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 MARCH 31, 2000
--------------------------
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 May 10, 2000, the
Registrant had outstanding 6,000 shares of Class A Common Stock and 79,934,635
shares of Class B Common Stock.
Federated Investors, Inc.
Form 10-Q
For the Three Months Ended
March 31, 2000
Table of Contents
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 2000, and December 31, 1999 3
Consolidated Statements of Income
for the Three Months Ended
March 31, 2000 and 1999 4
Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 2000 and 1999 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 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K 15
(b) Reports on Form 8-K 15
Signatures 16
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Part I, Item I. Financial Statements
FEDERATED INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited) DECEMBER MARCH 31, DECEMBER
31, 31,
-------------------------------
1997 1996 1995 2000 1999
-------- --------- -------- ------------ -----------
CURRENT ASSETS:
Cash and cash $ 22,912 $ 6,561 $ 7,181 187,060 $ $
equivalents.............................................................................................................171,490.....
Securities available for 8,945 13,761 16,387 66,896 66,438
sale................................................................................................................................
Receivables-Federated 5,772 11,276 10,573
funds...............................................................................................................................
Receivables, net of reserve of $74 and $184, 26,306 13,806 9,948 34,003 35,163
respectively...................................................................................
Accrued 6,972 6,050
revenues............................................................................................................................
Prepaid 2,853 1,704 3,415 3,670 3,305
expenses............................................................................................................................
Current deferred tax asset, 7,519 6,558 4,492 1,462 1,382
net.................................................................................................................................
Other current 1,805 3,196 2,685 882 319
assets..............................................................................................................................
-------- --------- -------- ------------ -----------
Total current 76,112 56,862 54,681 300,945
assets..................................................................................................................284,147.....
-------- --------- -------- ------------ -----------
LONG-TERM ASSETS:
Customer relationships, net of accumulated amortization of 30,398 29,265 63,703 8,514 9,613
$13,899 and $12,800,
respectively........................................................................................................................
Goodwill, net of accumulated amortization of $16,703 and 37,356 39,653 0 34,138 32,856
$16,013,
respectively........................................................................................................................
Other intangible assets, net of accumulated amortization of 126 187 0 72 78
$118 and $112, respectively
....................................................................................................................................
Deferred sales commissions, net of accumulated amortization of 101,539 85,905 36,845 322,232
$92,167 and $79,365, respectively 298,978
....................................................................................................................................
Deferred tax asset, 0 0 1,073
net......................................................................................................................
Property and equipment, net of accumulated depreciation of 22,163 29,357 25,374 31,718 31,305
$45,614 and $44,605,
respectively........................................................................................................................
Other long-term 6,378 6,148 3,726 14,694 16,216
assets..............................................................................................................................
-------- --------- -------- ------------ -----------
Total long-term 197,960 190,515 130,721 411,368
assets..................................................................................................................389,046.....
-------- --------- -------- ------------ -----------
Total $ 274,072 $ 247,377 $ 185,402 712,313 $
assets..................................................................................................................673,193.....
======== ========= ======== ============ ===========
CURRENT LIABILITIES:
Cash $ 7,680 $ 8,849 $ 0 12,702 $ 9,111
overdraft...........................................................................................................................
Current portion of long-term debt - 280 15,659 62,698 14,265 14,259
recourse............................................................................................................................
Accrued 34,939 22,138 8,914 48,723 58,768
expenses............................................................................................................................
Accounts 18,634 15,645 11,716 30,672 29,321
payable.............................................................................................................................
Income taxes 19,641 2,865
payable.............................................................................................................................
Other current 2,520 8,354 3,727 2,683 1,148
liabilities.........................................................................................................................
-------- --------- -------- ------------ -----------
Total current 64,053 70,645 87,055 128,686
liabilities.............................................................................................................115,472.....
-------- --------- -------- ------------ -----------
LONG-TERM LIABILITIES:
Long-term debt - 98,950 244,125 68,062 84,370 84,446
recourse............................................................................................................................
Long-term debt - 122,304 0 0 325,510
nonrecourse.............................................................................................................309,741.....
Long-term deferred tax liability, 26,546 15,642 0 40,345 37,177
net.................................................................................................................................
Other long-term 2,863 3,073 766 7,037 6,949
liabilities.........................................................................................................................
-------- --------- -------- ------------ -----------
Total long-term 250,663 262,840 68,828 457,262
liabilities.............................................................................................................438,313.....
-------- --------- -------- ------------ -----------
Total 314,716 333,485 155,883 585,948
liabilities.............................................................................................................553,785.....
-------- --------- -------- ------------ -----------
Minority 466 814 827 428 596
interest..................................................................................................................(2,702)...
-------- --------- -------- ------------ -----------
SHAREHOLDERS' EQUITY :
Common stock :
Class A, no par value, 20,000 shares
authorized, 6,000 shares issued and 189 189
outstanding...............................................................................................................
Class B, no par value, 900,000,000 shares
authorized, 86,337,000 shares 75,115 75,087
issued..............................................................................................................................
Class A, $1.00 stated value, 99,000 shares 4 2 1
authorized, 0 and 6,000 shares issued and outstanding, - -
respectively
....................................................................................................................................
Class B, $.01 stated value, 149,700,000 shares authorized,
0 and 90,093,758 shares issued, respectively 623 345 152 - -
....................................................................................................................................
Additional paid-in 28,574 29,605 29,286 - -
capital.............................................................................................................................
Retained 55,419 9,989 4,034 158,880
earnings................................................................................................................124,653.....
Treasury stock, at cost, 5,800,965 and 4,622,360 shares Class (106,889) (79,976)
B common stock, (26,913)
respectively........................................................................................................................
Employee restricted stock (968) (1,046)
plan................................................................................................................................
Accumulated other comprehensive (2,266) (3,167) (5,350) (390) (95)
income..............................................................................................................................
-------- --------- -------- ------------ -----------
Total shareholders' 82,354 36,774 28,123 125,937
equity..................................................................................................................118,812.....
-------- --------- -------- ------------ -----------
Total liabilities, minority interest, and $ 397,536 $ 371,073 $ 184,833 $ 712,313
shareholders' 673,193
equity..........................................................................................................................
======== ========= ======== ============ ===========
</TABLE>
December 31, 1997 share amounts have been restated to reflect the one for
one stock dividend paid on April 15, 1998 and the one for two stock dividend
paid on April 30, 1998.
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.)
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FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE
MONTHS
ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) YEARS MARCH
ENDED 31,
DECEMBER
31,
--------------------------- -------------------
(UNAUDITED) 1997 1996 1995 2000 1999
------- ------- ------- -------- --------
REVENUE:
Investment-advisory fees, net-Federated $ 213,361 $ 174,585 $ 155,032 $ $
funds............................................................................89,863. 74,634
Investment-advisory fees, 5,507 4,636 3,930
net-other................................................................... ....3,103......2,265
Administrative-service fees, 60,934 51,239 42,736
net-Federated 21,238 19,801
funds...............................................................................................
Administrative-service fees, 24,495 21,684 24,957
net-other.........................................................................6,027......5,302
Other service fees, net-Federated 57,547 43,998 29,375
funds.............................................................................34,842......28,379
Other service fees, 21,953 15,796 16,443
net-other.........................................................................7,181.....5,360....
