Federated Investors, Inc. Reports Second Quarter 2013 Earnings

- Equity assets increase $5.5 billion or 17% to $38.7 billion from Q2 2012
- Net equity sales were $383 million during Q2 2013
- Board increases dividend 4% to $0.25 per share

PR Newswire

PITTSBURGH, July 25, 2013 /PRNewswire/ -- Federated Investors, Inc. (FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.39 and net income of $40.4 million for Q2 2013, each of which is the same amount reported for Q2 2012.  Federated reported YTD 2013 EPS of $0.80, matching the amount reported for the first half of 2012. 

Federated's total managed assets were $363.8 billion at June 30, 2013, up $7.9 billion or 2 percent from $355.9 billion at June 30, 2012 and down $13.5 billion or 4 percent from $377.3 billion reported at March 31, 2013.  Average managed assets for Q2 2013 were $372.9 billion, up $12.3 billion or 3 percent from $360.6 billion reported for Q2 2012 and down $8.3 billion or 2 percent from $381.2 billion reported for Q1 2013. 

"Equity sales were positive for the quarter with strong client interest in a variety of strategies, especially our income-oriented portfolios investing in both U.S. and international dividend-paying companies," said J. Christopher Donahue, president and chief executive officer.  "Federated offers a diversified approach to the pursuit of dividends and income with a range of equity, fixed-income and balanced investment solutions."

Federated's board of directors declared a quarterly dividend of $0.25 per share, a 4 percent increase from the prior quarter.  The dividend is payable on Aug. 15, 2013 to shareholders of record as of Aug. 8, 2013.  During Q2 2013, Federated purchased 158,133 shares of Federated class B common stock for $2.8 million. 

Federated's equity assets were $38.7 billion at June 30, 2013, up $5.5 billion or 17 percent from $33.2 billion at June 30, 2012 and up $0.8 billion or 2 percent from $37.9 billion at March 31, 2013.  Top-selling equity funds during Q2 2013 on a net basis were Federated Strategic Value Dividend Fund, Federated Capital Income Fund, Federated International Strategic Value Dividend Fund, Federated Kaufmann Large Cap Fund and Federated Muni and Stock Advantage Fund. 

Federated's fixed-income assets were $50.0 billion at June 30, 2013, up $1.0 billion or 2 percent from $49.0 billion at June 30, 2012 and down $2.8 billion or 5 percent from $52.8 billion at March 31, 2013.  Bond assets in the liquidation portfolio were $6.6 billion at June 30, 2013.  Top-selling fixed-income funds during Q2 2013 on a net basis included several of Federated's U.S. and U.K.-domiciled short-duration products and Federated Institutional High Yield Bond Fund. 

Money market assets in both funds and separate accounts were $268.5 billion at June 30, 2013, up $3.0 billion or 1 percent from $265.5 billion at June 30, 2012 and down $11.2 billion or 4 percent from $279.7 billion at March 31, 2013.  Money market mutual fund assets were $232.9 billion at June 30, 2013, down $5.7 billion or 2 percent from $238.6 billion at June 30, 2012 and down $9.8 billion or 4 percent from $242.7 billion at March 31, 2013. 

Financial Summary

Q2 2013 vs. Q2 2012

Revenue decreased by $8.3 million or 4 percent due primarily to an increase in voluntary fee waivers related to certain money market funds in order for these funds to maintain positive or zero net yields.  The decrease was partially offset by an increase in revenue due to higher average equity and fixed-income assets. See additional information about voluntary fee waivers in the table at the end of this financial summary. 

During Q2 2013, Federated derived 59 percent of its revenue from equity and fixed-income assets (36 percent from equity assets and 23 percent from fixed-income assets), 40 percent from money market assets and 1 percent from other products and services.

Operating expenses decreased $5.3 million or 3 percent primarily related to a decrease in distribution expense related to increased fee waivers, which were partially offset by increased compensation and related expenses.  

Q2 2013 vs. Q1 2013

Revenue decreased by $4.2 million or 2 percent primarily due to an increase in voluntary fee waivers.

Operating expenses decreased by $2.0 million or 1 percent. The decrease primarily reflects lower distribution expense related to the aforementioned increase in fee waivers. 

YTD 2013 vs. YTD 2012

Revenue decreased by $10.6 million or 2 percent primarily due to an increase in voluntary fee waivers, which was partially offset by an increase from higher average equity, fixed-income and money market assets.

