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 JUNE 30, 1999 ---------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TE 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 August 4, 1999, the Registrant had outstanding 6,000 shares of Class A Common Stock and 84,267,450 shares of Class B Common Stock.
Federated Investors, Inc. Form 10-Q For the Three Months and Six Months Ended June 30, 1999 Index PAGE NO. Part I. Financial Information Item 1.Financial Statements Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 3 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Part II. Other Information Item 6.Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K 18 (b) Reports on Form 8-K 18 Signatures 19 <TABLE> <CAPTION> FEDERATED INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited) JUNE 30, DECEMBER 31, 1999 1998 ------------- ------------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents...................................................................156,257.........185,581 Securities available for sale...................................................................55,309..........13,398 Receivables, net of reserve of $456 and $1,276, respectively................................................................................... 32,135 30,969 Accrued revenues..............................................................................4,914...........3,666 Prepaid expenses..............................................................................3,628...........4,688 Other current assets..........................................................................2,075...........3,958 Total current assets.............................................................254,318.........242,260 LONG-TERM ASSETS: Customer relationships, net of accumulated amortization of $10,601 and $39,571, respectively....................................................................................11,812..........17,743 Goodwill, net of accumulated amortization of $14,887 and $13,762, respectively....................................................................................33,981..........35,107 Other intangible assets, net of accumulated amortization of $100 and $3,608, respectively 91 103 Deferred sales commissions, net 284,924 258,593 Property and equipment, net of accumulated depreciation of $43,734 and $42,949, respectively....................................................................................31,649..........21,550 Other long-term assets.......................................................................17,114...........4,664 Total long-term assets..........................................................379,571.........337,760 Total assets...............................................................633,889.........580,020 ============= ============= CURRENT LIABILITIES: Cash $ $ overdraft........................................................................................5,350...........5,932 Current portion of long-term debt - recourse....................................................249............ 239 Accrued expenses.............................................................................39,045..........51,096 Accounts payable.............................................................................26,293..........24,864 Income taxes payable..........................................................................3,289...........2,522 Other current liabilities.....................................................................2,402...........1,675 Total current liabilities........................................................76,628..........86,328 LONG-TERM LIABILITIES: Long-term debt - recourse....................................................................98,571..........98,698 Long-term debt - nonrecourse................................................................296,627.........272,850 Deferred tax liability, net..................................................................32,547..........29,949 Other long-term liabilities...................................................................5,315...........2,818 Total long-term liabilities....................................................................433,060.........404,315 Total liabilities..............................................................................509,688.........490,643 Minority interest..................................................................................326.............671 SHAREHOLDERS' EQUITY : Common Stock : Class A, no par value, 20,000 shares authorized, 6,000 shares issued and outstanding...................................................................................189 189 Class B, no par value, 900,000,000 shares authorized, 86,337,000 shares issued........................................................................................75,139 75,090 Retained earnings......................................................................................64,913..........14,556 Treasury stock, at cost, 1,083,950 and 138,750 shares Class B Common Stock, respectively..................................................................................(14,876) (23) Employee restricted stock plan...........................................................................................(1,272).........(1,512) Accumulated other comprehensive income...........................................................................................(218).............406 ------------- ------------- Total shareholders' equity......................................................123,875..........88,706 ------------- ------------- Total liabilities, minority interest, and shareholders' $ $ equity.........................................................................................633,889.........580,020.......... ============= ============= </TABLE> <TABLE> <CAPTION> (THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.) FEDERATED INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED (dollars in thousands, except per share data) JUNE 30, JUNE 30, ---------------------- -------------------------- (unaudited) 1999 1998 1999 1998 ---------- --------- ----------- ------------ <S> <C> <C> <C> <C> REVENUE: Investment advisory fees, net-Federated funds..........$75,277.......$64,862.......$149,117 $126,767 Investment advisory fees, net-other.................... 2,857.........1,880...... 5,122 3,652 Administrative service fees, net-Federated funds....... 20,171........17,696.........39,972 34,959 Administrative service fees, net-other...................5,753.........6,224.........11,056 12,884 Other service fees, net-Federated funds.................31,370........25,146... 59,749 47,642 Other service fees, net-other........................... 5,717... ....5,713.........11,077 11,992 Commission income........................................1,088.........1,201..........2,078 2,142 Interest and dividends...................................3,410... . ...2,163..........6,489 3,559 Gain (loss) on sale of securities available for sale........19...... .(148).......... 767 41 Other income.............................................4,516... ....1,479... .......6,019 5,171 Total revenue.....................................150,178..... 