Commission 2,641 1,535 (157) 991
income........................................................................................1,604
Interest and 3,032 2,160 1,109
dividends.........................................................................4,710.......3,079
(Loss) gain on sale of securities 49 2,651 1,156 (351) 748
available for sale
....................................................................................................
Other 6,315 3,509 5,250 656 708
income..............................................................................................
------- ------- ------- -------- --------
Total 395,834 321,793 279,831
revenue.........................................................................168,873....141,267..
------- ------- ------- -------- --------
OPERATING EXPENSES:
Compensation and 139,373 126,966 101,534
related........................................................................42,831....39,103.......
Advertising and 34,984 30,984 21,471
promotional....................................................................15,170....12,859.......
Systems and 23,373 22,288 22,829
communications..................................................................6,829.......7,338.....
Professional service 14,834 15,929 12,827
fees..............................................................................6,493.......5,950..
Office and 28,608 29,859 23,272
occupancy.........................................................................6,143.......6,416..
Travel and 14,834 15,929 12,827
related...........................................................................3,011...3,346......
Amortization of deferred sales 20,882 12,349 9,554
commissions.......................................................................14,799....10,241...
Amortization of intangible 13,715 8,886 10,445
assets.............................................................................1,795.....3,606...
18,323 22,899 14,932 415
Other.............................................................................1,880................
------- ------- ------- -------- --------
Total operating 290,603 263,190 214,759
expenses.......................................................................98,951........89,274.
------- ------- ------- -------- --------
Operating 105,231 58,603 65,072
income...........................................................................69,922.....51,993....
------- ------- ------- -------- --------
NONOPERATING EXPENSES:
Debt expense - 18,862 18,563 9,413
recourse..........................................................................2,229......2,220....
Debt expense - 1,198 1,724 413
nonrecourse.......................................................................6,160........5,462...
------- ------- ------- -------- --------
Total nonoperating 20,060 20,287 9,826
expenses.........................................................................8,389.........7,682......
------- ------- ------- -------- --------
Income before minority interest and income 85,171 38,316 55,246
taxes........................................................................... 61,533 44,311
Minority 7,584 6,811 5,801
interest..........................................................................2,534......2,449.........
------- ------- ------- -------- --------
Income before income 77,587 31,505 49,445
taxes.............................................................................58,999.... 41,862
Income tax 30,957 10,930 18,809
provision........................................................................21,351.....15,141........
Net $ 46,630 20,575 30,636 $
income...........................................................................37,648.....26,721....
======== ========
EARNINGS PER SHARE:
$ #REF! $ #REF! $ #REF! 0.47 $ 0.31
Basic...................................................................................................
======= ======= ======= ======== ========
Diluted......................................$ #REF! $ #REF! $ #REF! 0.45 $ 0.31
======= ======= ======= ======== ========
Cash dividends per $ 0.042 $ 0.038
share...................................................................................................
======== ========
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(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.)
FEDERATED INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS THREE
MONTHS
ENDED
(dollars in thousands) MARCH
31,
-------------------
(UNAUDITED) 2000 1999
-------- --------
OPERATING ACTIVITIES:
Net $ 37,648 $ 26,721
income..............................................................................
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY
OPERATING ACTIVITIES:
Extraordinary item related to debt
restructuring - -
costs....................................................
Amortization of intangible 1,795 3,606
assets..............................................................................
Depreciation and other 1,951 1,960
amortization........................................................................
Amortization of deferred sales 14,799 10,241
commissions.........................................................................
Minority 2,534 2,449
interest............................................................................
(Gain) loss on disposal of property and (168) 8
equipment...........................................................................
Write-off of property and
equipment..........................................................-..........-
Amortization of employee restricted stock and 0 0
other compensation
plans...............................................................................
Provision for deferred income 3,268 1,981
taxes...............................................................................
Net unrealized gain on marketable -
securities............................................................... -
Net realized loss (gain) on sale of securities 351 (748)
available for
sale....................................................................................
Foreign currency
translation.............................................................................
Deferred sales commissions (51,358) (31,805)
paid.....................................................................................
Contingent deferred sales charges 13,305 8,591
received.................................................................................
0 0
Other....................................................................................
Other changes in assets and liabilities:
Decrease (increase) in receivables, 1,389 (2,318)
net......................................................................................
Increase in accrued (863) (401)
revenues.................................................................................
(Increase) decrease in other current (2,513) 1,718
assets..................................................................................
Decrease (increase) in other long-term 1,148 (1,309)
assets...................................................................................
Decrease in accounts payable and accrued (8,908) (19,446)
expenses................................................................................
Increase in income taxes 16,776 12,413
payable..................................................................................
Increase in other current 5,113 3,533
liabilities..............................................................................
Increase in other long-term 307 2,276
liabilities..............................................................................
-------- --------
Other..............................................................-..........-.........
-------- --------
Net cash provided by operating 36,574 19,470
activities..............................................................................
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of property and 0
equipment....................................................................-..........
Additions to property and (1,677) (1,176)
equipment...............................................................................
Proceeds from disposal of property and 158 0
equipment...............................................................................
Cash paid for business acquisitions and joint (2,527) (592)
venture...................................................................................
Purchases of securities available for (561) (40,079)
sale.......................................................................................
Proceeds from redemptions of securities 941 14,362
available for
sale....................................................................................
-------- --------
0 0
Other...................................................................................
-------- --------
Net cash used by investing (3,666) (27,485)
activities..................................................................................
-------- --------
FINANCING ACTIVITIES:
Distributions to minority (2,702) (2,485)
interest......................................................................................
Dividends (3,422)
paid....................................................................(3,276)...............
Proceeds from issuance of common 0 0
stock/options.................................................................................
Purchase of treasury (4,577)
stock........................................................(26,913).........................
Proceeds from new borrowings - 0
recourse...........................................................-....................
Proceeds from new borrowings - 43,717
nonrecourse..............................................................30,827.........
Payments on debt - (70) (58)
recourse......................................................................................
Payments on debt - (27,948)
nonrecourse.............................................................(18,686)..............
-------- --------
Net cash (used) provided by financing (17,338) 1,745
activities....................................................................................
-------- --------
Net increase (decrease) in cash and cash 15,570 (6,270)
equivalents...................................................................................
Cash and cash equivalents, beginning of 171,490 185,581
period........................................................................................
-------- --------
Cash and cash equivalents, end of $ 187,060 $ 179,311
period........................................................................................
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
$ 19,668 $ 16,758
Interest......................................................................................
Income 20,495 702
taxes.........................................................................................
</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
accounting principles generally accepted in the United States. 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 may 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,
1999. 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. The impact of adopting the provisions of
this statement on Federated's earnings and financial position will depend
on the nature and extent of Federated's investment in derivative
instruments at the time of adoption.
(2) Securitization of B-Share Future Revenue Streams 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.
