expense growth has been contained at levels substantially below the
14.4% increase in revenue and, accordingly, operating margins have
improved to 39.3% for the quarter ended September 30, 1999 from 35.7%
for the same period in 1998.
Compensation and related expenses were $38.8 million for the third
quarter 1999 as compared to $36.9 million for the same period in 1998.
This increase of $1.9 million or 5.3% is due principally to salary
increases for employees over the prior year and resulting increases in
payroll taxes.
Advertising and promotional expenses were $14.6 million for the third
quarter 1999 as compared to $12.7 million for the same period in 1998.
This increase of $1.9 million or 15.1% reflects higher levels of
marketing allowances being paid to brokers and bank clients for
retailing efforts of marketing funds.
Systems and communications expenses were $7.0 million for the third
quarter 1999 as compared to $6.3 million for the same period in 1998.
This increase of $0.7 million or 10.4% is largely attributable to
increased costs to third-party system vendors in 1999.
Amortization of deferred sales commissions was $12.5 million for the
third quarter 1999 as compared to $8.2 million for the same period in
1998. This increase of $4.3 million or 51.5% is due to higher levels of
deferred sales commissions as a result of the continued sale of shares
of funds which require Federated to advance commissions to the broker /
dealers.
Amortization of intangible assets was $1.7 million for the third
quarter 1999 as compared to $3.8 million for the same period in 1998.
This decrease of $2.1 million or 55.8% is the result of certain
intangible assets reaching the end of their amortization schedules in
the second quarter 1999.
Other expenses were $2.4 million for the third quarter 1999 as compared
to $1.9 million for the third quarter 1998. This increase of $0.5
million or 28.6% is predominantly attributable to the reduction of bad
debt expense in the third quarter of 1998 as a result of improved
collection of accounts receivable.
NONOPERATING EXPENSES. Nonoperating expenses were $8.1 million for the
third quarter 1999 as compared to $7.2 million for the same period of
1998. This increase of $0.9 million or 12.8% reflects an increase in
interest expense recognized relative to the higher level of nonrecourse
debt incurred as a result of the continued sales of certain B Share
related future cash flows accounted for as financings.
INCOME TAXES. The income tax provision for the third quarter 1999 was
$18.0 million as compared to $14.4 million for the third quarter 1998.
This increase of $3.6 million or 24.8% is due primarily to the increase
in the level of income before income taxes from $38.0 million for the
third quarter 1998 to $49.2 million for the third quarter 1999, an
increase of $11.2 million or 29.3%. The effective tax rate for the third
quarter 1999 and 1998 was 36.6% and 37.9%, respectively.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME for the first nine months of 1999 was $88.4 million or $1.02
per diluted share compared with net income of $65.5 million or $0.76 per
diluted share for the same period in 1998. The increase primarily
reflects increased revenues generated from higher levels of average
managed assets and a non-recurring $1.9 million after-tax gain recorded
on the 1999 sale of certain non-earning assets. Excluding the effect of
this gain, Federated would have realized net income of $86.5 million, or
$1.00 per diluted share, for the first nine months of 1999.
REVENUE. Total revenue increased by $61.7 million or 16.2% to $443.6
million in the first nine months of 1999 from $381.9 million in the
first nine months of 1998. Approximately $58.9 million or 95.3% of the
increase in total revenue is due to increased average managed assets.
Average managed assets increased $18.1 billion or 18.4% from $98.3
billion for the first nine months of 1998 to $116.4 billion for the same
period in 1999, including increases of 25.8%, 17.7%, 7.0%, and 72.2% in
equity funds, money market funds, fixed income funds, and separate
accounts, respectively. The large percentage increase in separate
accounts is predominantly due to the assets associated with the newly
formed joint venture in Germany and the CBO transaction which Federated
entered into in 1999. Service related revenues from sources other than
managed assets decreased by approximately $2.8 million due primarily to
a decrease in average administered assets. Average administered assets
decreased $19.4 billion or 36.6% from $53.0 billion for the first nine
months of 1998 to $33.6 billion for the same period in 1999, resulting
from the termination of service contracts in the fourth quarter 1998.