126,216........ 291,446........248,809 ---------- --------- ----------- ------------ OPERATING EXPENSES: Compensation and related.............................. 38,842......37,283.........77,945 74,801 Advertising and promotional............................. 12,725.......9,731.........25,584 20,939 Systems and communications................................6,471.......6,732.........13,809 13,093 Office and occupancy......................................6,283.......7,298.........12,698 13,923 Professional service fees.................................6,863.......3,117.........12,813 8,708 Travel and related........................................3,803.......3,563..........7,150 6,686 Amortization of deferred sales commissions.............. 11,644.......9,531.........21,885 14,706 Amortization of intangible assets.........................3,463.......3,778..........7,069 7,554 Other..........................................................1,561.......2,007..........1,976 5,330 ---------- --------- ----------- ------------ Total operating expenses............................91,655....83,040........180,929.........165,740 ---------- --------- ----------- ------------ Operating income..............................................58,523......43,176........110,517..........83,069 ---------- --------- ----------- ------------ NONOPERATING EXPENSES: Debt expense - recourse....................................2,211......2,213.........4,431 4,419 Debt expense - nonrecourse.................................5,667......4,548........11,130 8,494 Total nonoperating expenses...........................7,878......6,761........15,561.........12,913 ---------- --------- ----------- ------------ Income before minority interest and income taxes..............50,645 36,415 94,956 70,156 Minority interest..............................................2,591.......2,213 5,040 4,208 ---------- --------- ----------- ------------ Income before income taxes....................................48,054.......34,202........ 89,916 65,948 Income tax provision..........................................17,537......13,131 32,678 24,039 ---------- --------- ----------- ------------ Net income $30,517.....$21,071........$57,238........$41,909 ========== ========= =========== ============ EARNINGS PER SHARE: $ 0.36 $ 0.25 $ 0.68 $ 0.50 Basic ========== ========= =========== ============ Diluted...............................................$ 0.35 $ 0.24 $ 0.66 $ 0.49 ========== ========= =========== ============ Cash dividends per $ 0.0420 $ 0.0380 $ 0.0800 $ 0.0588 share ========== ========= =========== ============ </TABLE> PER SHARE AMOUNTS HAVE BEEN RESTATED TO REFLECT THE ONE-FOR-ONE AND THE ONE-FOR-TWO STOCK DIVIDENDS PAID IN 1998. <TABLE> <CAPTION> (THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.) FEDERATED INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED (dollars in thousands) JUNE 30, ---------------------- (unaudited) 1999 1998 ---------- --------- <S> <C> <C> OPERATING ACTIVITIES: Net $ 57,238 $ 41,909 income ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Amortization of intangible 7,069 7,554 assets Depreciation and other 3,429 3,803 amortization Amortization of deferred sales 21,885 14,706 commissions Minority 5,040 4,208 interest Gain on disposal of property and (2,942) (59) equipment Amortization of employee restricted stock and other compensation 289 521 plans Provision (benefit) for deferred income 2,976 (210) taxes Net realized gain on sale of securities available for (767) (41) sale Deferred sales commissions (65,786) (80,046) paid Contingent deferred sales charges 17,570 10,180 received Foreign currency translation, net of tax (35) (1) 12 0 Other Other changes in assets and liabilities: Increase in receivables, (1,166) (1,914) net (Increase) decrease in accrued (1,248) 226 revenues Decrease in prepaid expenses and other current 2,944 491 assets (Increase) decrease in other long-term (1,458) 342 assets (Decrease) increase in accounts payable and accrued (10,622) 15,046 expenses Increase in income taxes 766 7,401 payable Increase (decrease) in other current 146 (5,666) liabilities Increase in other long-term 2,505 78 liabilities ---------- --------- Net cash provided by operating 37,845 18,528 activities ---------- --------- INVESTING ACTIVITIES: Additions to property and (14,036) (1,603) equipment Proceeds from disposal of property and 4,007 0 equipment Cash paid for 0 (308) acquisitions Investment in joint (592) 0 venture Purchases of securities available for (70,684) (1,063) sale Proceeds from redemptions of securities available for 17,598 7,598 sale ---------- --------- Net cash (used) provided by investing (63,707) 4,624 activities ---------- --------- FINANCING ACTIVITIES: Distributions to minority (5,386) (4,314) interest Dividends (6,883) paid............................................................................................(4,920) Proceeds from issuance of common 0 47,532 stock/options Purchase of treasury 0 stock..............................................................................(14,853) Proceeds from new borrowings - 63,431 nonrecourse......................................................................................73,609 Payments on debt - (117) (137) recourse Payments on debt - (39,654) nonrecourse....................................................................................(24,924) ---------- --------- Net cash (used) provided by financing (3,462) 86,846 activities ---------- --------- Net (decrease) increase in cash and cash (29,324) 109,998 equivalents Cash and cash equivalents, beginning of 185,581 22,912 period ---------- --------- Cash and cash equivalents, end of $ 156,257 $ 132,910 period ========== ========= </TABLE> (THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.) FEDERATED INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Summary of Significant Accounting Policies (a) BASIS OF PRESENTATION The interim consolidated financial statements of Federated Investors, Inc. (Federated) included herein have been prepared in accordance with generally accepted accounting principles. In the opinion of management, the financial statements reflect all adjustments which are of a normal recurring nature and necessary for a fair statement of the results for the interim periods presented. In preparing the unaudited interim consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results will differ from such estimates and such differences may be material to the financial statements. These financial statements should be read in conjunction with Federated's Annual Report on Form 10-K for the year ended December 31, 1998. Certain items previously reported have been reclassified to conform with the current year's presentation. (b) RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), requires that all derivatives, including hedges, be recorded at fair value and that all changes in the fair value or cash flow of both the hedge and the hedged item be recognized in earnings in the same period. SFAS 133 is effective for years beginning after June 15, 2000. Federated intends to adopt SFAS 133 effective January 1, 2001, and does not expect this adoption to have a significant effect on earnings or the financial position of Federated based on the current minimal use of derivatives. (2) Securitization of B Share Assets and Nonrecourse Debt Federated sells the rights to the future revenue streams associated with the 12b-1, shareholder service and contingent deferred sales charges (CDSC) fees 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 Assets and Nonrecourse Debt, Continued The following tables summarize the changes in both the deferred sales commissions and nonrecourse debt related to this agreement: Six Months Ended June 30, 1999 ---------------- (IN THOUSANDS) Deferred B Share Sales Commissions: Financed balance at December 31, $ 249,580 1998........................... B Share sales commissions 61,919 financed.............................. CDSC fees (16,976) collected................................................. Amortization...................................