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(2) Securitization of B-Share Future Revenue Streams and Nonrecourse Debt
(continued)
The following tables summarize the changes in the deferred sales
commissions related to this agreement:
Three Months
Ended
March 31, 2000
----------------
(IN THOUSANDS)
Deferred B-Share Sales Commissions:
Financed balance at December $ 288,844
31, 1999
B-Share sales commissions 42,644
financed
CDSCs collected (12,906)
Amortization (13,668)
----------------
Financed balance at March 31, $ 304,914
2000
================
Below is the activity of the nonrecourse debt tranches:
(IN THOUSANDS)
-------------------------------------------
Interest Balance Additional Balance
Tranche Rate 12/31/99 Financings 3/31/00
Payments
- ------------------ ----------- --------- -------- -------- --------
1997-1 Class 7.44% $ 52,976 $ 0 $ 5,179 $ 47,797
A.......................................................
9.80% 9,700 0 0 9,700
Class
B..................................................
Financings 10/97
through 6.68% - 247,065 43,717 22,769 268,013
3/00......................... 8.01%
--------- -------- -------- --------
$ 309,741 $ 43,717 $ 27,948 $ 325,510
========= ======== ======== ========
(3) Long-Term Debt - Recourse
Federated's long-term debt - recourse consisted of the following:
Interest March 31, December 31,
Rate 2000 1999
--------- ------------ ----------
(IN THOUSANDS)
Recourse Debt:
Senior Secured Note 7.96% $ 98,000 $ 98,000
Purchase Agreement
Capitalized leases 7.1%-8.5% 635 705
------------ ----------
Total recourse debt 98,635 98,705
Less current portion 14,265 14,259
------------
------------ ----------
Total long-term debt - recourse $ 84,370 $ 84,446
============ ==========
On March 28, 2000, a wholly-owned subsidiary of Federated, Edgewood
Services, Inc., entered into a discretionary line of credit agreement with
a bank under which it can borrow up to $45.0 million for the payment of
obligations associated with daily net settlements of mutual funds
processed through the National Securities Clearing Corporation. Borrowings
under this agreement bear interest at a rate defined
FEDERATED INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(3) Long-Term Debt - Recourse (continued)
bythe bank at the time of the borrowing and are payable on demand. At March
31, 2000, the outstanding balance under this agreement was zero.
(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 during the period from January 1, 1998, to and
including the date of payment, less certain stock repurchase payments. The
Senior Secured Note Purchase Agreements allow 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, less certain stock repurchase payments. Cash dividends of $0.042
per share or approximately $3.4 million were paid in the first quarter of
2000 to holders of common shares. Additionally, on April 26, 2000, the
board of directors declared a dividend of $0.055 per share to be paid on
May 15, 2000, to shareholders of record as of May 8, 2000. After
considering earnings through March 31, 2000, the dividend payment on May
15, 2000, and certain stock repurchase payments, approximately $5.1
million is available to pay dividends under the more restrictive of the
two debt covenant limitations.
(b) Employee Stock Purchase Plan
Federated offers 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 March 31, 2000, a total of 19,163
shares have been purchased by employees in this plan.
(c) Stock Repurchase Program
In 1999, the board of directors approved two separate share repurchase
programs authorizing Federated to purchase up to $20.0 million of
Federated Class B common stock under the first program and up to five
million shares of Federated Class B common stock under the second program.
In March 2000, the board of directors approved a third program to purchase
up to five million shares of Federated Class B common stock. Under the
programs, shares can be repurchased in open market transactions over a
period of 12 months from the date of the board resolution. In addition,
under the second and third programs, shares can also be repurchased in
private transactions. The programs authorize executive management to
determine the timing and the amount of shares for each purchase. The
repurchased stock is held in treasury to be used for employee benefit
plans, potential acquisitions and other corporate activities. As of March
31, 2000, Federated had purchased 5,527,215 shares of Class B common stock
for approximately $106.8 million under the programs. From April 1, 2000,
to May 10, 2000, an additional 601,400 shares of Class B common stock have
been repurchased under the programs for $17.6 million. Current debt
covenants restrict stock repurchases between April 26, 2000, and January
31, 2001, to five million shares or $160 million.
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:
Three Months Ended
March 31,
--------------------
2000 1999
---------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Numerator:
Net income $ 37,648 $ 26,721
========== =======
Denominator:
Basic weighted-average shares outstanding
80,057 85,001
Dilutive potential shares from stock-based 2,783 2,578
compensation
---------- -------
Diluted weighted-average shares outstanding 82,840 87,579
========== =======
Basic earnings per share $ 0.47 $ 0.31
========== =======
Diluted earnings per share $ 0.45 $ 0.31
========== =======
(6) Comprehensive Income
Comprehensive income was $37.4 million and $26.3 million for the three-month
periods ended March 31, 2000 and 1999, respectively.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The discussion and analysis below should be read in conjunction with the
consolidated financial statements appearing elsewhere in this report. We
have presumed that the readers of this interim financial information have
read or have access to our discussion and analysis of financial condition
and results of operations appearing in our Annual Report on Form 10-K for
the year ended December 31, 1999.
GENERAL
The majority of our revenue is derived through advising, distributing
and servicing the Federated funds, separately managed accounts and other
related products, in both domestic and international markets. We also
derive revenue through servicing third-party mutual funds.
Investment advisory, distribution and the majority of our servicing fees
are based on the net asset value of investment portfolios that we manage
or administer. As such, these revenues are dependent upon factors
including market conditions and the ability to attract and maintain
assets. Accordingly, our revenues will fluctuate with changes in the total
value and composition of the assets under management or administration.
ASSET HIGHLIGHTS
MANAGED AND ADMINISTERED ASSETS
(IN As of March 31, Percent
MILLIONS)
-----------------
2000 1999 Change
------- ------- --------
Money market funds $ 82,438 $ 5%
78,178
Equity funds 23,431 45%
16,126
Fixed-income funds 15,041 16,967 (11%)
Separate accounts 4,453 21%
3,679
------- -------
Total managed assets $ 125,363 $ 9%
114,950
======= =======
Total administered assets $ 44,691 $ 47%
30,367
======= =======
AVERAGE MANAGED AND ADMINISTERED
ASSETS
(IN MILLIONS) Three Months
Ended
March 31, Percent
-----------------
2000 1999 Change
-------- ------- ---------
Money market funds $ 83,127 $ 6%
78,495
Equity funds 22,070 40%
15,806
Fixed-income funds 15,453 16,810 (8%)
Separate accounts 4,633 51%
3,059
-------- -------
Total average managed assets $ 125,283 $ 10%
114,170
======== =======
Total average administered $ 43,539 $ 48%
assets 29,454
======== =======
COMPONENTS OF CHANGES IN EQUITY AND FIXED-INCOME FUND
MANAGED ASSETS
(IN
MILLIONS)
Three Months
Ended
March 31,
-----------------
EQUITY 2000 1999
-------
FUNDS
-------- -------
Beginning assets $ 20,941
$ 15,503
-------- -------
Sales 3,749
1,369
Redemptions (2,287)
(1,007)
-------- -------
Net sales 1,462
362
Net exchanges 153
11
Other* 875
250
-------- -------
Ending assets $ 23,431
$ 16,126
======== =======
FIXED-INCOME FUNDS
Beginning assets $ 15,857
$ 16,437
-------- -------
Sales 1,022
1,776
Redemptions (1,647)
(1,459)
-------- -------
Net (625)
(redemptions) sales 317
Net exchanges (203)
207
Other* 12
6
-------- -------
Ending assets $ 15,041
$ 16,967
======== =======
* Includes primarily reinvested dividends and distributions, net
investment income and changes in the market value of securities held by
the funds.