Interest and dividends increased by $3.9 million as a result of higher
levels of invested cash from cash generated from normal business
activities and the net proceeds from the initial public offering. Other
income improved $0.8 million and in the first nine months of 1999
included a non-recurring $3.0 million gain from the sale of certain
non-earning assets while in the first nine months of 1998 included $2.5
million of income from a servicing contract buyout of a bank-sponsored
mutual fund complex.
OPERATING EXPENSES. Total operating expenses increased to $273.3
million for the nine month period ended September 30, 1999 from $251.3
million for the same period in 1998, an increase of $22.0 million or
8.7%. More than 50% of the increase is attributable to increases in
variable expenses due to continued sales and the resultant growth in
assets under management. As a result, expense growth has been contained
at levels substantially below the 16.2% increase in revenue and,
accordingly, operating margins have improved to 38.4% for the first nine
months of 1999 from 34.2% for the same period in 1998.
Compensation and related expenses were $116.7 million for the first
nine months of 1999 as compared to $111.7 million for the same period in
1998. This increase of $5.0 million or 4.6% is mainly attributable to an
increase in employee salaries over the prior year and resultant
increases in payroll taxes.
Advertising and promotional expenses were $40.2 million for the first
nine months of 1999 as compared to $33.6 million for the same period in
1998. This increase of $6.6 million or 19.5% is primarily the result of
higher levels of marketing allowances being paid to brokers and bank
clients for retailing efforts of marketing funds.
Systems and communications expenses were $20.8 million for the first
nine months of 1999 as compared to $19.4 million for the same period in
1998. This increase of $1.4 million or 7.1% is primarily due to new
computer hardware leasing agreements and increased costs to third-party
system vendors in 1999.
Office and occupancy expenses were $19.0 million for the first nine
months of 1999 as compared to $20.6 million for the first nine months of
1998. This decrease of $1.6 million or 7.7% is primarily attributable to
reduced rent expense for leased office space as a result of the
consolidation of certain servicing functions and the reduction in leased
office space in late 1998.
Professional service fees expenses were $18.5 million for the first
nine months of 1999 as compared to $14.7 million for the same period in
1998. The increase of $3.8 million or 25.3% is largely the result of
increased service fees related to subcontracted portfolio accounting
services, as well as increased legal and consulting fees related to the
German joint venture, Year 2000, and other system related projects.
Amortization of deferred sales commissions was $34.3 million for the
first nine months of 1999 as compared to $22.9 million for the same
period in 1998. This increase of $11.4 million or 49.8% is due to higher
levels of deferred sales commissions as a result of the continued sale
of shares of funds which require Federated to advance commissions to the
broker / dealers.
Amortization of intangible assets was $8.7 million for the first nine
months of 1999 as compared to $11.3 million for the same period in 1998.
This decrease of $2.6 million or 22.9% is the result of certain
intangible assets reaching the end of their amortization schedules in
the second quarter 1999.
Other expenses were $4.4 million for the first nine months of 1999 as
compared to $7.2 million for the first nine months of 1998. This
decrease of $2.8 million or 39.2% is primarily attributable to the
rebate of certain non-income related taxes and a reduction in processing
errors.
NONOPERATING EXPENSES. Nonoperating expenses were $23.7 million for the
first nine months of 1999 as compared to $20.1 million for the same
period in 1998. This increase of $3.6 million or 17.7% is primarily due
to increased interest expense attributable to higher average nonrecourse
debt levels incurred for the securitization of certain B Share fund
assets.
MINORITY INTEREST. The minority interest increased to $7.6 million for
the first nine months of 1999 from $6.5 million for the same period in
1998 as a result of higher net income for the subsidiary for which
Federated acts as the general partner with a majority interest of 50.5%.
The increase in income is attributable to higher average managed assets
of the funds advised by the subsidiary.