(19,917) ---------------- Financed balance at June 30, $ 274,606 1999....................................... ================ Nonrecourse Debt: Balance at December 31, $ 272,850 1998............................................. Additional 63,431 financings............................................... Payments of nonrecourse (39,654) debt......................................... ---------------- Balance at June 30, $ 296,627 1999................................................... ================ <TABLE> <CAPTION> Below is the activity of the nonrecourse debt tranches: (IN THOUSANDS) ----------------------------------------------------------- <S> <C> <C> <C> <C> <C> Interest Balance Additional Balance Tranche Rate 12/31/98 Financings Payments 6/30/99 - ----------------------------------- -------------- ------------- ----------- ----------- ------------ 1997-1 Class A.......................7.44% $ 74,251 $ $ 11,040 $ 63,211 - 1997-1 Class B.......................9.80% 9,700 9,700 - - Financings 10/97 through 6.68% - 7.60% 188,899 63,431 28,614 223,716 6/99............................. ============= =========== =========== ============ $ 272,850 $ 63,431 $ 39,654 $ 296,627 ============= =========== =========== ============ </TABLE> (3) Long-Term Debt - Recourse <TABLE> <CAPTION> Federated's long-term debt - recourse consisted of the following: Interest June 30, December 31, Rate 1999 1998 ----------- ------------- ------------- (IN THOUSANDS) <S> <C> <C> <C> Recourse Debt: Senior Secured Note Purchase 7.96% $ 98,000 $ 98,000 Agreement............................. Capitalized 7.1%-8.5% 820 937 leases........................................................ ------------- ------------- Total recourse 98,820 98,937 debt......................................................... Less current 249 239 portion...................................................... ------------- ============= ============= Total long-term debt - recourse...................$ 98,571 $ 98,698 ============= ============= </TABLE>
FEDERATED INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (UNAUDITED) (4) Common Stock (a) Initial Public Offering and Subsequent Merger On May 19, 1998, Federated Investors was merged with and into Federated Investors, Inc., its wholly owned subsidiary. All outstanding Class A and Class B common shares of Federated Investors were exchanged for an equal number of shares of no par Class A and Class B common stock of Federated Investors, Inc., respectively, with the same proportionate ownership and substantially similar rights, and all Treasury Stock of Federated Investors was retired. As a condition precedent to the merger described above, Federated Investors, Inc. issued an additional 2,610,000 shares of Class B common stock in an initial public offering for net cash proceeds of approximately $46.2 million. (b) Dividends Federated's Senior Secured Credit Agreement allows dividends in an amount not to exceed $20 million plus 50% of any net income (less 100% of any loss) of Federated less any stock repurchase payments during the period from January 1, 1998 to and including the date of payment. The Senior Secured Note Purchase Agreement allows dividends to an amount of $5 million plus 50% of any net income (less 100% of any loss) of Federated during the period from January 1, 1996 to and including the date of payment. Cash dividends of $0.038 and $0.042 per share or approximately $3.3 million and $3.6 million, were paid in the first and second quarter of 1999, respectively, to holders of common shares. Additionally, on July 20, 1999, the board of directors declared a dividend of $0.042 per share to be paid on August 13, 1999, to shareholders of record as of August 2, 1999. After the payment of the dividend on August 13, 1999, and stock repurchase payments through August 4, 1999, approximately $39.5 million is available to pay dividends under the more restrictive of the two debt covenant limitations. (c) Employee Stock Purchase Plan In July 1998, Federated established an Employee Stock Purchase Plan which allows employees to purchase a maximum of 500,000 shares of Class B common stock. Employees may contribute up to 10% of their salary to purchase shares of Federated's Class B common stock on a quarterly basis at the market price. The shares under the plan may be newly issued or may be shares purchased on the open market. As of June 30, 1999, 9,333 shares have been purchased by employees in this plan. (d) Stock Repurchase Program On January 26, 1999, the board of directors approved a share repurchase program authorizing Federated to purchase up to $20.0 million of Federated Class B common stock over the next 12 months in open market transactions. On July 20, 1999, a second share repurchase program was approved by the board authorizing Federated to purchase an additional five million shares of Federated Class B common stock in open market and private transactions over the next 12 months. The programs authorize executive management to determine the timing and the amount of shares for each purchase. The stock will be held in treasury for employee benefit plans, potential acquisitions and other corporate activities. As of June 30, 1999, Federated had purchased 900,200 shares of Class B common stock for approximately $14.8 million under the first program. As of August 4, 1999, Federated has expended the total allowable amount of $20.0 million with the purchase of 1,184,653 shares of Class B common stock under the first program and has repurchased an additional 701,147 shares of Class B common stock for $13.3 million under the second program.