RESULTS OF OPERATIONS
The table below presents the highlights of our operations for the first quarter
of 2000 and 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended
March 31, Percent
-----------------
2000 1999 Change Change
--------------------------------------------------------------------------------
Net income (IN MILLIONS) $37.6 $26.7 $10.9 41%
Earnings per share
Basic $0.47 $0.31 $0.16 52%
Diluted $0.45 $0.31 $0.14 45%
Revenue (IN MILLIONS)
Revenue from managed $150.7 $126.1 $24.6 20%
assets
Service-related revenue
from 13.2 10.7 2.5 23%
sources other than
managed assets
Other 5.0 4.5 0.5 11%
-------- ------- --------
TOTAL REVENUE $168.9 $141.3 $27.6 20%
======== ======= ========
Operating margin 41.4% 36.8% 4.6% 13%
</TABLE>
NET INCOME. Net income and diluted earnings per share for the first
quarter 2000 increased 41% and 45%, respectively, compared to the same
quarter last year. This increase primarily reflects increased revenue from
managed assets as a result of strong growth in equity assets and improved
operating margins.
REVENUE. Total revenue for the first quarter 2000 increased $27.6
million compared to the same quarter last year due principally to a $24.6
million increase in revenue from managed assets. Revenue from managed
assets increased 19% as a result of the 10% increase in average managed
assets from $114.2 billion for the first quarter of 1999 to $125.3 billion
for the first quarter of 2000, including increases of 6%, 40% and 51% in
money market funds, equity funds and separate accounts, respectively.
Revenue from managed assets increased at a rate higher than the rate of
average managed asset growth due to the shift in the managed asset mix
towards equity products which earn the highest fees per invested dollar.
At March 31, 2000, equity fund assets comprised 19% of total managed
assets as compared to 14% at March 31, 1999.
Service-related revenues from sources other than managed assets
increased by $2.5 million due primarily to the 48% growth in average
administered assets from $29.5 billion for the first quarter 1999 to $43.5
billion for the first quarter 2000.
OPERATING EXPENSES. Operating expenses for the first quarter 2000 and 1999 are
set forth in the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months Percent
ended of
March 31, Total
-----------------
(IN MILLIONS) 2000 1999 Change Change
------------------------------------------------------------------------------
Operating Expenses
Compensation and related $42.8 $39.1 $3.7 38%
Advertising and promotional 15.2 12.9 2.3 24%
Amortization of deferred sales 14.8 10.2 4.6 47%
commissions
Other 26.2 27.1 (0.9) (9%)
--------------------------
TOTAL OPERATING $99.0 $89.3 $9.7 100%
EXPENSES
==========================
</TABLE>
Total operating expenses for the first quarter 2000 increased $9.7
million from the same quarter last year. Approximately 91% of the change
over 1999 is due to the increase in certain operating expenses that tend
to increase with increases in sales and/or managed assets. These expenses
include incentive compensation (included in Compensation and related),
marketing allowances (included in Advertising and promotional) and the
amortization of deferred sales commissions. Each of these expenses
increased over the same quarter last year due in large part to increased
sales and/or managed assets. All other expenses combined have remained
relatively unchanged from the same quarter last year as a result of
expense management and the full amortization of certain intangible assets
in 1999.
INCOME TAXES. The income tax provision for the first quarter 2000 was
$21.4 million as compared to $15.1 million for the first quarter 1999.
This increase of $6.3 million or 41% was due primarily to the increase in
the level of income before income taxes from $41.9 million for the first
quarter 1999 to $59.0 million for the first quarter 2000, an increase of
$17.1 million or 41%. Our effective tax rate for both the first quarter
2000 and 1999 was 36.2%.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW. Cash and cash equivalents and securities available for sale
totaled $254.0 million at March 31, 2000 as compared to $237.9 million at
December 31, 1999.
Cash provided by operating activities totaled $36.4 million for the
quarter ended March 31, 2000, as compared to $19.5 million for the same
period of 1999. This increase is primarily due to higher net income in the
first quarter 2000. Net cash used by investing activities in the first
quarter 2000 primarily reflects cash paid for the acquisition of
InvestLink Technologies, Inc., a software developer and marketer of
applications for the recordkeeping, administration and servicing of
defined contribution plans. Other uses of cash flow from operating
activities in the first quarter 2000 included the purchase of treasury
stock, dividend payments, distributions to the minority interest partner
and payments on debt.
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.
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 contingent
deferred sales charge (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. Any CDSC fees 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
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 have been accounted for as
financings and nonrecourse debt was recorded.
The following table presents the effects of the B-Share financing
program on the Consolidated Balance Sheets at March 31, 2000 and December
31, 1999, and the Consolidated Statements of Income for the three-month
periods ended March 31, 2000 and 1999, respectively:
(IN MILLIONS) 1999
2000
----------------------------------------------------------------------
MARCH 31 AND DECEMBER 31, RESPECTIVELY
Assets
Deferred sales commissions, net* $304.9 $288.8
Receivables 9.5 8.4
Other long-term assets 1.9 2.1
Liabilities
Long-term debt - nonrecourse $325.5 $309.7
Accounts payable 7.2 6.2
THREE MONTHS ENDED MARCH 31
Revenues
Other service fees, net - Federated funds $21.9 $16.1
Expenses
Amortization of deferred sales commissions $13.7 $ 9.3
Debt expense - nonrecourse 6.2 5.5
Other expenses 0.1 0.2
* 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 $16.4
million excess of B-Share-related liabilities over the related assets at
March 31, 2000, will be recognized in income over the remaining life of
the B-Share cash flows.
CAPITAL EXPENDITURES. Capital expenditures totaled $2.1 million for the
first quarter of 2000 compared to $1.2 million for the same quarter of
1999. First quarter 2000 capital expenditures include cash paid for
equipment purchased in connection with the acquisition of InvestLink
Technologies, Inc.
DIVIDENDS. Federated pays cash dividends on a quarterly basis. A
dividend of $0.042 per share was paid in the first quarter of 2000.
Federated's board of directors declared a dividend of $0.055 per share to
be paid on May 15, 2000, to shareholders of record as of May 8, 2000.
After considering earnings through March 31, 2000, the dividend payment on
May 15, 2000, and certain stock repurchases, Federated, given current debt
covenants, has the ability to pay dividends of approximately $5.1 million.
DEBT FACILITIES. Federated has the following recourse debt facilities:
SENIOR SECURED CREDIT AGREEMENT: At March 31, 2000, 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 March 31, 2000.
SENIOR SECURED NOTE PURCHASE AGREEMENTS: The Senior Secured Note
Purchase Agreements debt totaled $98.0 million as of March 31, 2000. The
notes are due in seven annual $14.0 million installments beginning June
27, 2000, and ending June 27, 2006. Federated was in compliance with all
debt covenants at March 31, 2000.