INCOME TAXES. The income tax provision for the nine month period ended
September 30, 1999 was $50.7 million as compared to $38.5 million for
the same period in 1998. This increase of $12.2 million or 31.8% is due
primarily to the 33.8% increase in the level of income before income
taxes from $104.0 million for the nine months ended September 30, 1998
to $139.1 million for the nine months ended September 30, 1999. The
effective tax rate for the nine month periods ended September 30, 1999
and 1998, were 36.4% and 37.0%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. Cash provided by operating activities totaled $82.8 million
for the first nine months of 1999 as compared to $42.5 million for the
first nine months of 1998. The increase is largely attributable to
increased profitability. Cash flows from operating activities for the
first nine months of 1999 were primarily utilized for purchases of
securities available for sale, the purchase of treasury stock, purchases
of property and equipment, dividend payments as well as distributions to
the minority interest. Purchases of securities available for sale in the
first nine months of 1999 included Federated's $11.0 million investment
in subordinated notes of the CBO. Federated purchased the subordinated
notes, which are classified as "Other long-term assets" in the
Consolidated Balance Sheets, in the second quarter of 1999.
DEFERRED SALES COMMISSIONS AND NONRECOURSE DEBT. Certain subsidiaries
of Federated pay commissions to broker / dealers (deferred sales
commissions) to promote investments in certain mutual funds. For mutual
fund shares sold under such marketing programs, Federated retains
certain distribution and servicing fees from the mutual fund over the
outstanding life of such shares, subject to certain limitations. These
fees consist of 12b-1 fees, shareholder service fees and contingent
deferred sales charges (CDSCs). Both 12b-1 and shareholder service fees
are calculated as a percentage of average assets associated with the
related classes of shares. If shares are redeemed before the end of a
specified holding period as outlined in the related mutual fund
prospectus, the mutual fund shareholder is normally required to pay
Federated a CDSC based on a percentage of the lower of the current
market value or the original cost basis of the redeemed shares. Such
percentage diminishes over a recovery schedule not to exceed six years.
For non-B Share-related sales, the up-front commissions Federated pays
to broker / dealers are capitalized, recorded as deferred sales
commissions and amortized over the estimated benefit period not to
exceed CDSC periods. The 12b-1 and shareholder service fees are
recognized in the statements of income over the life of the mutual fund
class share, subject to certain limitations. Any CDSCs collected are
used to reduce the deferred sales commission asset.
For B Share-related sales, Federated has agreed to sell, on a regular
basis over a three-year contract period terminating in the fourth
quarter of 2000, the rights associated with certain of the future fee
revenue associated with the deferred sales commissions. For accounting
purposes, the sales of the future cash flow rights are accounted for as
financings and nonrecourse debt is recorded.
<PAGE>
The following table demonstrates the effects of the B Share financing
program on both the Consolidated Balance Sheets at September 30, 1999
and December 31, 1998, and the Consolidated Statements of Income for the
three and nine-month periods ended September 30, 1999 and 1998:
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------
SEPTEMBER 30 AND DECEMBER 31, RESPECTIVELY
Assets
Deferred sales commissions, net* $ 282,173 $ 249,580
Receivables 7,394 6,314
Other long-term assets 2,248 2,798
Liabilities
Long-term debt - nonrecourse $ 303,590 $ 272,850
Accounts payable 5,271 3,951
THREE MONTHS ENDED SEPTEMBER 30
Revenues
Other service fees, net - Federated $ 18,591 $ 13,697
funds
Expenses
Amortization of deferred sales $ 11,272 $ 7,370
commissions
Debt expense - nonrecourse 5,881 4,967
Other expenses 147 172
NINE MONTHS ENDED SEPTEMBER 30
Revenues
Other service fees, net - Federated $ 52,735 $ 37,761
funds
Expenses
Amortization of deferred sales $ 31,189 $ 20,679
commissions
Debt expense - nonrecourse 17,012 13,462
Other expenses 449 598
* EXCLUDES DEFERRED SALES COMMISSIONS RELATED TO B SHARE REVENUE STREAMS WHICH
HAVE NOT BEEN FINANCED AS OF THE END OF THE PERIOD DUE TO THE TIMING OF THE SALE
OF THE REVENUE STREAMS TO THE THIRD PARTY.