FEDERATED INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (UNAUDITED) (5) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> Numerator: Net income...................................$ 30,517 $ 21,071 $ 57,238 $ 41,909 ========= ========= ========= ========= Denominator: Basic weighted-average shares 84,418 83,964 84,708 83,090 outstanding................................................. Dilutive potential shares from stock-based 2,526 2,673 2,552 2,485 compensation............. --------- --------- --------- --------- Diluted weighted-average shares 86,944 86,637 87,260 85,575 outstanding............................................. ========= ========= ========= ========= Basic earnings per $ 0.36 $ 0.25 $ 0.68 $ 0.50 share............................................................................ ========= ========= ========= ========= Diluted earnings per $ 0.35 $ 0.24 $ 0.66 $ 0.49 share............................................................................ ========= ========= ========= ========= </TABLE> (6) Comprehensive Income Comprehensive income was $30.3 million and $21.1 million for the three-month periods ended June 30, 1999 and 1998, respectively, and $56.6 million and $41.9 million for the six-month periods ended June 30, 1999 and 1998, respectively. Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations <TABLE> <CAPTION> HIGHLIGHTS SELECTED OPERATING DATA Three Months Ended Six Months Ended (DOLLARS IN THOUSANDS, EXCEPT PER SHARE June 30, June 30, DATA) --------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ---------- ---------- <S> <C> <C> <C> <C> Total revenue..................................$ 150,178 $ 126,216 $ 291,446 $ 248,809 Operating 91,655 83,040 180,929 165,740 expenses........................................................................................... ----------- ----------- ---------- ---------- Operating 58,523 43,176 110,517 83,069 income............................................................................................. Nonoperating expenses and minority 10,469 8,974 20,601 17,121 interest......................................................... ----------- ----------- ---------- ---------- Income before income 48,054 34,202 89,916 65,948 taxes............................................................................ Income tax 17,537 13,131 32,678 24,039 provision........................................................................................ =========== =========== ========== ========== Net income.....................................$ 30,517 $ 21,071 $ 57,238 $ 41,909 =========== =========== ========== ========== Operating margin percentage 39.0% 34.2% 37.9% 33.4% Earnings per share - $ 0.36 $ 0.25 $ 0.68 $ 0.50 basic............................................................ Earnings per share $ 0.35 $ 0.24 $ 0.66 $ 0.49 - -diluted............................................................ </TABLE> MANAGED AND ADMINISTERED ASSETS AT PERIOD END (IN MILLIONS) June 30, % <TABLE> <CAPTION> --------------------------- 1999 1998 Change ----------- ----------- -------- <S> <C> <C> <C> Money market $ 77,894 $ 67,842 14.8% funds Equity 18,199 14,561 25.0% funds Fixed income 16,725 15,816 5.7% funds Separate 4,516 2,350 92.2% accounts =========== =========== Total Managed $ 117,334 $ 100,569 16.7% Assets =========== =========== Total Administered $ 34,643 $ 55,528 -37.6% Assets =========== =========== </TABLE> <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> AVERAGE MANAGED AND ADMINISTERED ASSETS Three Months Ended Six Months Ended (IN MILLIONS) June 30, % June 30, % --------------------------- -------------------------- 1999 1998 Change 1999 1998 Change ----------- ----------- -------- ---------- ---------- -------- Money market $ 79,335 $ 65,439 21.2% $ 78,915 $ 65,135 21.2% funds................................................................................. Equity 17,386 14,195 22.5% 16,596 13,381 24.0% funds...................................................................................................... Fixed income 16,938 15,787 7.3% 16,874 15,597 8.2% funds......................................................................................... Separate 4,356 2,330 87.0% 3,707 2,313 60.3% accounts................................................................................................. =========== =========== ========== ========== Total average Managed $ 118,015 $ 97,751 20.7% $ 116,092 $ 96,426 20.4% Assets................................................................. =========== =========== ========== ========== Total average Administered $ 34,569 $ 54,411 -36.5% $ 32,012 $ 52,179 -38.6% Assets................................................................. =========== =========== ========== ========== </TABLE>
<TABLE> <CAPTION> COMPONENTS OF CHANGES IN EQUITY AND FIXED INCOME FUND MANAGED ASSETS <S> <C> <C> <C> <C> (IN Three Months Ended Six Months Ended MILLIONS) June 30, June 30, --------------------------- ---------------------------- EQUITY 1999 1998 1999 1998 - ------- FUNDS ---------- ----------- ----------- ----------- Beginning $ 16,126 $ 13,843 $ 15,503 $ 11,710 assets.................................................................. ---------- ----------- ----------- ----------- Sales..............................1,535 1,403 2,904 2,793 Redemptions.......................(998) (711) (2,005) (1,342) ---------- ----------- ----------- ----------- Net 537 692 899 1,451 sales...................................... Net 68 (69) 79 (18) exchanges...................................... Other*............................1,468 95 1,718 1,418 ========== =========== =========== =========== Ending $ 18,199 $ 14,561 $ 18,199 $ 14,561 assets.................................................................... ========== =========== =========== =========== FIXED INCOME FUNDS Beginning $ 16,967 $ 15,601 $ 16,437 $ 15,067 assets................................................................... ---------- ----------- ----------- ----------- Sales..............................1,645 1,404 3,421 2,981 Redemptions........................(1,496) (1,138) (2,955) (2,201) ---------- ----------- ----------- ----------- Net 149 266 466 780 sales...................................... Net (110) (127) 97 (257) exchanges...................................... Other*............................281) 76 (275) 226 ========== =========== =========== =========== Ending $ 16,725 $ 15,816 $ 16,725 $ 15,816 assets................................................................... ========== =========== =========== =========== </TABLE> * Primarily reinvested dividends and distributions, net investment income and changes in the value of securities held by the funds. In preparing the discussion and analysis below, Federated has presumed that the readers of the interim financial information have read or have access to Federated's discussion and analysis of financial condition and results of operations contained in Federated's Annual Report on Form 10-K for the year ended December 31, 1998. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998 NET INCOME. Net income for the three months ended June 30, 1999 was $30.5 million, or $0.35 per diluted share, as compared to $21.1 million, or $0.24 per diluted share for the same period in 1998. Net income for the second quarter 1999 included a non-recurring $1.9 million after-tax gain on the sale of certain non-earning assets. Excluding the effect of this gain, Federated would have realized net income of $28.6 million or $0.33 per diluted common share for the second quarter 1999. REVENUE. Federated's consolidated revenue increased $24.0 million, or 19.0%, to $150.2 million for the second quarter 1999 from $126.2 million for the same period in 1998. Revenue from managed assets increased $20.0 million, or 18.0%, due principally to the 20.7% increase in average managed assets to $118.0 billion for the second quarter 1999 from $97.8 billion for the second quarter 1998, including increases of 21.2%, 22.5% 7.3%, and 87.0% in money market funds, equity funds, fixed income funds, and separate accounts, respectively. The large percentage increase in separate accounts is predominantly due to the assets associated with the newly formed joint venture in Germany and the collateralized bond obligation. Service-related revenues from sources other than managed assets decreased by $0.5 million due primarily to the 36.5% reduction in average administered assets from $54.4 billion for the second quarter 1998 to $34.6 billion for the second quarter 1999, resulting from the termination of service contracts in 1998. Interest and dividends increased by $1.2 million, or 57.6%, over the prior year second quarter as a result of higher levels of invested cash resulting from cash generated from operations and to a lesser extent, the net proceeds from Federated's initial public offering in May 1998. Other income increased $3.0 million, or 205%, from $1.5 million for the second quarter 1998 to $4.5 million for the same period in 1999 as a result of a non-recurring gain realized on the sale of certain non-earning assets in the second quarter 1999. OPERATING EXPENSES. Total operating expenses were $91.7 million for the second quarter 1999 as compared to $83.0 million for the second quarter 1998, an increase of $8.7 million, or 10.4%. Expense management continues to be a major focus for Federated, with expense increases largely attributable to increases in variable expenses due to continued sales and the resultant growth in assets under management as well as higher levels of profitability. As a result, expense growth has been contained at levels substantially below the 19.0% increase in revenues and, accordingly, operating margins have improved to 37.7% for the quarter ended June 30, 1999 (excluding the effect of the non-recurring sale of non-earning assets) from 34.2% for the same period in 1998. Compensation and related expenses were $38.8 million for the second quarter 1999 as compared to $37.3 million for the same period in 1998. This increase of $1.5 million, or 4.2% is due principally to salary increases for employees over the prior year as well as the resulting increases in payroll taxes and retirement plan matching contributions. Advertising and promotional expenses were $12.7 million for the second quarter 1999 as compared to $9.7 million for the second quarter 1998. This increase of $3.0 million, or 30.8% reflects higher levels of marketing allowances being paid to brokers and bank clients for retailing efforts of marketing funds. Office and occupancy expenses were $6.3 million in the second quarter 1999 as compared to $7.3 million in the same period of 1998. This decrease of $1.0 million or 13.9% is largely attributable to reduced rent expense for leased office space as a result of the consolidation of certain servicing functions and the ultimate reduction in leased office space in late 1998. The decrease also reflects decreased depreciation expense attributable to the retirement of certain property and equipment in the fourth quarter 1998. Professional service fees were $6.9 million for the second quarter 1999 as compared to $3.1 million for the same period in 1998. This increase of $3.8 million, or 120.2% is largely due to increased service fees related to subcontracted portfolio accounting services as well as increased legal and consulting fees related to the German joint venture, Year 2000, and other system related projects. Amortization of deferred sales commissions was $11.6 million for the second quarter 1999 as compared to $9.5 million for the same period in 1998. This increase of $2.1 million, or 22.2% is due to higher levels of deferred sales commissions as a result of the continued sale of shares of funds which require Federated to advance commissions to the broker / dealers. Other expenses were $1.6 million for the second quarter 1999 as compared to $2.0 million for the second quarter 1998. This decrease of $0.4 million or 22.2% is predominantly attributable to the rebate of certain non-income related taxes. NONOPERATING EXPENSES. Nonoperating expenses were $7.9 million for the second quarter 1999 as compared to $6.8 million for the same period of 1998. This increase of $1.1 million or 16.5% reflects an increase in interest expense recognized relative to the higher level of nonrecourse debt incurred as a result of the continued financing of certain future cash flows related to the B Share fund assets. MINORITY INTEREST. The minority interest was $2.6 million for the second quarter 1999 as compared to $2.2 million for the second quarter 1998. This increase of $0.4 million or 17.0% is a result of higher net income being recorded for the subsidiary for which Federated acts as the general partner with a majority interest of 50.5%. The increase in income is attributable to higher average managed assets of the funds which the subsidiary advises. INCOME TAXES. The income tax provision for the second quarter 1999 was $17.5 million as compared to $13.1 million for the second quarter 1998, an increase of $4.4 million, or 33.6%. This increase is due primarily to the increase in the level of income before income taxes from $34.2 million for the second quarter 1998 to $48.1 million for the second quarter 1999, an increase of $13.9 million or 40.5%. The effective tax rate for the second quarter 1999 and 1998 was 36.5% and 38.4%, respectively.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998 NET INCOME for the first six months of 1999 was $57.2 million, or $0.66 per diluted share, compared with net income of $41.9 million, or $0.49 per diluted share, for the same period in 1998. The increase primarily reflects increased revenues generated from higher levels of average managed and administered assets and a non-recurring $1.9 million after-tax gain recorded on the sale of certain non-earning assets. Excluding the effect of this gain, Federated would have realized net income of $55.3 million, or $0.63 per diluted share. REVENUE. Total revenue increased by $42.6 million or 17.1% to $291.4 million in the first six months of 1999 from $248.8 million in the first six months of 1998. Approximately $40.9 million, or 96.0% of the increase in total revenue is due to increased average managed assets. Average managed assets increased $19.7 billion or 20.4% from $96.4 billion for the first six months of 1998 to $116.1 billion for the same period in 1999, including increases of 21.2%, 24.0%, 8.2%, and 60.3% in money market funds, equity funds, fixed income funds, and separate accounts, respectively. The large percentage increase in separate accounts is predominantly due to the assets associated with the newly formed joint venture in Germany and the collateralized bond obligation. Service related revenues from sources other than managed assets decreased by approximately $2.7 million due primarily to a decrease in average administered assets. Average administered assets decreased $20.2 billion or 38.6% from $52.2 billion for the first six months of 1998 to $32.0 billion for the same period in 1999, resulting from the termination of service contracts in 1998. Interest and dividends increased by $2.9 million as a result of