For the first half of 2013, Federated derived 57 percent of its revenue from equity and fixed-income assets (34 percent from equity assets and 23 percent from fixed-income assets), 42 percent from money market assets and 1 percent from other products and services.

Operating expenses decreased by $5.5 million or 2 percent primarily due to a decrease in distribution expense related primarily to increased fee waivers that were partially offset by an increase related to a change in the mix of average money market assets and increased compensation and related expenses.

Federated's level of business activity and financial results are dependent upon many factors including market conditions, investment performance and investor behavior.  These factors and others including asset levels, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers and expenses can impact Federated's activity levels and financial results significantly.  Risk factors and uncertainties that can influence Federated's financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.

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

 

 

Money Market Fund Yield Waiver Impact to Consolidated Statements of Income

(in millions)














Quarter Ended


Change
Q2 2012 to Q2 2013


Quarter Ended


Change
Q1 2013 to Q2 2013


Six Months Ended


Change
YTD 2012 to YTD 2013


June 30,

2013


June 30,

2012



March 31,

2013



June 30,

2013


June 30,

2012


Investment advisory fees

$

(59.4)



$

(43.0)



$

(16.4)



$

(54.9)



$

(4.5)



$

(114.3)



$

(95.9)



$

(18.4)


Other service fees

(32.5)



(27.3)



(5.2)



(32.4)



(0.1)



(65.0)



(54.8)



(10.2)


Total Revenue

$

(91.9)



$

(70.3)



$

(21.6)



$

(87.3)



$

(4.6)



$

(179.3)



$

(150.7)



$

(28.6)


Less: Reduction in
distribution expense

66.9



53.1



13.8



64.8



2.1



131.7



110.6



21.1


Operating income

$

(25.0)



$

(17.2)



$

(7.8)



$

(22.5)



$

(2.5)



$

(47.6)



$

(40.1)



$

(7.5)


Less: Reduction in
noncontrolling interest

1.3



0.0



1.3



0.8



0.5



2.1



0.6



1.5


Pre-tax impact

$

(23.7)



$

(17.2)



$

(6.5)



$

(21.7)



$

(2.0)



$

(45.5)



$

(39.5)



$

(6.0)


Federated will host an earnings conference call at 9 a.m. Eastern on July 26, 2013.  Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time.  The call may also be accessed in real time on the Internet via the About Federated section of http://FederatedInvestors.com.  A replay will be available after 12:30 p.m. and through Aug. 2, 2013 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering access code 417387.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $363.8 billion in assets as of June 30, 2013.  With 135 funds and a variety of separately managed account options, Federated provides comprehensive investment management to approximately 5,700 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers.  Federated ranks in the top 3 percent of money market fund managers in the industry, the top 7 percent of equity fund managers and the top 9 percent of fixed-income fund managers1.  For more information, visit http://FederatedInvestors.com.

1 Strategic Insight, May 31, 2013.  Based on assets under management in open-end funds.

Federated Securities Corp. is distributor of the Federated funds. 

Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling and Federated MDTA LLC, each a registered investment adviser.

Certain statements in this press release, such as those related to the level of fee waivers and expenses incurred by the company, product demand, asset flows and mix and market conditions constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.  Other risks and uncertainties include the ability of the company to predict the level of fee waivers and expenses in future quarters, which could vary significantly depending on a variety of factors identified above, and include the ability of the company to sustain product demand and asset flows and mix, which could vary significantly depending on market conditions, investment performance and investor behavior.  Other risks and uncertainties also include the risk factors discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.  As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

 

 

Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share data)






Quarter Ended

% Change
Q2 2012 to
Q2 2013

Quarter Ended

% Change
Q1 2013 to
Q2 2013


June 30, 2013

June 30, 2012

March 31, 2013

Revenue






Investment advisory fees, net

$

147,515


$

154,367


(4)

%

$

150,763


(2)

%

Administrative service fees, net

55,253


54,986


0


56,828


(3)


Other service fees, net

19,856


22,007


(10)


19,332


3


Other, net

1,182


772


53


1,049


13


Total Revenue

223,806


232,132


(4)


227,972


(2)








Operating Expenses






Compensation and related

67,855


65,215


4


66,937


1


Distribution

53,809


62,328


(14)


58,240


(8)


Professional service fees

9,293


9,932


(6)


8,844


5


Office and occupancy

6,543


6,119


7


6,432


2


Systems and communications

6,087


6,773


(10)


6,623


(8)


Advertising and promotional

3,936


3,316


19


3,422


15


Travel and related

3,533


3,336


6


2,686


32


Intangible asset related

654


822


(20)