Due to the nonrecourse nature of this financing arrangement, the $17.0
million excess of B Share-related liabilities over the related assets at
September 30, 1999, will be recognized in income over the remaining life
of the B Share cash flows.
CAPITAL EXPENDITURES. Capital expenditures totaled $1.6 million and
$15.6 million for the third quarter and first nine months of 1999,
respectively, which excludes Year 2000-related project costs described
below.
DIVIDENDS. Federated's board of directors adopted a policy in 1998 to
declare and pay cash dividends on a quarterly basis. A dividend of
$0.042 per share was paid in the third quarter of 1999. On October 19,
1999, Federated's board of directors declared a dividend of $0.042 per
share to be paid on November 15, 1999 to registered shareholders as of
November 1, 1999. After the payment of the dividend on November 15,
1999, and stock repurchase payments through November 3, 1999, given
current debt covenants, Federated has the ability to pay dividends of
approximately $26.0 million.
DEBT FACILITIES. Federated has the following recourse debt facilities:
Senior Secured Credit Agreement and Senior Secured Note Purchase Agreement.
SENIOR SECURED CREDIT AGREEMENT: At September 30, 1999, the outstanding
balance under the Senior Secured Credit Agreement was zero with an
amount available to borrow of $150.0 million. The Senior Secured Credit
Agreement contains various financial and other covenants. Federated was
in compliance with all debt covenants at September 30, 1999.
SENIOR SECURED NOTE PURCHASE AGREEMENT: The Senior Secured Note
Purchase Agreement debt totaled $98.0 million as of September 30, 1999.
The notes are due in seven annual $14.0 million installments beginning
September 27, 2000, and maturing September 27, 2006. Federated was in
compliance with all debt covenants at September 30, 1999.
CAPITALIZED LEASE OBLIGATIONS. At September 30, 1999, Federated had
capitalized lease obligations totaling $0.8 million related to certain
telephone equipment. The scheduled principal payments approximate $0.2
million per year for 1999 through 2002.
SHAREHOLDERS' EQUITY. In May 1998, Federated Investors was merged with
and into Federated Investors, Inc., its wholly owned subsidiary. All
outstanding Class A and Class B Common Shares of Federated Investors
were exchanged for an equal number of shares of no par Class A and Class
B Common Stock of Federated Investors, Inc., respectively, with the same
proportionate ownership and substantially similar rights. All treasury
stock of Federated Investors was retired, and additional paid-in capital
was transferred to the no par Class A and Class B Common Stock of
Federated Investors, Inc. based on their relative proportionate values
immediately prior to the merger.
Also in May 1998, Federated issued an additional 2,610,000 shares of
Class B Common Stock in an initial public offering for net proceeds of
approximately $46.2 million in cash.
FUTURE CASH REQUIREMENTS. Management expects that the principal needs
for cash will be to repurchase company stock, pay shareholder dividends,
advance sales commissions, service debt and fund strategic business
acquisitions. Management believes that Federated's existing liquid
assets, together with the expected continuing cash flow from operations,
its borrowing capacity under current credit facilities, its B Share
financing arrangement and its ability to issue stock will be sufficient
to meet its present and reasonably foreseeable cash needs.
YEAR 2000 READINESS DISCLOSURE. Many existing information technology
(IT) products and systems and non-IT products and systems containing
embedded processor technology were originally programmed to represent
any date by using six digits (e.g., 12/31/99), as opposed to eight
digits (e.g., 12/31/1999). Accordingly, such products and systems may
experience miscalculations, malfunctions or disruptions when attempting
to process information containing dates that fall after December 31,
1999 or when attempting to recognize the year 2000 as a leap year. These
potential problems are collectively referred to as the "Year 2000," or
"Y2K" problem. Also, the occurrence of such problems may take place
before the year 2000 if a computer system utilizes future dates during
its processing.