higher levels of invested cash from cash generated from operations and to a lesser extent, the net proceeds from the initial public offering. Other income improved $0.8 million and in the first six months of 1999 included a non-recurring $3.0 million gain from the sale of certain non-earning assets while in the first six months of 1998 included $2.5 million of income from a servicing contract buyout of a bank-sponsored mutual fund complex. OPERATING EXPENSES. Total operating expenses increased to $180.9 million for the six month period ended June 30, 1999 from $165.7 million for the same period in 1998, an increase of $15.2 million or 9.2%. Compensation and related expenses were $77.9 million for the first six months of 1999 as compared to $74.8 million for the same period in 1998. This increase of $3.1 million or 4.2% is mainly attributable to an increase in employee salaries over the prior year and resultant increases in payroll taxes and retirement plan expenses. Advertising and promotional expenses were $25.6 million for the first six months of 1999 as compared to $20.9 million for the same period in 1998. This increase of $4.7 million or 22.2% is primarily the result of higher levels of marketing allowances being paid to brokers and bank clients for retailing efforts of marketing funds. Systems and communications expenses were $13.8 million for the first six months of 1999 as compared to $13.1 million for the same period in 1998. This increase of $0.7 million or 5.5% is primarily due to new computer hardware leasing agreements and increased costs to third-party system vendors in the first half of 1999. Office and occupancy expenses were $12.7 million for the first six months of 1999 as compared to $13.9 million for the first six months of 1998. The decrease of $1.2 million or 8.8% is primarily attributable to reduced rent expense for leased office space as a result of the consolidation of certain servicing functions and the ultimate reduction in leased office space in late 1998. Professional service fees expenses were $12.8 million for the first six months of 1999 as compared to $8.7 million for the same period in 1998. The increase of $4.1 million or 47.2% is largely the result of increased service fees related to subcontracted portfolio accounting services, as well as increased legal and consulting fees related to the German joint venture, Year 2000, and other system related projects. Amortization of deferred sales commissions were $21.9 million for the first six months of 1999 as compared to $14.7 million for the same period in 1998. This increase of $7.2 million or 48.8% is due to higher levels of deferred sales commissions as a result of the continued sale of shares of funds which require the Company to advance a commission to the broker/dealers. Other expenses were $2.0 million for the first six months of 1999 as compared to $5.3 million for the first six months of 1998. This decrease of $3.3 million or 62.9% is primarily attributable to the reduction of bad debt expense as a result of improved collection of accounts receivable and the rebate of certain non-income related taxes. NONOPERATING EXPENSES. Nonoperating expenses were $15.6 million for the first six months of 1999 as compared to $12.9 million for the same period in 1998, an increase of $2.7 million or 20.5%. This increase is primarily due to increased interest expense attributable to higher average nonrecourse debt levels incurred for the securitization of certain B share fund assets. MINORITY INTEREST. The minority interest increased to $5.0 million for the first six months of 1999 from $4.2 million for the same period in 1998 as a result of higher net income for the subsidiary for which the Company acts as the general partner with a majority interest of 50.5%. The increase in income is attributable to higher average managed assets of the funds advised by the subsidiary. INCOME TAXES. The income tax provision for the six month period ended June 30, 1999 was $32.7 million as compared to $24.0 million for the same period in 1998, an increase of $8.7 million or 35.9%. This increase was due primarily to the 36.3% increase in the level of income before income taxes from $65.9 million for the six months ended June 30, 1998 to $89.9 million for the six months ended June 30, 1999. The effective tax rate for the six month periods ended June 30, 1999 and 1998 were 36.3% and 36.5%, respectively. CAPITAL RESOURCES AND LIQUIDITY CASH FLOW. Cash provided by operating activities totaled $37.8 million for the first six months of 1999 as compared to $18.5 million for the first six months of 1998. The increase is largely attributable to increased profitability. Cash flows from operating activities for the first six months of 1999 were primarily utilized for purchases of securities available for sale, purchases of property and equipment, dividend payments, distributions to the minority interest, the repurchase of treasury stock as well as payments on long-term debt. Purchases of securities available for sale in the first six months of 1999 included Federated's $11.0 million investment in subordinated notes of a collateralized bond obligation (CBO). Federated purchased the subordinated notes, which are classified as "Other long-term assets" in the Consolidated Balance Sheets, in the second quarter of 1999. DEFERRED SALES COMMISSIONS AND NONRECOURSE DEBT. Certain subsidiaries of Federated pay commissions to broker / dealers (deferred sales commissions) to promote investments in certain mutual funds. For mutual fund shares sold under such marketing programs, Federated retains certain distribution and servicing fees from the mutual fund over the outstanding life of such shares. These fees consist of 12b-1, shareholder service and contingent deferred sales charge (CDSC) fees. Both 12b-1 and shareholder service fees are calculated as a percentage of average managed assets associated with the related classes of shares. If shares are redeemed before the end of a specified holding period as outlined in the related mutual fund prospectus, the mutual fund shareholder is normally required to pay Federated a CDSC fee based on a percentage of the lower of the current market value or the original cost basis of the redeemed shares, such percentage diminishing over a recovery schedule not to exceed six years. For non-B Share related sales, the up-front commissions Federated pays to broker / dealers are capitalized, recorded as deferred sales commissions and amortized over the estimated benefit period not to exceed CDSC periods. The 12b-1 and shareholder service fees are recognized in the statements of income over the life of the mutual fund class share. 