763


(14)


Other

6,068


5,271


15


5,826


4


Total Operating Expenses

157,778


163,112


(3)


159,773


(1)


Operating Income

66,028


69,020


(4)


68,199


(3)








Nonoperating Income (Expenses)






Investment income, net

4,059


2,272


79


4,428


(8)


Debt expense

(3,137)


(3,690)


(15)


(3,253)


(4)


Other, net

(30)


(128)


(77)


(40)


(25)


Total Nonoperating Income (Expenses), net

892


(1,546)


(158)


1,135


(21)


Income before income taxes

66,920


67,474


(1)


69,334


(3)


Income tax provision

25,059


24,401


3


24,646


2


Net income including noncontrolling interest in subsidiaries

41,861


43,073


(3)


44,688


(6)


Less: Net income attributable to the noncontrolling interest in subsidiaries

1,453


2,663


(45)


1,694


(14)


Net Income

$

40,408


$

40,410


0

%

$

42,994


(6)

%







Amounts Attributable to Federated






Earnings Per Share1






Basic and diluted

$

0.39


$

0.39


0

%

$

0.41


(5)

%

Weighted-average shares outstanding






Basic

100,716


100,347



100,518



Diluted

100,717


100,347



100,518



Dividends declared per share

$

0.24


$

0.24



$

0.24















1) Unvested share-based payment awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in
the computation of earnings per share under the "two-class method." As such, total net income of $1.5 million, $1.5 million and $1.7 million available to unvested
restricted shares for the quarterly periods ended June 30, 2013, June 30, 2012 and March 31, 2013, respectively, was excluded from the computation of earnings
per share.

 

Unaudited Condensed Consolidated Statements of Income


(in thousands, except per share data)







Six Months Ended



June 30, 2013

June 30, 2012

% Change

Revenue




Investment advisory fees, net

$

298,278


$

303,714


(2)

%

Administrative service fees, net

112,081


112,278


0


Other service fees, net

39,187


44,663


(12)


Other, net

2,231


1,758


27


Total Revenue

451,777


462,413


(2)






Operating Expenses




Compensation and related

134,792


129,280


4


Distribution

112,048


124,021


(10)


Professional service fees

18,137


20,240


(10)


Office and occupancy

12,975


12,371


5


Systems and communications

12,710


13,084


(3)


Advertising and promotional

7,358


6,244


18


Travel and related

6,219


6,087


2


Intangible asset related

1,417


843


68


Other

11,894


10,876


9


Total Operating Expenses

317,550


323,046


(2)


Operating Income

134,227


139,367


(4)






Nonoperating Income (Expenses)




Investment income, net

8,487


5,618


51


Debt expense

(6,390)


(7,401)


(14)


Other, net

(70)


(166)


(58)


Total Nonoperating Income (Expenses), net

2,027


(1,949)


(204)


Income before income taxes

136,254


137,418


(1)


Income tax provision

49,705


49,938


0


Net income including noncontrolling interest in subsidiaries

86,549


87,480


(1)


Less: Net income attributable to the noncontrolling interest in subsidiaries

3,147


4,745


(34)


Net Income

$

83,402


$

82,735


1

%





Amounts Attributable to Federated




Earnings Per Share1




Basic and diluted

$

0.80


$

0.80


0

%

Weighted-average shares outstanding




Basic

100,617


100,229



Diluted

100,618


100,229



Dividends declared per share

$

0.48


$

0.48












1) Unvested share-based payment awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be
considered in the computation of earnings per share under the "two-class method." As such, total net income of $3.2 million and $3.0 million
available to unvested restricted shares for the six months ended June 30, 2013 and June 30, 2012, respectively, was excluded from the
computation of earnings per share.

 

 

Unaudited Condensed Consolidated Balance Sheets

(in thousands)




June 30, 2013

Dec. 31, 2012

Assets



Cash and other investments

$

302,945


$

258,628


Other current assets

48,293


41,434


Intangible assets, net and goodwill

726,505


727,857


Other long-term assets

64,463


62,142


Total Assets

$

1,142,206


$

1,090,061





Liabilities, redeemable noncontrolling interest and equity



Current liabilities

$

146,326


$

181,134


Long-term debt

255,000


276,250


Other long-term liabilities

136,218


128,733


Redeemable noncontrolling interest

69,539


7,268


Equity excluding treasury stock

1,289,317


1,256,698


Treasury stock

(754,194)


(760,022)