DISCRETIONARY LINE OF CREDIT: On March 28, 2000, a wholly-owned
subsidiary of Federated, Edgewood Services, Inc., entered into a
discretionary line of credit agreement with a bank under which it can
borrow up to $45.0 million for the payment of obligations associated with
daily net settlements of mutual funds processed through the National
Securities Clearing Corporation. Borrowings under this agreement bear
interest at a rate defined by the bank at the time of the borrowing and
are payable on demand. At March 31, 2000, the outstanding balance under
this agreement was zero.
CAPITALIZED LEASE OBLIGATIONS. At March 31, 2000, we had capitalized
lease obligations totaling $0.6 million related to certain telephone
equipment. The scheduled principal payments approximate $0.3 million per
year for 2000 through 2002.
SHAREHOLDERS' EQUITY. In 1999, the Federated board of directors approved
two separate share repurchase programs authorizing Federated to purchase
up to $20.0 million of Federated Class B common stock under the first
program and up to five million shares of Federated Class B common stock
under the second program. In March 2000, the board of directors approved a
third program to purchase up to five million shares of Federated Class B
common stock. Under the programs, shares can be repurchased in open market
transactions over a period of 12 months from the date of the board
resolution. In addition, under the second and third programs, shares can
also be repurchased in private transactions. The programs authorize
executive management to determine the timing and the amount of shares for
each purchase. The repurchased stock is held in treasury to be used for
employee benefit plans, potential acquisitions and other corporate
activities. During the first quarter 2000, Federated purchased an
additional 1,178,605 shares of Class B common stock for approximately
$26.9 million under the programs. From April 1, 2000, to May 10, 2000, an
additional 601,400 shares of Class B common stock have been repurchased
under the programs for $17.6 million. Current debt covenants restrict
stock repurchases between April 26, 2000, and January 31, 2001, to five
million shares or $160 million.
FUTURE CASH REQUIREMENTS. Management expects that the principal needs
for cash will be to advance sales commissions, repurchase company stock,
service recourse debt, fund property and equipment acquisitions, pay
shareholder dividends, seed new products 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION. Certain statements
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Future Cash Requirements 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 our achievements, 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,
1999, 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 we 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
Our investments are primarily in money market and fluctuating value
mutual funds with investments of two years or less. In addition, as of
March 31, 2000, we have an investment in high yield asset-backed
securities which is included in "Other long-term assets" on the
Consolidated Balance Sheets. Occasionally, we invest in new fluctuating
value mutual funds (performance seeds) that we sponsor in order to provide
investable cash to the fund allowing the fund to establish a performance
history. Federated may use derivative financial instruments to hedge these
investments. As of March 31, 2000, the book value of the performance seed
investments and the derivative financial instruments were $15.8 million
and $0.1 million, respectively. All of our 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 10.1 Material contracts - Edgewood Services, Inc.
Discretionary Line of Credit Demand Note, dated as of March 28, 2000
(filed herewith)
Exhibit 10.2 Material contracts - Federated Investors, Inc. Guaranty
and Suretyship Agreement, dated as of March 28, 2000 (filed herewith)
Exhibit 27.1 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.
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 MAY 12, 2000 By: /S/ J. CHRISTOPHER
----------------------------------- ----------------------
DONAHUE
J. Christopher Donahue
President and
Chief Executive Officer
Date MAY 12, 2000 By: /S/ THOMAS R. DONAHUE
----------------------------------- -------------------------
Thomas R. Donahue
Chief Financial Officer and
Principal Accounting Officer
DISCRETIONARY LINE OF CREDIT Exhibit 10.1
[GRAPHIC OMITTED]
DEMAND NOTE
(AS-OFFERED RATE)
$45,000,000.00
March 28, 2000
FOR VALUE RECEIVED, EDGEWOOD SERVICES, INC. (the "BORROWER"), with an address at
P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897, promises to pay ON DEMAND to
the order of PNC BANK, NATIONAL ASSOCIATION (the "BANK"), in lawful money of the
United States of America in immediately available funds at its offices located
at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707, or at such other
location as the Bank may designate from time to time, the principal sum of
FORTY-FIVE MILLION DOLLARS ($45,000,000.00) (the "FACILITY") or such lesser
amount as may be advanced to or for the benefit of the Borrower hereunder,
together with interest accruing on the outstanding principal balance from the
date hereof, as provided below:
1. RATE OF INTEREST. Each advance outstanding under this Note will bear interest
at a rate per annum as offered by the Bank in its sole discretion for the
interest period requested, each as agreed upon in writing between the Borrower
and the Bank. Interest will be calculated on the basis of a year of 360 days for
the actual number of days in each interest period. In no event will the rate of
interest hereunder exceed the maximum rate allowed by law.
2. DISCRETIONARY ADVANCES. THIS IS NOT A COMMITTED LINE OF CREDIT AND ADVANCES
UNDER THIS NOTE, IF ANY, SHALL BE MADE BY THE BANK IN ITS SOLE DISCRETION.
NOTHING CONTAINED IN THIS NOTE OR ANY OTHER LOAN DOCUMENTS SHALL BE CONSTRUED TO
OBLIGATE THE BANK TO MAKE ANY ADVANCES. THE BANK SHALL HAVE THE RIGHT TO REFUSE
TO MAKE ANY ADVANCES AT ANY TIME WITHOUT PRIOR NOTICE TO THE BORROWER. The
Borrower may request advances, repay and request additional advances hereunder,
subject to the terms and conditions of this Note and the Loan Documents (as
defined herein). In no event shall the aggregate unpaid principal amount of
advances under this Note exceed the face amount of this Note.
3. PAYMENT TERMS. The outstanding principal amount of each advance shall be
payable on the last day of the applicable interest period for such advance and
ON DEMAND. Accrued interest shall be due and payable in the absence of demand on
the earlier of (a) the last day of the applicable interest period (provided if
any interest period is longer than three (3) months, then interest shall be due
and payable also on the three (3) month anniversary of such interest period and
every three (3) months thereafter) and (b) the Expiration Date (as defined in
the Loan Documents); provided, however, that if no interest period is specified
for an advance, interest shall be due and payable monthly in arrears. THE
BORROWER ACKNOWLEDGES AND AGREES THAT THE BANK MAY AT ANY TIME AND IN ITS SOLE
DISCRETION DEMAND PAYMENT OF ALL AMOUNTS OUTSTANDING UNDER THIS NOTE WITHOUT
PRIOR NOTICE TO THE BORROWER.
Any payment of principal or interest under this Note must be received by the
Bank by 2:00 p.m., Eastern Standard Time, on a business day in order to be
credited on such date. If any payment under this Note shall become due on a
Saturday, Sunday or public holiday under the laws of the State where the Bank's
office indicated above is located, such payment shall be made on the next
succeeding business day and such extension of time shall be included in
computing interest in connection with such payment. The Borrower hereby
authorizes the Bank to charge the Borrower's deposit account at the Bank for any
payment when due hereunder. Payments received will be applied to charges, fees
and expenses (including attorneys' fees), accrued interest and principal in any
order the Bank may choose, in its sole discretion.