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 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 demonstrates the effects of the B Share financing program on both the Consolidated Balance Sheets at June 30, 1999 and December 31, 1998, and the Consolidated Statements of Income for the three and six-month periods ended June 30, 1999 and 1998: <TABLE> <CAPTION> (IN THOUSANDS) 1999 1998 - --------------------------------------------------------------------------------------------- <S> <C> <C> JUNE 30 AND DECEMBER 31, RESPECTIVELY Assets Deferred sales commissions, net* $ 274,606 $ 249,580 Receivables 6,910 6,314 Other long-term assets 2,428 2,798 Liabilities Long-term debt - nonrecourse $ 296,627 $ 272,850 Accounts payable 4,777 3,951 THREE MONTHS ENDED JUNE 30 Revenues Other service fees, net - Federated $ 17,526 $ 12,738 funds Expenses Amortization of deferred sales $ 10,654 $ 8,691 commissions Debt expense - nonrecourse 5,667 4,548 Other expenses 147 185 SIX MONTHS ENDED JUNE 30 Revenues Other service fees, net - Federated $ 33,455 $ 23,786 funds Expenses Amortization of deferred sales $ 19,917 $ 13,208 commissions Debt expense - nonrecourse 11,130 8,494 Other expenses 307 431 </TABLE> * EXCLUDES DEFERRED SALES COMMISSIONS RELATED TO B SHARE REVENUE STREAMS WHICH HAVE NOT BEEN FINANCED AS OF THE END OF THE PERIOD DUE TO THE TIMING OF THE SALE OF THE REVENUE STREAMS TO THE THIRD PARTY. Due to the nonrecourse nature of this financing arrangement, the $17.5 million excess of B Share-related liabilities over the related assets at June 30, 1999, will be recognized in income over the remaining life of the B Share cash flows. CAPITAL EXPENDITURES. Capital expenditures totaled $14.0 million for the first six months of 1999, which excludes Year 2000-related project costs described below. DIVIDENDS. Federated's board of directors adopted a policy in 1998 to declare and pay cash dividends on a quarterly basis. A dividend of $0.042 per share was paid in the second quarter of 1999. On July 20, 1999, Federated's board of directors declared a dividend of $0.042 per share to be paid on August 13, 1999 to registered shareholders as of August 2, 1999. After the payment of the dividend on August 13, 1999, and stock repurchase payments through August 4, 1999, and given current debt covenants, Federated, has the ability to pay dividends of approximately $39.5 million. DEBT FACILITIES. Federated has the following recourse debt facilities: Senior Secured Credit Agreement and Senior Secured Note Purchase Agreement. SENIOR SECURED CREDIT AGREEMENT: At June 30, 1999, the outstanding balance under the Senior Secured Credit Agreement was zero with an amount available to borrow of $150.0 million. The Senior Secured Credit Agreement contains various financial and other covenants. Federated was in compliance with all debt covenants at June 30, 1999. SENIOR SECURED NOTE PURCHASE AGREEMENT: The Senior Secured Note Purchase Agreement debt totaled $98.0 million as of June 30, 1999. The notes are due in seven annual $14.0 million installments beginning June 27, 2000, and maturing June 27, 2006. Federated was in compliance with all debt covenants at June 30, 1999. CAPITALIZED LEASE OBLIGATIONS. At June 30, 1999, Federated had capitalized lease obligations totaling $0.8 million related to certain telephone equipment. The scheduled principal payments approximate $0.2 million per year for 1999 through 2002. SHAREHOLDERS' EQUITY. In May 1998, Federated Investors was merged with and into Federated Investors, Inc., its wholly owned subsidiary. All outstanding Class A and Class B Common Shares of Federated Investors were exchanged for an equal number of shares of no par Class A and Class B Common Stock of Federated Investors, Inc., respectively, with the same proportionate ownership and substantially similar rights. All treasury stock of Federated Investors was retired, and additional paid-in capital was transferred to the no par Class A and Class B Common Stock of Federated Investors, Inc. based on their relative proportionate values immediately prior to the merger. Also in May 1998, Federated issued an additional 2,610,000 shares of Class B Common Stock in an initial public offering for net proceeds of approximately $46.2 million in cash. FUTURE CASH REQUIREMENTS. Management expects that the principal needs for cash will be to repurchase company stock, pay shareholder dividends, advance sales commissions, service debt and fund strategic business acquisitions. Management believes that Federated's existing liquid assets, together with the expected continuing cash flow from operations, its borrowing capacity under current credit facilities, its B Share financing arrangement and its ability to issue stock will be sufficient to meet its present and reasonably foreseeable cash needs. YEAR 2000 READINESS DISCLOSURE. Many existing information technology (IT) products and systems and non-IT products and systems containing embedded processor technology were originally programmed to represent any date by using six digits (e.g., 12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly, such products and systems may experience miscalculations, malfunctions or disruptions when attempting to process information containing dates that fall after December 31, 1999 or when attempting to recognize the year 2000 as a leap year. These potential problems are collectively referred to as the "Year 2000," or "Y2K" problem. Also, the occurrence of such problems may take place before the year 2000 if a computer system utilizes future dates during its processing. STATE OF READINESS: Computer processing is critical to Federated's business operations, and the Y2K issue poses a significant potential risk to operations. Therefore, Federated has established an enterprise-wide project to address this issue. The project includes four phases: inventory / assessment, which includes the identification of all components of Federated's computing environment and the assessment of Y2K issues for these components; remediation of the Y2K issues identified in the inventory / assessment phase; testing to ensure that remediation was successful; and implementation of the modified systems. The project scope has been divided into four segments which comprise Federated's computing environment as follows: o systems developed internally by Federated's IT division - this constitutes the majority of Federated's Y2K efforts; o mission-critical processing provided by the funds' service providers; o other critical aspects of systems and operations within the business units, including both commercially available computer applications and the progress of key business partners; and o embedded systems - for Federated's operations, embedded systems mainly consist of building systems and office equipment. As of the end of June 1999, Federated is 100% complete with inventory/assessment, remediation, internal system testing, and implementation for all internally supported applications. In addition, over 90% of Y2K testing of external, interfacing systems is complete. This testing is expected to be complete by the end of the third quarter 1999. Remaining work for internal systems includes continued testing with external partners, finalize IT infrastructure upgrades from vendors, and complete upgrades to certain desktop software packages. Each of these efforts is mostly complete with completion targeted for the third quarter 1999. Certain mission-critical processing is performed for Federated's funds by outside service providers, including the transfer agency, portfolio accounting, and custody functions. Federated has identified these service providers, is monitoring the progress of these companies in addressing Y2K issues via progress reports and meetings, and is working with these service