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(PITTSBURGH, PA, 02/09/2004 08:14 AM) — Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment management companies, today reported earnings per diluted share (EPS) of $0.38 and net income of $42.8 million for the three months ended December 31, 2003, a decrease of 10 and 13 percent, respectively from the $0.42 and $48.9 million reported in Q4 2002. Q4 2003 EPS includes a charge of $0.12 per share related to the establishment of a $7.6 million restoration fund and $12.4 million for other expenses related to the internal review regarding past mutual fund trading practices. For full year 2003, including the impact of the aforementioned internal review and restoration charge, Federated reported EPS of $1.71 and net income of $191.5 million, a decrease of two and six percent, respectively from 2002.
For comparison of Q4 2003 to Q4 2002 EPS, excluding the aforementioned charge of $0.12, Q4 2003 EPS would have been $0.50 ($0.38 + $0.12), which is 19 percent higher than the Q4 2002 EPS of $0.42. Management believes the exclusion of this charge is useful to evaluate the performance of the company apart from the impact of the internal review.
"With our internal review substantially complete, Federated continues to enhance existing procedures and controls," said J. Christopher Donahue, president and CEO. "Federated appreciates the patience of our clients while we conducted our internal review. We move forward with the goal of exceeding client expectations as we focus on our core competencies—managing competitive investment products and continuing to have the long-term commitment to our clients when distributing those products."
Federated's total managed assets were $197.9 billion at December 31, 2003, up $2.5 billion or one percent from $195.4 billion at the end of 2002 and up two percent from the end of Q3 2003. Average managed assets for Q4 2003 were $199.1 billion, $6.5 billion higher than the $192.6 billion reported for Q4 2002 and slightly higher than the $198.7 billion in average assets reported for Q3 2003.
The company also announced that its board of directors declared a quarterly dividend of $0.085 per share. The dividend is payable on February 27, 2004, to shareholders of record as of February 20, 2004. During 2003, Federated purchased 4,415,000 shares of class B common stock for $113.5 million in the open market. Due to the internal review, Federated did not repurchase shares during Q4 2003, but subject to normal blackout provisions for earnings and material events, plans to resume its share repurchase program.
Through its mutual funds and separate accounts, Federated managed a record $55.1 billion in equity and fixed-income assets as of December 31, 2003, an increase of 24 percent from $44.6 billion at the end of 2002. As a result of positive market conditions and flows, equity assets increased to a record $25.6 billion as of December 31, 2003, compared to $18.1 billion at the end of 2002 and $22.4 billion at the end of Q3 2003.
Federated's top selling equity funds earned overall five-star ratings from Morningstar. The Federated Kaufmann Fund was our top selling equity fund for Q4 2003; followed by Federated Capital Appreciation Fund, a core blend fund; and Federated Market Opportunity Fund, a strategic value fund. As of December 31, 2003, Federated Kaufmann Fund A, B, C and K shares were rated five stars overall out of 613 mid-cap growth funds; Federated Market Opportunity Fund A, B and C shares were rated five stars overall out of 632 moderate allocation funds; and Federated Capital Appreciation Fund A, B, C and K shares were rated five stars overall out of 1,103 large blend funds. Morningstar ratings are based on risk-adjusted total return. The overall rating is derived from a weighted average of the fund's three-, five- and ten -year average annual returns, as applicable.
"Federated's enhanced investment research team and the information advantage created through our proprietary research are generating results," Donahue said. "We ended the year with several additional equity funds earning top-rated rankings in a variety of categories. We expect to have continued success distributing these products across our multi-channel distribution platform."
Fixed-income assets were $29.5 billion at December 31, 2003, up $3.0 billion from the end of Q4 2002 and up slightly from the end of Q3 2003.
Money market assets in both funds and separate accounts totaled $142.8 billion at December 31, 2003, $7.9 billion or five percent less than the $150.7 billion at December 31, 2002 and up slightly from $142.3 billion at September 30, 2003. Average money market assets were $145.3 billion for the quarter ended December 31, 2003, compared to $148.9 billion for the same period last year and $147.6 billion for Q3 2003. Average money market fund assets decreased to $132.0 billion for Q4 2003 from $135.9 billion for Q4 2002 and decreased from $133.2 billion for the prior quarter.
The Condensed Consolidated Statements of Income reflect changes in the presentation of certain contractual obligations with respect to expenses of third parties. In Q4 2003, Federated reclassified certain distribution-related and other items on the Consolidated Statements of Income. These reclassifications are intended to better reflect Federated's contractual obligations related to third-party distribution of its products and other services. These expenses, which were previously netted against their respective revenues, are now presented as operating expenses. The company believes that the new presentation provides greater clarity for these items. This change had no impact on current or prior years' net income.
For the quarter ended December 31, 2003, total revenue increased 10 percent to $216.8 million from $197.3 million for Q4 2002 and grew by three percent from the prior quarter. Total revenue for the year ended December 31, 2003 increased two percent to $823.2 million compared to $808.8 million for the prior year.
Operating expenses increased 23 percent for Q4 2003 to $146.2 million from $119.1 million for Q4 2002 and increased 15 percent from $126.8 million the prior quarter due largely to the aforementioned charge of $20.0 million included in Q4 2003 operating expenses. For the year ended December 31, 2003, operating expenses increased seven percent to $510.8 million compared to $477.1 million last year.
For Q4 2003, Federated derived 44 percent of its revenue from money market assets, 31 percent from equity assets, 19 percent from fixed-income assets and six percent from other products. For the year ended December 31, 2003, Federated derived 47 percent of its revenue from money market assets, 27 percent from equity assets, 20 percent from fixed-income assets and six percent from other products.
At December 31, 2003, Federated recorded $268 million of additional deferred sales commission assets and an equal amount of non-recourse debt to reflect financing treatment for all 12b-1 and contingent deferred sales commissions sold under its B-share program. For comparative purposes, deferred sales commissions and non-recourse debt of $261 million, respectively, were recorded at December 31, 2002. This resulted in no impact to current or prior years' net income.
Federated will host an earnings conference call at 2:00 p.m. on Monday, February 9, 2004. Investors are invited to listen to Federated's Q4 and year-end 2003 earnings teleconference by calling 888-412-9259 (domestic) or 706-679-0848 (international) prior to the 2:00 p.m. Eastern start time. The call may also be accessed in real time on the Internet via the About Us section of federatedinvestors.com. A replay will be available after 5:30 p.m. and until February 16, 2004, by calling 800-642-1687 (domestic) or 706-645-9291 (international) and entering code 5471919. Federated Investors, Inc. is one of the largest investment managers in the United States, managing $198 billion in assets as of December 31, 2003. With more than 135 mutual funds, various separately managed accounts and closed-end funds, Federated provides comprehensive investment management to 5,900 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Federated ranks in the top two percent of money market fund managers in the industry, the top four percent of fixed-income fund managers and the top five percent of equity fund managers1. For more information, visit federatedinvestors.com.
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1 Strategic Insight, November, 2003. Based on assets in open-end funds.
Certain statements in this press release, such as those related to the prospects for success in distributing certain products, 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. Such factors include those discussed in the company’s annual and quarterly reports as filed with the Securities and Exchange Commission. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism. 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.