4. LATE PAYMENTS; DEFAULT RATE. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within fifteen (15) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to the lesser of five
percent (5%) of the amount of such payment or $100.00 (the "LATE CHARGE"). Such
fifteen (15) day period shall not be construed in any way to extend the due date
of any such payment. Following demand, this Note shall bear interest at a rate
per annum (based on a year of 360 days and actual days elapsed) which shall be
two percentage points (2%) in excess of the Prime Rate but not more than the
maximum rate allowed by law (the "DEFAULT RATE"). As used herein, "PRIME RATE"
shall mean the rate publicly announced by the Bank from time to time as its
prime rate. The Prime Rate is determined from time to time by the Bank as a
means of pricing some loans to its borrowers. The Prime Rate is not tied to any
external rate or index, and does not necessarily reflect the lowest rate of
interest actually charged by the Bank to any particular class or category of
customers. If and when the Prime Rate changes, the rate of interest on this Note
will change automatically without notice to the Borrower, effective on the date
of any such change. The Default Rate shall continue to apply whether or not
judgment shall be entered on this Note. Both the Late Charge and the Default
Rate are imposed as liquidated damages for the purpose of defraying the Bank's
expenses incident to the handling of delinquent payments, but are in addition
to, and not in lieu of, the Bank's exercise of any rights and remedies
hereunder, under the other Loan Documents or under applicable law, and any fees
and expenses of any agents or attorneys which the Bank may employ. In addition,
the Default Rate reflects the increased credit risk to the Bank of carrying a
loan that is in default. The Borrower agrees that the Late Charge and Default
Rate are reasonable forecasts of just compensation for anticipated and actual
harm incurred by the Bank, and that the actual harm incurred by the Bank cannot
be estimated with certainty and without difficulty.
5. PREPAYMENT. The Borrower shall have the right to prepay at any time and from
time to time, in whole or in part, without penalty, any advance hereunder which
is accruing interest at a rate based upon a floating rate or at a fixed rate
with an interest period of seven (7) days or less. If the Borrower prepays all
or any part of any advance which is accruing interest at a fixed rate with an
interest period of more than seven (7) days on other than the last day of the
applicable interest period, the Borrower shall also pay to the Bank, on demand
therefor, the Cost of Prepayment. "COST OF PREPAYMENT" means an amount equal to
the present value, if positive, of the product of (a) the difference between (i)
the yield, on the beginning date of the applicable interest period, of a U.S.
Treasury obligation with a maturity similar to the applicable interest period
MINUS (ii) the yield, on the prepayment date, of a U.S. Treasury obligation with
a maturity similar to the remaining maturity of the applicable interest period,
and (b) the principal amount to be prepaid, and (c) the number of years,
including fractional years from the prepayment date to the end of the applicable
interest period. The yield on any U.S. Treasury obligation shall be determined
by reference to Federal Reserve Statistical Release H.15(519) "Selected Interest
Rates". For purposes of making present value calculations, the yield to maturity
of a similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note.
6. OTHER LOAN DOCUMENTS. This Note is issued pursuant to the confirmation letter
from the Bank to the Borrower dated of even date herewith, and the other
agreements and documents executed in connection therewith or referred to
therein, the terms of which are incorporated herein by reference (as amended,
modified or renewed from time to time, collectively the "LOAN DOCUMENTS"), and
is secured by the property described in the Loan Documents (if any) and by such
other collateral as previously may have been or may in the future be granted to
the Bank to secure this Note.
7. ADVANCE PROCEDURES. A request for advance must be received by the Bank prior
to 4:30 p.m., Eastern Standard Time, for same-day advances. If such request is
in writing, it shall be in the form of Exhibit "A" attached hereto. A request
for advance made by telephone must be promptly confirmed in writing in the form
of Exhibit "A" attached hereto. The Borrower authorizes the Bank to accept
telephonic requests for advances, and the Bank shall be entitled to rely upon
the authority of any person providing such instructions. The Borrower hereby
indemnifies and holds the Bank harmless from and against any and all damages,
losses, liabilities, costs and expenses (including reasonable attorneys' fees
and expenses) which may arise or be created by the acceptance of such telephone
requests or making such advances. The Bank will enter on its books and records,
which entry when made will be presumed correct, the date and amount of each
advance, the interest rate and interest period for each advance, as well as the
date and amount of each payment made by the Borrower.
8. RIGHT OF SETOFF. The Bank retains all rights of setoff against the Borrower's
money, securities or other property given to the Bank by applicable law. Every
such security interest and right of setoff may be exercised without demand upon
or notice to the Borrower. Every such right of setoff shall be deemed to have
been exercised hereunder without any action of the Bank, although the Bank may
enter such setoff on its books and records at a later time.
9. MISCELLANEOUS. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing (except as may
be agreed otherwise above with respect to borrowing requests) and will be
effective upon receipt. Such notices and other communications may be
hand-delivered, sent by facsimile transmission with confirmation of delivery and
a copy sent by first-class mail, or sent by nationally recognized overnight
courier service, to the addresses for the Bank and the Borrower set forth above
or to such other address as either may give to the other in writing for such
purpose. No delay or omission on the Bank's part to exercise any right or power
arising hereunder will impair any such right or power or be considered a waiver
of any such right or power, nor will the Bank's action or inaction impair any
such right or power. No modification, amendment or waiver of any provision of
this Note nor consent to any departure by the Borrower therefrom will be
effective unless made in a writing signed by the Bank. The Borrower agrees to
pay on demand, to the extent permitted by law, all costs and expenses incurred
by the Bank in the enforcement of its rights in this Note and in any security
therefor, including without limitation reasonable fees and expenses of the
Bank's counsel. If any provision of this Note is found to be invalid by a court,
all the other provisions of this Note will remain in full force and effect. The
Borrower and all other makers and indorsers of this Note hereby forever waive
presentment, protest, notice of dishonor and notice of non-payment. The Borrower
also waives all defenses based on suretyship or impairment of collateral. If
this Note is executed by more than one Borrower, the obligations of such persons
or entities hereunder will be joint and several. This Note shall bind the
Borrower and its heirs, executors, administrators, successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns; provided, however, that the Borrower may not assign this Note in
whole or in part without the Bank's written consent and the Bank at any time may
assign this Note in whole or in part.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court in the county or judicial district where the Bank's office
indicated above is located; provided that nothing contained in this Note will
prevent the Bank from bringing any action, enforcing any award or judgment or
exercising any rights against the Borrower individually, against any security or
against any property of the Borrower within any other county, state or other
foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and the
Borrower. The Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Note.
10. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE CONFESSION OF JUDGMENT AND WAIVER OF JURY TRIAL, AND
HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
EDGEWOOD SERVICES, INC.
Attest: /s/ Lawrence Caracciolo By: /s/ Charles L. Davis
(SEAL)
Print Name: Lawrence Caracciolo Print Name: Charles L. Davis
Title: President Title: Vice President
A:\Edgewood Pt 2 of 3\Note 4
EXHIBIT "A"
TO
DISCRETIONARY LINE OF CREDIT DEMAND NOTE
REQUEST FOR ADVANCE
Advance Number
To: PNC Bank, National Association
Attention: Hillary Guttman, Corporate Banking Loan Administration
Facsimile Number: (412) 768-4586
Edgewood Services, Inc. (the "BORROWER") hereby requests an advance in the
amount of $__________________ (the "ADVANCE") under its $45,000,000.00
discretionary line of credit facility with PNC Bank, National Association (the
"BANK"), as governed by that certain Confirmation Letter between the Borrower
and the Bank, dated March ______, 2000, and evidenced by that certain
Discretionary Line of Credit Demand Note executed by the Borrower in favor of
the Bank, dated March ______, 2000 (collectively, the "LOAN DCOUMENTS").