providers to test their systems, as appropriate. As of the end of the second quarter of 1999, the critical service providers have reported good progress towards their Y2K readiness. Further, Federated's acceptance testing has been successful. For business unit operations, most vendor-provided applications have been upgraded for Y2K compliance. Completion of this effort is expected by the end of August. Critical business partners have been contacted regarding their Y2K readiness and their efforts are being monitored. All property managers for Federated's facilities have been contacted. These firms state that most remediation and testing for building systems is complete. The remaining work will be monitored during the rest of 1999. Additionally, Federated participated in the "industry-wide testing" coordinated by the Securities Industry Association. This testing was conducted to ensure that major broker / dealers, exchanges, clearing houses, and depositories will be able to communicate properly in the year 2000. Federated participated in initial tests for processing of mutual fund transactions in both July and October 1998. Federated has also participated in the full industry-wide test conducted in March / April 1999 and encountered no Y2K-related errors. COSTS TO ADDRESS Y2K: Federated estimates its Y2K project will cost approximately $10 million. Federated has incurred approximately $7.6 million from the inception of the Y2K project through June 30, 1999, with $2.4 million being reflected within the current year's financial statements. Y2K costs are being funded from operating revenue and are being expensed as incurred. These cost estimates are subject to change as the project continues. The estimated total costs are not considered to have a material impact on Federated's results of operations or financial position. While certain non time-sensitive IT projects have been delayed due to Y2K efforts and costs, no strategic projects or projects for legal or regulatory requirements have been deferred or canceled. RISKS OF YEAR 2000 ISSUES: It must be realized that, as with all other companies in the financial services industry, many day-to-day functions of Federated are dependent on accurate computer processing. Further, this processing is conducted by an extensive network of systems, both internal to Federated and external, with both direct and indirect interaction. Accordingly, if not addressed, Y2K issues could result in Federated's inability to perform mission-critical functions, including the trading of securities and processing of fund shareowner transactions. A portion of Federated's business involves international investments, thereby exposing Federated to operations, custody and settlement processes outside the United States. Federated is monitoring the progress of the funds' international custodians in these areas. Federated is also assessing Y2K issues for other aspects of its international operations. Y2K is a risk for many of the issuers of the specific securities in which Federated's funds invest, in both the U.S. and international markets. Accordingly, Federated has incorporated assessment of Y2K risk into its investment management process. CONTINGENCY PLANS: Because Federated's operations are reliant upon systems which are not under its direct control, Federated's Y2K plan includes the development of contingency plans to address its critical operations in the event of Y2K-related disruptions. The creation of these plans is currently underway. We expect to create, document, and validate our contingency plans by the end of October, 1999. However, in an operation as complex and geographically distributed as Federated's business, there are limited alternatives to certain of its mission-critical systems or public utilities. If certain mission-critical systems or public utilities are not made Year 2000 compliant or fail, there would be a material adverse impact upon Federated's business, financial condition and results of operations. Although Federated is investigating alternative solutions, it is unlikely that an adequate contingency plan can be developed to avoid such an adverse impact in the event mission-critical systems or public utilities fail to achieve compliance. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION. Certain statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Future Cash Requirements and Year 2000 Readiness Disclosure sections and elsewhere in this report, constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance, or achievements of Federated, or industry results, to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. For a discussion of such risk factors, see the section titled Risk Factors and Cautionary Statements in Federated's Annual Report on Form 10-K for the year ended December 31, 1998, and other reports on file with the Securities and Exchange Commission. As a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity, performance, or achievements, and neither Federated nor any other person assumes responsibility for the accuracy and completeness of such statements.
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk Federated's investments are primarily in money market and fixed income funds. Occasionally, Federated invests in new fluctuating net asset value mutual funds (priming) sponsored by Federated in order to provide investable cash to the fund, allowing the fund to establish a performance history. Federated may use derivative financial instruments in an attempt to hedge these investments. As of June 30, 1999, the book value of the priming investments and the derivative financial instruments were $4.9 million and $137,000, respectively. In the second quarter of 1999, Federated became the collateral manager of an approximately $361.0 million collateralized bond obligation (CBO) consisting of high yield debt securities. At the same time, Federated purchased $11.0 million of subordinated notes due 2011. Payments of interest and principal on the subordinated notes will be subordinated to interest and principal payments on senior and mezzanine notes issued by the CBO as well as costs incurred by the CBO. All of Federated's debt instruments carry fixed interest rates and therefore are not subject to market risk. Part II, Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits required to be filed by Item 601 of Regulation S-K are filed herewith and incorporated by reference herein: Exhibit 10.1. Material contracts - Federated Investors, Inc. Amendment No. 7 To Credit Agreement, dated as of February 22, 1999, by and among Federated Investors, Inc. and the Banks set forth therein and PNC Bank, National Association (filed herewith) Exhibit 10.2. Material contracts - Federated Investors, Inc. Employee Stock Purchase Plan Amended as of July 20, 1999 (filed herewith) Exhibit 10.3. Material contracts - Federated Investors, Inc. Stock Incentive Plan Amended as of July 20, 1999 (filed herewith) Exhibit 21.1. Subsidiaries of the Registrant (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 AUGUST 12, 1999 By: /S/ JOHN W. MCGONIGLE John W. McGonigle Executive Vice President Date AUGUST 12, 1999 By: /S/ THOMAS R. DONAHUE Thomas R. Donahue Chief Financial Officer and Principal Accounting Officer