STATE OF READINESS: Computer processing is critical to Federated's
business operations, and the Y2K issue poses a significant potential
risk to operations. Therefore, Federated has established an
enterprise-wide project to address this issue. The project includes four
phases: inventory / assessment, which includes the identification of all
components of Federated's computing environment and the assessment of
Y2K issues for these components; remediation of the Y2K issues
identified in the inventory / assessment phase; testing to ensure that
remediation was successful; and implementation of the modified systems.
The project scope has been divided into four segments which comprise
Federated's computing environment as follows:
o systems developed internally by Federated's IT division - this constitutes the
majority of Federated's Y2K efforts; o mission-critical processing provided by
the Federated mutual funds' service providers;
o other critical aspects of systems and operations within the business
units, including both commercially available computer applications
and the progress of key business partners; and
o embedded systems - for Federated's operations, embedded systems mainly
consist of building systems and office equipment.
As of September 30, 1999, Federated has completed all four phases
identified above for all internally supported applications. In addition,
the testing phase has consisted of several levels of testing, as
appropriate for each application. Test levels have included: tests of
individual system components, overall system testing, and tests of
interfaces between systems. Testing was conducted using year 2000 dates
in a dedicated, Y2K compliant environment.
Work to be completed during the fourth quarter includes finalizing the
upgrade or retirement of certain system infrastructure components and
continuing to apply vendor-provided product upgrades, as they become
available. Management is closely tracking our progress towards
completion of the remaining work.
Certain mission-critical processing is performed for Federated's mutual
funds by outside service providers, including the transfer agency,
portfolio accounting, and custody functions. Federated has identified
these service providers, monitored the progress of these companies in
addressing Y2K issues via progress reports and meetings, and worked with
these service providers to test their systems, where appropriate. As of
September 30, 1999, the critical service providers have reported
completion of renovation and testing for their critical systems.
Further, Federated has completed Y2K acceptance testing and interface
testing with these firms.
For business unit operations, Y2K-related upgrades for vendor-provided
software are essentially complete. Federated has also received Y2K
readiness assurances from critical business partners and the property
managers for Federated's facilities.
Additionally, Federated participated in the "industry-wide testing"
coordinated by the Securities Industry Association. This testing was
conducted to ensure that major broker / dealers, exchanges, clearing
houses, and depositories will be able to communicate properly in the
year 2000. Federated participated in initial tests for processing of
mutual fund transactions in both July and October 1998. Federated also
participated in the full industry-wide test conducted in March / April
1999 and encountered no Y2K-related errors.
COSTS TO ADDRESS Y2K: Federated estimates its Y2K project will cost
approximately $10 million. Federated has incurred approximately $9.4
million from the inception of the Y2K project through September 30,
1999, with $4.2 million being reflected within the current year's
financial statements. Y2K costs are being funded from operating revenue
and are being expensed as incurred. These cost estimates are subject to
change as the project continues. The estimated total costs are not
considered to have a material impact on Federated's results of
operations or financial position.
While certain non time-sensitive IT projects have been delayed due to
Y2K efforts and costs, no strategic projects or projects for legal or
regulatory requirements have been deferred or canceled.
RISKS OF YEAR 2000 ISSUES: It must be realized that, as with all other
companies in the financial services industry, many day-to-day functions
of Federated are dependent on accurate computer processing. Further,
this processing is conducted by an extensive network of systems, both
internal to Federated and external, with both direct and indirect
interaction. Accordingly, if not addressed, Y2K issues could result in
Federated's inability to perform mission-critical functions, including
the trading of securities and processing of mutual fund shareowner
transactions. However, it deserves mention that, due to the extensive
efforts of Federated and the financial services industry, in general, we
believe the risks associated with Y2K have been greatly mitigated.