1. The Advance shall be wire transfered to:
The Bank of New York
ABA # 021000018
Account # 8900104104
Edgewood Servies, Inc., Special Account for the Exclusive Benefit of
Customers for Edgewood
2. The Borrower has performed all of its obligations under the Loan
Documents, and all of the representations and warranties made by the Borrower in
the Loan Documents are true and correct as of the date hereof.
3. The Borrower acknowledges and agrees that the delivery of this request
shall in no way obligate the Bank to make such requested Advance, it being
understood that the Loan Documents evidence a discretionary line of credit
facility and advances thereunder, if any, shall be made by the Bank in its sole
discretion.
4. The undersigned has been duly authorized by the Borrower to make this
request, and the Bank is entitled to rely conclusively on the above instructions
to disburse loan proceeds under the Loan Documents in the amount and manner
specified above.
WITNESS the due execution hereof with the intent to be legally bound hereby as
of this _____ day of _______________, _____.
EDGEWOOD SERVICES, INC.
By:_______________________________________
Print Name:________________________________
Title: _____________________________________
Exhibit 10.2
GUARANTY AND SURETYSHIP AGREEMENT
[GRAPHIC OMITTED]
THIS GUARANTY AND SURETYSHIP AGREEMENT (this "GUARANTY") is made and
entered into as of this 28th day of March, 2000, by FEDERATED INVESTORS, INC.
(the "Guarantor"), with an address at Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, Pennsylvania 15222-3779, in consideration of the extension
of credit by PNC BANK, NATIONAL ASSOCIATION (the "BANK"), with an address at One
PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707, to EDGEWOOD SERVICES,
INC. (the "Borrower"), and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged.
1. GUARANTY OF OBLIGATIONS. The Guarantor hereby guarantees, and becomes
surety for, the prompt payment and performance of all loans, advances, debts,
liabilities, obligations, covenants and duties owing by the Borrower to the Bank
under and in connection with a discretionary line of credit from the Bank to the
Borrower in the principal amount of $45,000,000.00, as evidenced by that certain
$45,000,000.00 Discretionary Line of Credit Demand Note dated of even date
herewith (including any interest accruing thereon after maturity, or after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether now existing or hereafter arising, and any amendments, extensions,
renewals or increases thereof and all costs and expenses of the Bank incurred in
the documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including reasonable
attorneys' fees and expenses (hereinafter referred to collectively as the
"OBLIGATIONS"). If the Borrower defaults under any such Obligations, the
Guarantor will pay the amount due to the Bank.
2. NATURE OF GUARANTY; WAIVERS. This is a guaranty of payment and not of
collection and the Bank shall not be required, as a condition of the Guarantor's
liability, to make any demand upon or to pursue any of its rights against the
Borrower, or to pursue any rights which may be available to it with respect to
any other person who may be liable for the payment of the Obligations.
This is an absolute, unconditional, irrevocable and continuing guaranty
and will remain in full force and effect until all of the Obligations have been
indefeasibly paid in full, and the Bank has terminated this Guaranty. This
Guaranty will remain in full force and effect even if there is no principal
balance outstanding under the Obligations at a particular time or from time to
time. This Guaranty will not be affected by any surrender, exchange, acceptance,
compromise or release by the Bank of any other party, or any other guaranty or
any security held by it for any of the Obligations, by any failure of the Bank
to take any steps to perfect or maintain its lien or security interest in or to
preserve its rights to any security or other collateral for any of the
Obligations or any guaranty, or by any irregularity, unenforceability or
invalidity of any of the Obligations or any part thereof or any security or
other guaranty thereof. The Guarantor's obligations hereunder shall not be
affected, modified or impaired by any counterclaim, set-off, deduction or
defense based upon any claim the Guarantor may have against the Borrower or the
Bank, except payment or performance of the Obligations.
Notice of acceptance of this Guaranty, notice of extensions of credit to
the Borrower from time to time, notice of default, diligence, presentment,
notice of dishonor, protest, demand for payment, and any defense based upon the
Bank's failure to comply with the notice requirements of the applicable version
of Uniform Commercial Code ss. 9-504 are hereby waived. The Guarantor waives all
defenses based on suretyship or impairment of collateral.
The Bank at any time and from time to time, without notice to or the
consent of the Guarantor, and without impairing or releasing, discharging or
modifying the Guarantor's liabilities hereunder, may (a) change the manner,
place, time or terms of payment or performance of or interest rates on, or other
terms relating to, any of the Obligations; (b) renew, substitute, modify, amend
or alter, or grant consents or waivers relating to any of the Obligations, any
other guaranties, or any security for any Obligations or guaranties; (c) apply
any and all payments by whomever paid or however realized including any proceeds
of any collateral, to any Obligations of the Borrower in such order, manner and
amount as the Bank may determine in its sole discretion; (d) settle, compromise
or deal with any other person, including the Borrower or the Guarantor, with
respect to any Obligations in such manner as the Bank deems appropriate in its
sole discretion; (e) substitute, exchange or release any security or guaranty;
or (f) take such actions and exercise such remedies hereunder as provided
herein.
3. REPAYMENTS OR RECOVERY FROM THE BANK. If any demand is made at any time
upon the Bank for the repayment or recovery of any amount received by it in
payment or on account of any of the Obligations and if the Bank repays all or
any part of such amount by reason of any judgment, decree or order of any court
or administrative body or by reason of any settlement or compromise of any such
demand, the Guarantor will be and remain liable hereunder for the amount so
repaid or recovered to the same extent as if such amount had never been received
originally by the Bank. The provisions of this section will be and remain
effective notwithstanding any contrary action which may have been taken by the
Guarantor in reliance upon such payment, and any such contrary action so taken
will be without prejudice to the Bank's rights hereunder and will be deemed to
have been conditioned upon such payment having become final and irrevocable.
4. FINANCIAL STATEMENTS. Unless compliance is waived in writing by the
Bank or until all of the Obligations have been paid in full, the Guarantor will
promptly submit to the Bank such information relating to the Guarantor's affairs
(including but not limited to annual financial statements and tax returns for
the Guarantor) or any security for the Guaranty as the Bank may reasonably
request.
5. ENFORCEABILITY OF OBLIGATIONS. No modification, limitation or discharge
of the Obligations arising out of or by virtue of any bankruptcy, reorganization
or similar proceeding for relief of debtors under federal or state law will
affect, modify, limit or discharge the Guarantor's liability in any manner
whatsoever and this Guaranty will remain and continue in full force and effect
and will be enforceable against the Guarantor to the same extent and with the
same force and effect as if any such proceeding had not been instituted. The
Guarantor waives all rights and benefits which might accrue to it by reason of
any such proceeding and will be liable to the full extent hereunder,
irrespective of any modification, limitation or discharge of the liability of
the Borrower that may result from any such proceeding.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall be an
"EVENT OF DEFAULT": (i) any Event of Default (as defined in any of the
Obligations); (ii) any default under any of the Obligations that does not have a
defined set of "Events of Default" and the lapse of any notice or cure period
provided in such Obligations with respect to such default; (iii) demand by the
Bank under any of the Obligations that have a demand feature; (iv) the
Guarantor's failure to perform any of its obligations hereunder; (v) the
falsity, inaccuracy or material breach by the Guarantor of any written warranty,
representation or statement made or furnished to the Bank by or on behalf of the
Guarantor; or (vi) the termination or attempted termination of this Guaranty.