Total Liabilities, Redeemable Noncontrolling Interest and Equity

$

1,142,206


$

1,090,061













 

 

Changes in Equity and Fixed-Income Fund and Separate Account Assets

(in millions)






Quarter Ended

Six Months Ended


June 30, 2013

March 31, 2013

June 30, 2012


June 30, 2013

June 30, 2012

Equity Funds







Beginning assets

$

24,491


$

23,152


$

23,612



$

23,152


$

21,930


Sales

1,918


1,752


1,529



3,670


3,352


Redemptions

(1,629)


(2,388)


(1,797)



(4,017)


(3,984)


Net sales (redemptions)

289


(636)


(268)



(347)


(632)


Net exchanges

43


47


3



90


(9)


Market gains and losses/reinvestments1

207


1,928


(676)



2,135


1,382


Ending assets

$

25,030


$

24,491


$

22,671



$

25,030


$

22,671









Equity Separate Accounts2







Beginning assets

$

13,361


$

11,858


$

10,505



$

11,858


$

8,957


Sales3

1,031


1,106


836



2,137


2,297


Redemptions3

(937)


(568)


(697)



(1,505)


(1,183)


Net sales3

94


538


139



632


1,114


Net exchanges

0


0


(9)



0


(9)


Market gains and losses/reinvestments1

220


965


(85)



1,185


488


Ending assets

$

13,675


$

13,361


$

10,550



$

13,675


$

10,550









Total Equity2







Beginning assets

$

37,852


$

35,010


$

34,117



$

35,010


$

30,887


Sales3

2,949


2,858


2,365



5,807


5,649


Redemptions3

(2,566)


(2,956)


(2,494)



(5,522)


(5,167)


Net sales (redemptions)3

383


(98)


(129)



285


482


Net exchanges

43


47


(6)



90


(18)


Market gains and losses/reinvestments1

427


2,893


(761)



3,320


1,870


Ending assets

$

38,705


$

37,852


$

33,221



$

38,705


$

33,221









Fixed-Income Funds







Beginning assets

$

42,612


$

42,478


$

38,526



$

42,478


$

37,241


Sales

5,232


5,148


5,636



10,380


10,458


Redemptions

(6,877)


(5,009)


(3,639)



(11,886)


(7,626)


Net (redemptions) sales

(1,645)


139


1,997



(1,506)


2,832


Net exchanges

(80)


(42)


(1,510)



(122)


(1,569)


Market gains and losses/reinvestments1

(699)


37


481



(662)


990


Ending assets

$

40,188


$

42,612


$

39,494



$

40,188


$

39,494









Fixed-Income Separate Accounts2







Beginning assets

$

10,158


$

10,233


$

7,695



$

10,233


$

7,573


Sales3

562


531


624



1,093


844


Redemptions3

(725)


(645)


(521)



(1,370)


(801)


Net (redemptions) sales3

(163)


(114)


103



(277)


43


Net exchanges

7


0


1,592



7


1,592


Market gains and losses/reinvestments1

(185)


39


84



(146)


266


Ending assets

$

9,817


$

10,158


$

9,474



$

9,817


$

9,474









Total Fixed Income2







Beginning assets

$

52,770


$

52,711


$

46,221



$

52,711


$

44,814


Sales3

5,794


5,679


6,260



11,473


11,302


Redemptions3

(7,602)


(5,654)


(4,160)



(13,256)


(8,427)


Net (redemptions) sales3

(1,808)


25


2,100



(1,783)


2,875


Net exchanges

(73)


(42)


82



(115)


23


Market gains and losses/reinvestments1

(884)


76


565



(808)


1,256


Ending assets

$

50,005


$

52,770


$

48,968



$

50,005


$

48,968



















1) Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net
investment income and the impact of changes in foreign exchange rates.


2) Includes separately managed accounts, institutional accounts and sub-advised funds and other managed products.


3) For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of Market
gains and losses/reinvestments.


 

 

Changes in Liquidation Portfolio

(in millions)






Quarter Ended


Six Months Ended


June 30, 2013

March 31, 2013

June 30, 2012


June 30, 2013

June 30, 2012

Liquidation Portfolio1







Beginning assets

$

7,019


$

7,346


$

8,583



$

7,346


$

8,856


Net redemptions

(458)


(327)


(458)



(785)


(731)


Market gains and losses/reinvestments2

0


0


(1)



0


(1)


Ending Assets

$

6,561


$

7,019


$

8,124



$

6,561


$

8,124



















1) Liquidation portfolio represents a portfolio of distressed bonds. Federated has been retained by a third party to manage these assets through an orderly
liquidation process that will generally occur over a multi-year period. Management-fee rates earned from this portfolio are lower than those of traditional
separate account mandates.

2) Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net
investment income and the impact of changes in foreign exchange rates.

 

 







MANAGED ASSETS

(in millions)

June 30, 2013

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

By Asset Class






Equity

$

38,705


$

37,852


$

35,010


$

35,355


$

33,221


Fixed-income

50,005


52,770


52,711


51,389


48,968


Money market

268,532


279,668


284,704


269,622


265,548


Liquidation portfolio1

6,561


7,019


7,346


7,718


8,124


Total Managed Assets

$

363,803


$

377,309


$

379,771


$

364,084


$

355,861


By Product Type






Funds:






Equity

$

25,030


$

24,491


$

23,152


$

23,658


$

22,671


Fixed-income

40,188


42,612


42,478


41,547


39,494


Money market

232,874


242,734


255,689


244,826


238,610


Total Fund Assets

$

298,092


$

309,837


$

321,319


$

310,031


$

300,775


Separate Accounts:






Equity

$

13,675


$

13,361


$

11,858


$

11,697


$

10,550


Fixed-income

9,817


10,158


10,233


9,842


9,474


Money market

35,658


36,934


29,015


24,796


26,938


Total Separate Accounts

$

59,150


$

60,453


$

51,106


$

46,335


$

46,962


Total Liquidation Portfolio1

$

6,561


$

7,019


$

7,346


$

7,718


$

8,124


Total Managed Assets

$

363,803


$

377,309


$

379,771


$

364,084


$

355,861



AVERAGE MANAGED ASSETS

Quarter Ended

(in millions)

June 30, 2013

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

By Asset Class






Equity

$

38,762


$

36,685


$

35,016


$

34,429


$

32,993


Fixed-income

52,375


52,732


52,211


50,195


47,747


Money market

274,899


284,588


273,943


268,573


271,507


Liquidation portfolio1

6,834


7,215


7,559


7,948


8,353


Total Avg. Assets

$

372,870


$

381,220


$

368,729


$

361,145


$

360,600


By Product Type






Funds:






Equity

$

25,094


$

24,037


$

23,209


$

23,133


$

22,642


Fixed-income

42,258


42,581


42,156


40,579


38,901


Money market

237,790


250,652


248,534


243,111


243,454


Total Avg. Fund Assets

$

305,142


$

317,270


$

313,899


$

306,823


$

304,997


Separate Accounts:






Equity

$

13,668


$

12,648


$

11,807


$

11,296


$

10,351


Fixed-income

10,117


10,151


10,055


9,616


8,846


Money market

37,109


33,936


25,409


25,462


28,053


Total Avg. Separate Accounts

$

60,894


$

56,735


$

47,271


$

46,374


$

47,250


Total Avg. Liquidation Portfolio1

$

6,834


$

7,215


$

7,559


$

7,948


$

8,353


Total Avg. Managed Assets

$

372,870


$

381,220


$

368,729


$

361,145


$

360,600


















1) Liquidation portfolio represents a portfolio of distressed bonds. Federated has been retained by a third party to manage these assets through an orderly
liquidation process that will generally occur over a multi-year period. Management-fee rates earned from this portfolio are lower than those of traditional
separate account mandates.

















 

 








AVERAGE MANAGED ASSETS

Six Months Ended


(in millions)

June 30, 2013


June 30, 2012


By Asset Class





Equity

$

37,724


$

32,910


Fixed-income

52,553


46,769


Money market

279,743


277,154


Liquidation portfolio1

7,025


8,528


Total Avg. Assets

$

377,045


$

365,361


By Product Type





Funds:





Equity

$

24,566


$

22,859


Fixed-income

42,419


38,514


Money market

244,221


247,640


Total Avg. Fund Assets

$

311,206


$

309,013


Separate Accounts:





Equity

$

13,158


$

10,051


Fixed-income

10,134


8,255


Money market

35,522


29,514


Total Avg. Separate Accounts

$

58,814


$

47,820


Total Avg. Liquidation Portfolio1

$

7,025


$

8,528


Total Avg. Managed Assets

$

377,045


$

365,361









1) Liquidation portfolio represents a portfolio of distressed bonds. Federated has been retained by a third party to manage these assets through an orderly
liquidation process that will generally occur over a multi-year period. Management-fee rates earned from this portfolio are lower than those of traditional
separate account mandates.









 

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