A portion of Federated's business involves international investments,
thereby exposing Federated to operations, custody and settlement
processes outside the United States. Federated is monitoring the
progress of the mutual funds' international custodians in these areas.
Federated is also assessing Y2K issues for other aspects of its
international operations.
Y2K is a risk for many of the issuers of the specific securities in
which Federated's mutual funds invest, in both the U.S. and
international markets. Accordingly, Federated has incorporated
assessment of Y2K risk into its investment management process.
CONTINGENCY PLANS: Despite the extensive preparations of Federated and
its industry, in general, disruptions at year end remain a possibility.
These could occur due to internal factors or external systems and
entities upon which the company relies. Federated interacts with many
external entities and, like all firms, relies upon public utilities for
electric, heat, water, and other services.
To address the possibility of disruptions, Federated will closely
manage the period surrounding the century rollover. Plans are in place
to closely monitor and validate our systems at that time, have key
personnel available to address any issues that arise, and be in
communication with external parties, such as industry associations,
regulators, and key business partners.
In addition to those efforts, the company is preparing Y2K contingency
plans. These plans detail the procedures and resources the company would
implement to react to Y2K-related interruptions to our critical business
functions. The functions for which plans are being created include
portfolio management, transaction processing , shareowner servicing, and
other critical business functions.
However, in an operation as complex and geographically distributed as
Federated's business, there are limited alternatives to certain of its
mission-critical systems or public utilities. If certain
mission-critical systems or public utilities are not made Year 2000
compliant or fail, there would be a material adverse impact upon
Federated's business, financial condition and results of operations.
Although Federated is investigating alternative solutions, it is
unlikely that an adequate contingency plan can be developed to avoid
such an adverse impact in the event mission-critical systems or public
utilities fail to achieve compliance.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION. Certain statements
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Future Cash Requirements and Year
2000 Readiness Disclosure sections and elsewhere in this report,
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 Federated,
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. For a discussion of such risk factors,
see the section titled Risk Factors and Cautionary Statements in
Federated's Annual Report on Form 10-K for the year ended December 31,
1998, and other reports on file with the Securities and Exchange
Commission. As a result of the foregoing and other factors, no assurance
can be given as to future results, levels of activity, performance, or
achievements, and neither Federated nor any other person assumes
responsibility for the accuracy and completeness of such statements.
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Federated's investments are primarily in money market and fixed income
funds. Occasionally, Federated invests in new fluctuating net asset
value mutual funds (performance seed) sponsored by Federated in order to
provide investable cash to the fund, allowing the fund to establish a
performance history. Federated may use derivative financial instruments
in an attempt to hedge these investments. As of September 30, 1999, the
book value of the performance seed investments and the derivative
financial instruments were $16.5 million and $0.4 million, respectively.
In the second quarter of 1999, Federated became the collateral manager
of an approximately $361.0 million CBO consisting of high yield debt
securities. At the same time, Federated purchased $11.0 million of the
related subordinated notes due 2011. Payments of interest and principal
on the subordinated notes will be subordinated to interest and principal
payments on senior and mezzanine notes issued by the CBO as well as
costs incurred by the CBO. All of Federated's debt instruments carry
fixed interest rates and therefore are not subject to market risk.
Part II, Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith and incorporated by reference herein:
Exhibit 27. Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the period
subject to this Quarterly Report on Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FEDERATED INVESTORS, INC.
(Registrant)
Date NOVEMBER 10, 1999 By: /S/ J. CHRISTOPHER DONAHUE
------------------------------ ---------------------------------
J. Christopher Donahue
President and
Chief Executive Officer
Date NOVEMBER 10, 1999 By: /S/ THOMAS R. DONAHUE
------------------------------ --------------------------------
Thomas R. Donahue
Chief Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 146,975,000
<SECURITIES> 66,589,000
<RECEIVABLES> 32,371,000
<ALLOWANCES> 390,000
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<DEPRECIATION> 44,557,000
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<BONDS> 402,095,000
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<COMMON> 75,391,000
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