Upon the occurrence of any Event of Default, (a) the Guarantor shall pay to the
Bank the amount of the Obligations; or (b) on demand of the Bank, the Guarantor
shall immediately deposit with the Bank, in U.S. dollars, all amounts due or to
become due under the Obligations, and the Bank may at any time use such funds to
repay the Obligations; or (c) the Bank in its discretion may exercise with
respect to any collateral any one or more of the rights and remedies provided a
secured party under the applicable version of the Uniform Commercial Code; or
(d) the Bank in its discretion may exercise from time to time any other rights
and remedies available to it at law, in equity or otherwise.
7. RIGHT OF SETOFF. The Bank retains all rights of setoff against the
Guarantor's money, securities or other property given to the Bank by applicable
law. Every such right of setoff may be exercised without demand upon or notice
to the Guarantor. Every such right of setoff shall be deemed to have been
exercised immediately upon the occurrence of an Event of Default hereunder
without any action of the Bank, although the Bank may enter such setoff on its
books and records at a later time.
8. COLLATERAL. This Guaranty is secured by the property described in any
collateral security documents which the Guarantor executes and delivers to the
Bank and by such other collateral as previously may have been or may in the
future be granted to the Bank to secure any obligations of the Guarantor to the
Bank.
9. COSTS. To the extent that the Bank incurs any costs or expenses in
protecting or enforcing its rights under the Obligations or this Guaranty,
including reasonable attorneys' fees and the costs and expenses of litigation,
such costs and expenses will be due on demand, will be included in the
Obligations and will bear interest from the incurring or payment thereof at the
Default Rate (as defined in any of the Obligations).
10. POSTPONEMENT OF SUBROGATION. Until the Obligations are indefeasibly
paid in full, the Guarantor postpones and subordinates in favor of the Bank any
and all rights which the Guarantor may have to (a) assert any claim against the
Borrower based on subrogation rights with respect to payments made hereunder,
and (b) any realization on any property of the Borrower, including participation
in any marshalling of the Borrower's assets.
11. NOTICES. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt. Such notices and other communications may be
hand-delivered, sent by facsimile transmission with confirmation of delivery and
a copy sent by first-class mail, or sent by nationally recognized overnight
courier service, to the addresses for the Bank and the Guarantor set forth above
or to such other address as one may give to the other in writing for such
purpose.
12. PRESERVATION OF RIGHTS. No delay or omission on the Bank's part to
exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power, nor will the Bank's
action or inaction impair any such right or power. The Bank's rights and
remedies hereunder are cumulative and not exclusive of any other rights or
remedies which the Bank may have under other agreements, at law or in equity.
The Bank may proceed in any order against the Borrower, the Guarantor or any
other obligor of, or collateral securing, the Obligations.
13. ILLEGALITY. In case any one or more of the provisions contained in this
- ----------
Guaranty should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
14. CHANGES IN WRITING. No modification, amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom will be effective unless made in a writing signed by the Bank, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on the Guarantor in any
case will entitle the Guarantor to any other or further notice or demand in the
same, similar or other circumstance.
15. ENTIRE AGREEMENT. This Guaranty (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the Guarantor and the Bank with respect to the subject matter hereof; provided,
however, that this Guaranty is in addition to, and not in substitution for, any
other guarantees from the Guarantor to the Bank.
16. SUCCESSORS AND ASSIGNS. This Guaranty will be binding upon and inure
to the benefit of the Guarantor and the Bank and their respective heirs,
executors, administrators, successors and assigns; PROVIDED, HOWEVER, that the
Guarantor may not assign this Guaranty in whole or in part without the Bank's
prior written consent and the Bank at any time may assign this Guaranty in whole
or in part.
17. INTERPRETATION. In this Guaranty, unless the Bank and the Guarantor
otherwise agree in writing, the singular includes the plural and the plural the
singular; references to statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute referred to; the
word "or" shall be deemed to include "and/or", the words "including", "includes"
and "include" shall be deemed to be followed by the words "without limitation";
and references to sections or exhibits are to those of this Guaranty unless
otherwise indicated. Section headings in this Guaranty are included for
convenience of reference only and shall not constitute a part of this Guaranty
for any other purpose. If this Guaranty is executed by more than one party as
Guarantor, the obligations of such persons or entities will be joint and
several.
18. INDEMNITY. The Guarantor agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who controls
the Bank (the "INDEMNIFIED PARTIES") and to hold each Indemnified Party harmless
from and against any and all claims, damages, losses, liabilities and expenses
(including all fees and charges of internal or external counsel with whom any
Indemnified Party may consult and all expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party as a result of the execution of or performance under this
Guaranty; PROVIDED, HOWEVER, that the foregoing indemnity agreement shall not
apply to claims, damages, losses, liabilities and expenses solely attributable
to an Indemnified Party's gross negligence or willful misconduct. The indemnity
agreement contained in this Section shall survive the termination of this
Guaranty. The Guarantor may participate at its expense in the defense of any
such claim.
19. GOVERNING LAW AND JURISDICTION. This Guaranty has been delivered to
and accepted by the Bank and will be deemed to be made in the State where the
Bank's office indicated above is located. THIS GUARANTY WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE BANK AND THE GUARANTOR DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS
LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The Guarantor hereby irrevocably
consents to the exclusive jurisdiction of any state or federal court in the
county or judicial district where the Bank's office indicated above is located;
provided that nothing contained in this Guaranty will prevent the Bank from
bringing any action, enforcing any award or judgment or exercising any rights
against the Guarantor individually, against any security or against any property
of the Guarantor within any other county, state or other foreign or domestic
jurisdiction. The Guarantor acknowledges and agrees that the venue provided
above is the most convenient forum for both the Bank and the Guarantor. The
Guarantor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Guaranty.
20. EQUAL CREDIT OPPORTUNITY ACT. If the Guarantor is not an "applicant
for credit" under Section 202.2 (e) of the Equal Credit Opportunity Act of 1974
("ECOA"), the Guarantor acknowledges that (i) this Guaranty has been executed to
provide credit support for the Obligations, and (ii) the Guarantor was not
required to execute this Guaranty in violation of Section 202.7(d) of the ECOA.
21. WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL
RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS. THE GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND
VOLUNTARY.
THE GUARANTOR ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS GUARANTY, INCLUDING THE CONFESSION OF JUDGMENT AND WAIVER OF
JURY TRIAL, AND HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
FEDERATED INVESTORS, INC.
Attest: /s/ Joseph M. Huber By:/s/ J. Christopher Donahue
(SEAL)
Print Name: Joseph M. Huber Print Name: J. Christopher
Donahue_
Title: Asst. Secretary Title: President and Chief Executive
Officer
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